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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-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 concentration of economic power in, and financial control over, production of goods and services .."

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



HEARINGS 

B3F0RE THE 

rEMPORARY NATIONAL ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

SEVENTY-SIXTH CONGRESS 

FIRST SESSION 
PURSUANT TO 

Public Resolution No. 113 
(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER,, IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



PART 7 



MILK INDUSTRY 



POULTRY INDUSTRY 



MARCH 9, 10, AND 11 AND MAY 1, 2, AND 3, 1939 



Printed for the use of the Temporary National Economic Committee 




UNITED STATES 

GOVERNMENT PRINTING OFFICD 

WASHINGTON : 1939 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

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

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

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGE, Spe<ial Assistant to the Attorney General 

Representing the Department of Justice 

WILLIAM O. DOUGLAS, Chairman 

•JEROME N. FRANK. Commissioner 

Representing the Securities nnd Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS. Commissioner 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

•A. FORD HINUICUS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

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

•CHRISTIAN JOY PEOPLES, Director of Procurement 

Representing the Department of the Treasury 

RICH,\RD C. PATTERSON, Jr., Assistant Secretary 

Representing the Department of Commerce 

LEON HENDERSON, Executive Secretary 

•Alternates. 

n 



CONTENTS 



Testhuouy of — ^a«® 
Beach. Bernie F., secretary-manager. Michigan Milk Producers As- 
sociation, Detroit, Michigan 2884-2941 

Bromley, O. B., economist, National Dairy Products Corporation, 

New York rity 30-J9-3032; 

2040-2046, 3050-3054, 3056-3057, 3059-3060, 3090-3093, 3096-3099. 
3104-^105, 3119-3124. 
Eastlac'k, Jo-seph, vice president, Borden's Farm Products Division, 

The Borden Company, New York City 2982-2988, 

2991-2992, 8011-3013, 3021-3024 
Hovev, V. F., vice president. National Dairy Products Corporation, 

New York City 3057-3063, 3065-3071. 

3084-3090, 3103, 3109-3110, 3118-3119 
Howe, Dr. Frederic C, former Consumers Counsel, Agricultural Ad- 
justment Administration, Washington, D. C 2752-2787, 2800-2811. 

2813-2828, 2862-2863, 2865-2866 

Johnson, Cteorge A., Johnson Milk Company, Detroit, Michigan 2829-2862 

Melnnerney. Thomas H., president. National Dairy Products Corpora- 
tion, New York City 3027-3057, 3063-3065. 3069, 

3071-3083, 3086-3087, 3090-3099, 3104, 3106-3111, 3113, 3118-3119, 
3123-3126. 
Montague. Theodore G., president. The Borden Company, New York 

City 2C5S-2981, 2986-2987, 2989-3011, 301:^3021 

Peteison, Leroy, Former Code Administrator for the poultry industry, 

New York City 2860-2880 

Simpson, Kemper, economist, Federal Trade Commission, Wasliin™- 

ton, D. C 2787-2800 £863-2865 

Stickler, L. A., treasurer, National Dairy Products Corporatioji, New- 
York City ^ 3118-3119 

\'an Bomel, E. A., president, Sheffield Farms Company, Inc., New 

York City 3099-3104, 3111-31' 7 

Vardon. Kenneth, president, United Dairy Workers Union, Detroit, 
Michigan 2943-2957 

Milk industry: 

Problem of better distribution of wealth in dairy industry 2754 

Fluid milk control in various cities 2763 

Suggestions for improvements in milk distribution system 2768 

Fluid milk prices in large cities 2778 

Cost of fluid milk under free competitive conditions 2782 

Retail and price received by farmer for fluid milk 2787 

Base surplus price plan 2797 

Need for protection to farmer 2825 

An independent milk distributor 2829 

"Cash and carry" method of distribution 2830 

Static profit to distributor in fluid milk industry 2844 

Costs of honse-to-honse delivery service 2848 

Milk price paid to farmer in Detroit area 2855 

(/onsumptiou of dairy products 2862 

Formation and purposes of Michigan Milk Producers' Association- 2884 

Pay for milk Lniaranteed to producer members 2907 

I>ep;irtii)eiil of Justice report to the Oovernor of Michigan 2910 

Price of milk paid producers computed on "class" basis i 2930 

Pro- (irrioii of purchase price of milk received l)y producer 2933 

Traiispoifalion charges paid by farmer 2934 

III 



IV COXTPJNTS; 

Milk iudustri/: ^""^ 

"Spread" between price paid to producer and tlial paid l)y con.sumer_ 2934 

Organization and purpose of United Dairy Workers 2i/44 

Wage scale of route salesmen 2do2 

Unit cost of home delivery 2054 

Seasonal fluctuation in supply of milk 2960 

Relation of price to consumer for milk products to price paid pro- 
ducer 29152 

Effect of wage cost on retail milk route 2iM]3 

The classified price plan 29(54 

Reflection of labor costs in retail milk prices 2971 

The Borden Company's position in the milk industry 2974 

Sales and income of The Borden Company for last 10 years 297t5 

Suggestions for improvement of coiiditii/ns in the industry 2'.»77 

Monopoly in the dairy industry 2992 

Establishment of cheese price by one exchange 2994 

Use of surplus milk for manufacture of dairy products 2997 

Advertising an important factor in retail milk price 3011 

Efforts to increase consumption through discoiint policy in home 

delivery 3!>14 

Percentage of milk and dairy products controlled by two major dis- 
tributors • .".014 

Contributions to the dairy industry claimed by National Dairy Prod- 
ucts Corporation :!02.S 

National Dairy's wage and employment record 3031 

Question of Government control of industry generally 3035 

Milk income to farmers compared with other farm income 3040 

Proportions of total milk production used Ijy farmers, used by entire 

industry and used by National Dairy Products Corporation 3042 

Increase in consumption of dairy products 30o0 

Concentration of dairy production in North Central area of United 

States 3054 

Decline in sale of fluid milk and cream by National Dairy 3059 

Recommendation for sound pricing offered 3064 

Desirability of Government control in fixing sound price basis 3069 

National Dairy Products C'orporation composed of 109 corporations-- 3072 

Method of organization and financing of National Dairy ^^— 3077 

Return to National Dairy on invested capital 3079 

Increased consumption and lower price to producer solution offered to 

increase farmer's income 3082 

Effect of large holding companies on milk industry 3090 

Per capita consumption of milk in various countries compared with 

United States 3098 

Cost of processing evaporated milk greater than that for fluid milk 3102 

Consumer protection sought 3106 

Salaries of executives of National Dairy Products Corporation 3124 

Poultry industry: 

Monopolistic practices in the poultry industry 2866 

Description of poultry industry in New York City 2867 

Effect of labor unions in the poultry industry 2869 

I'ractices tending to create a monopoly in the poultry market 2872 

Connivance to create a monopoly 2876 

Schedule of exhibits - v 

Thursday, March 9, 1939 2751 

Friday, March 10, 1939 2S13 

Saturday, March 11, 1939 2881 

Monday, May 1, 1939 2883 

Tuesday, May 2, 1939 1 2943 

Wednesday, May 3, 1939 3027 

Appendix 3127 

Supplemental data 3279 

Index _____ I 



CONTENTS 
SCHEDULE OF EXHIBITS 



I summary of exhibits 



359 



Intro- Appears 
(luced on 
at page page 



Chart: Proportion of total fluid milk distribution controlled 
in certain cities bv National Dairy Products Corp. and I 
The Borden Co., 1937 ] 

Chart: Proi)ortion of total fmid milk distribution controlled 
in certain, cities bv National Dairv Products Corp. and ! 
The Borden Co., 1930 j 

A Report to Hon. Herbert H. Lehman, Go\ernor, and The i 
Honoraljle. The Legislature- of tiie State of New York by j 
Johi, J. Bennett, .Jr., Attorney General, on the Milk in- I 
dustrv of tlie State of ?\'e\v York with Particular Beference j 
to the New York Metroi^olitan Area, Ma-ch S, 1938 

Table: What dees a quart of milk cost, and what does tlie 

farm(:r get from it? 

3(38. I'able: Cost of quart of milk ready for delivery by store or 
wagon under free competitive conditions based on account- 
ants' C'lst study of factors in a quart of milk 

Chart Jind table: Price of fresh milk in New Y'ork on quart 
basis, price consumer pays, price farmer is encouraged to 
believL' he will get, ])riec farmer actually receives . 

Chart and table: Price of fresh milk in Milwaukee on quart 
basis, price consunier pays, price farmer is led to believe he 
will get, price farmer actually receives 



360. 



361 



362. 



364. 



36r 



366. Table: Farm price decline, Milwaukee milk survev, 1934- 

1936 : 

367. Table: Nation-wide collapse of dairy farmers' income in 

percentages of consumers' dollar 

368. Tti.ble: Sununary of investments, profits, and rates of return 

for milk processors and distributors, 1929-1935 - , 

369. Statement of Dr. Frederic Howe before the Temporary Nati- 

onal Economic Committee, March 10, 1939 

370. Beport of Federal Trade Commission on Concentration of 

Control Over Sales and Distribution of Milk and Dairy 

Products under Pulilic Uosolution No. 113, 75th Congress. 

including table of contents, exhibits and supporting tlata 
370-A. A Rebuttal to ilie Testimony of Officials of Naiiotiul 
Dairy Products Corjjoration and The Borden Comjiany 
by the Federal Trade Commission, including table of 
contents, exluMiits and supporting data. 

Affidavit of Duncan C. McCrea, Prosecuting .\ttorney 
for the Couit}' of Wayne, ivlichigan, as to conditions in 
the milk indu^l:ry in the Detroit, Michigan area 

435. Financial statement, Michigan Milk Producers Associatiou. 

balance sheet, S>'ptember 30, 19.38 _. . _ 

436. Copy of pamiihht ci. titled "Detroit Milk Prices, How Calcu- 

lated^ Facts aiKl I'i'nires" 

437. Reproductions of the fnce and endorsement of check froni 



Ho.<l,.,r.. Farm Pn 
Mieiiigan farmer, i 
:38. StatL'UK.nt of Hrrni.' 
Milk Produce:- .^ 
Hiony before the C 

' On file witli the Committee. 
' Submitted .subsequent to these 



iduets Co. of Michigan to John .h>el;, ; 
II payment for mill-; sold to Borden's 
1. r.( acii, secretary-nianaiier, Mieliiga: 

-••oeiiil iuii, sui)ir,itt(.'f! flurins !i;^ t<-st: 
tt(H> Mav 1, 1939 r_. _ . . 



2765 
2765 



2765 j (>) 
2778 I 3128 

2782 1 3129 

I 3130- 

2787 3131 



2790 3132- 
I 3133 



2798 
2802 
2809 
2815 



2907 
L"J21 



293: 



293: 



VI 



CONTENTS 



Number and summary of exhibits 



Intro- 
duced 
at page 



439. Letter, dated August 10, 1938, from B. F. Beach, secretary- 

manager, Michigan Milk Producers Association, to George 
A. Johnson, Johnson Milk Co., Detroit, Michigan, re the 
purchase of milk by Mr. Johnson from members of the 
Association 

440. Letter, dated April 20, 1939, from George A. Johnson, 

Detroit, Michigan, to the Federal Trade Commission re 
the discontinuance of purchase of milk hauled by Mr. 
Murray W. Hess 

441. Chart and table: Relation of production to sales of fluid milk, 

average 1928^1937, New York plants -_ 

442. Chart and table: Relation of butter prices, prices paid pro- 

ducers for fluid milk, retail milk prices and wages per 
"point", New York, 1929-1938 

443. Chart and table: Theoretical example of classified pricf-s 

444. Chart and table: Production of butter, cheese and evapo- 

rated milk in city iuilk sheds and in manufacturing regions, 
1937 

445. Chart: Percent of total sales of milk on retail and wholesale 

routes, New York market, 1927 and 1938 

446. Chart and table: Relation of Borden retail to wholesale sales 

in terms of "points", Los Angeles, Detroit and New York, 
1936-1938 

447. Chart: Labor cost per quart, wholesale and retail, New York_ 

448. Chart: Labor cost per quart, wholesale and retail, Chicago__ 

449. Chart and table: Relation of total U. S. milk production to 

milk equivalent of Borden sal is of all products, 1934-1938. 

450. Chart and table: Borden's fluid milk sales in percent of the 

New York market, 1935-1938 - - _ . 

451. Chart and table: Number of companies operating pasteuriz- 

ing plants, 1929 and 1939 

452. Chart and table: Total sales. The Borden Companv, 1929- 

1 938 ' 

453. Chart and table: Net income. The Borden Companv, 1929- 

193S ; 

454. Copy of Committee questionnaire to insurance companies 

Copy of Committee questionnaire to steel companies 

Copy of Committee questionnaire to petroleum companies. _ 

Copy of Committee questionnaire to trade associations 

Copy of Committee questionnaire to corporations issuing 

privately placed securities 

Copy of memorandum sent to Government research men for 
use in interviews with Webb-Pomerene association execu- 
tives 

Securities and Exchange Commission announcement of the 

study of credit needs of small business 

Text of announcement by Chairman O'Mahoney of the in- 
vitation to business and industry to tell its own storj- of 
economic problems 

455. Copy of memorandum on "Big Business" submitted to the 

Committee by the committee on corporations of the 
Twentieth Century Fund 

456. Chart: Ratio of net profits and net sales of National Dairy 

Products Corporation and subsidiarv companies, 1930- 

1938 : 

467. Chart : Facts on National Dairy's profits 

468. Chart: National Dairy Products Corporation wage and em- 

ployment record, 1930-1938 

> On file with the Committee. 



2937 



2937 
2961 



2962 
2966 



2969 
2971 

2971 
2972 
2972 

2975 

2975 

2976 

2976 

2976 



3027 
3027 



3029 
3030 



Appears 
on 
page 



3245 



3246 
3247 



3248 
3249 



32.30 
32M 

3252 
3253 
3254 

3255 

3256 

3257 

3258 

3259 



3260 
3261 



3032 ' 3262 



CONTENTS 



VII 



y of exhibits 



Descriptive booklet entitled "Linking; Farm and City to 
Serve You Better", prepared by Sheffield Farms, New 
York City, a subsidiary of National Dairy Products Cor- 
poration 

460. Chart: Greater stability of farm income from milk compared 
with income from all other agricultural commodities, 1930- 
1938 

Chart:" Portion of tatal U. S. milk production sold by Na- 
tional Dairy Products Corporation, 1930-1938 

Chart: Farm milk price index compared with index of all 
other farm prices, 1930-1938 - 

Chart: Volume of milk jiroduction compared with volume 
of production of all other farm products, 1930-1938 

464. Chart: Changes in annual per capita consumption of princi- 

pal foods during last 15 years 

465. Chart: Retail prices of dairy products compared with retail 

prices of all foods and the cost of living, 1930-1938 

466. Chart: Quarts of milk that can be bought with one hour's 
wages 

Chart: Farmer's share of the retail prices of various foods.. 
Chart: How did National Dairv use its $334,300,000 of sales 

in 1938? 

Chart: Concentration of dairy products manufactured within 

low cost producing areas of North Central states 

Chart: Excess of milk received from producers over fluid 

milk sales requirements for year 1938 

Chart: Decrease in National Dairy's share of fluid milk and 

cream sales within the United States, 1930-1938 

472. Ch'art: How fluid milk competition increased in principal 

National Dairy markets, 1930-1935 

473. Chart: Comparison of farm prices for milk used for various 

purposes, 1930-1938 

474. Chart: Comparison of cost and selling prices of fluid milk and 
evaporated milk in Boston, December, 1938 

Chart: Percent change in U. S. per capita consumption of 
fluid milk and evaporated milk compared with 1930, 1931- 

1938 

Articles of association of the Michigan Milk Producers Asso- 
ciation 

Unnumbered. List of nation-wide operating groups of The 

Borden Company, 1934 

Unnumbered. Tabulations: Prices paid producers in New York 
metropoHtan area, 1923-1936 and prices paid producers in 

Milwaukee, 1923-1934 

Uiummbered. Tabulation: Farm price decline, Milwaukee milk 

surve V, 1934-1935 

Unnumbered. Letter, dated October 23, 1939, from L. A. Van 
Bomel, president, Sheffield Farms Company, Inc., to the 
Committee, containing additional data on processing and 
packaging costs of fluid and evaporated milk 



459. 



461. 
462. 



463. 



467. 
468. 



470. 
471. 



475. 



636. 



Intro- 
duced 
ut page 



Appeurs 



3034 

3042 

3046 

3050 

3050 

3050 

3052 

3052 
3053 

3054 

3054 

3056 

3059 

3060 

3060 

3062 

3063 



3263 

3264 

3265 

3266 

3267 

3268 

3269 
3270 

3274 

3272 

3273 

3274 

3275 

3276 

3277 

3278 
3279 
3280 

3281 
3282 

3282 



On file with the Committee. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



THURSDAY, MARCH 9, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:30 a. m., pursuant to adjournment on 
Wednesday, March 8, 1939, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representatives Reece 
and Williams; Messrs. Hewderson; Davis; Ferguson; Douglas; 
O'Connell; Berge and Hinrichs. 

Present also: Willard Thorp, and Ernest Tupper, representing De- 
partment of Commerce; Edward E. Eicher, representing Securities 
and Exchange Commission; Federal Trade Commissioners William 
A. Ayres and Charles H. March ; Willis J. Ballinger, director of stud- 
ies and economic adviser to Federal Trade Commission; Wilbur N. 
Baughman and Anderson H. Tackett, attorneys ; and Kemper Simp- 
son, economist. Federal Trade Cormnission. 

The Chairman. The committee will please come to order. 

May I say that there are about 11 different committees of the 
House and Senate in session today demanding the presence of the 
congressional members of this committee. I have been waiting for 
Vice Chairman* Sumners or one of the House members to come 
and relieve me, because I have to leave to attend the Appropriations 
Committee, which is now working on the Treasury and Post Office 
appropriation bill. I am very sorry not to have the opportunity of 
sitting throughout the testimony of Mr. Howe, whom I- assume you 
are about to call. 

It is my understanding you would like to make a statement at the 
outlet, Mr. Ballinger. 

Mr. Ballinger. Senator, in speaking extemporaneously yesterday ^ 
for the record I referred to the N. R. A. as characterizing a whole- 
sale betrayal of the public interest. Thinking the matter over, H 
realized that more connotations attached to the word "betrayal" than 
I realized at the time I used it. My remarks were not directed to-, 
ward impugning anybody's motives. I was mereh'' discussing results, 
and so I therefore feel that I should respectfully request the Tempo- 
rary National Economic Committee to permit me to change that 
phrase to read "and there was an insufficient protection of the public 
interest," if I may do so. 

The Chairman. I am sure there will be no objection- to the amend- 
ment of the record. I also feel that in all probability your language 

I March 8, 1939. Included in Hearings, Part V. 

2751 



2752 CONCENTRATION OF ECONOMIC POWER 

was not misunderstood. There is always a certain amount of, one 
might always say, poetic license when a person is discussing an issue 
of this kind extemporaneously. We give way, perhaps, to excess of 
enthusiasm and emotion, sometimes, in the use of language. I know 
I would hate to be held to a literal interpretation of the language that 
I use, particularly when I am talking to the newspapermen. 

Mr. Ballinger. Thank you. 

Now, Senator, this morning we are presenting facts about the milk 
industry, a very important industry because it affects the health of 
children and the health of the Nation as a whole. I want to say this 
to the committee before we begin. The Federal Trade Commission 
has had 20 years' experience with the steel industry and has also had 
nearly 20 years' experience with the milk industry. When we realize 
.that the milk industry has been subjected to considerable investiga- 
tion by other agencies of the Federal Government, we would like to 
point out to the committee that in producing these facts about the 
milk industry we are not guessing. This has been one of the most 
thoroughly investigated industries that has fcome before you by the 
Federal Government's agencies. I want to call as our first witness 
Dr. Frederic Howe. 

TESTIMONY OF DR. rREDERIC C. HOWE, FORMER CONSUMERS' 
COUNSEL, AGRICULTURAL ADJUSTMENT ADMINISTRATION, 
WASHINGTON, D. C. 

Mr. Ballinger. Will you state your name for the record? 

Dr. Howe. Frederic C. Howe. 

Mr. Ballinger. What is your present business? 

Dr. Howe. I have been assigned by Secretary Wallace to the com- 
mittee to cooperate and work with it with respect to agricultural 
commodities. 

Mr. Ballinger. How many years have you been studying the milk 
problem, Dr. Howe ? 

Dr. Howe. It came up very promptly in 1933 when I was ap- 
pointed Consumers' Counsel to the Agricultural Adjustment Admin- 
istration because of the Senate inquiry into milk, of which Senator 
King was a member. That was one of the most dramatic studies 
that has been made. It interested mevery greatly and it immedi- 
ately came up in connection with the marketing agreements which 
were being formulated by the Agricultural Adjustment Administra- 
tion ; and immediately my group of men were thrown into the study 
of the milk problem and that continued and has continued down to 
the present time. 

(Mr. O'Connell assumed the chair.) 

Mr. Ballinger. As Consumers' Counsel you made rather extensive 
investigations into the milk industry, did you not? 

Dr. Howe. We had 20 men. I suppose one-third of their time at 
least was spent on the dairy industry. In addition to that I did 
some sp'^cial work fox Chester Davis,^ looking to a yardstick, a pub- 
lic yardstick, on the dairy industry which it was thought might be 
installed in the Bronx Market in New York City, and I studied the 

1 Former administrator, Agricultural Adjustment Administration. 



CONCENTRATION OF ECONOMIC POWER 2753 

business operation of a pasteurization plant and distribution of milk 
and made a report to him which I understood at that time was 
requested from the White House. 

In that sense, I went into the business end of its as an operating 
industrj^ I have also studied milk in Europe on two or three occa- 
sions, in Denmark, Switzerland, Holland, and Germany, in connec- 
tion with other assignments which I had in Europe. 

Mr. Ballinger. Are you a lawyer. Dr. Howe? 

Dr. Howe. Yes. 

Mr. Ballinger. Are you an LL. B. ? 

Dr. Howe. No ; I am not. 

Mr. Ballinger. A member of the bar ? 

Dr. Howe. Yes. 

Mr. Ballinger. Where were you admitted? 

Dr. Howe. First in Pittsburgh, then in Cleveland, Ohio. 

Mr. Ballinger. How many years did you engage as a lawyer in 
private practice? 

Dr. Howe. Twenty years. 

Mr. Ballinger. In the course of your practice, did you run into 
the problem of monopoly? 

Dr. Howe. I suppose that 70 or 80 percent, possibly 90 percent, 
-iri our business was corporation business, and a jarge part bi it was 
monopoly business. We were on both sides of the question there: 
we represented railroads and waterworks, banks, mines; a good 
deal of the business came ff'om New York and Boston; and for 
10 years the firm of which I was a member was the general coun- 
sel of -dtie city of Cleveland. Tom Johnson was mayor at that 
time and he was carrying on a 10-year struggle to introduce lower 
fares in street railways, to build a municipal electric-lighting plant, 
to control the natural-gas situation, and in all that time my firm was 
connected with about 50 injunction suits leveled against the munici- 
pality in its efforts to build its own plant. Incidentally, it took 10 
years after the original resolution was introduced to wade through 
all of the legal obstacles which were placed in the way of municipal 
ownership in that city. 

Mr. Ballinger. You are also a Ph. D., aren't you, Doctor? 

Dr. Howe. Yes. 

Mr. Ballinger. What university? 

Dr. Howe. Johns Hopkins. 

Mr. Ballinger. In preparing your presentation this morning, you 
are well acquainted with the studies which the Federal Trade Com- 
mission has made of the milk industry in 1921 and 1934 and the sup- 
plementary investigation made in preparation for this hearing ? 

Dr. Howe. Yes; I have been studying it ever since the beginning 
of those investigations. 

Mr. Ballinger. Would you say that there is any essential difference 
between your conclusions about the situation in the milk industry and 
the conclusions reached by the Federal Trade Commission in these 
reports ? 

Dr. Howe. There is substantial unanimity, if not almpst exact una- 
nimity, in the general and specific findings oi the Federal'Trade Com- 
mission, and I think also of the Department of Justice. 
Mr. Ballinger. Thank you. You may proc^d, Dr. Howe. 



2754 CONCENTRATION OF ECONOMIC POWER 

PROBLEM OF BETTER DISTRIBUTION OF WEALTH IN DAIRY INDUSTRY 

Dr. Howe. I have outlined the main subject matter of this discus- 
sion. I believe it is before the committee. I will follow that pro- 
logue pretty well, and in addition to that it is divided up into sections 
for rather easy consideration as a whole, and I should like better than 
anything else to complete an item and then discuss it as a panel, or, 
generally, to see whether there are any errors in logic or in the con- 
clusions up to that point — see whether it should be modified— and then 
move on to the next. 

It is presented something like a legal brief, seeking to build up an 
understanding of the dairy industry, not only as a monopoly but as a 
controlled industry, and the obstacles which exist in that industry to 
what I understand the committee is primarily sitting for — to see what 
can be done to increase the production of wealth and bring about its 
better distribution. 

That study is directed to three main objectives. One is to put more 
milk in the milk bottle; second, to put more-money in the pocket of 
the farmer; and the third is to find out if we cannot end some of the 
abuses disclosed b.y the Federal Trade Commission studies. 

It is not directed primarily to putting anybody in jail, for that isn't 
my business. It is directed to a study of the dairy industry as related 
to the national economy. That, to me, is the important subject matter. 

Now some facts may be stated about tiiis industry, as may bo stated 
about many other industries of widespread operations. The first 
is that this is one of the businesses in which pennies, the pennies 
of millions, make up the millions of the few. It is also more or 
less true in the distribution of milk that we don't buy milk. We are 
buying trucks or renting them, spending a large part of the con- 
sumer's dollar in a distribution system. 

The third item is that, as in many other farm commodities, the 
farmer is a distress seller. He sells an immediately perishable 
commodity. 

The fourth item is that like many other farm commodities, there 
is a condition which exists at the point of sale which may be de- 
scribed as sometimes a platform, sometimes a bottleneck, sometimes 
a warehouse, but it creates a condition in which the buyer has a 
strategic position and power over the seller. 

The final fact which seems to stem out of this study is that the 
monopolistic conditions which prevail in the industry are not wholly 
illegal. They are legal as* well as illegal. They issue out-of- 
State laws, municipal ordinances, behind which monopoly has built 
up its power. But at the beginning the monopoly power traces back 
to institutional things, not unlike a patent, not unlike a pipe line, 
not unlike the beginning of a railroad, but given that as an initial 
starting point, the other things follow. 

I remember in one legal controversy I was in, or one legal matter, 
relating to steel, the steel men formed a pool. They met in New 
York, in the Waldoi^f-Astoria, and they fixed their prices, but as 
one of the men said, we no sooner got the prices fixed at 12 o'clock 
than all of us ran to the telephone to telephone to our clients to cut 
the price. 

"But,' he said, "as soon as we get behind a legal protection like 
the tariff, then we can form our consolid'ations with very great ease." 



CONCENTRATION OP ECONOMIC POWER 2756 

That is an instance in which one industi-y was aided in becoming 
a monopoly by virtue of legislation. 

There is a good deal of that in milk. 

This study I think reduces itself down first of all certainly to the 
condition of the selling farmer, and as an industry it relates to 
50,000,000,000 quarts of milk. That is what we produce in this 
country. It is a $2,000,000,000 industry. It is the biggest iteni in 
the farm budget. If we could pay the farmer enough for his milk, 
we would make 12.000,000 peoj^le on the farm more contented, as- 
we would lift many of them from relief and protect many from 
insolvency. And with milk strikes and milk controversies going on 
all over the country, it is not necessary to prove there is a milk 
problem, that there is something the matter with this big industry 
which is one of the major industries of the country. 

To my mind there is no great mystery about milk, despite all the 
struggles about it. Simply stated, it consists in getting more milk to 
70,000,000 urban consumers in the cities and more money to 12,000,000 
people on the farm. In between these two factors are two big dis- 
tributors and their allies. They operate out of New York City. They 
fix the price for the consumer at one end of the line as they fix the 
price to the farmer at the other end. 

I am interested in that problem rather than in any criminal aspects 
of the situation. Why is it possible to do this? The explanation 
is that these powerful milk companies and their allies stand astride 
of the industry, they stand astride of 26,000,000 cows, some billions 
of dollars of farm investment. It is they who determine also what 
70,000,000 people in the city shall pay for their milk, as well as what 
3,000,000 farmers Avho produce it shall receive for their labor. 

Now as to the influence of institutions, milk is not dissimilar in its 
genesis from the Standard Oil Co. Forty years ago the milk business 
was a farmer's business. He milked his own cows and he peddled his 
own milk. He made butter and was also a cheese maker. He sold 
these products in the nearby towns. That is still true, -to some 
extent, in every country with which I am familiar. 

About 15 years ago big business entered the industry. It was or- 
ganized quickly into Nation-wide corporations. They expanded 
their business from one end of the country to the other. They did 
this by taking possession of pasteurization plants which they then 
used with other devices to create a monopoly of distribution instead 
of to protect the community from impure milk. In other words, they 
used their power to control the supply of milk rather than to ser^ e 
the community for which these plants were intended. 

Today they want only their own milk to reach the city. They try 
to keep all other milk out. They throw obstacles in the way of' any- 
one else selling milk except on their terms and at their price. In 
other words, they have succeeded in denying 3,000,000 farmers the 
right to their own business, to be their own distributors. 

What the milk trust has done is one of the most important prob- 
lems of our economy and it is also important to our health. Milk is 
important to babies and children ; it is important to adults. If we got 
our milk cheap enough we might double the consumption of milk. 
We might make weakling babies grow into strength as they did in one 
western city where they fed them a quart of milk a day. 



2756 CONCENTRATION OF ECONOMIC POWER 

It may be said that 12i/^ cents a quart for milk, which is the average 
price charged in 12 of the larger cities, is little enough. Yet we have 
distributors who are selling milk for much less. They are selling milk 
in Detroit for 6, 7, and 8 cents a quart. There are distributors in 
Chicago who are selling at 8 and 9 cents a quart. And it is the same 
milk. It comes from the same cows. It is produced and admitted to 
market under the same kind of health regulations. 

In Detroit one of the largest distributors distributes wlioUy through 
stores, of which he has 40. He pays the farmer as much, if not more, 
than do the big distributors. He admits ,to governmental agents 
that he is making a handsome return on his business, selling milk from 
6 to 8 cents a quart. 

Now, this is the way milk is sold in practically all other countries 
with which I am familiar. It is sold through shops. The big com- 
panies, however, insist that people must get their milk from 
wagons, even though it costs so much that the poor cannot buy milk 
that way and the middle classes cannot buy enough milk. The ques- 
tion is, What right has a corporation to say that a great metro- 
politan city can only buy as it decrees, especially when other men 
would sell milk so that it could be used by the poor at possibly 60 
percent of what the monopolistic distributor charges? 

This is what milk might cost as a competitive business. I am 
interested in it as a competitive business. I am interested in freeing 
it so that milk will flow just as freely as possible from the farms to 
the consumers, pasteurized and made safe for consumption. And if 
we could produce and sell more milk at a fair competitive price we 
would have better health in our cities, we would have an oncoming 
generation of children who had strength in their bones, and milk 
is essential to good bones and teeth structure. We would have an 
army of farmers who were paid a better price for that which they 
produce, a price which would free them from strikes, on the one 
hand, and from going on relief, on the other. 

Now, why is milk a national problem? First of all, it is a big 
industry. It is a $2,000,000,000 industry. It is comparable with iron 
and steel rolling mills, with motor vehicles except cycles and three 
or four industries of the same sort. Those are the figures of 1933. 

Do we get enough milk? The doctors say no. One department 
of the Government after another says no. Milk is a serious matter 
to babies and children. In the South it is one good enemy of 
pellagra. Without enough milk we may be breeding a weakened 
generation ; without enough milk we will be faced by increased med- 
ical costs; without enough milk we are laying a costly burden of 
increased relief on the future. 

Some years ago the relief administration stated that 7,000,000 of 
our children were suffering from malnutrition, and malnutrition and 
undernutrition are very largely traceable to an inadequate milk 
supply. In one western city it was testified that there were 100,000 
children who didn't get enough milk. 

Up in Grand Rapids, where they feed the children a quart of 
milk a day. it has been stated that the children grow like wilted 
plants, when you water them. 

There was found to be no underweight or undernourished children 
even among the families on relief, and the savings in doctors' bills 



CONCENTRATION OF ECONOMIC POWER 2757 

alone made up for the cost of the milk bill. A further study by 
the Consumer's Counsel Division ot the Agricultural Adjustment 
Administration in 59 cities in 1934 showed that the weekly consump- 
tion of w^iole milk, and of the whole milk equivalent of evaporated 
milk for 28,966 families, was 2.44 quarts per capita. 

Without going further into that description, this average consump- 
tion for all the families in the study was 18.77 percent below the low 
level of 3 quarts of milk a week and 50.1 percent below the 5-quart 
level. 

Doctors all over the country are making statements to the same 
effect, that neither children nor adults get enough milk. And, from 
the economist's point of view, we could produce a great deal more milk 
than we do now and find a ready market for it. All that. I think, 
will be affirmed by a witness we have here from Detroit who will go 
into the business details of a plant which is occupied solely with the 
sale of milk. 

The proper diet of milk is frequently placed at a quart of milk a 
day for children under 15 and a pint of milk a day for adults. 

Despite our great wealth, we do not stand high in the consumption 
of milk products. The countries of Switzerland, Sweden, and Nor- 
way consume more milk than do the people of our own country, while 
New Zealand, Australia, Canada, Finland, and Sweden consume more 
butter. There are 11 countries in which the people buy more cheese 
per capita than we do in the United States. While farmers would 
gladly produce and people would gladly consume, the two don't get 
together. 

Some years ago it was stated by an official of the Agricultural Ad- 
justment Administration that we needed 15,000,000 more cows in this 
country just to produce the milk that might properly be consumed. 
So much for the consumer. Anyone who lives in the dairy States 
knows that the dairy problem is one of the most acute problems of our 
farming population. It isn't necessary to go into details about that, 
but we do have a statement from Justice Koberts in Nebhia v. 
New York^ which is confirmatory. He says, "During 1932 the situa- 
tion of the families of dairy producers has become desperate, and calls 
for State aid similar to that accorded to unemployed." He added, 
"The production and distribution of milk is a paramount industry of 
the State and largely affects the health and prosperity of its people. 
Dairying yields fully one-half of the total income from all farm 
production. The dairy farm investment in New York amounts ap- 
proximately to $1,000,000,000." Carried into the Nation as a whole, 
one might estimate that the. total dairy investment was from seven 
to ten billion dollars. 

Representative Reeoe. Would you please state again the percentage 
of dairy production in relation to the total farm production? 

Dr. Howe. It is 18.5 percent; it is the largest single item in the 
farm industry; it is about one-fifth of the total farm industry. 

I had occasion to attend meetings as well as city-marketing agree- 
ments, and whether it was in New York or New England, Pennsyl- 
vania or Wisconsin, wherever I went the dairy farmers were in a kind 
of fog. When their farm prices got very low they went on a strike. 
The only thing they could do when they went on a strike was to dump 
their milk in the roadways, and they could only do that for 2 or 3 



2758 CONCENTRATION OF ECONOMIC POWER 

days and then they had to come back and accept conditions as they 
were. That low income has sunk the dairy farmer so low that it is 
affecting the value of his cattle and the value of his farm. There are 
farm foreclosures and a fear of insolvency in many sections. 

It is my belief that the dairy industry could be made not only the 
most attractive of all farm industries but a properly developed dairy 
program would build up a great industry, if we could take these 
3,000,000 farmers who are commercially interested in milk and the 
4,000,000 farmers who produce their milk, that is twelve to fifteen 
million of our total farm population. In a general way those dairy 
producers are round about our towns and cities. New England is 
very largely a dairy area; New York State, I think, is the second 
largest dairy State; New Jersey, Pennsylvania, Maryland, Ohio, 
Indiana, Wisconsin, Illinois, Iowa— all those States could be fresh- 
ened into a marvelous farm life if the dairy industry could be made 
a farmers' industry with such aids and supports as the Government 
might give it, so that things would happen that have happened in 
other countries where the dairy industry is predominantly a concern 
of the Governmient. That involves getting the income back to the 
farmer so that he has a decent income with which he can operate. 

Mr. Ballinger. You don't mean the Government should own the 
industry ? 

Dr. Howe. No. I mean that kind of aid which the Government 
gives to housing, to credit, to industry, if we thought about it as a 
serious problem, not merely as an isolated monopoly problem. 

Some years ago I was in Denmark where they have built up the 
industry in just that way. They protected the farmer from all kinds 
of monopoly control and made him the master of his industry from 
the farm right straight through to the London market. In Holland 
the dairy industry freshens the country in the same way. As soon 
as the farmers in those countries got a sufficiently large income they 
bought better cows, they bought better bulls, they took pride in their 
industry. They organized cooperatives. They just grew as other 
people do when you make them well off. If we could just take that 
big hunk out of our farm populatioUj 50 to 60 percent of it, and defi- 
nitely put it on its feet, producing milk, producing butter, producing 
cheese, i)roducing casein, producing the factors that go into ice cream, 
and giving them a fair return for it, free from the kinds of things 
we will talk about later, I think it would go a long way not only to 
putting the farm population on its feet but a long way toward a 
recovery too. If we could get that many people buying, as they 
can't buy at the present time, it would shortly be related into indus- 
try, it would be related into wages. I don't know of any industry 
as big as this that affects as many people, and if it were developed 
in that way it would ultimately affect the Nation as a whole. 

Representative Reece. And it is your thought that the consumers 
pay a sufficient amount for milk so that if it is evenly distributed 
back to the various agencies that have to do with the distribution 
to the farmers who proauce it, there will be sufficient for the farmers 
to adequately take care of their requirements. 

Dr. Howe. We are going to have a witness here who is a practical 
dairyman selling milk, and who has been trying to sell milk for 26 
years, who is selling milk for 6, 7, and 8 cents a quart. We could 



CONCENTRATION OF ECONOMIC POWER 2759 

reduce the price to the consumer and still have a spread which could 
be channeled back to the farmer and lift his standard of living by 
that much. Milk is an interesting thing because pennies mean so 
much. Up in ^Jew York State I was at a hearing and a woman got 
up and said, "Don't talk about big things, Mr. Howe, just talk 
about a quarter of a cent to us, talk about a half a cent to us. We 
are now getting 2% cents a quart for our milk. We don't want 
to hear about billions of dollars; all we want is 4 cents a quart for 
our milk and we will be on easy street." 

I have heard farmers throughout the country say the same thing: 
"Just lift us up a little bit and we will be out of our distress." There 
is a big enough spread there on fluid milk. As to whether there is on 
other commodities I can't speak with so much feeling of assurance, but 
as to fluid milk there is a big enough spread there to help both the 
farmer and the consumer. 

Mr. HiNRiCHS. Dr. Howe, do you have evidence that will be intro- 
duced with reference to the consumption of milk in the Netherlands 
and Denmark? You indicated that as regards the farmer he had 
been well taken care of in both of those countries. Would the evi- 
dence also indicate for those two countries that it has been beneficial 
from the point of view of the consumers? 

Dr. Howe. I didn't cite here these various countries where there 
was a larger per capita consumption in both butter, cheese, and milk 
than in the United States? 

Mr. HiNRiCHS. Neither of those two countries was in that particular 
list. 
• Dr. Howe. Wait a minute; I don't know that I read them. 

Mr. HiNRicHS, I might say that it would not be necessary in order 
to establish the soundness of your case that there should be a larger 
per capita consumption because in both of those countries the per 
capita income of the country is lower than it is in the United States 
and, therefore, a lower per capita consumption of milk and milk prod- 
ucts could very logically be found there even though the consumers, 
relatively speaking, were better off than they are here, but I wondered 
if you had evidence to indicate rather definitely that this betterment 
of the farmer had been accomplished without injury to the consuming 
interests in those two countries that you cited. 

Dr. Howe. Here are the countries of Switzerland, Sweden, and 
Norway, reported to consume more milk per person than the people of 
our own country, while in New Zealand, Australia, Canada, Finland, 
and Sweden they consume more butter on the average than we do in 
the United States. Nor do we stand high in the consumption of fluid 
milk as related to two or three other countries. 

I found in one plant in Europe where they were definitely inter- 
ested in getting milk products into the hands of the consumers, that in 
6 years' time they greatly increased the consumption of cheese by 
making a good cheese, the best cheese that could be made, and it is 
interesting to say that I don't know any other country where we have 
the base surplus plan where you pay a farmer one price for fluid milk 
and another price for cheese milk. In Europe, so far as I know, they 
pay only a flat price for them, but I didn't make a study of that. ^ It 
was true that in this city they definitely said cheese is a good thing 
for rich and poor to use, we are going to make a good cheese, we are 

124491— 39— pt. 7 2 



2760 CONCENTRATION OF ECONOMIC POWER 

going to push its consumption. I found the same thing in Switzer- 
land. But in those countries they iust cut the distribution costs to 
the bone. In Basel, where I studied it, the trucks were carrying 
between 650 and 700 pints a day on the wagon, 2 or 3 times what 
is often carried in this country. Also, the share that went to the 
plant was mathematically calculated and reduced down to its pro- 
duction cost. The distributor's share was related to production costs. 
In one city of 500,000, I found that with milk, say, at 6 cents, the 
farmer got 4 cents, the plant costs were 1 cent, and the store distribu- 
tion cost was 1 cent. That is almost the reverse of distribution in 
this country, and still they were able to sell milk in different cities at 
ranges from 6 cents to 10 cents, I should say. I made a spot study 
only on 2 or 3 plants there. 

IlsTow, I am going back for just a bit to show what happened to the 
dairy industry and how it happened. The dairy industry formerly 
was a- farmers' industry. That was pretty much true all over the 
United States. The farmer got his cash income out of the milk; 
even today milk is the prize income of the farmer ; it is so much 
better than a single cash crop. He gets a weekly income that goes 
into his necessities. He feeds himself, he clothes himself, he pays his 
taxes. I guess you know that a dairy income is probably the one 
income that the average farmer Avants the most. When I was a boy 
the farmer milked his cows and peddled his own milk, he made but- 
ter, and good butter. I think he made cheese. He was master of his 
industry from start to finish, just like a big industry is. He mingled 
with the nearby town. He was digniftied in his life; lie was diver- 
sified; he was interested. Also, he got paid for two things; he got 
paid for his milk, and he got paid for his labor. Today he is only 
paid for his milk. He has lost maybe a third, maybe a half, of the 
income that he got from the distribution of milk. 

That wasn't true as to New York or Chicago or Philadelphia, but it 
was very largely true in the thousands of towns throughout the 
United States. 

That is with modifications, the use of- cooperatives. I should like 
to see the farmer again get back the control of his industry, from the 
farm to the ultimate consumer, not necessarily driving his own wagon 
but driving it cooperatively. 

Something happened about 1900, one of those accidents that more 
or less changed the industry. At least that was the beginning of it. 
There were epidemics all over the country. Collier's magazine was 
concerned about them, and health studies showed that those epidemics 
of typhoid were traceable to bad water on the one hand and bad milk 
on the other, mostly in those cities where cows are slopped from the 
distilleries. At any rate there was a Nation-wide movement to purify 
water and purify milk. As to water, the cities put in purification 
plants. They put in a coagulating system by which raw water was 
poured over the filtration and pure water went through and the bac- 
teria were thrown back into the sewer. 

Cities did that part of the job for themselves. 

Dr. Jacobi, a very celebrated physician in New York — and New 
York was rather bad — advised housewives to heat their milk and 
after they had heated it for a proper time to put it in the ice box 
and that would kill the poisonous bacteria. As far as I know, that 



CONCENTRATION OF ECONOMIC POWER 2761 

was the beginning of pasteurization and purification of milk in this 
country. 

The farmers in the larger cities ^vent into the pasteurization busi- 
ness themselves. They said, "Why, yes ; we ought to sell pure milk," 
and the farmers built pasteurization plants. Owning the pasteuriza- 
tion plants themselves they were stilt in the dairy industry, it was 
still a farmer's industry so long as he owned his own pasteurization 
plant, his own bottleneck through which the milk passed. 

Then in 1923 something happened. It was just the beginning, but 
it made other things possible that gave birth not only to this monop- 
oly but to many other monopolies too. And I feel personally con- 
cerned about these bottlenecks in industry. I grew up in north- 
western Pennsylvania in the heart of the oil country, in Crawford 
County and Venango County. I suppose that was as prosperous a 
spot as there was in the eighties. That is where oil was discovered. 
It was discovered on farmers-' farms and the farmers got a good price 
for their oil. 

They built fine homes. The cities there — Franklin, Oil City, Mead- 
ville — were filled with fine homes. I remember, as a little boy, when 
something happened. We didn't know what it was, but a blight fell 
on those three counties. They employed Mr. Dodd, who subsequently 
became attorney for the Standard Oil Co., to help. 

What had happened — and Miss Tarbell has described that — was 
that the oil produced in the farmers' fields flowed on the ground. 
Refineries caught fire, and after that some adjustment was made and 
.ultimately the farmers got what the oil trust saw fit to pay them. 
In other words, the oil industry was changed "into a monopoly by the 
fact that oil could only go through transportation agencies on terms 
fixed by the Standard Oil Co. 

That spread to anthracite coal, it spread to bituminous coal. The 
control of the methods of transportation, the arteries, bottlenecks, 
was the genesis of big monopoly in this country, and when to that 
was added the New Jersey laws and Delaware laws which permitted 
holding companies, we had two devices which gave great strength, 
at least to certain kinds of industries. 

Those are the kinds of institutional things which I spoke of with 
respect to farm commodities. We find it is true as to fish, we find 
it is true as to poultry, we find it is true as to tobacco, we find it true 
as to milk. 

The United States Public Health Service was interested in the 
purification of milk. It drafted a standardized ordinance. It sent 
it to State health authorities and city health authorities, and pretty 
soon they had it in 900 cities. Today practically every town and 
city in the country requires milk to be pasteurized. It is only in 
very small towns of under 10,000 where it is not compulsory. 

I believe in pasteurization of milk, I believe in making it pure, but 
at this point we really come to a strategic turning point in the dairy 
industry. The Public Health Service, conceived of pasteurization 
plants and cities passed pasteurization ordinances for just one thing — 
that is, to make milk pure, like a water-purification plant — and if 
the pasteurization plants had continued to purify milk only and took 
a tolling charge for the purification of milk, so that all the milk 
that the farmers produced which came to the city, would pass through 



2762 CONCENTRATION OF ECONOMIC POWER 

this very simple process of heating and cooling and putting it into the? 
bottles, the farmer would still contro] his industry, or he might have 
done so, but at any rate we would have had a f i;ee flow of milk from 
the man who produced it to the consumer who bought it. We would 
have the competitive system that we are trying to find a means of 
securing, in that great. industry. 

What stopped that? In 1923 the National Dairy Products Corpo- 
ration was started. The Borden Co. existed prior to that, from 1899,. 
I think. But the National Dairy Products Corp. immediately started 
out to acquire pasteurization plants and to build them, and it moved 
with almost incredible rapidity over the country. According to the 
Federal Trade Commission, they had absorbed 360 dairy companies, 
between 1923 and 1938; of these, 270 were engaged in fluid milk. 
Borden's in the same way took over 207 separate enterprises, and these 
two corporations, either of themselves or in collaboration Avith other- 
distributing agencies, controlled the fluid-milk -industry. 

Mr. Baughman. Doctor, in reference to taking over the pasteuriza- 
tion plants, they used that as part of a method to acquire distributing: 
systems as a whole, is that not correct ? 

Dr. Howe. Surely, that is what I am coming to. 

The pasteurization plants then went into the distribution of milk.. 
I will tell this in detail for Chicago. They«weren't organized to sell 
milk, but they bought milk only for themselves and nobody else's milk 
could come through. They wouldn't let the farmer's milk come- 
through; they wouldn't let an independent's milk come through; they 
bought solely for themselves because they had entered into the distri- 
bution of milk. And then by combinations, by the use of the bottle 
exchange, by the use of various devices, they kept everybody out of 
c»ur city market. But it was necessary to combine those two things^ 
the house-to-house distribution and the control of the inlet of milk, to- 
keep the monopoly. 

Raw milk couldn't come in, pasteurized milk only could come in.. 
Plants were very expensive and the farmers couldn't build their own 
plants in the city because real estate was so costly. That is the genesis- 
of this problem. It isn't all there is to it, but it began with an instru- 
ment designed for one thing which was changed into another thing;, 
de facto, if not legally, it was an ultra vires act to convert a health 
agency into a purely business agency, almost as though the- health 
officer himself had set himself up on the highways and said, "Nobody- 
else can sell milk in this town but me," because it was the health 
agency, the arm of the health officer, that did just that thing. 

The development of these two companies was very rapid, but 
it didn't stop with fluid milk. It went into butter and cheese, especi- 
ally into ice cream. It went into cream, it went into casein, canned 
and evaporated milk, and with three other big companies those five 
corporations, with the meat packers of Chicago, dominate this indus- 
try, if they do not pretty completely control it. 

Today the State of New York is literally covered by subsidiaries. 
One calculation of the Federal Trade Commission, I think it is, gives 
the number of 110. One map of New York which I saw sometime 
ago seemed to be almost black with subsidiaries of these corporations. 
The same is true of Pennsylvania, Ohio, Michigan, and Wisconsin. 
Branches are found in the South and West. I doubt if we know or 



CONCENTRATION OF ECONOMIC POWER 2763 

<:an know the number of subsidiaries of these two corporations, for the 
simple reason that there are subsidiaries of subsidiaries, and there 
may be subsidiaries of subsidiaries of subsidiaries. 

in 7 years' time, l)v 1930, the National Dairy Products Corporation 
had total capital assets of $278,000,000 and gross sales of $375,000,000. 
That was for all the things it sold. In 1932 the Borden Co. had 
total assets of $215,000,000 and gross sales of $197,000,000. These two 
-companies were hardly known in a major way prior to 1923. Yet in 
a few years they had built up a total capitalization of nearly 
^500,000,000 and total gross sales of $600,000,000. 

Mr. Baughman. Dr. Howe, that capitalization total doesn't show 
the ramification strength of the two companies, does it? 

Dr. Howe. In what way, sir? 

Mr, Baughman. You say a capitalization of $500,000,000. That 
is relatively small concerning the way corporations grow. Does that 
show their real strength, in your opinion ? 

Dr. Howe. No ; not at all. It does show this strange anomaly, how- 
ever, and this anomaly is very anomalous to me : Why two corpora- 
tions or five corporations, with a total capitalization of less than half 
a billion dollars should be able to control 3,000,000 farmers, 3,000,000 
dairy farms, a dairy investment of I don't know how many billions — 
seven or eight billion dollars — just a few men in one city could stand 
astride of an army of people and determine how they should produce, 
Avhat price they should get for what they produce, as they control 
70,000,000 people who pay for those commodities. And what is true 
of fluid milk is true of canned milk also ; it is true of ice cream. We 
will also show how the cheese situation is dominated and controlled. 

Two things happened. The first was that the number of distribut- 
ing farmers was just washed out. As soon as a pasteurization plant 
came in, the old distributing system, as the old farm economy, in 
which a man sold his own milk and butter, was just washed out. 
Within a few months' time the independent distributor was gone 
and a new distributor came in. 

(Representative Reece assumed the chair.) 

FLUID MILK CONTROL IN VARIOUS CITIES 

Dr. Howe. The following list of 19 cities, indicates the extent to 
which the control of fluid milk had extended by 1930, This data is 
taken largely from reports of the Department of Justice and other 
agencies. 

(a) New York City: Sheffield Farms Co., a subsidiary of National 
Dairy Products Corp. and the Borden Co., controls slightly in excess 
of 50 percent of the milk distribution. When Dairymen's League is 
added the figure is increased to about 70 percent. 

(b) Philadelphia: Four companies control approximately 85 percent 
of the distribution; this includes the subsidiaries of the National 
Dairy Products Corporation, the Supplee-Wills-Jones Milk Co. which 
distributes about 34 percent of the total. 

(c) Baltimore: Subsidiaries of the National Dairy Products Corp, 
control approximately 85 percent of the distribution. 



2764 CONCENTRATION OF ECONOMIC POWER 

(d) Washington, D. C. : Subsidiaries of the National Dairy Products 
Corp. control about 55 percent of the distribution. 

(e) Pittsburgh: Two companies control about 57 percent of the 
distribution, divided as follows : Rieck-McJunkin Co., a subsidiary of 
National Dairy Products Corp., 38 percent and Meadow Gold Dairies, 
a subsidiary of the Beatrice Creamery, 19 percent. The next largest 
company is the Otto Milk Co., an independent, w^hich controls 8 
percent. 

(f ) Detroit : 27 percent of the distribution is controlled by the Detroit 
Creamery Co. and the Ebling Co., which are subsidiaries of National 
Dairy Products Corp., and 25 percent by the Borden Co., making a 
total of 52 percent. The Kennedy Dairy Co., which is a subsidiary of 
the United States Dairy Products Co., handles about 6 percent of the 
total distribution. In all there are about 129 distributors in the De- 
troit sales area as defined in the old agreement, although only about 
30 are Avithin the city of Detroit proper. 

(g) Boston : Two large companies. Whiting Co. and H. P. Hood & 
Sons, control 14 percent and 27 percent respectively of the total dis- 
tribution, or a total of 41 percent. About 10 percent of the total distri- 
bution is made through the First National Stores. In addition there 
are about 475 small dealers in the Boston sales area. 

(h) St. Louis: The St. Louis Dairy Co., a subsidiary of the National 
Dairy Products Corp., controls about 40 percent of the fluid milk 
distribution in that city. 

(i) Louisville, Ky. : The largest distributor among the 23 distribu- 
tors is a subsidiary of the National Dairy Products Corp. and con- 
trols about 34 percent of the total distribution. 

(j) Los Angeles: The National Dairy Products Corp. occupies a 
strong position ; a public hearing is being held in Los Angeles at the 
present time. 

(k) Bridgeport, Conn. : The Borden Co. controls about 50 percent 
of the distribution (Department o^ Justice estimate as of 1930). 

(1) Wilmington, Del.: National Dairy Products Corp. controls 
about 45 percent (Department of Justice estimate). 

(m) Richmond, Va. : United States Dairy Products Co. controls 
about 59 percent of the distribution (Department of Justice estimate) . 

(n) Akron, Ohio.: 53 percent of the fluid milk distribution is con- 
trolled by the National Dairy Products Corp. and 39 percent by the 
Borden Co., making a total of 92 percent (Department of Justice 
estimate). 

(o) Columbus, Ohio.: The Borden Co. controls 48 percent of the 
milk distribution (Department of Justice estimate). 

(p) Milwaukee, Wis. : 33 percent of the total fluid-milk distribution 
is controlled by National Dairy Products Corp. and 51 percent by the 
Borden Co., or a total of 84 percent (Department of Justice estimate 
as of 1930). 

(q) Denver, Colo.: The Beatrice Creamery Co. controls about 30 
percent (Department of Justice estimate as of 1930). 

(r) Salt Lake City and Ogden, Utah : The Pet MHk Co. controls 
ibout 36 percent. 

(Representative Reece assumed the Chair.) 

Acting Chairman Reece. Dr. Howe, do you wish to identify those 
lists and have them presented for the record ? 



CONCENTRATION OF ECONOMIC POWER 2765 

Dr. Howe. These charts show the proportion of total fluid milk 
distribution controlled in certain cities by one or two distributors in 
1930. 

(The charts referred to with accompanying data were marked "Ex- 
hibits Nos. 359 and 360," respectively, and are included in the ap- 
pendix on pp. 3127 and 3128, respectively.) 

Mr. Baughman. Dr. Howe, I show you a statement from New 
York and ask if you will read that into the record, please. 

Dr. Howe. This is a report to Governor Lehman by the Attorney 
General of New York, John J. Bennett, Jr. [reading from "Exhibit 
No. 361] : 

(1) Two companies, Bordens and ShefEelds — 

Sheffields is a major subsidiary of National Dairy Products — 

sell 76 percenc of all fluid milk sold at retail, in the New York metropolitan 
area. 

(2) With the addition of four more companies whose prices are invariably 
identical with those of Bordens and Sheffields, these companies sell 90 percent 
of all of the milk sold in the retail market of the New York metropolitan area. 

(The report was marked "Exhibit No. 361" and is on file with the 
committee.) 

Dr. Howe. Witnesses appearing before Marketing Agreement 
hearings of the Agricultural Adjustment Administration have 
said, "On the face of it these two companies may control 40 
or 60 percent, but in reality they control it all," They are so 
powerful with other agencies that they control the price which 
other distributors must charge, and in some cities witnesses from 
the spot have said, "Oh, well, there are a lot of competitors here that 
look like competitors, but they are rea)lly just shadow window com- 
petitors. They are kept in the market so it won't appear that there 
is a monopoly in that area." 

It would take some time to trace that through, but I think it can 
be said without question that a man who gets into the fluid milk 
market has two things happen to him, and they happen pretty 
quickly. He either gets his feet in the trough as quickly as pos- 
sible and accepts the conditions imposed upon him, or he is driven 
out of business, and in cities like Detroit and Chicago and Cleve- 
land, where independents tried to get into the field and insisted on 
their right to be independents, they were pretty quickly wrecked by 
various devices. 

Mr. Baughman. Dr. Howe, for the purposes of the record, in re- 
gard to fluid milk that always means bottled milk, does it not? 

Dr. Howe. That always means milk in bottles ; yes. 

Now I will restate briefly what I think those two sections aim 
to establish. The first is that the dairy industry was a farmer's 
industry up to a very short time ago. I think it is a natural farmer's 
industry. I think it is something that he ought to be protected to 
control because it is a natural farmer's industry. It is a natural 
farmer's industry in other countries. 

Second, just as in many other monopolies, an instrument designed 
for one purpose was used for another purpose. And in this case a 
health instrument was used to create monopolistic conditions, not 
solely, but it was one of the implements which made it possible. 



2766 CONCENTRATION OF ECONOMIC POWER 

Third, the men who own that instrument did two things. They 
became buyers of milk and then, quite as important as that and 
maybe more important than that, they stepped into the manufacture 
of dairy products, so that they control the industry from the farmer 
on one side of the wall to all the things that can be done with milk 
on the other side of the wall. 

The distributor, being a buyer and a seller, has a further interest; 
that is, to make as much profit from the sale of milk as possible. He 
does that by fixing his own prices, I think he fixes the price toq 
hi^h for maximum profits, but at any rate it is fixed as business 
prices are fixed by what the trafiic will bear. 

A subsidiary result of that is that our children don't get enough 
milk. None of us get enough milk; and the third major thing to me, 
believing in the Jeffersonian philosophy of equal opportunity for all, 
we have 50 percent of our farm population that has lost its inde- 
pendence. It hasn't the same independence as independent men that 
it had 40 years ago, and in connection with the abuses that have 
arisen we will show how in various places farmers couldn't even pro- 
test the marketing conditions. 

Well, now, Mr. Chairman, I am ready to stop there and talk that 
over and see if there is anything to clear up, see if there is anything 
that has been overemphasized or underemphasized, to see whether we 
■can't get the factors m the dairy industry clear in our minds. 

Acting Chairman Reece. Are there any questions? 

Mr. HiNRiCHS. Dr. Howe, you spoke of an underconsumption of 
milk and milk products, using an average figure of 2.44 quarts, if 
I remember. 

Dr. Howe. That was disclosed by a survey. 

Mr, HiNRicHS. That figure being an average, it actually understates 
the situation, doesn't it? That is, milk and milk products are among 
the most elastic, so far as food consumption is concerned, as related 
to income. 

Dr. Howe. I wish everybody agreed with you and me on that 
point. Yes ; I think so. It is an elastic commodity. 

Mr. HiNRiCHS. The Federal Trade Commission can find such evi- 
dence, I think, in studies made by both the Bureau of Home Eco- 
nomics of the Department of Agriculture and the Bureau of Labor 
Statistics, in a study of consumer expenditures, relating the con- 
sumption of products to the income of the families. In low-income 
families the consumption is, of course, very drastically below the 
average for the community. 

Dr. Howe. I think in Washington here they showed — this is off 
the record because it is just memory — they found that 14 percent 
of the families studied got no milk at all, "because they can buy no 
milk at 13 cents a quart. 

Mr. HiNRiCHS, There are one or tw^o questions with reference to 
the technology of the industry that I would like to follow through 
with you, if I may. As I understand it, pasteurization is required 
by law, but pasteurization is hardly feasible except in very large 
enterprises except with a great waste of labor. Would that be cor- 
rect as regards the technology of the industry ? 

Dr. Howe. We are going to put a witness on who sells only fluid 
milk. He can tell you about that more clearly than I can. The 



CONCENTRATION OF ECONOMIC POWER 2767 

Guernsey Farmers' Cooperative in Milwaukee both pasteurize and 
distribute. 

Mr. HiNRiCHS. You were speaking of the disphicement of a farmer 
from the control of the entire process in his regulation to the produc- 
tion and delivery of raw milk. You regard pasteurization as the 
bottleneck controlling the industry. Is it feasible to think of return- 
ing tliis point of control to the individual farmer? If farmer control 
at the bottleneck is to be secured, do we have to think of something 
like cooperative pasteurization? 

[Dr. Howe nodded his head affirmatively.] 

Mr. HiNRicHS. Tliat would be correct? 

Dr. Howe. I think we could paint a picture like that. Here are 
the farmers' cooperatives throughout the country growing very ra})- 
idly. Around alDout at least 50 cities we have farmers' cooperatives 
who are merely bargaining associations. There are 30,000 members 
in one in New York and in the Fairfax I'arms maybe 15,000 or 
20,000, and in Philadelphia 22,000, and in Chicago and elsewhere 
they are well organized. All they can do is sit on one side of the 
table and bargain over how much the farmers are going to receive. 

These farmers should be able to say, "You farmers have complete 
control of the industry. Now^ you can't complain to the Government; 
you can't complain to anybody else. It's your problem. Now all you 
need to do is to pay your farmers a good price for tlieir milk and 
charge the consumers such a price in the cities as will expand your 
consumjjtion to what it should be for an adequate milk consumption." 

Yes; I think this is a great field for cooperatives that will Mork, 
and it requires very little capital either. 

Mr. Hjnrichs. You spoke of the growth of Borden's and National 
Dairy Products and cited the number of pasteurization plants that 
had been acquired. Those pasteurization plants were acquired in 
many instances in separate communities. They had existed under 
private ownership rather than cooperative ownership. 

Dr. Howe. Most of them were private. That is right, sir. 

Mr. HiNRiCHS. And many of your smaller communities had con- 
stituted local monopolies even at the time of acquisition. Would that 
not be correct ? 

Dr. Howe. I think the situation was the same so far as power is- 
concerned, but it is true in those cities where I know anything about 
it that the locally owned pasteurization plant, responsive to public 
opinion and criticism and conditions there operated with some re- 
spect and some regard for the farmer at the one end and the con- 
sumer at the other. I think that was generally true. 

Mr. Ballinger. Dr. Howe, before the appearance of so-called big 
business in this industry could it be said that the consumer got his 
milk more cheaply than he got it after the appearance of financial 
organizations in this industry? 

Dr. Howe. I can't answer that question. My memory of milk is — 
but it was in not good-sized towns — that milk w^as distributed when I 
was a boy at sometimes 8, 9, and 10 cents a quart, but that is just a 
catch opinion. Bu<: I do know that we got good milk cheap, and 
there were always farmers there ready to distribute it. 

The}^ found up in Wisconsin that a drive was being put on there 
to pasteurize milk clear down in the villages, and the farmers got 



2768 CONCENTRATION OF ECONOMIC POWER 

together, and said, "Why, we know cnoiigli about what has happened 
in Milwaukee and Madison: that when pasteurization plants are put 
in villages we will be driven out of the business." So they went to 
the State capitol and demanded that a study be made of the whole 
subject to see whether milk could not be distributed in small towns 
without the control being in the hands of what they thought M-as the 
National Dairy Products and Borden's. 

Mr. B.ATTGiiMAN. Dr. Howe, just to be sure, you are not against 
pasteurization ? 

Dr. Howe. Not at all. Of course not. I think it is necessary to 
take every possible precaution to keep milk pure. 

Mr. Baughman. If it were used solely as a health agency, you are 
in full accord with that ? 

Dr. Howe. Absolutely. 

Mr. Baughman. But not to be in the control of the hands of a 
few. 

SUGGESTIONS FOR IMPROVEMENTS IN MILK DISTRIBUTION SYSTEM 

Dr. Howe. I think it is just as necessary to have the purification of 
milk outside of control by the distributors as it is to have the purifi- 
•cation of water free from private control. Supposing in every 
one of our cities when they put in a purification plant they leased 
out the filtration plant to one group of men, into which the city poured 
its water. That is a pretty good comparison. 

Mr. Baughman. Isn't it true, before 1923, which was the entrance 
of what we might call big business into the industry — didn't the farmer 
at least get more for what he sold in reference to fluid milk than he 
pow gets from the big distributors? 

Dr. Howe. Well, I would show by at least the Milwaukee study that 
the price the farmer received prior to the coming of big business was 
materially higher than it was subsequently. I think you will find 
that in one of those charts, gentlemen, the collapse of farm income 
in Milwaukee. Of course, he was paid for his labor, and there even 
the dairy farmer has some free time. When he cooperates with his 
neighbors to make distribution, he has some free time 5 and one of the 
things I think happened to agriculture is the farmer isn't paid for 
his labor as he was 40 or 50 years ago. He may have a single industry. 
He did a lot of things in which he got accessions to his income, and- 
that has been stricken from him in various ways. They slaughtered 
their own cattle when I was a boy and sold it in the nearby towns. 
They sold direct their vegetables and their foods. All along the line, 
as to farm commodities, somebody stepped in between the farmer and 
his market, necessarily in the big cities, especially as to milk; so the 
loss must be substantial. 

Mr. Baughman. So, isn't it true if the loss to the consumer might 
even be the same before and after the entrance of big business, you 
did at least have a considerable income to the farmer before ? 

Dr. Howe. Well, this Milwaukee survey, which is very accurate, 
was true of the country as a whole. A very substantially larger 
income was enjoyed prior to the coming of the big distributors. By 
the way, Mr. Simpson, haven't you a chart? We have a chart here 
which shows the collapse of those incomes during those years as 
related to milk. 



CONCENTRATION OF ECONOMIC POWER 2769 

Mr. Baughman. Isn't it also further true that the price to the 
•consumer could be less — as you say, you will show through wit- 
nesses — with a sufficient return being made to the distributor as well 
as the farmer? 

Dr. Howe. I think there is no doubt about that. The cost of a 
quart of milk could be reduced; the return to the farmer would be 
increased ; and we Mould have an expansion of the sale of milk. 

Acting Chairman Reece. Have the charts to which you referred 
heen identified for the record, or do you ^ish to present them now 
for the record ? 

Dr. Howe. We will present them later, as to what has happened 
to the farmer. 

Acting Chairman Keece. Earlier you presented for the record 
■charts 1 and 2. The charts 3 and 4 have not yet been presented for 
the record ? 

Dr. Howe. That is all that has been presented, sir, just two. 

Mr. O'CoNNELL. Dr. Howe, a few moments ago you referred to the 
desirability of having the distribution of milk returned, so to speak, 
to the farmers who had it prior to the advent of big business. 

Dr. Howe. That is one thing, yes. 

Mr. O'CoNNELL. That, I take it, thinking in terms of what you 
had to say about the development of the use of cooperatives, would 
mean that in a situation such as now exists in New York a farmers' 
cooperative or cooperatives would own the pasteurization plants and 
■control the distribution facilities for the milk in a given area in 
New York. Is that what you had in mind? 

Dr. Howe. That would be one w^ay. There are a great many 
ways in which the pasteurization plant can be made a free carrier 
■of milk; whether it should be cooperatively or municipally owned 
or otherwise controlled is a matter of indifference so long as the 
milk goes freely through a highway. 

Mr. O'CoNNELL. You think it would be a matter of indifference. 

Dr. Howe. No but that is the major objective. 

Mr. O'CoNNELL. What is the major objective? 

Dr. Howe. The major objective is to have milk flow freely from 
the producer to the community so it can be sold anyway the 
■community wants it to be sold. 

Mr. O'CoNNELL. Possibly I was reading too much into your situa- 
tion as to the use of cooperatives, but as you spoke, it occurred to 
me if we assumed the development of a cooperative in New York, 
let us say, so that a cooperative would own the pasteurization 
plant 

Dr. Howe (interposing). The Dairymen's League does that to some 
extent in New York. 

Mr. O'CoNNELL. Who would own the facilities for distributing 
milk, I am not quite clear on how that situation in terms of the results 
to the consumer would differ from the situation that exists today 
except insofar as the frame .of mind of the people in control might be 
concerned. You see what I am getting at. It seems to me you have 
a monopolistic condition prevailing in that situation. You didn't 
intend that we would go quite that far. 

Dr. Howe. At the present time I have been talking largely about 
the farmer, about freeing him so that he controls his industrv. I 



2770 CONCENTRATION OF ECONOMIC I'OWER 

want the farmer to be liis own salesman Avhenever he can be. his own 
processor, just as an automobile comes from the line in the finished 
product clear dow n to the ultimate distributor jn the city. I think 
the farmer should have a break wherever w-e can <iive it to him, either 
througjh the cooperative or the individuals. 1 am cominji; later to 
various methods of distribution. What I believe should be done is 
that milk should be free to be l>ouf?ht at the doors of the pasteuriza- 
tion plant by farmers' cooperatives, by anyone who wants to go into 
the milk business, by relief administration, by hospitals, by stores, by 
drug stores, so that we cut out the collusive methods of distribution in 
the hands of one group, in other Avords. so that milk would continue 
after it got to the wdiolesale platform, to be distributed by just as 
manj' agencies as possible. 

The consumption of cigarettes has gone u.p during the depression 
because the cigarette has so many outlets. Coca-Cola has many 
outlets; bread has many outlets. We have only one outlet for milk 
and that is fixed by two com])anies or a group of companies. It is 
right there that the difficulty is, that we Juiven't free v.^holesale buy- 
ing and free distribution. We are going to show thr^^ later for 
Detroit. 

Mr. Ballinger. Under the present system you can't buy any milk 
at the pasteurization plant. You have to buy it from these big dis- 
tributors? 

Dr. How^E. That is right. You can't buy it on the platform except 
on the permission of the big distributors. 

Mv. Ballinger. Which they Avon't give, generally. 

Dr. Howe. Well, you can buy it in stores general!}' at a differential 
of 1 or 2 cents, but in most cities the distributors say the store price 
shall be the same as the distribution price. Tn other Avords, you want 
to channel competition in the distribution field of milk — make it just 
as easy to get milk at a proper production cost. 

Acting Chairman Reece (to committee members). Do you have any 
questions ? 

Mr. Douglas. I would like to get Mr. Howie's thoughts on the ap- 
plication of the antitrust statutes to this situation. You are a lawyer. 
Have you given any consideration to the application of the antitrust 
statutes to his distributing situation? 

Dr. Howe. I guess I might almost qualify as a monopolist- as well 
as a lawyer. As I said before, I am particeps criminis with other 
monopolists in that respect, for we are almost all monopolists in some 
way or other in this country, and I don't think you can reach this 
wholly through antitrust proceedings. I think it is institutional. 

Mr.' Douglas, Why not ? 

Dr. Howe. In the first place, there are 5,000 towns and cities in this 
country. In Chicago they began the antitrust proceeding's in June or 
July and they have been at them since and they haven't got through 
their motions and demurrers in one city. Even if they get through 
with their proceedings out there, if I Avfre numin.g the dairy br.siness 
in Chicago I think I '_u)uld beat the game even after tliey get u 
conviction — maybe not, maybe with enough distributors in there it 
would tend to break it doAvn, but only about half of the problems 
would then be solved. 

Mr. Douglas. Why is that? 



CONCENTRATION OF ECONOMIC POWER 2771 

Dr. Howe. Well, <j;enerally spciikino-, why have not the antitrust 
-or antinionopoly proceedings beginning in 1898 solved many of our 
problems 'i 

Mr. Douglas. Why do you think that has been true? 

Di. Howe. I think they can't do it, except by having a colossal 
expenditure in your Department of Justice much greater than they 
have at the present time, summary proceedings, maybe, with not so 
many appeals. I will say tliis, I was a member of corporations 
that' were in monopolist conditions, and whenever monopolistic pro- 
ceedings were threatened against tliem or wei'e started, a lawyer was 
called in, and I think in every case the lawyer knew what he was going 
to do after the decree was rendered, and was building all his plans 
so the next day he would start in in some other wa}'. . It is so iirotean. 
the tilings you can do, if you can move fast as a lawyer, much fastei- 
than the Government can move. I think it is almost impossible in a 
Nation as big as this. Have you read Walton Hamilton's study of 
the expansiveness of monopoly in the United States? I thought I 
knew something about the extoit of monopoly, but after reading 
tliat brochure, going right straiglit through it, it seemed to rne that 
€vcry place you turned you were in a great net work of one kind of 
special privilege or monopolistic control. 

Mr. Ballixgek. Isn't that due largely to the fact that we really 
don'r ])unish people when they violate the antitrust laws? Of course 
we have had an enormous growth of monopoly in this country. 
Why? The chief reason, isn't ir, is because you never do anything 
about it? It is only natural for people to get together to lift $10,- 
000,000 if tlie only penalty they are going to get is $200 or a consent 
decree that tells them not to do it again. We have never made a 
determined effort. You are going to show in this hearing some wit- 
nesses who liave broken through this network. In spite of hell and 
fair weather they have got there. Couldn't a lot more have been done 
if we gave them some help? 

Dr. Howe. I think so. I think you could throw fear into the 
minds of many people so long as they were engaged in a pool, in a 
cartel, in a criminal conspiracy. 

Again, to be a little personal, I was the manager of a private water 
plant for 23 years. That v.-as perfectly legal and I could go down 
to the Public Utilities Commission every so often and say I wanted 
an increase in rates, and they couldn't tell very much about what I 
told them was true or not. 

I was vice president of the Cleveland Street Railway Co. What 
could you do about that? A company I was connected with man- 
ufactured all the equipment for battleships to be operated from the 
bridge. We had a copper riveted patent. We charged what the 
traffic would bear. 

There are patents, there is exclusive ownership of corporations, 
the great mines that ^yere bought up in the mining districts; there 
are grants and franchises; there are terminals. In New York City 
Mr. Amen has been at it for 5 or 6 years. He convicts these fellows, 
soaks them with penalties on five or six counts. The maximum pen- 
alty is a year in jail which is reduced to 11 months for good behavior; 
I don't knoAv wdiether it is $1,000 or $5,000 fine. While they are in 
jail or in Sing Sing their relatives run the business. When they 



2772 CONCENTRATION OF ECONOMIC POWER 

come out again they take up the business. The business goes on. 
while they are in there. 

Mr. Berge. Dr. Howe, would you abolish criminal penalties? 

Dr. Howe. No; but I would supplement them by trying to get rid' 
of the strangle holds we permit in the system. 

Mr. Douglas. Supplement what — the antitrust laws? 

Dr. Howe. Make the antitrust laws stronger, much more drastic,, 
much quicker in action. 

Mr. Douglas. Introduce summary action ? 

Dr. Howe. Make it as summary as I could. As an American citi- 
zen I think we ought to have the same sovereignty over conditions- 
in New York City, 12,000,000 people, who more or less are environed 
as to all the food that comes in there, by what — call them what you 
may, maybe they are racketeers, and we haven't power enough to do- 
any thing except indict them and put them in jail for a year. The 
Government ought to be as strong as the racketeers, or whatever they 
may be called. 

Yes, I would strengthen the legal divisior very greatly; I would' 
strengthen the Bureau of Criminal Investigation very greatly. I re- 
member reading just a short time ago wh.at a problem General Grant 
had in connection with the Brooklyn Navy Yard. There were great 
complaints about gambling and prostitution around the navy yard- 
He said, "Give me a little time and I will stop it." What did"^he do?" 
He took some uniformed men and put them along the street there- 
and took the names of everybody who went into those joints. It 
washed out in 2 or 3 days' time. That was an administrative pro- 
ceeding instead of legal. It was effective. 

Mr. Berge. I don't recall the date, I believe it was about 15 years 
ago when you said the large aggregations were formed that took 
over the local business. Was that about 1923? 

Dr. Howe. Yes; '23. 

Mr. Berge. Did the Government do anything at that time to stop- 
it? Was there any legal proceedings maintained under the anti- 
trust statutes to prevent those mergers ? 

Dr. Howe. I think there was an early case against the Milk Trust 
but I have forgotten about that. I am not sure. 

Mr. Berge. There wasn't any criminal case, was there? 

Dr. Howe. I don't recall, sir. 

Mr. Berge. Do you know of any determined efforts made during- 
the period when these aggregations were strengthened in their power- 
in the late twenties to stop them ? 

Dr. Howe. I don't. 

Mr. Berge. Or any real effort made mitil this past year through 
the antitrust laws? 

Dr. Howe. I don't know of any. I pray to God that the Chicago 
case will be effective in cleaning that situation up there, but I think 
all it will do is, if they can get in the decree a limitation on the 
power of those who own the gateways into the city to convert them 
into, let's say, common carriers — it has already done tliat. In Chi- 
cago they are now selling milk at 8 and 9 cents a quart because of 
t'his fear hanging over the distributors. Yes; it has done that. 

Mr. Berge. I wouldn't want tc assert the antitrust laws are neces- 
sarily sufficient to solve all these problems, but it doesnt seem to me 



CONCENTRATION OF ECONOMIC POWER 2773 

we are warranted in saying they wouldn't contribute substantially 
to it in view of the fact that there haven't been any substantial eiforts 
to do it until this time. I just wondered if you didn't go a bit fur- 
ther than you intended to in your initial statement when yoii said 
you thought the antitrust method was quite inadequate. It may be 
that there can be some more ideal solution of the milk problem 
worked out, some entirely different system of distribution, but until 
that is done, don't you think that a vigorous enforcement of the 
antitrust laws could do a good deal ? 

Dr. Howe. I think yes; and I think if you develop a technique of 
operation with the Bureau of Investigation that you could frighten 
men in a great many cities into abandoning their monopolistic prac- 
tices. But I don't know whether the Department of Justice has 
authority to do so. I don't know whether it is to be given power 
to do so. 

Mr. Douglas. Power to do what ? 

Dr. Howe. We are protected so completely by the law itself, you 
know. The civil liberties are so protective in the minds of the court 
that you have to move with so much circumspection in connection 
with legal proceedings. 

Mr. Douglas. Doesn't it come down to this : that your conclusions 
are based upon the fact that purely sporadic attempts to enforce the 
antitrust laws are not going to be successful ? It has to be a continu- 
ous process. 

Dr. Howe. I th'nk that is true. 

Mr. Douglas. And a continuous process hasn't been applied or 
tried. 

Dr. Howe. I don't think it has. Let me state it, if I can, as I 
would like to have it stated. I think generally the major monopolies 
are inside of the law; inside of the tariff laws, let us say, inside of 
your patent laws, inside of your franchise grants. 

Mr. Ballinger. Are they inside the law? The tariff may promote 
a trust, but when the trust exists it is not outside the law. 

Dr. Howe. I am thinking about competition instead of that. That 
is true. In other words, I think if the old philosophy existed of sub- 
jecting big groups as well as little ones to potential competition or 
real competition, that many of the monopolies would collapse by 
virtue of that fact. 

Coming to the direct question, I haven't thought about it except 
from the other side of the fence, and I think it was pretty generally 
felt among men that I knew as a lawyer that they could keep ahead 
of the Government pretty well as to antitrust proceedings. Now let's 
assume that the Department of Justice could be given large power, 
and again I am just speaking without much thought about it. If 
the Department of Justice could move with the celerity of an adminis- 
trative agency, we have that in many branches of the Government. 
If the punishments were added to — more than a year in jail and 
more than a $5,000 fine. A monopoly can pay a $5,000 fine very 
esaily but men don't like to go to jail. In other words, if the Depart- 
ment of Justice could move rapidly, quickly, and surely and its 
punishment were adequate, I think you would have a great state of 
fear thrown into monopolistic enterprises. Yes; I think that that is 
true. 



2774 CONCENTRATION OF ECONOINIIC POWER 

Mr. Berge. Of course, Dr. Howe, I tlioroughiy agree that it would 
be a fine thin"; if we could speed up the .judicial processes and the 
processes of litigation. We ought to do everything we can to do it, 
but I wonder if }'ou are warranted in assuming that the administra- 
tive process through the commission type of regulation moves any 
faster, because I have in mind the Boston viUk cases where the other 
type of control is applied to the milk industry, and although our 
Department has also handled those cases, they have been in court now 
almost a year longer tnan the Chicago milk case, and I fear we en- 
counter the same difficulties in any type of regulation that is subject 
to judicial review. I think it well for us to put our heads together 
to try to quicken that process, but I don't think w^e can just assert 
dogmatically that the prosecution is any slower than the processes 
of regulation by administrative agency. 

Dr. Howe. Again, let me make that a little clearer, because I 
haven't thought about this much. There is in the Department of 
Agriculture a system of licensing, I believe, of vegetable products — 
licensing receivers at terminals. That is administrative. A busi- 
nessman would possibly be mor-e willing to face a lawsuit than he 
would be to have his license to do business taken from him, or any 
members of his family, and I think something like that is applied as 
to thtse receivers of farm commodities at the terminals. That is 
more nearly what I mean by administrative procedure, that you 
vrould have an agency of the Government, let's call it a milk author- 
ity, v.ho would have power at least to suspend people until they had 
established that they were operating properly. 

M]-. Berge. They could probably enjoin suspension, couldn't they, 
and get judicial review in that way? 

Dr. Howe. I don't know what litigation has followed that admin- 
istrative procedure but I would try to find some administrative pro- 
cedure that moved as rapidly as a monopoly itself moves. Can we 
equip the Government so it can move as rapidly and effectively as a 
private individual can? 

iMr. Berge. I agree it is very difficult, but I w^ould even want to go 
slow in assuming that Ave can beat it easily merely by adopting a 
license procedure or any procedure that is subject to judicial review, 
and I think any procedure that withdrew the right to do business, 
t'Aen temporarily, probably would be. However, I merely offer that 
in passing. 

Dr. Howe. Maybe that brings it back, sir, to the fact that I think 
we make much better progress if we study it as an economic and insti- 
tutional problem, with the legal procedure as part of the whole 
general program. 

Acting Chairman Reece. It is now 12 o'clock, Mr, Ballinger. Mr. 
Howe, I presume, will be available for the afternoon, if it should be\ 
"desired to ask him further questions. What is the pleasure of the 
committee ? 

Dr. Howe. I just want to clear up that last point, because I don't 
want to leave the impression that I have a disregard for the law or 
criticism of its methods except that, as I see it, it is slow, it is tedious, 
it is subject to so many methods of defeat that up to the present time 
we haven't found a technic, at least. 



CONCENTRATION OF ECONOMIC POWER 2775 

Acting Chairman Keece. I am sure, Dr. Howe, those who have had 
the pleasure of knowing you over a period of years entertain no idea 
that you have any disregard and disrespect for the law or the courts. 

The committee will stand adjourned until 2 o'clock. 

(Whereupon, at 12 noon, a recess was taken until 2 p. m. of the 
same day. ) . 

AFTERNOON SESSION 

The hearing was resumed at 2: 20 p. m., upon the expiration of 
the recess. 

Acting Chairman Reece. Are yuu ready to proceed, Mr. Ballinger? 

Mr. Ballinger. Mr. Chairman, before we go. on this afternoon I 
would like to ask Dr. Howe just a few questions. I know Dr. Howe's 
economic philosophy pretty well, and this morning I think there 
might be some misinterpretation of w^hat Dr. Howe said, and I would 
just like to get it straightened out for the record, not only for the 
protection of Dr. Howe but for the fact that Dr. Howe is appearing 
as a witness for the Federal Trade Commission, so if I may have 
the privilege of asking a few questions, I would appreciate it very 
much. 

Acting Chairman Reece. That will be satisfactory. 

Mr. Ballinger. Dr. Howe, you believe in the competitive system 
in general, do you, in industry? 

Dr. Howe. I guess I believe in that more strongly than in any- 
thing else. 

Mr. Ballinger. You believe it should be protected and preserved ? 

Dr. Howe. I think the first responsibility of government is that. 
I started out with the Jeffersonian formula, equal opportunity for 
all, special privilege for none, and that is one of the functions of 
the Government. 

Mr. Ballinger. From your testimony this morning, the interpre- 
tation might be. put that you feel that it is a sort of hopeless job 
to go after monopoly and to track it down relentlessly and put it 
out of business. You don't think the matter is hopeless, do you ? 

Dr. Howe. No; I didn't say that. I said-^I intended to say — 
that I felt the Government should be strengthened in all of its powers 
so that it at least stood on a par of equality with these abuses, and 
that it should be implemented through proper agencies to be able 
to act more quickly than it does now, to act more widely than it 
does now, and to assert its power to end abuses, whether that is 
through the Department of Justice, through an administrative 
agency like the Federal Trade Commission or the S. E. C, or through 
whatever agency is created. I believe in a dual approach to it, j^os- 
sibly, that is, one through the Department of Justice, highly imple- 
mented, and one through an administrative agency, and, wiiile I am^ 
not familiar with the Federal Trade Commission, I think a cease 
and desist order is one type of approach. 

It seems to me without knowing much about it that the S. E. C. 
has developed a technique of administrative control, but I am not very 
familiar with that subject. 

Mr. Ballinger. The impression might also be gotten from your 
testimony this morning that you think that existing antitrust laws 
arc incapable of coping with the situation. You don't mean that if 

124491— 39— pt. 7 3 



2776 CONCENTRATION OF ECONOMIC POWER 

the agencies enforcing these laws were given enough money ade- 
quately to enforce them and if these laws were given a reasonable 
construction by the courts, that the existing laws would not be able 
to do a great deal toward breaking up restraints of trade and industry. 

Dr. Howe. I think if the Department of Justice were given the 
power, and the Court possibly should reinterpret some of its decisions, 
that minatory action would lead to desistance in very many monop- 
olistic practices. 

Mr. Ballinger. And you believe in the better effect of good sharp 
penalties in these laws ? 

Dr. Howe. Absolutely. 

Mr. Ballinger. One other question. In other words, as I gathered 
from your philosophy — and I say I do know it — you feel that the 
existing law should be supplemented by additional laws which will 
try to take out of the hands of monopolists the ingredients with which 
they manufacture monopoly. To give you a specific example, the situ- 
ation you have been describing in milk today, if we had had section 
7 or could have enforced section 7 — they couldn't because the courts 
wouldn't let us enforce it — the very conditions you are describing 
might not have come about. If we had prevented the right of merger, 
combination, purchase of competitors' assets, and so forth, the con- 
dition which you describe might have been seriously mitigatfid, 
wouldn't it? 

Dr. Howe. I haven't thought about it much, but I think a good 
deal of our trouble is traceable back to the device of the New Jersey 
and Delaware and some other State laws which permitted holding 
companies, that our monopoly problem would not have been nearly 
as serious if it had not been possible for that to be done. 

Mr. Ballinger. In other words, what you are saying is not that 
the antitrust laws are bad but we need good antitrust laws and 
more of them. Is that it ? 

Dr. Howe. I would endow the Government through any of these 
agencies — yes; antitrust laws — to enforce its decrees, especially as to 
food. I believe sovereignty ought to be with the State in civil 
affairs as well as external affairs. 

Mr. Ballinger. All right. Thank you. Dr. Howe. Mr. Baughman 
has a question. 

Mr. Baughman. Dr. Howe, along the same line, there has been an 
effort made — for example, the bill introduced last year, H. R. 8311 — 
to strengthen cooperatives along the Capper-Volstead lines. Would 
you think that if that were done that might assist in this problem 
against monopoly, strengthening the cooperatives? 

Dr. Howe. Well, it is part of my philosophy that the simple ap- 
proach to Si correction of many abuses — and the most dramatic that 
I know — is through the cooperatives, through the voluntary associa- 
tion of people to control their own industry just as we are now doing 
throughout the West as to many farm commodities. I think that is a 
basic philosophy. 

Mr. Ballinger. Ali right; Dr. Howe, will you proceed with the 
discussion you started this morning? 

Mr. O'CoNNELL. May I ask. a question? Reverting again to your 
discussion of the antitrust laws and the question of whether adequate 
enforcement qf the existing antitrust Jaws would be adequate or 



CONCENTRATION OF ECONOMIC POWER 2777 

comparatively adequate to deal with the situation, it seems to me that 
we should be entirely clear — at least I got the impression from your 
discussion — that you also contemplated certain specific amendments 
to the antitrust laws which would be entirely in keeping with the 
theory of the Sherman Act and Clayton Act, and so forth, but in 
order to further implement existing laws ; that is, you weren't of the 
opinion, were you, that adequate enforcement of the existing statu- 
tory legislation on the subject would be all that would be necessary 
to meet the problem insofar as antitrust laws are concerned ? 

Dr. Howe. I don't think that I am well enough informed to say 
whether the present laws are adequate to meet the situation as on 
the statute books and as interpreted by the courts. I don't know 
whether I know enough about that, but my impression is that the laws 
were simple enough when they were originally drawn, as were the 
powers given to various agencies of the Government; but that those 
powers have been somewhat lost in their effectiveness by judicial 
interpretation and otherwise, and I would correct, so far as possible, 
court decisions which had whittled away the power of the Depart- 
ment of Justice. 

Mr. O'CoNNELL. Your suggestion relative to the result of court 
decisions on the antitrust laws would seem to me to naturally lead to 
the proposition that the way to get at such a situation is by legisla- 
tion. There is no constitutional question involved in those cases. 

Dr. Howe. That is right. 

Mr. O'CoNNELii. You have*' two possibilities, one being legislation, 
another being reversal of court decisions by the court itself. It 
seemed to me that the legislative approach, since there is no consti- 
tutional question involved, is much the simpler one. 

Dr. Howe. I hope so. I think so. I think that is the first ap- 
proach, yes. Of course, I think, too, that the Department of Justice 
should be implemented with rapid action so that they can reach a 
conclusion immediately, just as I think the three-court decisions en- 
acted by the last Congress speeded up litigation insofar as it affected 
the constitutional question. Is that not true? 

Mr. O'CoNNELL. Yes; when I was speaking_ of legislation I was 
speaking of it broadly, the possibility of revision of the substantive 
antitrust laws as well as the laws providing for the enforcement of 
those laws; in other words, the procedural mechanism, which in- 
volves procedures by the Department of Justice, also used by the 
Federal Trade Commission, is a part of the antitrust laws as 1 was 
using the term "procedural" as distinguished from provisions of the 
Sherman Act, which is a substantive law, but when I was thinking of 
legislation I thought you meant, and I certainly meant, both fields. 

Dr. Howe. I certainly do, and I have great confidence in an admin- 
istrative machinery like the Federal Trade Commission or th^ 
S. E. C. ; that moves, you know ; that is administratively handling an 
administrative problem, and these problems are pretty largely the 
kind of things that businessmen are dealing with, on one hand, and 
they ought to be dealt with, on the other hand, by the same sort of 
authority in a general way. 

Mr. O'CoNNELL. Of course, all this discussion assumes that we 
both think, and I think we do, that the approach to the problem is 



2778 CONCENTRATION OF ECONOMIC POWER 

one intended to preserve and restore, to the extent that it can be done, 
a competitive system ; I mean it assumes that, does it not ? 

Dr. Howe. Thoroughly; I thoroughly agree with that. 

(Senator O'Mahoney resumed the Chair.) 

FLUID MILK PRICES IN LARGE CITIES 

Dr. Howe. We completed one section this morning. We step now 
into section 2, which relates to fluid milk and also the present cost of 
a quart of fluid milk and the possible cost of a quart of fluid milk. 
There is an exhibit which might be introduced now, which shows the 
price of a quart of milk in 12 cities. It is entitled "What does a 
quart of milk cost and what does the farmer get from it?" 

(The exhibit referred to was marked "Exhibit No. 362" and is 
included in the appendix on p. 3128.) 

Dr. Howe. That is interesting because in the depression period 
here the price charged the consumer for a bottle or a quart of milk 
delivered at the doorsteps averaged for 12 cities I2I/3 cents. It rose 
to 13 cents in 7 cities and was as low as 10.50 in 1 city. The Detroit 
price of 10.50, I suspect, is due to the fact that we had competition 
there — - 

The Chairman (interposing). You are referring to "Exhibit No 
362"? 

Dr. Howe. Yes. 

I think there are some cities higher than that and some that are 
lower. 

The Chairman. Have you discussed to what extent your studies 
indicate that these prices are fixed, if I may use that word, by the 
distributors in the belief that they must do that in order to stay in 
business, and to what extent they are fixed according to the old 
principle of charging whatever the traffic will bear ? 

Dr. Howe. I would accept your last statement, Senator, that this 
is an arbitrarily fixed price by the distributors in control of the 
market. 

The Chairman. Is it your conclusion, after all your studies, that 
distributors maintain the price of milk at an excessively high figure 
which is not warranted by the cost of production ? 

Dr. Howe. It is. 

The Chairman. Have you made any suggestion as to what could be 
done to bring the price of delivered milk down to a more reasonable 
figure, which would not include any accretions due to arbitrary agree- 
ments or arbitrary fixation of price ? 

Dr. Howe. Approach? Well, Senator, I have; yes, of course, I 
have. 

The Chairman. I would be very glad to have your suggestion, and 
so would the committee. 

Dr. Howe. Suppose I follow through this section shortly, because 
it comes right along. 

The Chairman. Certainly. 

Dr. Howe, From this statement here it appears that tne farmer was 
paid for class 1 milk. I assume the committee knows what class 1 
milk is. Class 1 milk is the price which the farmer is paid for so 
much of his milk as goes into bottles. Class 2 milk, or other classi- 
fications, is the price which the processor or pasteurization plant 



CONCENTRATION OF ECONOMIC POWER 2779 

pays for milk which is used for cream, ice cream, butter, cheese, 
evaporated milk, condensed milk, casein milk, and other forms of 
dairy products. 

The Chairman. Does the farmer know how much goes into bottles 
and how much is used for these other purposes? Has he any means 
of checking that? 

Dr. Howe. He knows what he receives in his pay check from 2 to 
6 Aveeks after he has made his deliveries. 

The Chairman. In other words, he is dependent upon the decision 
of the purchaser of his milk. 

Dr. Howe. I think so. I know of no control that he has anywhere 
over the bookkeeping. 

The Chairman. In other words, he has the same sort of complaint, 
if one wants to use that word, that the western miner has with respect 
to the return which he receives upon his ore from the smelter. He 
is dependent not upon any check that he may make or that is made 
by any public institution but by the report which the smelter gives 
him as to the classification. 

Dr. Howe. That is the system under which the farmer is paid as to 
about 40,000,000,000 quarts of milk that goes into all uses, and it is 
my understanding that it exists all over the country as a universal 
practice. I am going to discuss that at considerable length, because 
I think it lies pretty close to the heart of this problem. 

Mr. Davis. Doctor, along the lines of the questions asked by Sen- 
ator O'Mahoney, I want to ask you if you are familiar with the fact 
that during an investigation made by the Federal Trade Commissiou 
pursuant to congressional rpsolution, facts were developed showing 
that distributors at least in certain areas had specifically refused to 
permit representatives of the farm cooperative associations to inspect 
the books of the distributors to see whether the division had been 
properly, made under the classification of the different grades of milk 
which accounted for the different prices received by the producer. 

Dr. Howe. I think it is in the Philadelphia area, specifically, in 
which the farmers' cooperative was unable to get permission, con- 
tractual permission, to examine the books at all. I think that is 
pretty general. More than that, even if they wanted to find out, in 
New York State there are nine classifications, and it would take a 
force of expert accountants who would have to be on the books all 
the time breaking that down. As to whether it can be done or not 
I don't know, but so far as I know I have never heard of a thorough 
job of protection being got by any fanners' cooperative. I may be 
wrong about that, but I never happen to have heard of it. 

Mr. Davis. Speaking further with respect to class 1 milk and other 
classifications, or class A or class B, and so forth, as it is frequently 
called, it is a fact, is it not, that those different grade milks, so-called, 
are identical in quality, all the same kind of milk ? 
, Dr. Howe. It is all the same milk; it comes from the same cows, 
goes through the same health inspection, and is the same milk. 

Mr. Davis. In other words, the price classification has no relation 
to any difference in quality, because there is no difference in quality. 

Dr. Howe. No. There may be a little difference as to butterfat;' 
th^e is a higher payment for high butterfat. So far as the milk is 
concerned, it is all the same milk; it goes through the same proce^sses.' 



2780 CONCENTRATION OF ECONOMIC POWER 

Mr. Berge. Da the dairies make any effort to segregate the milk 
of a particular farmer and pay hiiii according to the use to which 
that milk is put, or do they pay a particular farmer on the basis of 
a blended price based on all of the milk they sell ? Suppose they sell 
60 percent to class 1 use and 40 percent to class 2 use of all the milk 
they handle, would they strike a difference and pay the farmer an 
average price midway between the class 1 and class 2 prices, or 
would they try to segregate the milk of those farmers that went to 
class 1 use and pay them a higher price than the other farmers? 
What is the normal process in a market where there is no regulation ? 

Dr. Howe. The normal process is for the milk to be brought in 
from the cooling stations or direct from the farmer. It is tested and 
poured into the pasteurization plant where it is heated and cooled. 
Some of it goes into bottles, some of it into cream, some of it goes 
into ice cream, some of it goes into other uses. Out on the farm 
where they may be producing other qualities it may not go through 
the pasteurization plant, but these big buyers — so far as I know, 
it is all the" same milk, handled in the same way. 

Mr. Davis. Doctor, is it not a fact that these distributors decline 
to make a classification direct to the farmers such as is suggested by 
Mr. Berge, iDut if they agree to take- a man's milk, he delivers the 
milk to them and he doesn't know how it is going to be divided or 
segregated or priced until he receives his pay check ? 

Dr. Howe. That is an absolute statement of it, sir. 

Mr. Davis. In other words, the division, the segregation of the 
different classes for the purpose of fixing a price, is a matter wholly 
within the processes of the distributors over which the farmer has 
no control ? 

Dr. Howe. Yes ; and I have heard it said by farmers, and this may 
or may not be accepted, at various milk hearings, that if they pro- 
tested that they weren't being paid as they should be paid, it was 
suggested to them, "Well, if you don't like it, take your milk some 
place else." In other words, they are up against a situation in which 
they can't complain because they have established a market with cer- 
tain distributors, and if they make any complaint — even in Phila- 
delphia, they testified, "If we had a little organization of our own out 
there complaining about the base or distribution, or complaining 
about the method of payment, we lose their market." That is a 
kind of threat that is held over them in El Paso and elsewhere. 

Mr. Berge. If the dairies were willing, would it be physically pos- 
sible to trace the milk of a particular farmer and know whether it 
went i7ito a fluid milk use or whether it went into butter or cheese? 

Dr. Howe. A particular farmer laiows that of his milk, if he 
brought in 1,000 gallons, what they had allotted to him as class 1, so 
at the end of the time when he is paid they would say, if he brought 
in 1,000 gallons and has a base of 50, 500 gallons are to be paid for 
at class 1. All the milk was mixed with other farmers' milk. 

Mr. Ferguson. Isn't it a purely arbitrary decision ? 

Dr. Howe. It is made by the distributor without consultation with 
anybody else except insofar as he cooperates with the farmers' coop- 
erative as to fixing prices. Yes; they could give me a high base 
and give you a low base for the same milk. 

As to this chart (referring to "Exhibit No. 362"), the farmer got 
5.55 cents for his class 1 milk. The prices charged the consumer were 



CONCENTRATION OF ECONOMIC POWER 2781 

12.33 cents, while the spread, the distribution cost, was 6.78 cents. 
That means that the average price charged the consumer was nearly 7 
cents more than the farmer got, and the distributor got 1.19 cents 
more than the farmer got. 

But that isn't really an accurate picture of the situation, for 
these are f. o. b. city plant prices. Out of this price of 5.55 cents 
there is deducted hauling charges, sometimes terminal charges, cool- 
ing charges and otlier charges which, in the Baltimore study, ranged 
from half a cent to three-quarters of a cent a quart, so that you wiU 
have to deduct from this 5.55 cents to the farmer maybe half a cent 
or maybe three-quarters of a cent, and a quarter of a cent means a 
whole lot to the farmer in connection with his milk. 

In addition to this study made by the Federal Trade Commission, 
which is the most accurate that has been made, there was a study 
made in 1934 of 40 cities. I think the prices then were lower than 
they are today. It showed that in 17 cities the farmer received as a 
class 1 price between 3 and 4 cents a quart; in 12 cities between 4 
and 5 cents a quart; in 3 cities between 5 and 6 cents a quart; and 
in 8 cities between 6 and 7 cents a quart. The retail prices for 
house delivery ranged from 9 cents to 13 cents a quart. 

That is a general picture of the country as a whole under the pres- 
ent distributive system. 

The Chairman. Have you made any investigation of the elements 
which go into the spread ? 

Dr. Howe. I am just coming to that, sir. 

It may be wondered why there aren't a whole lot of exhibits of a 
free competitive industry determining price under competitive cost 
conditions. 

The Chairman. By ther way, we hear frequently of the prize fights 
which are held for the benefit of the so-called milk fund. Do you 
know whether or not these philanthropists who patronize such prize 
fights pay the farmers' or the distributors' price for the milk which 
goes to the child ? 

Dr. Howe. I don't know that, Senator. 

Ever since the Senate inquiry into milk, of which Senator King 
was a member, we have been milk-conscious in this country. I think 
that started the concern over milk. Then followed the Federal Trade 
Commission's inquiries and the Department of Justice and the De- 
partment of Agriculture. But that was the starting point. We 
didn't question it very much up to that time. It was generally 
assumed by many people: If this is the prevailing price it must be 
a reasonably proper price. 

Beginning, however, in 1933 and 1934, when . people were poor, 
men began to try to sell milk in different ways, in other words to 
break into this market and sell milk in any way they could sell it. 
I am going to talk about two kinds of approaches to a proper cost 
of milk. Both of them are a businessman's approach. I am present- 
ing them as if I were going into the milk industry, to find out what 
it would cost me to provide the public w^th the commodity which 
the public wanted. First we have the farmer's price. The next is the 
plant or processing cost after the milk is delivered to the pnsteuriza- 
tion plant. We have a good many accountant's studies of that. The 
most authoritative is the one made in New York State in 1933 and 



2782 CONCENTRATION OF ECONOMIC POWER 

1934. It was made for the Milk Authorities. It showed plant costs, 
not including bottle costs, of 0.79 cent a quart in 30 New York 
City plants, and 0.7 cent a quart in 22 up-State plants. That was 
less than a cent a quart for receiving milk, heating, and cooling, and 
bottling it. Then it was placed in containers on the platform of the 
distribution station to be picked up, either by the big distributors 
who controlled the situation, or by vendors, to whom they might sell 
it at a wholesale price. The distributors also made the distributions 
to stores. 

Now this New York figure, lest it may be questioned, was for 
84,000,000 quarts of milk. It gave the labor cost, the fuel and power, 
ice and refrigeration, supplies, depreciation, repairs, rents, taxes, 
insurance, miscellaneous expenses, and it totaled 0.79 cent. A similar 
break-down of the up-State plants is also given here. 

We made several different inquiries and satisfied as I am as to 
those figures, we are going to put on tomorrow morning a witness 
and ask him to break down the plant costs and see whether or not 
they confirm the accountants' studies. It is my opinion that actual 
operating costs would be lower than anything that the accountants 
might get, for one reason : It is part of our record here that operating 
costs of 'the distributors are frequently plowed into fluid milk to 
raise an excessive plant cost, I am quoting one of the various Gov- 
ernment reports that made that statement. Of course, I am not able 
to sav it from personal experience. 

The Chairman. To what report do you refer? 

Dr. Howe. I think it was in the Federal Trade Commission on 
milk. I have it somewhere in here just where that is. 

Mr. Ballinger. You mean that milk would be loaded with charges 
that ought to go to the making of cheese and butter, and so forth, in 
order to sustain the statement often made that there is very little 
profit in fluid milk ? 

COST OF FLUID MILK UNDER FREE COMPETITIVE CONDITIONS 

Dr. Howe. That is right. 

Now, I have a chart here which shows the cost of a quart of milk 
ready for delivery by store or wagon under free competitive condi- 
tions. That is with milk at 4, 5, and 6 cents a quart for class-1 milk. 
This shows that with a farmers' price of 4 cents, milk is ready for 
wholesale delivery at 4.79 cents; 5-cent milk a^t 5.79 cents; 6-cent 
milk at 6.79 cents. 

Mr. Ballinger. Do you wish to otfer that for the record? 

Dr. Howe. I will offer that for the record. 

The Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 363" and is in- 
cluded in the appendix on p. 3129.) 

Dr. Howe, From the data contained iri "Exhibit No. 363," we can 
calculate what should be the price of milk based upon the price paid 
the farmer in the average American city. The only item as to which 
there would be substantial difference is the cost of the raw milk. 

The break-down of costs is as follows : 
(1) Cost of raw milk f. o. b. the plant (quart), 4, 5, or 6 cents. 



CONCENTRATION OF ECO> OMIC TOWER 2783 

(2) Pastiirizing, bottling, and plant costs (New York Survey, 1933) 

(quart), 0.79 cent. 

(3) Wholesale cost of a quart of pasteurized milk at the plant, ready 

for delivery: 

Cents Cents Cents 

Farmers' price 4.00 5.00 6.00 

Plant cost, New York study .79 .79 .79 

Total 4.79 5.79 6.79 

We now have a cost break-down for a quart of milk ready for 
deliver}' at the pasteurization plant. 

I]i the majority of cities, the total price at the plant would range 
from a low of 5 cents a quart to a high (if 7 cents a quart, depending 
upon the price paid the farmer. 

In Milwaukee, an exhaustive milk survey was made, by various 
agencies of the Government, of fluid milk. Upwards of 2 years were 
devoted to the survey. By necessity, the study was from the books 
of the distributors. 

The Milwaukee report includes a calculation of costs of plant op- 
eration and the savings possible through a unification of distribution 
from one to two trucks to a block. This estimate showed that Mil- 
waukee milk could be delivered by house-to-house delivery at 7 cents 
a quart, and at slightly less than this price over the counter. 

The build-up of the sales pjcice is arrived at as follows: 

High, 

per 

quart 




Price to farmers 

Plant and pasteurization cost (average).. 

Wages distribution cost (under consolidation of wagon routes) 

Total production and c'istribution cost 

There remains only the cost of delivery. The distributors insist 
upon wagon delivery. They oppose sales through stores in every 
way possible; in most cities they refuse to permit a lower price over 
the counter than that charged by wagon delivery. When forced to 
make concessions, tliey allow the stores a differential of from 1 to 2 
cents a quart. 

It is from this point on that the big spread appears — a spread 
which averaged 6.82 cents a quart for 12 of our largest cities. It is 
here, too, that controversies arise over cost. It is in this item that 
gains to the farmer and consumer are to be found, and an increase 
in consumption is to be j^romoted. ' 

NoAv this distribution system is a luxury distrijjution; It is de- 
signed for persons of wealth to whom a few cents a day is of n.o 
importance and who choose to have their milk delivered ,at their 
doorstep. The com})anies insist that this luxury method of distribu- 
tion shall prevail, even though it does deny a large part of our popu- 
lation access to milk at a price which they can pay. 

It is in the maintenance of this type of monopoly distribution that 
most of the racketeering abuses as to fluid milk are found. 



2784 CONCENTRATION OF ECONOMIC POWEK 

In order to maintain this method of distribution, the distributors : 

(1) Refuse to permit milk to be bought at the plant at its pro- 
duction wholesale cost. 

(2) They refuse supply to any distributors but themselves. 

(3) They fix the price so high that neither the stores nor inde- 
pendent distributors can enter this field. 

In effect, 70,000,000 people are compelled to buy their milk in the 
way the big distributors command, and to buy it in the most expen- 
sive way possible. 

There remain costs and abuse in connection with house-to-house 
delivery insisted on by the distributors. In practically every city 
there are many trucks which deliver milk on the same block. The 
number depends upon the number of distributors in the market. An 
exact study of this duplication was made in the city of Milwaukee as 
of March 16, 1934. It showed : 

1. Considerably more than half the number of routes were be- 
tween 35 and 64.'9 miles in length. 

2. In 1,020 selected blocks, there were an average of 6.8 companies 
making deliveries in each block. In an extreme case 17 companies 
were found to be competing in the same block. 

3. In 201 blocks deliveries were made by an average of 7.6 trucks 
per block. 

4. None of the 25 wards studied were served by less than 10 dis- 
tributors. There were 21 distributors in 2 wards. There were 25 
distributors in 8 or more wards. There were 8 distributors who had 
customers in 21 wards. 

5. Reduced to individual premises, there were 996 premises on 
which duplication of delivery occurred. 

Each of these trucks involved wages and other costs of possibly 
$8 a day. 

A study was made in Milwaukee of possible economies from a 
unification of house-to-house delivery, and it was found that a reduc- 
tion of 2 cents a quart would be possible under such a consolidation 
of routes with a houoe-to-house delivery price of 7 cents a quart. 

I think I have pretty neaily come to my general economic phi- 
losophy. 

Mr. Ballinger. Dr. Howe, did you bring out these spreads very 
clearly? You told how much went to the farmer. What is the cost 
of pasteurization, what is the spread from the pasteurization plant 
to the ultimate consumers? 

Dr. Howe. You can take the first chart which I introduced here ^ 
showing a spread of 6.82 and if you add to the farmers' average 
price, 5.5 

If you add further plant costs to your quart cost to the farmer, 
you would then have the spread beyond that for actual distribution, 
whether it is distribution to stores or distribution on the wagon. It 
would be approximately 6 cents, I think, after all plant costs. 

Mr. Baughman. Of course. Dr. Howe, there should be some allow- 
ance there for profit to the company. 

Dr. Howe. Yes ; insofar as that isn't taken care of in these calcula- 
tions of 0.79 cent. That includes bottle losses where bottles are given 
away free. 

1 "Exhibit No. 362," appendix, p. 3128. 



CONCENTRATION OF ECONOMIC POWER 2785 

Let's see if anything else should go in there. Depreciation was in 
this calculation. This witness from Detroit who has a relatively 
small plant in comparison with a big plant, stated yesterday that his 
plant costs were less than half a cent a quart, 0.44 of a cent, so that 
is rather confirmative of these cost studies made by accountants. 

I made two or three other studies of that in different ways, and it 
all seems to break down about the same, except in Milwaukee where 
the whole study was made against the costs of the plants, and they 
had to dig it out as well as they could. There the total plant costs 
were a little over 1 cent, but nowhere do those plant costs, as far as 
I have been able to ascertain, rise above from 5 mills to 10 mills a 
quart, leaving the rest of this spread for delivery costs. 

Now, I come really to my feeling about milk, the feeling I have 
about the general economic system. We have got milk here ready to 
be used, ready to be bo^ught. It is on the back platform of pasteuri- 
zation plants operating in a freely competitive system. That is the 
kind of condition which in part exists in Chicago. It existed in 1933 
and 1934. People then came to the pasteurization plant and bought 
milk at wholesale, and then distributed it in any way they saw fit. 
They had a lot of trouble in doing it, but hundreds of plants, shops, 
sprang up in the city in a very short time. They were presided 
over by poor people, people on relief. There were some brokers 
there. They sprang up principally in the poorest sections of the 
city, but they went directly to the plant and bought their milk at 
wholesale. 

Outside of the city of Chicago, uncontrolled by the health officials, 
there were other plants where people could go and buy as much milk 
as they wanted to just as though they were dealers, so they did have 
a kind of exhibit under very difficult circumstances of people being 
able to buy from three plants inside the city freely at a wholesale 
market. 

Now, what happened? Lots of different kinds of distribution 
sprang up. Stores got their milk freely because the big distributors 
could not control these three distributors. They sold at a competi- 
tive price over the counter with a spread of about 1 cent. It was a 
fine exhibition of a new kind of dairy life being introduced so far 
as the consumers were concerned. 

I drove around in the sections of the city there, and I saw lots of 
interesting things that are suggestive of what in an uncontrolled 
system — :if we could just get some police protection so that men could 
get into industries — well, you would see on the windows of these little 
dairy shops milk, 6 cents a quart, or 6V2 cents, 23 cents a gallon, a low 
price for cream. Inside you found women presiding over those 
counters, and men too. 

A very large consumption of new milk sprang up according to the' 
distributors. I hestitate to recall how much they said of new milk 
came into the market, because poor people were able to buy milk 
at that price. 

Now, I might just as well anticipate the recent subsequeht state- 
ment of that. We ^ held hearings in Chicago at that time on a milk- 
marketing agreement, and there appeared before the agencies of 
A. A. A. 



1 Dr. Howe was formerly Consumers Counsel for Agricultural Adjustment Administration- 



2786 CONCENTRATION OF ECONOMIC POWER 

Mr. Ferguson (interposing). We, Dr. Howe? 

Dr. Howe. Well, the A. A. A. held milk-marketing agreements 
there as it did elsewhere. There sprang right out of the audience — 
it was a big hearing; the public and the people were apparently very 
much interested — and these women came forward, and they said : 
"Well, the windows of our shops were broken last night'" or "last 
week." "Somebody broke in and spread red ink all over our prop- 
erty." Later their stores were jjicketed up and down — the pickets 
said it was unfair competition. 

There was one man who said some otlier things pretty much rougher 
than that, but the attempt to destroy these industries was a combina- 
tion apparently of the distributors, the truckmen's union, the bottle 
exchange and a variety of other agencies. They wanted to put these 
industries out of business. The industry, by the way testified as to 
how much money they made and how rapidly they made it even at 
that low plant cost — ranged about 1 cent. 

Mr. Baughman. Dr. Howe, for what price were they selling this 
milk in these small shops ? 

Dr. Howe. At 6 cents, 61/2 cents, 23 cenls a gallon; sometimes 7 
cents. 

Mr. Baughman. Was the farmers' price being maintained? 

Dr. Howe. 4.2 cents a quart. At least that was the figure that 
was introduced into their cost set-up wdiich they gave in great detail 
at the hearing. They weren't cross-examined; their statements 
weren't criticized. Big distributors were there. Their attorneys were 
there, so it is reasonable to assume that they were telling the truth. 

Convincing as that was to me, we have some other convincing 
testimony. In Grand Rapids the relief administration entered into 
a contract with a man by the name of Johnson ^ to buy his milk di- 
rectly from the farmer, pasteurize it, and bring it to various distribu- 
tion stations throughout the city. He built little dairy shops vviiich 
cost about $200, with a big refrigeration bos' inside. The milk was 
actually distributed by relief workere who were there in the morning 
and in the afternoon. His sole contract was to bring milk to the 
refrigeration plant, proper bacterial count, and proper butterfat con- 
,tent, and he was paid for wholesale milk. At the beginning he de- 
livered his milk for 4.9 cents a quart. The price subsequently went 
up to 5.2 cents. He is the man who told me at that time that the 
feeding of children of a quart of milk a day made the children blos- 
som as plants blossom when you water them. He also made the state- 
ment that when the children 'had all tlie milk they needed tliat^ the 
relief children were the best -looking children in the schools and — 
maybe I got this wrong — that the cost of the milk almost paid the 
previous doctor's bill, something like that. But at any rate they did 
have a plan in Grand Rapids of providing a quart of milk a day to 
children on relief, and that, with some bread, was about all they 
furnished. 

Mr. Davis. Dr. Howe, I want to get this clear. You speak about 
this independent distributor being paid 4.9 cents per quart of milk. 
How was that, for all of his milk? 

Dr. Howe. Oh, yes. 

Mr. Davis. In that connection you filed, I believe, "Exhibit No. 
3&2," the price received by farmers in vi^rious different cities and the 

i^See testimony of Mr. Johnson, infra, p. 2829 et seq. 



CONCENTRATION OF ECONOMIC POWER 2787 

price paid by consumers for grade 1 milk, and you ^yent on to 
explaiji that the farmers were paid on the basis of the grade 1 milk 
and of grade 2 or subsequent grades, so-called. Will you give the 
corinnittee some indication about the relative price received by the 
farmers for the subsequent grades as compared with grade 1 milk'^ 
Have you anything with you on that? 

Dr. Howe. I am glad you asked that question, sir. This man was 
delivering reiief milk. When you get Johnson on the stand tomor- 
row you will find that he Avas not manufacturing butter. He claimed 
in Gr:;nd Kapids that he paid a little more than the established price 
to the farmer. 

Mr. Davis. I understand; but I am talking about these other 
instances here in which you have given the price which the distrib- 
utors pay in certain areas for grade 1 milk. Can you give us some 
information as to what in those same areas they paid for the milk 
that was graded below grade 1 ? 

Dr. Howe. I think this is a good place to introduce a chart which 
Mr. Simpson has j^repared, and I will ask him if he will be willing to 
interpert it, because that is very important and might just as well 
come in here as at any place. It is very illuminating, Mr. Commis- 
sioner, as to the fact that he doesn't get what he hopes to get. 

TESTIMONY OF KEMPER SIMPSON, ECONOMIST, FEDERAL TRADE 
COMMISSION, WASHINGTON, D. C. 

RETAIL, AND TRICE RECEIVED BY FARMER FOR FLUID MILK 

Mr. Simpson. These charts tell a little more than just that story, 
and I am wondering if you would like to have the whole picture or 
only an answer to the Commissioner's question with regard to the 
relation between the class 1 price and the net price which the farmer 
actually receives. Would you like to have an interpretation of the 
chart as a whole ? 

Mr. Davis. Yes. 

Ml'. Simpson.. I think that will help. 

We prepared two exhibits, one relating to New York and one relat- 
ing to Milwaukee. They tell the facts with regard to a quart of fresh 
milk. These two cities we feel are fairly representative of the United 
States as a whole. Certain other estimates, which are not quite so 
reliable, bear out the general conclusions in these two charts. 

The Chairman. May I interrupt you to ask whether this chart was 
placed in the record this morning? 

Mr. Simpson. We can introduce it. 

The Chairman. You will offer them at the proper time ? 

;Mr. Ballinger, We will offer them right now. 

The Chairman. Very well ; they may be received. Please describe 
the chart. 

Mr. Simpson. Chart III, Price of Fresh Milk in New York on 
Quart Basis. 

(The chart referred to, with accompanying data, were marked 
"Exhibit No. 364" and are included in the appendix, on pp. 3130- 
3131.) 

Mr. Simpson. We selected two cities. We selected New York be- 
cause it is the most important fresh-milk market, and we selected 
Milwaukee because a very considerable quantity of the milk in Mib 



2788 CONCENTRATION OF ECONOMIC POWER 

waukee goes into the milk product, cheese and to some extent, con- 
densed milk. I will first describe the chart referring to New York. 
This is the average price in 1923 that the consumer paid; he paid 
almost 15 cents a quart. You can see, if you follow with your eye 
across this chart, that the retail price changed relatively very little. 
During the depression it went down 25 percent, to about 11 cents a 
quart, and in 1938 it was about 13 cents a quart. This gives you a 
picture of the rigidity of the retail price of a quart of fresh milk in 
New York. 

The bottom price is the price which the farmer actually received 
for the fluid content of the quart. For example, in 1923 he got, 
roughly, 5 cents per quart. 

The Chaibman. When you refer to the bottom price, you are refer- 
ring to the price which is represented on the chart by the line of dashes 
in each instance ? 

Mr. Simpson. The line of dashes, the net price, is the blended 
price; thatJs the price which the farmer actually receives on all of 
the milk. It is not the class 1 price or the price of the milk that 
theoretically goes into the bottle. It is exactly the same milk; but 
because of the surplus the actual receipt^ in 1923 was 5 cents, as com- 
pared with 6.4, which is the class 1 price. 

The Chairman. And the price, I observe, dropped in 1932 to some- 
thing below 3 cents. 

Mr. Simpson. It dropped to about 2.6. 

The Chairman. In other words, did the farmer's price drop from 
1923 to 1932 approximately 50 percent ? 

Mr. Simpson. About a half, whereas the retail price declined about 
20 percent. It will, of course, be urged that there were other costs 
which might maintain the retail price of milk and that the rigidity 
of these other costs would keep up — would be some justification for a 
higher retail price of milk. As a matter of fact, without going into 
all the accounting refinements involved in the distribution of the cost 
of milk, between milk and milk products, the single most important 
item of cost is the fluid content of the bottle — that is, the price of the 
milk. It is to the distributor's interest, obviously, to keep the class I 
price as high as possible, relative to the net price or the actual price 
which he pays the farmer, because if his class 1 price is kept high he 
has a justification for a high retail price; he can point to the expen- 
siveness of milk in bottles, furthermore, if he converts a great deal 
of this milk into other products, he can lower the net price which he 
actually pays the farmer. 

The Chairman. Well, isn't it a matter of fact that if milk were 
delivered in cans, as it was 25 or 30 or 50 years ago, it probably could 
be delivered at a lower price than if delivered in bottles? 

Mr. Simpson. Yes ; and I think Dr. Howe has a good deal of other 
evidence on the costs of distribution, wholesale and retail. However, 
what is interesting to me about this chart is this divergence between 
these dotted and dashed lines, the thing Commissioner Davis referred 
to; I call this the farmer's mirage, the difference between the net 
price which he received and the class 1 price which he hoped to re- 
ceive. It may be a coincidence, but at the end of 1923 the National 
Dairy entered the milk business and took over Sheffield in New York 
in 1925 and Borden's started its policy of expansion in 1927. 

The Chairman. What is National Dair^-? 



CONCENTRATION OF ECONOMIC POWER 2789 

Mr. Simpson. National Daii-y Products Corporation is a corpora- 
tion which owns a great many distributing companies, milk dis- 
tributing companies ; it holds Kraf t-Phenix Cheese, the largest cheese 
manufacturer; it owns butter and creamery plants, it operates facto- 
ries which manufacture all types of milk products.^ 

The Chairman. Is it a holdmg company or an operating company ? 

Mr. Simpson. It is a holding company, as I understand it. 

The Chairman. Over what area does it operate ? 

Mr. Simpson. It has a Nation-wide operation. It operates in 
Wisconsin in the cheese industry, in New York in the fluid-milk 
industry, and in many other cities as we indicated on charts this 
morning. 

The Chairman. Do you happen to know where it received its au- 
thority to engage in interstate commerce ? 

Mr. Simpson. Senator O'Mahoney, I haven't even been sworn in. 
I think that you had better ask Dr. Howe about these things. I 
think he knows much more about them than I do. 

The Chairman. Dr. Howe, do you know ? 

Dr. Howe. A Delaware corporation, sir. All of them are, as a 
matter of fact, either New Jersey or Delaware corporations, with one 
exception, which is a Maryland corporation. 

Mr. Simpson. I haven't tried to evade your question. I feel that 
is a part of Dr. Howe's testimony. I am here merely to explain 
a complicated logarithmic chart. 

The Chairman. I was merely trying to point out, because it seemed 
to me a very strategic point in the record, that this testimony is tell- 
ing us of a national industry which apparently has some effect upon 
the price which is paid by all the people of the Nation for milk and 
that this agency is created b^ the State of Delaware, which has no 
authority under our constitutional laws to do anything for the benefit 
of the consumer. Delaware can do nothing about this except to 
create the agency which makes the prices. 

Mr. Simpson. Yes, Senator ; and I think as I finish this there will 
be some other ideas which fit in with your thesis. 

Now, I might point out that these two lines (the dotted and the 
dashed) begin to diverge during the depression. During the depres- 
sion the class I price was held relatively high, but the price which 
the farmer received sank far below the class I price, and this diver- 
gence has remained even since the depression. It is wider now 
than it was back in 1923. This serves the distributor-processor in 
a number of ways. As I indicated, it enables him to justify a high 
price for retail milk; it enables him to say that he does not make 
very much money on the distribution of fluid milk. But this class 
system of buying raw milk does another thing. It enables the dis- 
tributor-processor to lower the cost of the milk that goes into the 
milk products; it enables him to show a low cost on those things 
which he is interested in expanding, in encouraging, because he has 
a brand monopoly in such products as cheese and canned milk. 

The Milwaukee chart shows much the same thing and I think 
it is worth looking at. This is Chart IV, Price of Fresh Milk in 
Milwaukee on Quart Basis. 

^ For testimony by witnesses from National Dairy Products Corporation, see p. 3027 
€t seq., infra. 



2790 CONCENTRATION OF ECONOMIC POWER 

Mr, Ballinger. We offer that for the record. 

The Chairman. It may be received. 

(The chart with accompanying data was marked "Exhibit No. 365" 
and are included in the appendix on pp. 3132-3133.) 

Mr. Simpson. Here again. we have the price which the consumer 
pays. Here we have the class I price which I have termed the price 
which the farmer is led to believe he will get, or I might perhaps 
paraphrase, the price the farmer hopes to get, and here we have the 
net price, the price which the farmer actually does get. 

The National Dairy Products Corporation entered Milwaukee by 
the acquisition of distributing companies in 1926 and 1927; Borden 
bought a distributor in 1928, and the National Dairy Products Cor- 
poration acquired the Kraft -Phenix Cheese Co. in 1930. Now you 
note we have only a part of the year 1925, but back there the farmer 
received for those months, the last 3 months, 5.3 cents. 

Mr. Ferguson. Mr. Simpson, just a moment. In explaining this 
chart you are going somewhat into facts, so in order to comply with 
the rules oi the committee, we think you should be sworn. 

The Chairman. Do you solemnly swear that the testimony that 
you have given and are about to give in this proceeding will be the 
truth, the whole truth, and nothing but -the truth? 
t Mr. Simpson. Is and will be the truth; I do. 

There is a very narrow divergence, heie between the price which 
the farmer was led to believe he would get and the price which he did 
get, but you see that later this difference becomes vvade, and remains 
wide. You see, here, anotlier interesting fact about Milwaukee : back 
in this period the retail price was about 10 cents ; today it is 12 cents, 
actually higher, a higher retail price paid by the consumer, whereas 
the price which the farmer received back there was about 5 cents, 
51/2 cents, and today it is 4.3 cents. 

As Dr. Howe said, a cent difference seems a relatively small 
amount, until it is multiplied by many millions or billions of quarts 
of milk. 

The Chairman. It would appear, Mr, Simpson, from an examina- 
tion of these charts, actually, except for the ])eriod of the depression, 
that the farmer, apparently, both in New York and in Milwaukee, 
has received — no; I was going to say has received about one- half of 
the price, but that is not true, because apparently as you have pre- 
pared 3'our chart ^ a longer space is allowed at the bottom of your 
chart for differences of a cent than is allowed at the top of the chart. 

Mr, Simpson. This is a ratio chart. If the farmer has been get- 
ting 4 cents and he loses a cent, he loses a quarter of his income; 
wl^ereas, if he has been getting 10 cents and he loses a cent, he is 
losing only a tenth of his income. In order to bring out that ratio 
difference, we use these ratio charts. I hope they are not confusing, 
because I think they are fairer and they give your eye a better picture 
than an actual arithmetic graph would give you. 

There is one other fact that I think is rather impoi^tant that these 
charts bring out. These low net prices relative to the class 1 price 
of late ye;irs must be interpreted in connection with the fact that the 
great distributor-processors have been expanding their production of 
cheese and canned milk ])articularly. During this peri^ 1 the con- 
sumption of fresh fluid milk has increased very little. 

1 "Kxliiljit No. 365," appendix, p .'?ir,2. 



CONCENTRATION OP ECONOMIC POWER 2791 

"V^^ien big business enters an industry it very often increases pro- 
duction, lowers price, and gives quality — not invariably, but very 
often it does that. In this industry, since flie advent of big business 
ihe most important product, fresh milk, fluid milk, has been selling 
at roughly the same price. Consumption has not been stimulated, 
not encouraged, Avhereas, for the other products, in which the big 
companies are more interested, cheese and canned milk production 
increased, more particularly in processed cheese and canned milk. . 

Now, I am not going here, into the merits of these various prod- 
ucts, but I think that everybody admits that the one tlnn<^ we would 
like to see cheaper woidd be fresh milk in bottles. This base sur- 
plus plan apparently tends to maintain tlie" retail price of fluid milk 
and gives the distributor-processor the justification for a lower cost 
of the processed products and a justification for expanding the pro- 
duction and consumption of those processed products. 

The Chairman. Milk is a -commodity which is produced in almost 
every section of the country. It cannot be said, therefore, that there 
is any particular center of milk production. Isn't that correct? 

Mr. Simpson. There are different centers for different uses, but 
milk is produced in all parts of the country, more particularly in the 
nm'thern dairy States, however. 

The Chairman. Yes. 

Can it be said, in your opinion, that the advent of big business, to 
use your ])hrase, in other words the national corporations, to the 
field of distributing milk, has, of itself, brought any benefit to the 
consumer ? 

Mr. Simpson. In fresh milk? 

The Chairman. Yes. 

Mr. Simpson. As I understand it, it has done very little. The 
health authorities and the State sanitary regulations have improved 
the quality of milk, and you may have certain special grades which 
have an appeal to certain groups, perhaps health fanatics or very 
wealthy people; but by and large it seems to me that in this industry 
the only contribution which the great com])anies have given is more 
processed cheese and more canned milk. They haven't given us any 
more fresh milk, fluid milk, and they haven't given it to us at a 
lower jirice. Is that an answer to your question? 

The Chairman. Yes ; it tends to answer it. 

In your opinion does the national corporation engaged in this dis- 
tribution give the consumer a better quality than could be afforded 
to him by the local distributor? 

Mr. Simpson. Senator O'Mahoney, I have not studied the fluid- 
milk business so thoroughly as I have studied the milk-products 
industry. I first studied the milk-products industry for one of the 
first Federal Trade Commission reports many years ago, and I worked 
on butter, cheese, and milk and cream for the Tariff Commission. 

The Chairman. The layman readily understands why the consumer 
should turn to Detroit, let us say, for an automobile, or turn to 
Pittsburgh for steel products, or turn to some other manufacturing 
center, let us say, for a radio, because those are commodities which 
are produced in particular centers by reason of the concentration of 
industry. But now we are dealing with an agricultural i)roduct 
which, like every other agricultural product, by and large, is pro- 
duced generally speaking throughout the country. 

124491—3!) — pt. 7 4 



2792 CONCENTRATION OF ECONOMIC POWER 

Mr. Simpson. Decentralized. 

The Chairman. There you have a -decentralized production of agri- 
cultural products as compared with a centralized production of indus- 
trial products. Now, the question that I am interested in develop- 
ing is, To what extent the appearance of the national corporation 
which controls the distribution of an agricultural product is justified 
as compared with a national corporation which controls the distribu- 
tion of products which are centrally produced ? 

Mr. Simpson. Well, Senator, these investigations of the Trade 
Commission and of the Tariff Commission, and further inquiries in 
the Department of Agriculture, convince me that this is a small-scale 
industry ; that the best butter can be made in factories near the raw 
material supply ; that the best butter can be made in creameries where 
cream can be brought in fresh at frequent intervals; that the best 
canned milk must be manufactured near where the farmer produces 
it. Cheese factories are notably small factories. In the processing 
of cheese there are some large-scale operations, but this is a small- 
scale industry, and there is no particular efficiency or advantage, in 
my opinion, in the advent of big business. Does that answer your 
question ? 

The Chairman. Yes; it tends to. I don't want to be conclusive 
about it because of course we haven't heard the other side, and I am 
always willing to listen to both sides in any argument, but you do 
present quite clearly this comparison between production in a decen- 
tralized industry and production in a centralized industry, and what 
you are saying tends to indicate that where the production of a com- 
modity is decentralized, the appearance of a centralized or national 
distributing corporation tends not to produce a low price for the con- 
sumer, but rather to maintain the price, a high price, which is re- 
flected only in benefits to the distributing corporation and that there 
is no great social value in that development. 

Mr. Simpson. Senator, I think that is right, but I think there is 
only one qualification. They have reduced the prices and they have 
increased the production of certain milk products — from my point of 
view, speaking as a consumer, the less desirable milk products; that 
is, canned milk and processed cheese — less desirable than, fresh fluid 
milk. Those are things that they produce under their brand names 
where they have what I might call a brand monopoly, but what you 
said is certainly true of fluid milk, in my opinion. They haven't 
reduced the price of fresh milk, nor have they increased the pro- 
duction. 

The Chairman. Are there, in your opinion, any identifiable bene- 
fits which are derived from this national distribution system? 

Mr. Simpson. No; I agree with you 

The Chairman (interposing). Don't say you are agreeing with me 
because I am not testifying. I am not making any statement; I am 
merely asking questions. 

Mr. Simpson. I am agreeing with the tone of your voice as I inter- 
pret it. 

The Chairman. I am glad the tone of my voice will not be re- 
flected in the record tomorrow. 

Mr. Simpson. I have arranged for that, Senator. But it seems to 
me that the job that they have done has been more particularly in 



CONCENTRATION OF ECONOMIC POWER 2793 

processed cheese and in canned milk, and that they haven't done the 
usual job expected of large, efficient corporations in fresh milk. 

Mr. Davis. Mr. Simpson, with respect to the prices you pay for 
the grade classifications of milk which go into these processed prod- 
ducts like cheese, canned milk, dried milk, and so forth, are you 
aware that the president of one of the largest dairy distributors ^ in 
his 1937 report to his directors stated that the corporation had made 
more on the processed products than they had on the sale of bottled 
milk? 

Mr. Simpson. Yes sir. Moreover the investment bankers and 
brokers who recommended National Dairy and Borden's stock — we 
have one reference with us — point to the fact that they have a very 
profitable business in the milk products and that they are less inter- 
ested in fluid milk. But I think in that connection, Mr. Davis, it 
must be kept in mind that their system of accounting, although it 
may be legal and accurate and there may be some justification for it, 
is not in my opinion — and I have studied accounting for many years — 
logical. They say that this is their price. 

The Chairman. Please identify it for the record. 

Mr. Simpson. In this chart, for example (referring to "Exhibit 
No. 365") the distributor takes his class 1 price as his cost of milk in 
the bottle. The real cost of his bottle is the net price, but this high 
class 1 price enables him to show a smaller margin on milk, and this 
base surplus plan enables him to support the contention that the milk 
used in milk products is lower in cost. 

The Chairman. Wouldn't it be more accurate to say that the ac- 
counting cost, to the distributor would rather be an average of these 
two prices, than one or the other ? 

Mr. Simpson. Without ^oing into the refinements of accounting, if 
a homogeneous raw material is used for a number of different prod- 
ucts it has in every department, the same cost. The average price 
is the cost of the raw material. What they are doing is keeping down 
the cost of milk products at the expense of fluid fresh milk and are 
using as justification this class-plan system of buying. 

The Chairman. In other words, if I understand you correctly, 
your contention is that the accounting practice is to represent the cost 
of milk to be that which is paid to the farmer for class 1 milk, 
though he doesn't receive that price on all the milk that he sells to 
the distributor. 

Mr. Simpson. That is right. 

Dr. Thorp. Mr. Chairman, may I ask a question about the chart? 
I am struggling a little bit to get hold of this chart. Am I correct 
in my interpretation that if there is a reduction on the chart in the 
amount that goes to the farmer and the distributor's share remains 
constant, the bar, the section of the bar which goes to the distributor, 
will actually become longer? 

Mr, Simpson. You mean if retail prices are maintained? 

Dr. Thorp. At 5 cents and 15 cents you have a certain length bar 
at the top which goes from the distributor, from 5 to 15. 

Mr. Simpson. You mean this bar, or if the retail price remains 
constant ? -' 



1 Report of the president of National Dairy Products Corporation to the directors for 
year 1937, published March 1938. 



2794 CONCENTRATION OF ECONOMIC POWEIl 

Dr. Thorp. If the number of cents going to the distributor re- 
mains constant. 

The Chairman. To the distributor? 

Dr. Thorp. Yes. Let me ilkistrate it this way. Suppose that 5 
cents was tlie farmer's share in one of tliose early years, and 10 cents 
was added to tliat Iw- the distributor, the total price was 15 cents. 
You have your bar divided then approximately as it is divided there. 

The Chairman. Fifteen cents then in that case that you now de- 
scribe, Df. Tiiorp, would be the price to the consumer and not the 
pri^-e to the distributor. 

Dr. Thorp. That is right. The distributor gets 10 cents out of 
the 15. 

Vir. Simpson. Yes; tliat is right, the distributor gets 10 cents. 

Dr. Thorp. Sup])Ose the farmer's share is brought to 3 cents. The 
distributor is still getting 10 cents. The price to the consumer then 
is 13 cents. Isn't it correct that the bar for the distributor's share 
would actually be longer on the chart? That is from 3 to 13 is longer 
than from 5 to 15. 

The Chairman. If it is a ratio chart that would be correct. 

Mr. Simpson. You say if the farmer's price drops and the retail 
price is maintained. 

Dr. Thorp. The retail price is maintain^ as a constant increased 
amount above the farmer's price; the distributor's share is constant. 

Mr. Simpson. The distributor gets 10 cents and the farmer's price 
drops. Now what is your question? 

Dr. Thorp. My question is whether in tliis tyi>e 'of chart it 
wouldn't appear as though the distributor w.as getting more because 
it is a ratio chart, and your distance from 3 to 13 is much longer on 
the chart than from 5 to 15. 

The Chairman. In the case that you state, if I may interrupt the 
witness, that is exactly what would happen. , You are posing a sta- 
tionary price for the consumer, name]^, 13 cents. 

Dr. Thorp. No, the consumer's price -would drop from 15 to 13. 
There would be a stationary return to the distributor. 

Mr. Simpson. Of course, the point is that if the retail price drops, 
if the consumei; pays less and the distributor continues to get a 10 
cents marG:in, he does get a relatively larger part of the total 13 
cents. That is what we should show, that is right. 

Dr. Thorp. That is right. I am merely trying to see what I can 
read from this chart. 

Mr. Si.aipson. The reason I put it on a ratio basis is this: If the 
retail price of 15 cents drops 3 cents, the consumer has a saving of 
20 percent. From his point of view he has a saving of 20 percent on 
every quart of milk. If the farmer's price drops from 5 cents by the 
same number of cents, to 2 cents, the farmer's loss is relatively greater 
because the initial magnitude that we start with for the farmer is a 
lower number of cents, and in terms of his income, his income is re- 
duced by 60 j^ercent during the same period that the consumer is 
saving 20 percent. 

I think it is a perfectly honest method of presenting these figures. 
M^e can show it in other ways but it seemed to me this brought it out*. 

Dr. Thorp. I am not quarreling with it as being dishonest ; I was 
thinking of it in terms of what could be read into it. 



CONCENTRATION OF ECONOMIC TOWER 2795 

Mr, Simpson. We stiitisticiaiis sometimes put up things to suit our 
purposes, but I think this is perfectly lionest. 

Tlie Chairman. ]\Iy questions with respect to the chart \vere in the 
interest of tlie reader Avho is nv)t a statistician, who woukl sometimes 
find it difficuh to understand the methods of the statistician. 

JMr. SiMrsoN. I hope this isn't too complicated. 

Mr. HiNRiciis. Mr. Chairman, might I reque-st that the basic figures 
themselves be introduced into the record, because precisely that elon- 
gation of the bar has taken place in the chart, and in this type of 
presentation if we are actually going to get lower prices for consum- 
ers, which we are all interested in, we need to lean over backwards 
in not stretching the case. 

Mr. Simpson. Mr. Hinrichs, I have marked these figures in pencil 
so I could see them. You can't, but I have tliem in here in a rough 
draft. We will have them copied and sent over.^ 

The Chairman. Could you attiK-h them in a memorandum to ap- 
pear in connection with your charts? 

Mr. Simpson. Do you want them right away? I can give 30U the 
rough figures. I just didn't have them typed. ^ 

The Chairman. My concern now is merely to have this material 
in such shape that it will ai)pear in the record at the same time that 
your testimony appears, and in connection with the charts. 

jNIr. Simpson. I will submit this i-ough table. Is that all right? 

The Chairman. Perhaps you might b^ able to give us a narrative 
explanation now if you have tliose figures. 

Mr. Simpson. The figures ai-e the figures represented on this chart. 
They are the same figures, the figures from which this chart was 
drawn. That is what you meant, just the figures? 

Mr. HiNPicHS. Yes. For example, though it is extremely difficult 
to read the figures from the chart without grid lines, it seems to me on 
your chart with reference to Milwaukee, the margin in cents per 
quart in 1920 and 1932 are almost the same. 

Mr. Simpson. Just a minute; you mean what I call the farmer's 
mirage? 

Mr. Hinrichs. No; the distributor's margin over the class 1 price 
for milk. 

Mr. Simpson. You mean the difference between the class 1 price 
and the retail price, this bar. 

j\Ir. Hinrichs. That is correct. 

Mr. Simpson. In 1926? 

Mr. Hinrichs. In 1926. 

Mr. Simpson. It is 4.7. In 1932 it is 4.3 mills. 

INIr. Hinrichs. So the ninnber of cents has declined while the bar 
is slightly longer in 1932. The share of the distributor was larger in 
1932, which is what is shown in your chart. 

Mr. Simpson. No; it is a little bit larger in 1926—4.7 in 1926 as 
compared with 4.3 in 1932, but we are on a lower price level, and 
therefore tlie distributor's difference should be made relatively 
greater, because we are on a lower level of income and of wages and 
of prices. It is about the same i]i cents. 



1 Later supplied by Mr. Simpson : priiit-Td as accompanying data with "Exliibits Nos. 
304 iind olj.j," appendix, pp. :Ji:jl a»d oloo. 



I 



2796 CONCENTRATION OF ECONOMIC POWER 

Mr. HiNRicHS. No one is better aware than I am of the desirability 
of getting the price down. If you consider the fact that a wage- 
earner family of a man and wife and two children has to be fed on 
roughly $1 a day, or $1.25, which is on a high level, the difference of 
6-cent milk and 12-cent milk stands out as a v^ery prominent feature 
in the economy of that family. 

Mr. Simpson. I might give one other explanatioUj to give a com- 
plete picture of these charts. These are average prices through the 
year. For the net price, the price received each month is weighted 
by the production m the area, and the same thing for the class 1 
price. This bar is a weighted price for the year. 

The Chairman. Did I understand you to say that the price in 1926 
to the distributor was 4.7? 

Mr. Simpson. No; I said that the mark up which the distributor 
ot over the class 1 price — ^that is what I thought Mr. Hinrichs asked 
or — was 4.7. 

The Chairman. And in 1932, 4.2? 

Mr. Simpson. Four point two. 

The Chairman. Is it not a fact that 4.2 in 1932 is a larger per- 
centage of the entire column which is about 9 cents than 4.7 'is of the 
entire column for 1926 which is about 11 cents? 

Mr. Simpson. It is, and it should be, because with a lower level of 
income and lower wages 

The Chairman. That is the significant fact. 

Mr. Simpson. That is why I showed it on a ratio basis. 

Mr. Hinrichs. Mr. Chairman, might I ask one or two other ques- 
tions about this? You speak of the price that the farmer gets. 
Do these studies refer back to some printed report that ought to be 
introduced for reference? 

Mr. Simpson. We didn't have time to put all the references on these 
charts because we got them up hurriedly. The Department of Agri- 
culture has mimeographed releases in which they give the class 1 
price and the net price and we have taken these monthly prices and 
weighted them by the production in those areas. 

Mr. Hinrichs. When you say the price the farmer receives, that is 
delivered at the city terminal ; it certainly isn't the farmer's price on 
the farm, is it ? 

Mr. Simpson. No. It is quite a long story and I will just give 
you the outlines of it. For New York they have roughly a 200-mile 
zone — 200- to 210-mile zone — and the milk is delivered to condensaries 
in the zone, or to cheesemakers or to the fluid-milk market. The 
net price is the price which the Department of Agriculture reports 
as an average of the Dairymen's League and the Sheffield Producers' 
net price. 

Mr. Davis. Mr. Simpson, do you have the figures showing the dif- 
ferent grade prices at the different cities for which you give the 
class 1 price in this table? 

Mr. Simpson. Mr. Davis, I may have those in the same release, 
but all I used for the purpose of this chart was the class 1 price, 
which refers to the bottled milk, and the net price or the average 
blended price. I am not sure whether the same releases caa give you 
all the class prices. 

Mr. Davis. I understand that, but I would like the committee to 
have the exact figures insofar as you can furnish them, in prices 



CONCENTRATION OF ECONOMIC POWER 2797 

which they were receiving dUi^mg the period involved, for the differ- 
ent grades of milk. 

Mr. Simpson. I am sure we can get some figures.^ Whether we 
can get the various class prices for all those that make up these net 
prices which the Department of Agriculture reports, I can't say, but 
I will try to get them. 

Mr. Davis. I can understand the difficulty of obtaining that, in 
New York, for instance, where I believe they have nine grades, but 
in most of the areas they have only two or three grades,- do they not? 

Mr. Simpson. I think we can get some price variations for the 
various grades, but all I have shown here is an average of all the 
grades together. 

Mr. Davis. I understood that. 

Dr. Howe. Mr. Chairman, just continuing this a moment, may I 
ask to refer to the Milwaukee sheets which you have there? 

The Chairman. You mean the chart ? 

Dr. Howe. It is in your exhibits there ; it isn't the chart. 

The Chairman. You mean the Farm Price Decline of the Mil- 
waukee Milk Survey ? ^ 

BASE SURPLUS PRICE PLAN 

Dr. Howe. I think that is it. What I want to emphasize again is 
something that Mr. Simpson spoke about at the beginning. We have 
been searching for an explanation of the base surplus plan which 
Commissioner Davis spoke about a minute ago. This is the first 
time that I have ever known of its being dug out and dramatized 
in this way, and I think it is as valuable a thing as has been con- 
tributed. 

What I want to draw attention to is back there in 1925 before the 
big business entered, the business we have over here, the net price 
and the class price are very close together. In other words, big 
business had not been able to introduce or had not introduced the 
wide divergence between the surplus milk price and the fluid milk 
price. Apparently then it began to develop all over the country. 
As these two companies got into Milwaukee the spread got wider 
and wider. .Apparently over here they sold milk for butter and milk 
for fluid milk pretty much at the same price. 

Now, if you will refer to the importance of a penny, you will find 
a penny or a halfpenny runs into colossal figures when it it multi- 
plied against 40,000,000,000 quarts throughout the country, and this 
spread here is just a wee little spread over here and this big wide 
spread just ran into tremendous losses to the farmers. That is very, 
very important, so far as the farm economy is concerned. 

Here in Milwaukee the collapse in farm prices is stated in an- 
other way. At column 1 you see the price paid to the farmer in 1923, 
1933, and 1934 (chart VI) .^ His price went down from 6.2— it went 
down by 2.2 cents. 

Mr. Baughman. Dr. Howe, you are now talking about chart VI ; ^ 
is that correct? 

Dr. Howe. Yes. 



1 The data, supplied by Mr. Simpson at a subsequent date, is included in the appendix, 
p. .3281. 

» "Exhibit No. 366," appendix, p. 3133. 



2798 CONCENTRATION OF ECONOMIC POWER 

Mr. Baughman. Which is entitlod "F^rm Price Decline, Mil- 
waukee Milk Survey." 

(The chart referred to was marked "Exhibit No. 366" and is 
inchided in the appendix on p. 3133.) 

Dr. Howe. That is ri^ht. The next year it rose a little bit, or the 
decline was not so much. But if you will notice in the last two 
columns there the collapse in surplus milk was very much greater 
than in class 1 milk. That is very important for this reason that 
there is twice as much milk generally used for manufactured com- 
modities as goes into bottles, and apparently by some sort of 
process, whether it is Nation-wide or otherwise — and I think it is 
Nation-wide — the effort was made maybe to use the base surplus price 
or other devices so that the price for surplus milk was collapsed. 

I never knew before the spread between net price and the base price 
was so little back there vv'hen there was free competitive conditions. 
Tliis is the first time I have been able to find out the extent of that 
collapse. So you see, the total losses in Milwaukee alone in 1933 
amounted to $3,000,000 in that city and in 1934 to $2,999,000, yet that 
same technique which was shown in New York, if country-wide, 
multiply. 

Tlie Chairjian. Comparing these columns, 1925 to 1938. it would 
appear that the class-1 price, which in 1925 was approximately 5^^ 
ce]its, was increased in 1938 to about 6 cents. 
Mr. Simpson. Five point eight. 
The Chairman. Of course, I was merely estimating. 

Whereas, the net price which was apparently 

Mr. Simpson (interposing). Five point three. 

The Chairman. In 1925. 

Mr. Simpson. Dropped to 4.3 in 1938. 

Dr. Howe. And in 1932 and 1933 it Avas down to about 3 cents, so 

that same thing is proved by this chart 

The Ch^mrman (interposing). Do you have any figures to indi- 
cate, Mr. Simpson, what proportion of the total quantity was sold 
in each of these years at these different prices ? 

Mr. Simpson. AYell, we have for W^isconsin the fluid — we have a 
bulletin from the State of Wisconsin which gives figures on the fljid 
milk, fresh millc, cheese and butter, and I think they are reduced to a 
fluid-milk basis. 

Dr. Howe. It is right here on the "Farm Price Decline ; Milwaukee 
Milk Survey," 166,000,000 pounds went into class 1 milk and 158,- 
000,000 pounds into class 2 milk. 

Mr. HiNRicHS. Mr. Chairman, I have one further question here. 
Some emphasis has been placed on the fact that in 1925 there was 
relatively little spread between the class 1 price and the net price. 
Reading from the chart,^ it appears to be substantially less than a 
quarter of a cent. The class 2 price is not shown on the chart. It 
must be loAver than the average. I suppose the difference between 
the class 1 and class 2 price might be twice as much as the difference 
shown on the chart between the class 1 price and the net price. In 
other words in 1925 it would have been less than half a cent. The 
witnesses emphasized the growth from 1925 onward of the Spread 
between the class 1 price and the net price. Now, however, it appears 

» "Exhibit No. 363," appendix, p. 3132. 



CONCENTRATION OF ECONOMIC POWER 2799 

from chart VI that in 1923 there was a difference of 1.8 cents per 
quart in Milwaukee between the class 1 and class 2 price. 

Mr. Simpson. Milwaukee, 1923 ? Were you talking about Mil- 
waukee or New York ? 

Mr. HiNRicH. Milwaukee, table Vt, chart VI, whatever you call it.. 

Mr. Simpson. 1925? 

Mr. HiNRicHS. In your chart of Milwaukee, prices for 1925, the 
difference between the class 2 price and the net price is how much? 

Mr. Simpson. One mill per quart. 

Mr. HiNKicHs. You treated the development of that from 1925 in 
1930 when it was how many mills? 

Mr. Simpson. One cent and four mills. 

Mr. HiNRiCHs. One cent and four mills in 1930. In 1932 it was 
how much? 

Mr. Simpson. In 1932 it was about 1 cent and 2 mills. 

Mr. HiNRicHS. That net price is not the class 2 price of milk. That 
is the average of all prices ? 

Mr. Simpson. That is the average of all the classes. 

Mr. Hinrichs. Would it be correct to assume that the difference 
between the class 1 price and the class 2 price is about twice as much? 

Mr. Simpson. I couldn't say. 

The Cpiairman. What is the figure for 1938 ? 

Mr. Simpson: In answer to Mr. Hinrich's question, I can't tell 
you without going to the figures, and I don't know whether we can 
find the figures on the relation between the class 2 and the class 1. I 
think all the Department of Agriculture gives us, and they receive this 
from the producers' associations in certain areas, is the class 1 price 
and the net price. We might be able to find the gradations in prices 
for certain periods, certain limited periods, but not for this whole 
series. 

Mr. HiirRiCHS. The national figures' on consumption of those two 
class prices would mdicate that you multiplied by two or three or even 
by four — the last would be unreasonable — but the point that I made 
now was that you started in the discussion of that 1925 margin as 
though it was a historical beginning point. I presume that it was 
the beginning of this series of figures. 

Mr. Simpson. It was the beginning of this series of figures. 

Mr. Hinrichs. But from some other source Dr. Howe has intro- 
duced table VI in this mimeographed sheet, which is labeled page 9' 
and headed "The farm price decline, Milwaukee milk survey."" 

Mr. Simpson. That is right. 

Mr. Hinrichs. Which shows 1923 class 1 price at 6.2 cents per 
quart, and in the next column the price for the class 2 milk of 4.4 
cents, which is a 1.8'cent spread. 

Mr. Simpson. That is right. 

Mr. Hinrichs. The spread in 1923, for whateA^er reason, was greater 
than the spread of 1925 could conceivably have been and was no 
greater than the spread which developed in the next year or so.^ 

Mr. Simpson. That is right, Mr. Hinrichs ; you are perfectly right. 
First of all, this came from the Milwaukee survey, and this is a series 



1 Dr. Howe subsequently informed tbe committee that : "Later analysis of 'A Survey 
of Milk Markpting in Milwaukee,' issued in May 1937 by the U. S. Dopnrtmont of Agri- 
culture indicated that the spreads between the fluid, or class 1, and net, or average, 
prices in 1923, 1924, and 1925 were 4, 8, and 5 mills, respectivel-v." 



2800 CONCENTRATION OF ECONOMIC POWER 

we got from the Department of Agriculture, and the earliest I could 
get for a comparable series was for the last 3 months of that year. I 
don't leave these out because they didn't prove the point. 

Mr. HiNRiCHS. It is obvious you didn't complete the bar, which 
indicates your figures begin in the latter part of 1925. I wouldn't 
for the world have implied anything: else. 

The Chaikman. What was the spread for 1938? 

Mr. Simpson. In 1938 the spread was 11/2 cents. 

Dr. Howe. Now, Mr. Chairman, we were to discuss this in a later 
section, but I think we can close that whole section up by just adding 
to the discussion this exhibit entitled, "Nation-Wide Collapse of 
Dairy Farmers' Income In Percentages of the Consumer's Dollar." 

We will begin in 1923, the year of the organization of the National 
Dairy Products Corporation and the beginning of the organization 
and growth of Borden's and the other three corporations. 

In the year when the industrialization of this industry began, the 
consumers of the country paid $4.29 for a combination of various 
dairy products. Out of this sum the farmers got $2.22, while the 
processors and distributors took $2.07. 

This distribution of consurner costs can be stated in another way. 
The farmer got 62 cents of the consumer's dollar, while the processor 
and distributor got 48 cents. In other words, it cost not quite 50 
cents to distribute 50 cents worth of dairy products. 

From this time on, however, even during the period of prosperity 
down to 1929, the farmer's share remained either constant or rapidly 
declined. In the years following the (Organization of the trust and 
before it had obtained a Nation-wide control, the farmer's share fell 
but slightly to between 48 cents and 49 cents of the consumer's dollar. 

From 1929 onward, however, it shrank rapidly. Thus, by 1930, 
before the collapse had gained much headway, the farmer's share feU 
to 44 cents out of the consumer's dollar. A year later it fell to 40 
cents. By 1932 it had fallen still further to 34 cents. In 1933 it 
crept up to 35 cents. 

During these years when the farmer's share was falling, the proc- 
essor's and distributor's share was increasing. It crept up from 48 
cents in 1923 to 51 cents and 52 cents between 1924 and 1929. By 1930 
it had risen to 56 cents. By 1931 it had increased still further to 
60 cents. In 1932 it had risen to 66 cents, while in 1933 it was 
65 cents.^ 

Under normal conditions any collapse in price due to depression 
conditions would have been shared by the distributor and the farmer. 
It would have been reflected in the consumer's price as well as in 
the farmer's income. Instead, however, the share of the processor 

1 Nation-wide collapse of dairy farmers' income in percentages of consumer's dollar : 



Year 


Farmer's share 


Distributor's share 


1923 






1924 to 1929 


48 and 49 cents 

44 cents 


51 and 52 cents. 


19W 


5fi cents. 


1931 


40 cent"! 


60 cents. 


1932 


34 cents 


66 cents. 


1933 













CONCENTRATION OF ECONOMIC POWER 2801 

■either remained stationary or mounted during these years, while the 
total cost of the depression was taken from the farmer. 

Now it is difficult to convert these changing prices into farm totals. 
Yet, measured by these indices the farmer's income share of the con- 
sumer's dollar had fallen by 33 percent, while the distributor's share 
had increased by 40 percent. 

The collapse of the income of the dairy farmer is confirmed by a 
survey made in the city of Milwaukee (1934 to 1935). This survey 
covers the period following the entrance of representatives of the 
milk trust into the city of Milwaukee as it coincides with the organ- 
ization of a farmer's marketing association. 

The Milwaukee survey confirms the general findings as to the 
-country as a whole. In 1923 the Wisconsin farmer was paid what 
was almost equivalent to a uniform price for all of his milk. He 
received $2.84 per hundred pounds for class 1 milk and $2.03 for 
class 2 milk. That is equivalent to over 6 cents a quart for class 1 
milk and nearly 4i^ cents a quart for surplus milk. It is doubtful 
that any farmers are receiving as high a price as this today after 
years of struggle on the part of the Federal Government to protect 
the dairy fanner and to increase his share of the consumer's dollar. 

A significant thing about this classification is that the price for 
surplus milk, which comprises two-thirds of the commercial milk 
sold, was relatively little below the price for class 1 milk. It is this 
price that is most important to all those farmers outside of the city 
milk sheds who are compelled to produce for manufacturing pur- 
poses. Now, from 1923 to 1929 the country enjoyed widespread 
prosperity. Yet,, except for the years 1927 "to 1930, milk prices to 
the farmer under the control of the milk distributors went con- 
tinuously downward. After 1930 the collapse was rapid. 

From 1931 to 1933 in Milwaukee the price of class 1 milk slumped. 

A collapse in the price of surplus milk carried it from $2.03 a 
hundred in 1923 to 99 cents a hundred in 1934. Let us approach 
this in another way. In 1933 the farmer's share of the consumer's 
dollar at Milwaukee was 58.1 cents. In 1934 it had fallen to 42.8 
cents. Stated in terms of quarts we find the same decline. In 1923 
the farmer got 6.1 cents per quart for class 1 milk, while in 1934 
he got but 4.4 cents a quart. 

While this loss was being suffered by the farmer, the share taken 
by the distributor increased from 4.4 cents a quart in 1933 to 5 cents 
a quart in 1934. 

Now, let us reduce this to a monetary loss. In 1934 the people of 
Milwaukee were consuming 83,000,000 quarts of milk. Taldng this 
as a basis, the farmer suffered a decline in his milk income in the 
year 1933, measured by the slump from 1923 prices, of $1,661,000. 
This loss, however, was only on class 1 milk which went into bottles. 

The loss on class 2, or surplus milk, was even greater. It 
amounted in 1932 to $1,812,600. 

Thus, the total loss to the farmer from collapse in price for both 
classes of milk amounted to $3,473,600 in 1933. The total loss from 
both classes of milk amounted to $2,999,010 in 1934. 

This, it is to be remembered, was for a city of 500,000 population. 
If a similar collapse in dairy income occurred in other cities, the 
total loss as to the farmers might have amounted to several hundred 
million dollars. 



2802 CONCENTRATION OF ECONOMIC POWER 

Assuming an average loss of $2,500,000 a year for 12 years, the loss 
for the city of Milwaukee alone might have exceeded $25,000,000.^ 

(The chart referred to was marked "Exhibit No.' 367" and is in- 
cluded in the appendix on p. 3133.) 

Dr. Howe. That is another approach to it. 

Tliis consumer's dollar related to a composite consumption of 
various dairy products, fluid milk, butter, cheese, and various other 
things. I think in that chart you have a picture of not only; the con- 
dition of the dairy farm, but something that has happened to dairy 
products pretty generally. 

Dr. Howe, just see the extent to which the farmer's share in the 
dollar sank from 1923 to 1933, 10 years' time. He got 52 cents in 
1923 and 34 cents in 1932 and 35 cents in 1933. While the farmer's 
share was going down the distributor's share went up from 48 cents 
to 65 «ents. 

The Chairman. What explanation is given "for that great differ- 
ence ? 

Dr. Howe. Well, we have seen that the distributor maintained the 
price of fluid milk roughly without much disturbance. It went 
down about 20 percent for 1 or 2 years. I suppose the explanation 
which would be offered was that this was a depression period, and 
therefore the farmer had to suffer from it. But, as a matter of 
fact, the distributor kept his fluid milk price up pretty well, and it 
may be that the price of manufactured products remained the same, 
but I am not sure of that. 

Kepresentative Williams. From youV studies of it, what would 
you say as to the just proportionate part that the farmer should 
have, based upon the investment, capital investment, income, the 
labor — what share should the farmer have out of the entire price 
to the consumer as compared to the distributor? 

Dr. Howe. If you will help me a little bit, sir, I think we can get 
a rough approximation. What would you say was the value of a 
dairy farm of 15 cows? How many acres of land would it be? 

Kepresentative Williams. Of course, I can't answer that myself,, 
because I don't know. I am asking you, with more experience. 

Dr. Howe. Roughly, 15 cows and 40 or 50 acres of land and a 
house and dairy shop might be worth Y or 8 thousand doHars^ — a 
dairy farm of 15 cows. 

Representative Williams. What acreage? 

Dr. Howe. Fifty or sixty acres. 

Representative Williams. It would naturally depend on where it 
was located. . I would think so ; yes. 

Dr. Howe. Let's give him 5 percent on $8,000; that is $400. The 
feeding of 15 cows costs something, their care and maintenance costs 
something; labor is worth something. "M^ould the labor cost, feed 
costs, and all of the cost of 15 cows amount to $800 a year? • 

The Chairman. If I may interrupt you. Doctor, I would say that 
you probably couldn't give a general answer, based upon any specific 
case of that kind, because the value of a dairy farm will vary ac- 
cording to the location. I think the question which Congressman 
Williams has in mind, and the one which I have in mind, is, speak- 

^ Additional data In connection with this testimony are included in the appendix on 



CONCENTRATION OF ECONOMIC POWER 2803 

ing generally, from your studies as they apply to the whole country, 
what justification is there for the growing proportion of the con- 
sumer's dollar which apparently goes to the distributor rather than 
to the farmer. 

Dr. Howe. As to milk? 

The Chairman. Yes. 

Dr. Howe. Well, I will make two concrete statements now, concrete 
evidences are probably better than hypothetical ones. As I stated 
this morning, I studied milk to some extent in four or five countries 
in Europe. One of the outstanding cities of 500,000 showed that the 
farmer got 4 cents out of 6 cents; 1 cent went to the plant, 1 cent went 
to the counter charge where it was distributed. The farmer got 
two-thirds of the consumer's dollar in this country. 

Mr. Johnson, who will go on the stand tomorrow — and who is a 
practical dairyman — is paying the farmers outside of Detroit about 
31^ cents a quart. He is taking about a cent himself for his plant, 
and something over one cent for his counter charges, and is selling 
milk at 6, 7, and 8 cents a quart, so that he is maintaining about the 
same ratio that I found in European cities, about 60 percent to the 
farmer and 40 percent between his plant cost and his Shop costs. 

Representative Williams, Are there any figures available anywhere 
showing approximately the investment in the dairy business from the 
farmers' standpoint on the one hand and the distributors' standpoint 
on the other ? 

Dr. Howe. If there are between 3,000,000 and 4,000,000 dairy 
farmers who produce some milk, and if the average value of a farm 
is $5,000, you would have a capital value of 5,000 times 3,000,000, 
whatever that is. 

Mr. Ballinger. Didn't you say earlier this morning that the value 
was around seven to eight billion dollars? 

Dr. Howe. I thought that was the minimum, and if the capitaliza- 
tion of these two major companies is taken as the share which they 
should have, it is $400,000,000, I think, for those two corporations, 
so that you have about 5 percent, let's say, controlling the 100 percent 
represented by farm values. That is very rough. The ratio is some- 
thing like that — a small investment in the distributors with a large 
investment on the part of the farmers. I could figure that out for 
you, sir, and get a rough approach to it. - 

Representative Williams. Well, I think that is a very interesting 
thing, to try to find out why it is, in the first place, that the farmer 
isn't getting his part of the entire cost price of the product, and 
what the relative amount of ttie investment, and what is a fair income 
to him and to the distributor. 

Mr. Ballinger. Congressman, could I interpose 1 minute? I am 
afraid we will get into this system of arbitrary economics— how much 
should a certain class be paid. Our contention is that if you free this 
industry from the monopolistic practices, and if it is possible to 
■consume twice the amount of milk that is at present consumed, we 
feel that under competitive conditions these things will right them- 
selves and the farmer will get a much better income. 

Representative Williams. No doubt that is true. I was just won- 
dering what the proportionate part of the investment is now compared 
to the farmer and the distributor. 



2804 CONCENTRATION OF ECONOMIC POWER 

Dr. HowB. I would guess the farmers' investment was 20 times that 

of the distributors'. 

Representative Williams. And the amount of labor involved in the 
production and in the processing and distribution ? 

Dr. Howe. The man who drives a truck gets, per day, six or eight 
dollars, and the share of the distributor is largely in truck delivery^ 
and in the 12 cities that we showed the distributor got more than a 
cent more than the farmer got for his milk, just for distributing it. 

The Chairman. And this is unquestionably true from all of the 
charts and figures which I have seen. The farmer's proportion of 
the national income has steadily decreased over a long period of years 
ever since the close of the Great War. 

Dr. Howe. Yes, sir. 

The Chairman. While at the same time the centralization of con- 
trol over industry and over the distribution of agricultural products 
has steadily increased. In other words, the decline of the farmer's 
income, the farmer's share of the national income, may be relatively 
measured by the increase of concentration through the corporation in 
tiie distribution of his products and in the distribution of industrial 
products. 

Dr. Howe. There was a study made, ^vhich was printed, which I 
used some time ago which showed what the food consumer paid 
between eighteen billions and nineteen billions; the farmer got out 
of that $7,000,000,000; while there was $12,000,000,000 in all the proc- 
esses of transportation^ manufacture, remanufacture, and distribution. 
Pretty nearly everything confirms the same story, Senator. 

Representative Williams. The milk industry, then, is just about on 
a par with other industries. 

Dr. Howe. Mr. Simpson says it is one of the worst.* 

Mr. Berge. You said. Dr. Howe, a few moments ago, that perhaps 
one of the reasons for the decline in the farmer's share or the dis- 
tributor's share was the depression, and I didn't quite follow that 
because I could understand why the prices generally might be de- 
pressed in a depression, but I don't see why that should influence 
the ratio of distribution of the total price received from the con- 
sumer as between the distributor and the farmer, and I don't think 
your chart here bears that out, because from 1924 to 1929 during the 
period of the greatest prosperity the farmer's share had declined 
somewhat from the preceding year. I was wondering whether you 
could accept as at least a partial explanation the fact that under the 
old methods of distribution the farmer only needed to charge enough 
toward his milk as he distributed it locally to get a reasonable profit 
over and above his costs, whereas now when milk and other dairy 
products are distributed by large aggregations they have the power 
to fix prices, a monopolistic power, so that irrespective of the eco- 
nomic conditions generally they can hold prices up high enough to 
get a substantial profit. As I was thinking about the things that 
have been charged in these milk indictments in Chicago, if those 
charges are true, it would seem that the national distributors are in 
the position to get a substantial profit over and above what they pay, 
irrespective of what economic conditions are generally. So in effect, 
what I am trying to say is that under present methods of distribu- 

1 Mr. Simpson's testimony appears, supra, p. 2787 et seq. 



CONCENTRATION OF ECONOMIC POWER 2805 

tion you have a fixed share of the total price that the consumer pays 
that the distributor gets irrespective of whether the farmer gets a 
fair return or not. The corporations, National Dairy, Borden's, and 
the other large aggregations, who control the distribution of milk, 
have the power, have they not, to protect their own profit position, 
whereas the farmer hasn't, whereas in the old days the consumer who 
bought the milk more or less under local conditions didn't pay any- 
thing more than a reasonable profit because there was no price fixing 
going on as between farmers. It just seemed to me that there must 
be some explanation inherent in the fact that distribution by lar^e 
national aggregations accounts for this diiference, because the ratio 
changes as the power of these national aggregations has grown. 

Dr. Howe. Exactly. 

Mr. Berge. And not as a depression settles on us. 

Dr. Howe. I would say that it is the dual explanation that I would 
offer, that which Mr. Means made in his memorandum, showing that 
we have a fixation of prices as to one group of industries, while the 
farmer's price has been collapsing and, as you suggested, the farmer 
is a distress seller ; the distributor is not a distress seller. 

Mr. Berge. And the fixation increases the distributor's share of the 
total and that is a progressive process that has been going on for the 
last 16 years. 

Mr. Ballingee. In other words, Dr. Howe, if they are practicing 
monopoly on the retail front we would expect the monopoly to in- 
crease its profits by practicing on the buying front, too; in other 
words, by projecting a little higher and giving the farmer a little less, 
the spread on profits becomes greater; the monopolist wouldn't be 
expected to ignore one source of profit for another, so the going down 
of the price to the farmer might be measured in terms of the success 
of the monopoly, mightn't it ? 

Dr. Howe. I should think that that was a major factor, that the 
distributors make the most of the money out of the depressing of 
what they pay the farmer. 

Mr. Da,vis. Right along the line of the questions asked bv Mr. 
Berge, it appears that these milk distributors made no concession to 
the fact that the depression had resulted in a very large reduction of 
purchasing power of the public which would ordinarily have followed 
if the forces of supply and demand had been playing. Is that not 
correct ? 

Dr. Howe. Yes, sir. 

Mr. Davis. There is one thing further to which I wish to call your 
attention. This chart, or rather memorandum,^ which you introduced 
to show what a quart of milk costs and what the farmer gets from it, 
gives the prices paid the farmer f. o. b. city plant for class 1 milk at 
various cities and the prices charged to consumers for milk delivered 
in bottles, and then the spread to the distributor. In view of the fact 
that a large percentage of the milk is processed and the farmer is paid 
therefor the grade 2 or subsequent grade price, so that considering the 
average or blfeiided price, the spread from the price paid the producer 
and the price charged the consumer for a bottle of milk is even greater 
than it is shown here, is it not ? 
ir- 

1 "Exhibit No. 362<' appendix, p. 3128. 



2806 CONCENTRATION OF ECONOMIC POWER 

Dr. Howe. Undoubtedly it is, Mr. Davis, and tile extent to which 
the spread is greater depends upon the extent to which the farmer 
doesn't get a proper deal in the marketing. 

Mr. Davis. Yes. Aside from that 

Dr. Howe. Aside from that it is true ; yes^ 

Mr. Davis. But just assuming that he receives pay according to 
whether it was sold in bottles or processed, in view of the fact as 
stated by the president of the National Dairy Products Corporation 
that they made more profit on the processing than they did on the 
milk .bottle sales, it couldn't be claimed that the purchase of that 
milk was a liability, could it? 

Dr. Howe. I don't think it is a liability by any means. 

If I could close up one phase of what we were discussing before 
we diverted a little bit, I think it would finish for the day. 

Mr. Baughman. Dr. Howe, on that point you have just finished 
that Judge Davis brought up, haven't you figures to show that all 
through the depression these big companies maintained a large profit 
return and also relatively the highest salaries in the industry? 

Dr. Howe. Correct. 

Mr. Baughman. Have you those figures? Can you give us those? 

Dr. Howe. Would you like to have them at this time ? 

Mr. Baughman. I think it brings that point home. 

(Representative Williams assumed the Chair.) 

Acting Chairman Williams. If j'ou have them I think we ought 
to get them.^ 

Dr. Howe. I am dealing with the farmer's and the distributor's 
share later in the day, but. I-:can give them to you. This is with 
respect to the maintenance of earnings by the big distributors. The 
Federal Trade Commission calculated the profits earned by the milk- 
products companies on their invested capital for the years 1929 and 
1935. During the boom year 1929 the National Dairy Products — that 
is the largest of the big distributors — and Bordens stood high on the 
list with returns on their invested capital of about 18 percent. But 
it was during the depression years that these companies showed their 
greatest ability to extract profit from the farmer on the one hand 
and the consumer on the other. During 1930, 1931, and 1932, when 
most other businesses, large and small, were showing small profits 
or none at all, National I)airy averaged a return of over 13 percent 
on its invested capital. 

The Federal Trade Commission also reported on officers' salaries 
for 22 groups of corporations. These groups included processors of 
milk, tobacco, flour, and cotton, meat packers, bakeries, tanners, shoe 
manufacturers, wholesalers of tobacco, textiles, hides, butter, and 
chain stores of various kinds. The Commission's report showed the 
total salaries and other compensations per company and per officer. 
*Of the 22 groups, the milk processors and dairy products manufac- 
turers showed the highest salaries, including other compensations, 
over a 7-year period. During the 7 years from 1929 to 1935, the 6 
milk processors and dairy product manufacturers showed a total 
annual compensation of $345,000 per company. The only other 
group that showed a figure nearly so large was the chain depart- 
ment stores, with about $330,000 total compensation per company. 

The Commission gives another series of figures for the total com- 
pensation per officer. Here, too, the milk processors and dairy prod- 



C50NCBNTRATI0N OF ECONOMIC POWER 2807 

uct manufacturers showed an astounding record. The number of 
high -salaried officers in these companies varied considerably during 
the years from 1929 to 1935. There were as many as 106 in 1931, and 
as few as 71 in 1935. During the 7-year period, there was an aver- 
age of 89 such high-salaried officials. These officers received on the 
average $22,964 per year during that period, and this figure was the" 
ijiighest of any of the groups except the chain grocery retailers and 
the chain department stores. 

Is that what you referred to ? Tomorrow I will give some indi- 
vidual dividends of local companies, unless you want them now. 
Perhaps I might as well clean that up now. 

Acting Chairman Williams. I think so. I think you might as well 
finish that part of it right now ; that is, if it isn't too long and' 
involved. 

Dr. Howe. No; that is all right. I started here to show a parallel 
between the returns of the distributors and the returns of the farmer. 
We have shown a collapse of income on the part of the farmer which, 
if you stop thinking n terms of a cent and multply thoses cents by 
millions, you see will give you colossal figures, but Mr. Simpson was 
showing really an exhibit in hundreds of millions rather than in just 
small amounts. 

On the other hand, we have the individual companies which are 
subsidiaries of the National Dairy Products Corp. To my mind the 
subsidiaries tell a more complete story than does the aggregate 
of the entire system of companies. That is for various reasons, 
which anybody I think who is familiar with corporate organiza- 
tion and methods of bookkeeping will probably agree with. 

We find this. As to the Supplee-Wills-Jones Milk Co. of Phila- 
delphia, that is a subsidiary of the National Dairy Products Corp., 
according to the Federal Trade Commission's report it declared divi- 
dends as follows, between 1929 and 1934, right through the depression 
period. 

In 1929, that* is the high point, the dividends were $917,000; 
in 1930 they rose to $2,719,000; m 1931, when the depression was get- 
ting under way, their dividends were $4,215,000; in 1932 there were 
$2,039,000'; in 1933, $1,563,000; and in 1934, for an S^month period, 
they were $611,000. The total for those 6 years was $12,000,000 
plus. In 6 years' time this particular company paid the National 
Dairy Products tlorp., the holding company, about 75 percent of the 
original cost of the business. 

Mr. Ballinger. In other words. Dr. Howe, their dividends in 1932 
were approximately two times what they were in 1929 when purchas- 
ing power was considerably greater. In fact, that was one of the 
years of greatest national income in our history. 

Acting Chairman Wiluams. Have you the capital structure of that 
institution ? 

Dr. Howe. Wait a minute. It was 75 percent of the original' 
cost of the business, ahK)ut $16,000,000. 

Mr. HiNRicHS. So they reversed the process, and this is the 'mother 
milking the baby. 

Dr. HowB. Yes, sir. 

The Breyer Ice Cream Co. of Philadelphia cost the National Dairy 
Products Corp. in 1926 the sum of $22,000,000. This is another in- 
vestigation by the Federal Trade Commission. Again in 6 years, 

124491— 39— pt. 7 5 



2808 CONCENTRATION OF ECONOMIC POWER 

from 1929 to 1934, the company paid dividends to the National Dairy 
Products Corp. in the following amounts : 1929, $1,238,000. Why they 
were able to increase their dividends so much I don't know, unless 
it is traceable to something Mr. Baughman has worked out with 
respect to closing out independent ice-cream plants, whether it was 
going on. then or not I do^^'^ know, but they had a technique which 
I will describe tomorrow, making it very difficult for independents 
to produce ice cream. 

At least in 1930 their earnings went up to $4,500,000 ; in 1931 they 
were $4,250,000; in 1932, $2,250,000; in 1933, $1,750,000; and in 1934, 
$1,348,000, or total dividends of $15,400,000. 

Thus it appears again^ and there is a remarkable similarity, that 
in 6 years' time the National Dairy Corp. received in dividends 70 
percent of the original cost of the company. 

This is of further significance, for the Federal Trade Commission 
made a study of Philadelphia and Connecticut as to all the things 
that went on in the industry, and they showed that while this was 
going on as to dividends the losses to the farmers due to practices 
which the Federal Trade Commission found difficult in justifying, 
amounted in 1934 to $532,000. These losses issued out of underpay- 
ments for milk sold under the utilization or use plan and similar 
underpayments. It just seems, whether it is in Milwaukee or Phila- 
delphia, you find the same conditions appearing one after another. 

As further indicative of the possible profits of a fluid milk com- 
pany, we have the Consumers Dairy Co. of New Jersey. It parallels 
the other. The company is capitalized at $500,000, with a bonded 
indebtedness of $428,000. This company was able to declare divi- 
dends in 1930 of $440,000; in 1933 dividends were $300,000. 

(Senator O'Mahoney resumed the Chair.) 

The Chairman. Have you stated the source of these fibres? 

Dr. Howe. These are from the Federal Trade Commission. 

The Chairman. Yes; but where did the Trade Commission get 
these figures that you are now reciting? 

Dr. Howe. From the books of the company. 

The Chairman. I thought it would be important to make that 
clear, 

Mr. Baughman. To what company does that belong, the Con- 
sumers 

Dr. Howe. This company belongs to the National Dairy Products 
Corp. It was engaged in distributing milk in a number of New 
Jersey cities. 

The Chairman. It is my understanding that the accountants of 
the Federal Trade Commission examined the books of these com- 
panies, and you are now giving us the results of this actual inspec- 
tion of the books of these companies by the representatives of the 
Trade Commission. 

Dr. Howe. That is my understanding. Is that correct ? 

The Chairman. It is important to bring out the authority and 
character of these figures. 

Dr. Howe. In 3 years' time. Senator, this company paid for itself, 
including its bonded indebtedness, out of profits. In addition 
to that they made large loans to the National Dairy Products Corp. 
or to the Sheffield Co,, which is one of its subsidiaries. I refer to the 
Consumers D^iry Co. 



CONCENTRATION OF ECONOMIC POWER 2809 

That pretty nearly closes that particular phase, but I would just 
like to show something else which I dug up today. It relates to the 
high returns, of food companies during this period, and the con- 
sistency with which the earnings of the food distributors were main- 
tained during the depression. 1 will draw that off, if you think wise, 
and put it in the record. It shows National Biscuit and a dozen other 
companies had the same kind of high return. It isn't germane to 
milk, except it is germane to agricultural economy. 

The Chairman. Were these figures derived in the same manner? 

Dr. Howe. These are taken off Moody's Manual. 

The Chairman. Then the material which you now offer was pre- 
pared by you from the reports published in Moody's Manual ? 

Dr. Howe. That is right, sir. 

The Chairman. If there is no objection, this statement may be ac- 
cepted as an exhibit. 

(The statement referred to was marked "Exhibit No. 368," but was 
later withdrawii for the substitution of another exhibit of the same 
number; infra, p. 3134.) 

Mr. O'CoNNELL. When you were discussing the dividends declared 
by these companies during this period of years, you were referring to 
actual dividends declared and paid to stockholders, as distinguished 
from earnings of the company ? 

Dr. Howe. Dividends paid on invested capital and sent to New 
York by the two Philadelphia companies. 

Mr, O'Connell. The reasoA I ask is that earnings might very well 
either be substantially more or in a given case less, depending on 
whether or not they were paying dividends out of earnings or pos- 
sibly out of surplus. Dividends don't always tell very accurately 
how much money a particular company happens to make during the 
period for which the dividends were declared. You don't happen to 
know whether there were substantial sums in earnings which were 
not declared in terms of dividends during those periods? 

Dr. Howe. A^ded to surplus ? Mr. Tackett may. 

Mr. Tackett. We don't know. 

Dr. Howe. We don't know. 

We have really completed, out of order, the two sections as to the 
trends 

Mr. Baughman (interposing). Dr. Howe, just one point; pardon 
me for breaking in. In reference to these dividends, they were paid 
to National Dairy, which is the sole stockholder. 

Dr. Howe. Yes, sir ; that is right. It is the mother company, a 
holding company. 

Mr. Baughman. Holding all of the stock 

Dr. Howe. For the most part, both of these companies. National 
Dairy and Borden's, are holding companies. They bought their* 
plants, and so forth, by an exchange of stock or by buying out at 
assets vplue, and I think they changed their technique owing to a 
decision of the court. In later years they bought out the assets; in 
the early years they swapped stock. It is a type of New Jersey corpo- 
ration carried out in a Nation-wide way. 

T think that is all I have to say about those items, Mr. Chairman. 

The Chairman. What is the remainder of your testimony? Mr. 
Ballinger indicated to me a moment ago that there was some more 
tectimony to be elicited from you. 



2gl0 CONCENTRATION OF ECONOMIC POWER 

Dr. Howe. I can make that as short as you want to. It relates to 
the excesses of power and the reaction upon the farmers and the con- 
sumers, then a shoit statement as to manufactured dairy products 
showing\technique for the control of prices of cheese and other dairy 
products. Then I have a witness from Detroit who will terminate the 
milk inquiry. 

The Chairman. What is his name? 

Dr. Howe. His name is George Johnson. 

The Chairman. Is he an employee of the Federal Trade Commis- 
sion? 

Pr. Howe. No ; he is a businessman who is goin^ to testify as to 
what he thinks it should cost to produce and distribute a quart of 
milk, what he is doing in Detroit at the present time. 

The Chairman. He is a distributor? 

Dr. Howe. He is a distributor; yes, sir. 

The Chairman. Then your testimony is finished for this after- 
noon ? 

Dr. Howe. For this afternoon ; yes, sir. 

Mr. Baughman. Mr. Chairman, may we ask permission to substi- 
tute for the figures he asked to be presented from Moody's, to use the 
Agricultural Income Report from the Federal Trade Commission, 
which is what we have more convenient and is, we think, a little more 
up to date? 

The Chairman. Of course, Dr. Howe, presented certain figures 
which he represented to be the result of his study, and they were 
accepted. Now, if Dr. Howe would prefer to substitute these others 
for that which he read 

Dr. Howe. I would very much. 

The Chairman. May I ask just where these figures come from? 

Mr. Baughman. These are from the Federal Trade Commission's 
Agricultural Income Inquiry, Part 1, of 1937. 

The Chairman. Now then, do I understand that these figures were 
compiled by your experts and accountants? 

Mr. Baughman. That is correct. 

The Chairman. In the same manner? 

Mr. Simpson. They are better figures because they are checked. 

The Chairman. But they resulted from your examination of the 
books of the companies which are named? 

Mr. Baughman. That is correct. 

The Chairman. Have these figures ever been questioned ? 

Mr. Bauqhman. They have not 

They ccTver flour and other relatively agricultural industries.^ 

Representative WiiiUAMS. Cover in general the same as submitted 
by Dr. ilowE? 

The CiiAiRMAN. Food products of various kinds. 
• Mr. Baughman. Flour millers. 

Mr. SiM?soN. But they are much more reliable than Moody's fig- 
ures. They are figures which the Commission has checked with its 
own accountants. 

The Chairman. If there is no objection, the interchange may be 
made; or if it is desired, both statements could very well appear. 

1 Members of the Federal Trade Commission staff later decided to submit the figures 
pertaining to the dairy industry only. 



CONCENTRATION OF ECONOMIC POWER 2811 

Dr. Howe. The Federal Trade Commission figures are more satis- 
factory to me. 

(The figures referred to were marked "Exhibit No. 368" in place 
of the exhibit of the same number already introduced and are in- 
cluded in the appendix on p. 3134.) 

The Chaibman. The committee will stand in recess until tomorrow 
morning at 10 o'clock. ' 

( Wliereupon, at 4 : 30 p. m., a recess was taken until Friday, March 
10, 1939, at 10 a. m.) 



INVESTIGATION OF CONCENTKATION OF ECONOMIC POWEB 



f:riday, mabch lo, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:20 a. m., pursuant to adjourmnent on 
Thursday, March 9, 1939, in the Caucus Room, Senate OiOSice Building, 
Representative Hatton W. Sumners presiding. 

Present: Senators O'Mahoney (chairman) and King; Representa- 
tives Sumners (vice chairman) and Williams; Messrs. Henderson; 
Davis ; Ferguson ; O'Connell ; Berge ; and Hinrichs. 

Present also: Edward E. Eicher, and Thomas C. B^aisdell, Jr., 
representing Securities and Exchange Commission; Willard Thorp, 
representing Department of Commerce; Federal Trade Commission- 
ers William A. Ayres and Charles H. March; Willis J. Ballinger, 
director of studies and economic adviser to the Federal Trade Com- 
mission; Wilbur N. Baughman and Anderson H. Tackett, attorneys; 
Kemper Simpson, economist. Federal Trade Commission. 

The Vice Chairman. • The committee will please come to order. I 
assume there was a witness on the stand when you concluded yester- 
day afternoon. 

Mr. Ballinger. Yes, sir. 

The Vice Chairman. Will you resume, please ? 

Mr. Ballinger. Dr. Howe, will you discuss this morning the 
problem of surplus milk for the committee % 

TESTIMONY OF DR. FREDERIC HOWE, FORMER CONSUMER'S 
COUNSEL, AGRICULTURAL ADJUSTMENT ADMINISTRATION, 
WASHINGTON, D. C— Resumed 

PHILOSOPHT OF FREE COMPETITION IN FLUID-MILK INDUSTRY 

Dr. HowE. There are two things about an inquiry of this kind. 
One is a factual presentation of conditions and the second one relates 
to what might be considered a philosophy of free competition. As I 
stated yesterday, I believe in a free competitive industry and we 
started to prove, although we didn't complete it, that there \vere men 
in Chicago, Grand Rapids, and Detroit who were selling only 
fluid milk. That is the first fact about that. They were intere^^ea 
only in the fluid-milk industry. 

The second important fact is that in Detroit the prosecuting attor- 
ney protected a distributor there and permitted him to go on as 

2813 



2814 CONCENTRATION OF ECONOMIC POWER 

dealer. He is now selling milk for 6, 7, and 8 cents a quart, and I 
will put him on in a few minutes. 

In Grand Kapids the same thing happened, while in Milwaukee a 
2-year study showed that milk could be distributed in that city at 6.7 
cents a quart or at 7.5 cents a quart, depending upon certain cost con- 
ditions, so that as a matter of study from testimony given by opera- 
tors and the testimony of actual experience we have exhibits of 
low-cost milk where men were only selling milk, and were not also 
buying milk for cheese and butter and other purposes, and that makes 
a very great difference. 

It shows to me at least that if we take the steps necessary to create 
a free competitive industry, that is, in 'which milk will move freely 
from the f armet to the buyer or -the consumer, that we will have 
cheaper milk. 

Our testimony also showed that the big distributors in combina- 
tion inside the cities had demanded the right not only to^pasteurize 
milk but to sell it and to keep other distributor methods Cut of the 
business and to confine the distribution of milk to wagon deliveries. 
In many cities there is no store differential. The stores have to 
sell at the price fixed on the wagon. In some cities under pressure 
they permit a tolerance of 1 cent and some times 2 cents to stores — 
jiist about enough for them to break through. But in the country- 
wide wa;^, wherever we have been in the consumers counsel, we found 
the distributors using every possible effort to limit the distribution 
of milk to one agency which is a luxury agency. 

Now I want to introduce an exhibit which to me 

The Vice Chairman (interposing). Before you do that would you 
mind explaining just a little. You say that you mentioned the neces- 
sity to pasteurize. Does that necessarily prevent the small producer, 
thp small market, from being able to get into the market ; or, rather, 
is it an expensive process requiring a big plant to pasteurize milk? 

Dr. Howe. In practically all cities in the country the pasteuriza- 
tion of milk is required. Raw milk is excluded. Certified milk is 
admitted so that pasteurization has become a Nation-wide policy of 
the United States Public Health Service. 

Now, second, does it require very much investment to build the 
pasteurization plant, and does it cost much to pasteurize ? As to the 
cost of pasteurization, we showed yesterday from accountants' studies 
that it cost very little to purif j milk. 

The Vice Chairman. I don't want to go over that. If I wasn't 
here yesterday and am asking what is already in the record, please 
indicate it to me. 

Dr. Howe. I might as well dispose of the cost of building a pas- 
teurization plant and the difficulties of getting into the market, but 
that I am taking up immediately, sir. 

I should like to introduce as exhibits here what I think would 
happen if this restriction, due to the use of a health instrument for 
other purposes, were ended by some kind of proceedings ; that is, so 
that milk would go from one side of the platform to the other side of 
the platform, and stores and hospitals, relief administration, and 
people could pick it up at its production cost the way you pick up 
other commodities. That to me is more essential than many other 
things in this inquiry because it goes to the question of whether we 



CONCENTRATION OF ECONOMIC POWER 2815 

can produce competitive conditions as to milk by removing an obstacle 
to free competition, whether if we could do that in a Nation-wide way 
it wouldn't operate of itself automatically. If milk could be intro- 
duced in the city at the farmer's price of 4 or 5 or 6 cents, with a 
pasteurization plant cost of from one-half cent to 1 cent, we would 
then have milli like any other commodity available for wholesale 
buying. This is what I think would happen. Milk would be avail- 
able to stores, dairy shops, independent truckmen, and all other 
dealers at a wholesale cost determined by the cost of production. 
Secondly, the farmer or the farmers' cooperative could reenter the 
milk industry which he lost through the coming of the combination 
of distributors. He would again be his own salesman, and he would 
enjoy an income which he once enjoyed as a distributor. 

Third, hospitals, institutions, schools, and charitable institutions 
could buy at a cost which would permit of the wider use of milk, 
and it also would go into our relief agencies, who could buy milk 
at a lower price than the price fixed by the distributors. That would 
amount to colossal sums if we would just do that. The price of 
milk would fall to its proper production and plant costs, plus a rea- 
sonable profit. Increased consumption would follow. More milk 
would then go into bottles and the farmer's price would rise accord- 
ingly because he is paid a higher price for fluid milk than for surplus 
milk. I think there would be an end of the abuses which arise from, 
as shown in the Federal Trade Commission's report, bookkeeping 
which the farmer does not •Control. New methods of distribution 
would arise. We would ha^'^c dairy shops springing up as they 
sprang up in Chicago. Milk would find many new outlets and 
many new methods of distribution now denied milk by the insistence 
that all milk shall be delivered by wagons. 

Milk might become a popular drink at a very low cost. It might 
compete with soft drinks. There is no reason why fluid milk could 
not be handled ^nd its consumption increased just as the consumption 
of soft drinks are pushed by their proprietors. 

Under such conditions we would have other kinds of milk, skim 
milk, and buttermilk available at a very low cost. 
I would like to introduce that as an exhibit. 
Mr. Ballinger. May we offer that for the record? 
The Vice Chaikman. It may be received. 

(Dr. Howe's statement was marked "Exhibit No. 369" and is in- 
cluded in the appendix on p. 3134.) 

The Vice Chairman. While the witness is interrupted, has the 
witness yet indicated how he believes this result could be obtained? 
Dr. Howe. I haven't been asked that question. 
The Vice Chairman. You will come to that in the course of your 
testimony ? 

Dr. Howe. I have some ideas about it, sir. 

Now coming back to close the last thing we were discussing yes- 
terday, which was the price schedule 

Mr. Ballinger (interposing) Are you dealing now with the prob- 
lem of surplus milk? 

Dr. Howe. I am coming to surplus milk, I am coming to the con- 
trol of price fixing. Just a paragraph here. That relates to how 
the farmer is paid, which we did not quite complete. I think wo 



2816 CONCENTRATION OF ECONOMIC POWER 

know enough about it except that I do want to state what I did not 
state yesterday as to the nine-cLass system in New York City. There 
are nine different uses to which milk is put after it is acquired by 
the distributor. 

Mr. Ballinger. It is all the same milk?^ 

Dr. Howe. And I want to show you how the price again falls from 
fluid milk to surplus milk, so-called. That is what Mr. Simpson was 
showing yesterday, and the New York scale of prices paid the fanner 
shows this pretty well. It shows what we have been insisting here, 
that the base surplus plan was used to channel a large volume of 
milk into surplus uses ; that is, into butter, cheese, ice cream, and all 
those commodities, because 60 percent of our milk goes into manu- 
factured products, and the 5 companies control that, or dominate at 
least tliat end of the industry just as they domino te the fluid milk 
industry. If they can buy tb nr surplus milk at a distress price, Ihey 
buy it for all these ether commodities which are tiie major part of 
their business on which they say they make their profit. 

And see how this price goes down. Class 1 milk, which is fluid 
milk, 4 cents a quart. 

The Vice Chairman. Right at that point, to make it clear for the 
average person, fluid milk and surplus milk are physically the same 
milk until they get into process, aren't they? 

Dr. Howe. Yes, sir; they are. 

The Vice Chairman. I thought it would be well if you haven't 
that already in the record, to make that clear. 

Dr. Howe. Except such part as might not be pasteurized on the 
farm, going into cheese. 

I will give this by hundred pounds and it shows how the collapse 
takes place : 

Class 1 .$2. 45 per hundredweight 

" 2-A i.yO " 

2-B 1. 3S3 " 

3-A ^ 1.283 " 

3-B 1. 13G " 

3-C 1.036 " 

3-D 1.011 " 

4-A .936 " 

4-B .891 " 

In other words, the price for 4-A and 4-B are a little less than, or 
in the neighborhood of a third of, what is received for class 1 milk. 

The Vice Chairman. Will you explain what constitutes the differ- 
ence in those designations? Have you already explained that in the 
record ? 

Dr. Howe. I explained that yesterday and I will put it in con- 
nection with tliis classification here. 

Mr. Baughman. May 1 ask this: If there -^vas a greater demand 
for fluid or bottled milk, that same milk that you call surplus milk 
could have been used in bottles, could it not ? 

Dr. Hc-^t:. Thank you very much. That is the gist of my ap- 
proach to improving the farmers' condition. If we can sell more fluid 
milk at a proper price the consumption of fluid milk will go up and 
then the farmer will begin to be paid at $2.45 a hundredweight, in- 
stead of being compelled to accept a distress price for a surplus 

* Dr. Howe evidently did not hear the question. 



CONCENTRATION OF ECONOMIC POWER 2817 

created largely because of the low consuming power of the people 
due to a high price. I think that is natural experience. 

The Vice Chairman, Have you put into the record already what 
determines fluid milk, and whether or not the surplus milk 

Dr. Howe (interposing). Roughly, 60 percent of the fluid milk 
goes into commercial production and 40 percent into surplus. 

The Vice Chairman. The buyer keeps the books ? 

Dr. Howe. The buyer keeps the books. He determines how the 
milk shall be used after it reaches his plaiit and in some jurisdic- 
tions even tlie farmers' cooperatives may not examine the books. In 
other jurisdictions they claim to examine the books, and I believe in 
latter years there are some places where the State authorities have 
required that the books be open to examination. 

Senator King. Doctor, may I ask a question? Are you familiar 
with the rules which were promulgated by Mr, Tugwell when he 
was connected with the Agriculture Department and put into effect 
in Los Angeles, which rules as I recall — and I made an investigation 
several years ago — resulted very disadvantageously to the producer 
of milk and tended to monopolize particularly control by a limited 
number of firms, and that monopolistic control, as I recall, was based 
upon rules and regulations promulgated by the Agriculture Depart- 
ment and by Mr. Tugwell; are you familiar with that? 

Dr. Howe. Well, Senator, I don't believe Mr. Tugwell was re- 
sponsible for that. I was Consumers' Counsel, as you may remember, 
and I don't think Mr. TugT^ell directly or indirectly entered into 
the picture. But the consumers' counsel and the legal division did 
go around the country establishing marketing agreements. 

Senator King. The incident to which I refer bore the imprimatur 
of Mr. Tugwell. His name was attached to the rules and regulations 
that were promulgated. 

Dr. Howe, They were? Those marketing agreements were part 
of the same system that was set up as to codes in the N. I. R. A.* 
The assumption was -that the business end of the industry and the 
consumers' end of the industry could get together and reach an 
agreement as to what were proper prices to be paid the farmer at 
one end and the consumer at the other. 

Senator King. My recollection is that those rules and regulations 
were productive of monopolistic control to the disadvantage of the 
producer and certainly of the consumer. I was wondering whether 
you were familiar with those as they were promulgated. 

Dr. Howe. I was pretty familiar with them in a country-wide way, 
Senator. 

Senator King. Were you familiar with the investigation which was 
conducted here in the District of Columbia 2 or 3 years ago with 
respect to milk control ? ^ * 

Dr. Howe. Do you mean the Senate committee of which you were 
a member? 

Senator King. Yes ; I was chairman of that subcommittee.* 

1 National Industrial Recovery Administration. 

* Sale and Distribution of Dairy Products in the District of Columbia, hearinsa held 
pursuant to S. Res. 76, T3d Con?., 2d sess.. S. Kept. 468. 

• Senator King ia chairman of the District of Columbia Committee of tho United State* 
Senate. 



2818 CONCENTRATION OF ECONOMIC POWER 

Dr. Howe. Well, Senator, you are listening to a hearing this morn- 
ing, I think, partly at least, due to your breaking into that industry. 
I think that was the first suggestion to the country as a whole that 
here was an industry that should be studied. At least my interest in 
it as consumer's counsel was awakened by that study, and I think 
I can say from reading your testimony that anything that has been 
introduced in evidence here was not only confirmed by the Senate 
committee, but in my judgment your committee exhumed things by 
the direct testimony of representatives of the milk companies that 
we have never been able to get. 

Senator King. We were glad to make a pretty full presentation of 
the evils of the milk monopoly, and I might say that I am receiving 
complaints now from consumers in the District of Columbia that 
come to me because I happen to be chairman of the Senate District 
Committee, in which they state that the same evils that then existed 
are perpetuated and that the price of milk, of fluid milk to ,the con- 
sumer here, is entirely too high, and that the profits of the organiza- 
tions which control are entirely too great, and that the producers of 
milk themselves are participants in the plan under the terms of which 
such a limited quantity of fluid and such a large part of so-called • 

Mr. Ballinger (interposing). Senator, may^I say our investigation 
of 1934 showed many identical conditions to those existing in 1921. 
It seems to go on year after year. 

Dr. Howe. And, Senator, may I ask you, because I haven't the time 
to investigate: It is my recollection that when you had one of the 
officers of one of the large corporations on the stand that you your- 
self developed a number of subsidiaries that even the president of tlie 
corporation didn't know existed. Do you recall that inciden,t? 

Senator King. I have a faint recollection. I know there were so 
many ramifications, if I may use that term, that it was very diffi- 
cult to get all ,the facts connected with those organizations, those 
subsidiaries. 

I haven't come here for the purpose of fortifying your testimony. 

Dr. Howe. Since you are responsible for it, the father of it • 

Mr. HiNRicHS. May I ask some questions along this line? Dr. 
Howe, as I understand it, it is your belief that a single price for milk 
of a given quantity, butterf at content, and so forth and so on, which 
would be a competitive price, would be more advantageous to farmers 
than the present class price system. Is that correct? 

Dr. Howe. That is my impression, or that is my conviction. 

Mr. HiNRiCHS. The various? marketing agreements that have been 
established make provision for a class price, do they not ? 

Dr. Howe. They accept them. They did ; I assume they do now. 

Mr. HiNRicHs. Did that come to be accepted over the ojiposition of 
the Department of Agriculture or the A. A. A. ? 

Dr. Howe. I would say that my division at least discovered some of 
the kinds of abuses that have been since disclosed by the Federal Trade 
Commission; that the farmere appearing before those hearings said, 
'We never know what we are going to be paid for our milk until some 
weeks after we make the delivery" ; and we were aware of that situa- 
tion inside the industry in a Nation-wide way, and I personally felt 
that a fiat price would clean up those abuses and probably yield the 
farmer a higher price for his milk. 



CONCENTRATION OF ECONOMIC POWER 2819 

Mr. HiNRiCHS. You were the consumers' counsel ? 

Dr. Howe. Yes, sir. 

Mr. HiNRicHS. And were representative particularly of the con- 
sumers' interest in the price determinations that were made. Is that 
not correct ? 

Dr. Howe. Primarily; yes. 

Mr. HiNRiCHS. Did the farm organizations oppose the class price 
system or did they oppose, rather, the fact that they were getting too 
little for their milk ? 

Dr. Howe. Well, again you will have to differentiate farmers. 
Around about our cities there are at least 50 pure-milk associations or 
other farmer organizations who more or less control the pure-milk 
market. They are acquiescent in the classification plan. 

Mr. Hinrichs. Why? 

Dr. Howe. Farmers outside of that area who have to sell at what- 
ever they can get are either indifferent to it or disapprove of it. I 
think that is a fair statement. 

Mr. Hinrichs. Coming back to this competitive price that you 
would like to see established as a single price for all milk, you say 
that approximately 60 percent of the milk consumption at the present 
time goes into manufactured products, largely butter and cheese and 
evaporated milk. 

Dr. Howe. That is right, sir. Canned milk is a large user. 

Mr. Hinrichs. I included evaporated milk as the third of the large 
uses. Under a competitive market with a lower price for fluid milk 
you would expect a somewhat larger quantity of milk to be consumed 
from bottles. You certainly would not expect that all of that 60 
percent would enter into the fluid milk market, would you ? 

Dr. Howe. No. 

Mr. Hinrichs. Large quantities, very large quantities, would still 
be used in butter, cheese, and evaporated milk. 

Dr. Ho^vE. Undoubtedly. 

Mr. Hinrichs. Have you made studies as to the elasticity of de- 
mand for these various products? 

Dr. Howe. We have very little opportunities to make that kind of 
study. 

Mr. Hinrichs. Who has very little opportunities? 

Dr. Howe. The country has. 

Mr. Hinrichs. The figures are abundantly available in the Depart- 
ment of Agriculture for studies of elasticity in demand in almost all 
agricultural commodities, aren't they? 

Dr. Howe. We have had no markets except Detroit, and for a 
limited period in Chicago, at which milk was sold at a price suffi- 
ciently below the house-to-house delivery price, to make any calcula- 
tions of any value. I might add that my division said that the store 
sales did show an increase on consumption. That was protested by 
the distributors, who said: "Well, that isn't true. House-to-house 
delivery means the biggest consumption." 

It is true that in Chicago — and I am sorry I haven't those exact 
figures because I didn't know it was coming up — the opening up of 
these dairy shops all over the poor sections of the city, the witnesses 
stated, created a demand for milk on the part of people who ha^ 
never used milk before. They said that the increased milk which the 



2820 CONCENTRATION OF ECONOMIC POWER 

farmers could sell at a class 1 price was between 400,000 and 600,000 
quarts a day. Now, I can't prove that; that was just what was 
stated at a hearing. I think the next witness will tell you what has 
happened in Detroit from the distribution of milk solely over the 
counter. 

Mr. HiNRiCHS. I would like to come back to this competitive price. 
I think it is generally believed that the demand for fluid milk is 
somewhat less elastic than the demand for butter and the demand for 
cheese. If that is the case, the price at which all milk will sell is 
going to be fixed by the marginal price for milk entering into butter 
and cheese, is it not? I mean that is in accord with competitive 
price economics. . 

Dr. Howe. I can conceive of a lower price being paid for butter 
and cheese milk than for pure milk. First, it has to be hauled a 

greater distance to cities; it has to be more carefully guarded; it 
as to be bottled, and there is a heavier distribution cost there. I 
think probably the farmer would be willing to accept a lower price 
for his surplus milk, although I foimd countries in Europe where a 
flat price was paid and nobody ever thought of paying a different 
price for one use of milk than for another use of milk. It is an 
American institution so far as I know. 

Mr. HiNRicHs. I grant possibly the uniqueness of the situatioru 
You know much more about that than I do. I am trying to inquire 
into the advantages of a change in the pricing system to the farmer, 
and it would seem that with a competitive price set on the marginal 
price of butter and cheese, you might conceivably have a lower net 
return to the farmer on all milk than you have at the present time. 
I can conceive of a situation in which the two-price system gives the 
farmer perhaps not enough for his milk but gives him an advantage 
which he would not have if he were open to complete competitive 
forces. Would you agree with that? 

Dr. Howe. I haven't advocated a one-price system, sir, at any 
time. 

Mr. HiNRiCHS. Then I have misunderstood you. I thought you 
disliked the two-price system as evidence of monopoly. 

Dr. Howe. A flat price instead of a system graded as it is in JSTew 
York ; that is, that the farmer, when he sold his milk to a distributor, 
knew in advance what his milk was to be used for and he got, let us 
say, a price of 4, 5, or 6 cents for that milk instead of the price that 
he doesn't know what it is going to be until 6 weeks afterward. 

Mr. HiNRiCHS. How are you going to distribute — that is too long 
a question. 

Dr. Howe. Just to add one thing more to the question of the ex- 
pansion of consumption, we know how cigarettes and all other com- 
modities are distributed, how the proprietary interests seek to find 
just as many outlets as possible. I think if 'we had milk available 
to shops, stores, dairy shops, all kinds of agencies, we would find milk 
was being brought down close to the people in a great many ways 
that we don't know about at the present time. At the present time 
that is happening in New York, where Mayor LaGuardia has made 
some arrangement whereby milk is being sold at 8 cents and people 
can come and get it, just as in Chicago people can go out and pick up 



CONCENTRATION OF ECONOMIC POWER 2821 

milk at a reasonable price to the farmer, and in Detroit people can 
pick it up and many of them drive baby carriages around for it. 

Mr. Ballinger. If there are 7,000,000 undernourished children in 
this country, if you reduced the price of milk you probably would 
increase the consumption. People aren't going to starve their babies 
unnecessarily if they can possibly get the milk. 

Mr. HiNRiciis. Mr. Ballinger, I have indicated all along the fact 
that 1 am decidedly interested in lower prices for milk, that I think 
that there is a very real connection between the price of milk and the 
amount which is consumed. The point that I was questioning was 
whether Dr. Howe had introduced evidence that indicated the dis- 
advantage to the farmer of a class-price system. 

Dr. Howe. I just want to supplement that a bit. I think under 
any circumstances the farmer must have an organization of his own 
to protect himself; he must have that, otherwise we would have cut- 
throat competition, but if he is able to create a cooperative to bar- 
gain, he would be much stronger as a bargaining cooperative if he 
could have the milk under his control until it was ready to go to your 
doorstep or to go to the shop. 

Mr. HiNRicHS. That is, if you could have a nice monopoly. 

Dr. Howe. Well, I would rather trust farmers who had to fight 
to get a large consumption and who were greatly concerned in getting 
their milk off the farm in the largest possible volume, reaching a 
proper understanding in relationship to the cities ; yes, I would trust 
that. 

Mr. Balmnger. Doctor, you would want competing cooperatives; 
you wouldn't want to put the milk business in the hands of a whole 
cooperative and establish monopoly at one end of the line while we 
are trying to establish competition at the other end? 

Dr. Howe. No; I would want to have milk available for you or 
your son if he wanted to pick it up, or a hospital; but if the coop- 
eratives wanted to go into the distribution business they are welcome 
there. I woyld like to have lots of people distributing milk.- 

The Vice Chairman. Doctor, has the two-price system for niilk 
to any degree grown up out of the effort of cooperatives to prevSnt 
one person from getting a larger proportionate share of the high-price 
market than the rest of them get ? 

Dr. Howe. Has it grown up to protect the members of the coop- 
eratives against people outside of the cooperative? 

The Vice Chairman. No, sir; I would like to gtate my questtoji 
just as I did state it. I will restate it: Has the two-price system 
for milk grown up out of an effort of cooperatives to distrib.ute 
among their members a proportionate share of the high-price market? 

Dr. Howe. I think they, have cooperated, yes ; they like that system, 
naturally. 

The Vice Chairman. Otherwise, possibly, one man would get all 
his milk in at the high price, whereas those who weren't so able and 
fortunate in their bargaining would get in at the low price if they 
got 'to the market last. That is a very poor way to put it, but I 
have been out in the country and talked to some of these people who 
are engaged in the business and they seem to have some idea that 
in a country producing, for instance, as the environment of Washing- 



2822 CONCENTRATION OF ECONOMIC POWER 

ton, the people who are in production ought to share proportionately 
in the high price and in the low-price markets for their stuff. To 
what degree that enters into the general arrangement I don't know. 

Dr. Howe. I should say that was generally true throughout the 
country. 

Senator King. Dr. Howe, isn't it a fact, though, that in the dis- 
tribution of milk from the farmer who produces it to the ultimate 
consumer, the costs are very great, necessarily : Transportation, the 
method of distribution, the cost of maintaining stores in which the 
products of the farmer are sold, the high rents in cities, and so on, so 
that complete uniformity is almost impossible because of the varying 
factors which ultimately must rest upon the commodity when it is 
sold to the ultimate consumer. 

Dr. Howe. We do know, however, that stores are willing to sell over 
the counter for a cent or a cent and a half and two cents a quart- 
Senator King. If it is delivered to them. 
Dr. Howe. If it is delivered to them from the plant. 
Senator King. But the costs of first inspection which ultimately 
rest upon the consumer, and the increased requirements for the pro- 
duction of pure milk, are being multiplied and the transportation 
costs, then the gathering up of the milk from the various farms in 
the country, and bringing it to a central depot and from there dis- 
tributing to the individuals and to the stores, and so on — all of those 
costs necessarily add to the price of milk when it reaches the ultimate 
consumer. 

Dr. Howe. "And the farmer's burden, too. 

Mr. Baughman. Dr. Howe, isn't your larger cost what is called the 
luxury delivery system through the wagons, and haven't you figures 
on that? 

Dr. Howe. We introduced yesterday. Senator, 12 leading cities 
showing an average farm price f. o. b. the plant of 5i/^ cents, a de- 
livered price of I21/2 cents, and a spread of 6.07 cents for distribution 
and plant costs, so that is where the large spread is to be thought 
about. 

Senator, you know just as well as I do that this just goes in all 
kinds of directions, wherever you touch it and that question of health 
inspection runs into ice cream, it runs into all the commodities con- 
nected with milk. 

. Senator King. I am receiving complaints now to the effect — I don't 
say that they are warranted — that there seems to be a determination — 
I will not say a conspiracy — to impose such restrictions with regard 
to inspection, and so forth, that necessarily add to the costs and tend 
to monopolize the commodity, particularly in the large cities. Some 
complaints that I have received are to the effect that the farmers of 
two contiguous States unite together for the purpose of excluding 
from the market which they now have milk which might come from 
other sections of the country, other States ; in other words, that there 
is a growing disposition to have a local monopoly and to exclude to 
other States the invasion of that monopolistic area by the importation 
of milk in that area.^ Have you found any evidence tending to sup- 
port that? 
Dr. Howe. That is the self-protective instinct, Senator. 

» See footnote 2, supra, -p. 2817. 



CONCENTRATION OF ECONOMIC POWER 2823 

Senator King. I am not debating it. I am simply calling attention 
to the complaints coming to me to that effect, that barriers are being 
erected against the introduction into various States or segments of 
their States, of milk from beyond the borders of that limited area. 

Dr. Howe. That is up in Washington at the present time, as I 
understand it, where milk is brought in from Indiana. I believe it 
is transported from Michigan to Boston in much the same way, and 
I am not sure but that it comes into Philadelphia in the same way. 
I think we have evidence along that line. 

The Vice Chairman. Doctor, do you find evidence of a conspiracy 
between groups of fairly close producers and distributors withm the 
city? 

Dr. Howe. The farmers' cooperatives and the distributors you 
mean ? 

The Vice Chairman. Yes; who put prices high beyond the reach 
of the average person. 

Dr. Howe. Congressmen, the representatives of the farmers elected 
by the farmers' cooperatives sit on one side of the table; the repre- 
sentatives of the distributors sit on the other side of the table. 

The Vice Chairman. And the people don't sit. 

Dr. Howe. Not at that table. And this is the purpose of the bar- 
gaining coop : It is to get as high a price as possible for its members. 
Now on the other side of the table is another group that wants to pay 
the farmers as little as possible for their milk. In that situation the 
farmers have an alternative. They have just one as far as I can see. 
If they don't like the price that is a^eed upon they can keep their 
milk at home or. they can dump it m the road as they did up in 
Wisconsin, and after 2 or 3 days public opinion on the one hand and 
their own necessities would normally bring them to terms. They are 
pretty helpless, you know, in that kind of bargaining. 

The Vice Chairman. Doctor, have you made suggestions as to 
how you might create conditions that would give freer access of milk 
to the market. 

Dr. Howe. I haven't made such suggestions. 

The Vice Chairman. Are you going to before you get through? 

Dr. Howe. If the committee asks it. 

The Vice Chairman. That is the only purpose ; that is what I am 
interested in about these hearings. What are we going to do about 
it? I can get out in the country and find out a good deal of that in 
a day and a half. 

Dr. Howe. I haven't been worrying about that for 5 years with- 
out looking around for a way out. 

The Vice Chairman. That is what I am interested in. You can 
show us the way in ; I can find the way in, I am interested in some- 
body who can show us the way out. I don't know whether I am 
breaking in on this play or not. I don't know what the arrange- 
ment is. If you don't want to do it now, I should like to have a 
little visit with you privately after a while. Am I interfering at 

(Mr. Ballinger shook his head in the negative.) 
The Vice Chairman. All right ; let's have it. 
If I am embarrassing this play, I will back out. 
Mr. Ballinger. Mr. Chairm.an, may I say our fundamental task 
was just to show the existence of monopolistic conditions in these 

124491— 39— pt. 7 G 



2824 CONCENTRATION OF ECONOMIC POWER 

industries. Wlien you get to tlie question of remedies, the witne-sa 
may have some ideas of his own which may be in conflict with the 
ideas of the Federal Trade Commission, and it- is rather difficult to 
distinguish the personality of the witness from the personality of 
the Federal Trade Commission. 

The Vice Chairman-. Those are a lot of big words, and it is per- 
fectly overwhelming to me and I will quit. 

Mr. Ballinger. If you should like it, Mr. Chairman, we will be glad 
to have Dr. Howe file with you his views as to how this situation can 
be cleared up. 

The Vice Chairman. Tliank you. 

Dr. Howe. Well, in answer to that, it reduces to the fact that I am. 
an old-fashioned Jeffersonian Democrat, and I think society is best 
where the ingenity and resourcefubiess of all men are free to play on 
their opportunities, and if we can get milk through this gateway so a 
lot of people can get it and distribute it their own way, then that is 
step No. 1, but I don't think that solves the problem b}^ any means. 
It just solves or approaches a solution of part of it. 

The Vice Chairman. Of course, we aren't going to solve any 
problem and have it stay solved. We aj-e going to have to keep on 
solving it all the time. That is the thing that makes life, I suppose, 
but we have postponed working at tliat for a good while and probably 
will have to do a little double work now. 

Dr. Howe. I am satisfied that where you have free competition 
you have solved competition as to the clollar watch, as to a radio, as 
to an automobile. Wherever we have free play of all competition 
from start to finish and the mind of man, the ingenuity of man works 
on it, there we have a pretty good society; and just as soon as, by law 
or otherwise, you interfere with those great operative forces that 
made America what it was for 300 years before these obstacles got in, 
where every man had his own farm and his own buildings, why we 
took the poor of Europe and made this the greatest Nation in the 
world under a philosophy of free competition. 

The Vice Chairman. Well, if Government can remove the obstruc- 
tions and permit the possibility of democracy and opportunity, we 
won't have to do very much more in government. 

Dr. Howe. Well, you pretty nearly stated my philosophy, sir. 

The Vice Chairman. Oh, yes ; you're smart. 

Mr. Ballinger. Mr. Chairman, the representative of the Federal 
Trade Commission, Commissioner Ferguson, feels that it would be 
perfectly all right for Mr. Howe to express his personal views if you 
woud like to hear them at this time. 

Senator King. I suggest that we conclude what the Commission 
desires to present, and then that we interrogate Dr. Howe along 
broader fields. 

Mr. Hinrichs. Mr. Chairman, coming back to this thing that Mr. 
Howe just said, of giving full play to competitive forces, I want to 
state again that I believe that it is in the highest public interest that 
the price charged should bring milk within the reach of the mass of 
the population. From the urban dweller's point of view, the full 
play of free competitive forces sounds very attractive in the milk 
industry. But is the competitive system necessarily one which is 
going to work in the public interest? Isn't the farmer in this par- 



CONCENTRATION OF ECONOMIC POWER 2825 

ticular situation, in the position of the weakest of all competitors, so 
that the full burden of any shrinkage in the retail price of milk, 
butter, cheese, whatever you have, is likely to fall back directly into 
the farmer's lap, given the aggregation of individuals into large 
cities, so that you have to separate the distribution of the milk from 
the individual of the farmer. 

NEED FOR PROTECTION TO FARMER 

Dr. Howe. I am glad you asked that question, because I don't 
want it to be said, which isn't true, that I am suggesting a situation 
which creates a greater distressed market for the farmer than what 
he has at the present time. I think it is necessary to have some kind 
of authority which will make it easily possible for the farmers to 
act for themselves; and, second, a protective authority that will 
encourage and protect them in that. Now it may conceivably be 
that an authority would have to say that in some city, maybe, no 
milk shall enter the city of Washington for which the farmer is not 
paid G cents a quart for. That can be very easily done by the Board 
of Health. 

Mr. HiNRiCHS. You don't mean to say that that is a competitive 
system. 

Dr. Howe. That is a competitive sj^stem after it gets to the market. 
How that should be done I don't know, because we are living in a 
community in which we have half of our social civilization in the 
hands of monopoly and the other half freely competitive. The great 
problem of agriculture is that the farmer has to buy things that are 
monopolized and has to sell things that are not monopolized, and the 
A. A. A. philosophy is that we have to put both parties on an agree- 
ment, and I think you have to make the farmer, whether he is a 
milk farmer, a cattle farmer, or a vegetable farmer, in some way pro- 
tected against the complete cutthroat competition of producing too 
much in the first place and being compelled to sell too much on a 
distressed market. 

Mr. HiNRicHS. Suppose you establish completely free competition 
in the distribution of milk in the city of Washington or in any other 
city that you like. The farmers in the surrounding country, as I 
understand it, have cows that yield in the neighborhood of 4.000 
pounds of milk a year, more in some months, less in others. That 
milk has to be sold. When you gave this picture of the farmer put- 
ting the milk in the back of the buggy and taking it into the village 
you had that man engaged in a complete process and he couldn't 
possibly distinguish in his own mind between the costs that he got 
for his milk and the costs that he got for his labor in distribution. 

Dr. Howe. Yes. 

Mr. HiNRicHS. But the instant that you separated the farmer from 
the process of distribution you introduced a new cost process in there. 
The people who are going to make up their minds as to whether it is 
worth while to distribute milk under a competitive system are going 
to have their own concepts of cost in mind, are they not ? 

Dr. Howe. Yes, sir. 

Mr- HiNRicHs. And the farmer is going to be in a position where 
he has got to milk his cows. He can't even withhold the milk from 
coming out. The harvesting costs have got to be incurred. 



2826 CONCENTRATION OF ECONOMIC POWER 

(Senator King assumed the Chair.) 

Dr. Howe. Absolutely. 

Mr. HiNRicHS. Now, under those condition* you have created a 
situation where, even though there were no monopoly in the farmer's 
selling environment, he would none the less be a terrifically weak 
competitor. 

Dr. Howe. Absolutely. 

Mr. HiNRicHS. And you would expect him to take, under full com- 
petitive conditions, the full brunt of changes in the retail market, 
wouldn't vou? 

Dr. Howe. No ; not at all. 

Mr. HiNRicHs. Why not? 

Dr. Howe. I didn't complete my story of what I would do and I 
don't feel I know enough about it, but just to add this: My philos- 
ophy up to the present time is a fr^^e market inside the city of dis- 
tribution so that anybody can distribute. If a farmer's coop out- 
side of that wants to sell milk, well and good. It may still remain 
a bargaining coop. For the time being I am interested only in the 
question of distribution inside the city where there is a spread of 
6.7 cents to see whether we can cut that. down to normal operating 
cost. To attempt to solve the whole agricultural problem by one 
formula, I don't think that can be done. 

Acting Chairman King. I hope we are not going to investigate 
the A. A. A. and the control by the Agriculture Department or any 
department of the production or distribution. I agree with you that 
there must be this competitive system and free play, but I don't feel 
like we can make any progress if we are going to investigate the 
A. A. A.'s philosophy as that Avas formally announced. I don't want 
to interfere with my friend's questions, but it seems to me we would 
make better progress if we had Mr. Ballingei go ahead and present 
what the Federal Trade Commission desires ; and then questions can 
be propounded along the lines of those by the representative of the 
Department. 

Dr. Howe. The question has been asked this morning why it isn't 
possible, under this situation, for anyone to build a pasteurization 
plant and sell milk inside a city. Let me just run that through. 
First, whoever wants to build has to get some capital. In the 
Cleveland story, which I have here, the farmers invested $1,600,000 
in a competitive plant. They got a loan from one of the banks 
there of $150,000 to keep it going, and some forces forced the bank 
to recall it, and they had to come to the Farm Credit Administration 
for money. That is obstacle No. 1. 

Second, they have to build up the distribution inside the city, 
either to the stores or to the houses. I wish to present here what 
happened in Chicago under the indictments of the Department of 
Justice, but in all cities they have to get wagon deliverers who will 
handle their milk. They have to deal with the truckmen's union. In 
those cities that we know something about, the truckmen's union says, 
"No; we are sleeping with the existing distributors liere. It is too 
bad ; you can't get into this bed. If you try to get in that bed we will 
throw you out," which is what happened in Chicago, which happened, 
Mr. Johnson ^ will show, in Detroit. 



George A. Jobnson ; see testimony beginning p. 2829. 



CONCENTRATION OF ECONOMIC POWER 2827 

Acting Chairman King. You might add that that is wliat hap- 
pened in Washington yesterday. Tlie truckmen's union said, "We 
will not deliver milk to these hotels." ^ 

Dr. HoAVE. It is one of the devices used inside the city. 

The third obstacle: Milk is delivered in glass bottles. In every 
good-sized city they have a bottle exchange. The Chicago indict- 
ments show that that bottle exchange is controlled by the big distrib- 
utors. I am an independent, I come in and I have my capital 
going. I have built up my routes either to the stores or to the 
houses, but I don't get my bottles back. They are picked up by 
somebody and they are either broken until I get wise and learn that 
I lose 5 cents on every bottle, that I can't sell milk unless I meet 
the terms of the bottle exchange; or they go to the store and pay 
the storekeeper — as they did in Cleveland — 2 or 3 cents a bottle and 
get my bottles that way. So again I am stopped. 

Finally, this Cleveland story about the destruction of a farm 
cooperative is one of the most dramatic stories I have ever read. It 
came from a manager who was connected with the Guardian Trust 
Co., certainly an honorable man. Finally, not being able to destroy 
this farmers' cooperative otherwise, they sent somebody around to the 
platform of the houses to put dirt in the bottles, and when the co- 
operative came again they said, "Oh, no; your milk is dirty; you can't 
deliver any more milk to this apartment." 

Finally, he told me, he just couldn't stand it, and his wife said to 
him, "You have to get out of this," and he resigned from the farmers 
cooperative and went to California, and we have been trying to reach 
him but we can't find liim. He didn't leave his address. 

That is just one story where the trust wanted to buy a competing 
farm cooperative; and just to comf)lete this, because I haven't any 
doubt but that this story is true, I have this, which I would like to in- 
troduce into evidence if somebody will examine it to see that it isn't 
improper. He arranged to sell that plant for $1,000,000, at a losfe of 
$600,000, arranged with the president of one of the large distributors ; 
they closed the deal the night before. The next morning they met in 
the lawyer's office to complete it and the lawyer, an old friend of 
mine, said this to him : "Now. don't you know better than to try to 
sell the plant for a million dollars to our people?" 

Mr. Ballinger. Wl\at was the name of that large distributor? 

Dr. Howe. I would a little rather not introduce that, if you don't 
demand it. 

Acting Chairman King. Proceed without it. We respect your 
reticence. 

Dr. Howe. The lawyer said, "Before we get through with this we 
will get your plant at 25 cents on the dollar." The cooperative came to 
the Farm Credit Administration and got credit enough to carry on. 
They finally threw the plant into bankruptcy, and today tlie Farm 
Credit Administration is running that plant up there in order to pull 
itself out. That is a story which is a concrete story of the things 
that might happen to a man who wanted to enter the business, and 
if you care to have an abstract of the indictments in Chicago, you 
will find that everything that has been suggested here is confirmed 

^ At the time of these hearings, certain hotels in Washington were being picketed dining 
a stril<e. 



2828 CONCENTRATION OF ECONOMIC POWER 

by the indictments of ninety-six or seven people out there, includ- 
ing public officials, distributors, farmers' cooperatives, milk associa- 
tions, the truckmen's union, the bottle exchange — right straight down 
the list, and they are now up for trial; and motions and demurrers 
are being heard. 

Those are the obstacles which I think would meet you or me if we 
tried to go into the sale of milk inside the city, unless we were willing 
to join hands with those already there, and that is what has happened 
to most of them. Some farmers' cooperatives have gone into a city 
and said we are going to play the game with the rest of them, and 
they are getting as much as anybody else is getting out of it. Others 
who have tried to go in have been subjected to the kind of thing my 
friend, Mr. Johnson, will talk about later. 

Mr. Berge. I would like to make a correction for your protection 
and the DepartiAent of Justice. You said these practices were con- 
firmed by the indictments. We hope they will be confirmed or we 
think they will be confirmed by the trial, but I think I would like to 
have the record show that the indictment charges are what you stated, 
and the grand jury found there was sufficient evidence to warrant 
indictment. 

Dr. Howe. Thank you very much. If I had read it, I would have 
said these were taken out of the indictments of the grand jury. 

That is about all I want to say. The Cleveland story is the state- 
ment of this banker wliom I talked with personally. It is as good as 
any other evidential matter, I think. After lie got through talking 
with me I asked him to write it down, it is signed by him, and it is 
the dramatic story of the destruction of a farmers' co-op. It is a 
pretty terrible story. 

I think I have talked all I need to talk about the farmers' coopera- 
tives and the difficulties they have in protecting themselves. They 
have but one alternative, except the negotiating alternative, and that 
is to stop delivering milk. 
. Mr. Ballinger. Are you ready to present your witness? 

Dr. Howe. I have nothing left but the manufacture of dairy prod- 
ucts to dispose of and I think this is a good time to put Mr. Johnson 
on the stand. 

(The clerk of the committee asked if the banker's statement to 
which Dr. Howe referred was to be admitted as an exhibit.) 

Acting Chairman King. I suggest that be given to Judge Davis 
and the representatives of the Federal Trade Commission and if they 
feel it ou^ht to be introduced, they can bring it to the attention of 
the committee. 

Dr. Howe. Mr. Chairman, up to date I haven't mentioned, I think, 
the name of any individual man. I have tried not to pin this on any 
individual company except as they were major factors. It isn't 
wholly the fact that there are two or three large agencies. It is 
due to the fact that when two or three large agencies in any indiis- 
try are powerful enough, they bring others inland agree about the 
same situation as if there were only one. — 

(The next witness approached the witness table.) 

Acting Chairman King. Do you solemnly swear, in the testimony 
you are about to give, to tell the truth, the whole truth, and nothing 
but the truth, so help you God ? 

Mr. Johnson. I do * 



CONCENTRATION OF ECONOMIC POWER 2829 

TESTIMONY OF GEORGE A. JOHNSON, JOHNSON MILK CO. 
DETROIT, MICH. 

AN INDEPENDENT MILK DISTRIBUTOR 

Acting Chairman King. State your name and such qualifications as 
Mr. Ballinger may ask for. 

Mr. Baijjnger. I .would like to ask Di-. Howe to qualify the wit- 
ness. 

Dr. Howe. Mr. Johnson, I am going to ask you to confine your 
answers to the specific questions I ask you, or are asked you by the 
committee, and then add to that; if you have some general state- 
ment to make with respect to questions which we don't ask, you will 
bo permitted to do that. But I think it will speed up the hearing 
if you talk as definitely as you can to the questions asked first. 

Your full name is what, Mr. Johnson ? 

Mr. Johnson. George A Johnson. 

Dr. Howe. Your address? 

Mr Johnson. Detroit, Mich. 

Dr. Howe. What is your business?- 

Mr. Johnson. I am in the milk business in Detroit. 

Dr. Howe. What is the name of your company ? 

Mr, Johnson. Johnson Milk Co, 

Dr. Howe. Hoav long have you been operating in Detroit? 

Mr, Johnson, Since January 1, 1936. 

Dr. Howe. Did you operate any place before Detroit? 

Mr. J0HN5-0N. Grand Rapids, Mich, 

Dr. Howe. How long there? 

Mr. Johnson, About 13 years. 

Dr. Howe. How long all told have you been in the dairy business? 

Mr. Johnson. All my life. 

Dr. Howe. Was your father in the dairy business before you? 

Mr, Johnson. Yes; and my grandfather before him. 

Dr. Howe. In the United States ? 

Mr. Johnson. Sweden and the United States — the farmer's milk 
man. 

Dr. Howe. Now, we will begin at Detroit. Exactly what do you 
distribute in Detroit? 

Mr. Johnson. I have milk depots and' I distribute milk and cream 
and dairy products. 

Acting Chairman King. Pardon me, are you alone or do you have 
a corporation? 

Mr. Johnson. I am alone. I am doing business as the Johnson 
Milk Co. 

Dr. Howe. What do you manufacture? 

Mr. Johnson. I have just started to manufacture butter and 
cottage cheese. 

Dr. Howe. TTp to the present time you have limited your busi- 
ness to fluid milk? 

Mr. JoHNf=oN. Milk and cream exclusively. 

Dr. Howe. Hovr do you buy from the farmer? 

Mr, Johnson. I buy direct from the farmer. I make my own con- 
tract direct with the farmer himself. 

Dr. Howe. You don't deal through the association? 



2830 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. Not at all. 

Dr. Howe. What do you pay the farmer? 

Mr. Johnson. I pay the farmer $1.50 per hundredweight for 3.5 
test at Detroit. 

Dr. Howe. Is that the only price you pay the farmer? 

Mr. Johnson. That is the only price. 

Dr. Howe. What does tha,t amount to per quart? 

Mr. Johnson. For 3.5 test milk it is about 31/3 cents per quart. 

Dr. Howe. That is the only milk you buy ? 

Mr. Johnson. That is the only milk I buy. 

Dr. Howe. Do you increase the butterfat content for other quali- 
ties of milk ? 

Mr. Johnson. I get a 4 cent per quart differential. 

Dr. Howe. And you sell your milk at what ? 

Mr. Johnson. I sell 3-percent milk at 6 cents, 3.5 at 7 cents, and 4 
percent milk at 8 cents per quart. 

Dr. Howe. So you give the farmer a differential for the milk? 

Mr. Johnson. I get a 4 cent per quart differential. 

Mr. Johnson. Yes. 

Dr. Howe. And what would the farmer get then for your 4-percent 
differential ? 

Mr. Johnson. $1.78. 

Dr. Howe. And for your 3.5 ? 

Mr. Johnson. $1.50. 

Dr. Howe. How does that compare with the price paid by ,the dis- 
tributors in Detroit ? 

Mr. Johnson. About 10 cents per hundredweight more than the 
blended price. 

Dr. Howe. You are familiar with that price, are you ? 

Mr. Johnson. Yes. 

Dr. Howe. Paid by the distributors? 

Mr. Johnson. Yes. 

Dr. Howe. How do you know ,that fact ? 

Mr. Johnson. I call up my competitors; I talk directly with the 
farmer ; and I also get a copy of the Milk Message, the official organ of 
the Michigan Milk Producers Association, from the various farmers. 

Dr. Howe. Are the farmers willing to sell to you at that price ? 

Mr. Johnson. I have trouble keeping ,the farmer from selling me. 
Most of the time I have too much milk. 

"cash and carry" method of distribution 

Dr. Howe. How do you distribute your milk, again ? 
Mr. Johnson. Directly over the counter in "cash and carry" or 
"pay and take" milk depots. 

Dr. How^E. You don't carry it to the house at all ? 

IMr. Johnson. Not at all. 

Dr. Hoave. Not a quart? 

Mr. Johnson. Not a quart. 

Dr. Howe. Wimt do these plants cost to equip them? 

Mr. Johnson. About $1,500 for each depot. 

Dr. HoAVE. Hoav much do they distribute per depot, per diem ? 

Mr. Johnson. I would say about 1,000 units. 



CONCENTRATION OF ECONOMIC POWER 2831 

Dr. Howe. All told? 

Mr. Johnson. All told. 

Acting Chairman Kino. I didn't quite understand; does the dis- 
tributor come and buy from you at your place of business? 

Mr. Johnson. No; I own my own depot and sell directly to the 
public. The public comes and buys from me at the depot. 

Acting Chairman King. You make no distribution yourself? 

Mr. Johnson. Not at all. 

Acting Chainnan King. Are most of your sales made directly to 
the individual user and consumer, or to distributors who may then 
make distribution or make the sale to the consumer? 

Mr. Johnson. They are made directly to the consumer, not at all 
to any distributor. 

Dr. Howe. You have no house vendors at all ? 

Mr. Johnson. Not any. 

Dr. Howe. Tell me what part of the city of Detroit are your shops 
located ? 

Mr. Johnson. They are scattered equally around all the busy 
streets of Detroit, the principal streets of Detroit. 

Dr. Howe. That is, among rich sections, middle-class sections, and 
poorer sections? 

Mr. Johnson. Yes. 

Dr. Howe. Do rich people buy at your shops? 

Mr. Johnson. They drive up in Packard cars with colored chauf- 
feurs, and buy it. I presume they are rich. 

Acting Chairman King. How many shops have you? 

Mr. Johnson. Forty. 

Acting Chairman King. In the city of Detroit ? 

Mr. Johnson. Yes. 

Dr. Howe. 'What were your sales when you began in 1936? 

Mr. Johnson. The first day I sold 26 quarts of milk and 6 of those 
I took home. I actually sold 20 quarts to the public. 

Dr. Howe. You own your own pasteurization plant? 

Mr. Johnson. Yes, sir. 

Dr. Howe. Who collects the milk from the farmer ? 

Mr. Johnson. I have three trucks that collect milk, that I own, 
and the rest of the trucks are owned either by the farmer or con- 
tract haulers that they have picked out themselves. 

Dr. Howe. Wliat is j^our cost of haulage per quart from the farm ? 

Mr. Johnson. I pay these trucks 30 cents a hundredweight, or 
the f arm.ers pay — it is deducted from the farmer. 

Dr. Howe. That amounts to how much? 

Mr. Johnson. About two-thirds of a cent. 

Dr. Howe. Your trucks also distribute to your own shops ? 

Mr. Johnson. Yes. 

Dr. Howe. Now we have discussed what you paid the farmet. 
What are your actual pasteurization-plant costs? 

Mr. Johnson. At the present time slightly less than half a cent 
a quart. 

Dr. Howe. Half a cent a quart for receiving the milk, heating it, 
cooling it, and putting it in bottles. 

Mr. Johnson. And loading it on the trucks. 

Dr. Howe. And your shop costs are how much per quart? 



2832 CONCENTRATION OF ECONOMIC POWER 

T^Ir. JoHxsoN. Pardon me just a moment. My memory soems to 
be failing me. My lowest .shop costs are half a cent. 

Dr. Howe. Tliat is, the shops through which ypu distribute the 
milk. 

Mr. Johnson. That is the lowest cost, for the largest shop, and 
the average is 1.1 cents per quart. 

Dr. Howe. That depends on how much you distribute? 

Mr. Johnson. The average is 1.1 cents. 

Dr. Howe. If you distribute 1,000 quarts over each counter, what 
would it probably be? 

Mr. Johnson. It would probably be half a cent. 

Dr. Howe. You think, then, that you can distribute fluid milk over 
the counter at a cost of half a cent a quart? 

Mr. Johnson. Mr. Howe, at the present time in Detroit milk is 
being delivered to the homes at the same price that I am selling 
out of my depots and it is being sold all around me at prices lower 
than mine, so people are paying me in many cases more for milk 
than thev could buy it for from other dealers. But they are afraid 
if I should go out of the picture they would have to pay the old 
price of milk, so that has run my costs up. But if the proper dif- 
ferential was made between the depot price and the retail delivered- 
to-the-house price, my costs would probabty be less than half a cent 
a quart. 

Mr. Bekge. Do you mean to say that dealers who perform delivery 
service are now meeting your price and are delivering milk to the 
door at the same price you sell it over the counter ? 

Mr. Johnson. Yes, sir. 

Mr. Davis. Mr. Johnson, are the herds and the dairies from which 
you get your milk and the milk you deliver to consumers subject to 
the same health conditions as are the other distributors' milk they 
handle? 

Mr. Johnson. I think I get more. 

Mr. Davis. The same regulation? 

Mr. Johnson. I get more inspection than the others. 

Dr. Ho-vvE. Why do you get more inspection ? 

Mr. Johnson, t had a talk with the health officer and I told him 
I wanted plenty of inspection; I didn't want any criticism of my 
product. He agreed with me that it would probably be criticized 
and be watched very carefully, and he said he would lean over 
backwards to see I got good inspection, and I asked for that. 

Dr. Howe. Why was this price cutting going on of other shops and 
house-to-house delivery. WaS it an attempt to put you out of 
business ? 

Mr. Johnson. One is to demoralize the market and to bring out 
a milk-control bill. They are asking the Legislature of Michigan to 
pass the milk-control bill, and they hope by demoralizing the market 
they can get a demand for the milk-control bill; and the other is to 
put me out of business. 

Acting Chairman King. Who is seeking municipal control 

Mr. Johnson (interposing). State control. 

Acting Chairman King. The farmers or the distributors, or whom? 

Mr. Johnson. The individual farmers are against it. Mr. Beach — 
he is the manager and the director of the Michigan Milk Producers 



CONCENTRATION OF ECONOMIC POWER 2833 

Association — is asking for it and the distributors are asking for it. 
They are asking that the resale price be set. 

Dr. Howe, That is for hoiise-to-house delivery? 

Mr. Johnson. Kesale price for house to house. 

Dr. Howe. They are trying to make that a fixed price by law ? 

Mr. Johnson. Fixed price by law ; yes. 

Acting Chairman King. Only in milk that is delivered from house 
to house, or the entire product that comes to the city for distribution '*. 

Mr. Johnson. Well, the talk amon^ the dealers is that the price 
will be set only for house-to-house delivery and that I will the next 
day be out of business because the people won't pay me the same 
price when they have to go after the milk and pay a bottle deposit as 
for house to house. 

Dr. Howe. When did this price cut begin against your business? 

Mr. Johnson. April 4, 1937. 

Dr. Howe, That price cutting, you think, was due to the fact that 
you were selling milk over the counter at a lower price than the 
house-delivery price. 

Mr. Johnson. No; I think they woke up to something on that 
particular date. If you want me to explain it to you, I will. 

Dr. Howe. Yes. 

Mr. Johnson. On April 1, 1937, milk was 12 cents a quart in De- 
troit. I was just getting started and my price was 8 cents per quart. 
At that time I had only one grade of milk; I sold milk exactly the 
way I got it from the farmer ; whatever the test happened to be. I 
sold it for 8 cents per quart. The 1st day of April they raised the 
price to 13 cents per quart. 

Dr. Howe, House delivery? 

Mr. Johnson. House delivery, and the people in Detroit went on 
a milk strike and refused to buy milk. My business jumped; it dou- 
bled overnight ; but I couldn't get the milk, and my plant at that 
time was so small I couldn't handle any, so they immediately dropped 
their price. The 4th day of April, they dropped their price and have 
been dropping ever since. They have come out with phoney brands 
of milk. First, National Dairy put out a Longdale brand without 
their name or address on it and sold that at a lower price in compe- 
tition; Borden Co, came out with Belle Isle, and another company 
came out with a milk called Senate milk. [Laughter.] They came 
out with an off brand. 

Acting Chairman King. Wliy not Senate milk? I understand they 
have a Senate beer. [Laughter.] 

Mr, Johnson, Well, it was funny to me at least. They didn't want 
to destroy the old-established brands that they had spent money ad- 
vertising, but they came out with another brand to meet the legal 
butter-fat content of milk. The milk inspector was very much op- 
posed to it, I'll say that, and it was extralegal ; it was not specifically 
mentioned in the ordinance that you could not come out with these 
phony brands, but they did do it. 

Dr. Howe. The price for the regular brand was still 12 and 13 
cents a quart, wasnx it? 

Mr, Johnson, Yes ; for a short time. 

Acting Chairman King. What percentage of the milk sold in De- 
troit is sold by you, roughly ; a rough estimate, if you have it? 



2834 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. About 6 percent. 

Acting Chairman King. Only 6 percent? 

Mr. Johnson. That's all. 

Acting Chairman King. Are there any other persons pursuing 
a like policy to that which you have described, against whom these 
corporations that were cutting prices were directing their efforts of 
destruction? 

Mr. Johnson. Yes; there are three other companies that are 
using exactly the same method I am now ; they have given up their 
retaS routes and they are doing the same as I am doing — three other 
companies. 

Acting Chairman King. What would the aggregate amount of 
their sales be ? 

Mr. Johnson. I couldn't say that. I will say that in the milk 
depots there is probably 10 or 15 percent of the milk sold, exclusively 
milk shops. The grocery stores handle part' of the milk, and all 
the chain stores. 

Dr. Thorp. Has this price reduction been generalized for the whole 
Detroit area or does it appear in the sections only where the shops 
are located? 

Mr. Johnson. At first it was only in the sections where my shops 
are located, but it immediately spread oter the whole city, so it 
covers the entire area of Detroit. If they try to hold the price up, 
if you insist on a lower price and say you are going to buy from a 
Johnson milk depot, they will give you a lower price. 

Dr. Howe. What have you discovered as to the popularity of store 
delivery ? 

Mr. Johnson. If it wasn't popular, I would have been out of busi- 
ness. It was the public and the popularity of my method that saved 
me. 

Dr. Howe. Do the people themselves say anything about it? 

Mr. Johnson. Yes; every day. 

Dr. Howe. What do they say ? 

Mr. Johnson. Well, some people say ^'If it wasn't for you," well, 
put it this way, they say. "My budget only allows $2 a week for milk 
and when I buy milk irom you I have milk enough. Before, we 
didn't have enough." Another man told me that he has an electric 
refrigerator and he was about to lose it but the profit he ^aved on 
the milk paid for his electric refrigerator. By the way, that is one 
of the reasons these milk depots are popular, because of electric 
refrigeration; people can buy 2 or 3 days' supply of milk and keep 
it on hand. My milk is 2 or 3 days fresher than the other milk 
anyway. 

Dr. Howe. How is that ? How is it fresher ? 

Mr. Johnson. The milk I sell today was milked last night and 
this morning and it is brought in, it will be coming in about this 
time — I hope ; I have been away for 2 days. My milk is brought in 
directly from the country and to the pasteurization plant and bottled 
and goes to the milk depots, so practically all the milk I have has 
the third date of pasteurization on the bottle cap, whereas the other 
dealers' milk is haided from Detroit out in the country to receiving 
stations where the tanks are filled up and held overnight and comes 



CONCENTRATION OV ECONOMIC POWER 2835 

in the next morning, then is pasteurized in the bottle and put in cold 
storage and sold the next day, so I am. at least 24 to 48 hours fresher 
with my milk, and, of course, milk is very perishable and that is one 
reason for the popularity of my milk, because it has a better flavor. 

Dr. Howe. And do people say anything to you about preferring 
to get it at the shops instead of having it delivered at the doorsteps 
and their apartments ? 

Mr. Johnson. The reason I went into the milk depot business was 
because I knew the average person goes to the milk depots rather 
than having it delivered. 

Dr. Howe. How did you know that? 

Mr. Johnson. I had a milk contract in Grand Kapids to supply 
the public welfare department with milk; I had refrigerators in car 
barns and engine houses and had some of my own milk depots, and 
there was a man named Leon C, Coller, who was under the A. A. A- 
milk administrator, and Mr. Leon C. Coller was formerly an em- 
ployee of the National Dairy, and he insisted upon milk being taken 
from his milk depots and put back on the wagons. 

Dr. Howe. That was in Detroit? 

Mr. Johnson. That was in Detroit: 

Dr. Howe. Or in Grand Rapids? 

Mr. Johnson. In Grand Rapids. I thought I was goin|j to lose 
the business because I thought at that time, in fact I never did know, 
I have been trying to find out for a long time whether people pre- 
ferred to go and get their milk from the milk depots or whether they 
would rather have it delivered, but these people were on relief and 
that was 11,000 families, they got up petitions that they continue to 
be able to get their milk from these milk depots, they said they pre- 
ferred it, it was fresher, it was always cold, they could get it when 
they wanted it, if they wanted to go fishing they could get a couple 
of quarts the day before ; if they didn't want to get up in the morn- 
ing they could take care of the milk. That pointed out to me that 
that was the way to handle fresh milk. I never did know until that 
time. 

Dr. Howe. Do people in Detroit say tlHlame thing to you, that 
they don't want it delivered at the doorstep ? 

Mr. Johnson. They don't want it delivered at the doorstep. 

Dr. Howe. Why? 

Mr. Johnson. In the first place, there is a natural antipathy toward 
a milk wagon in the streets in the morning. [Laughter.] There 
always has been. 

This may sound funny, but I am dealing directly with the public 
so these are just parts of my troubles that I have to hear. I have 
been in the retail milk business and we had to have rubber shoes 
on the horses and rubber shoes on the men, and the rattling of 
bottles, and I don't know why it is, but they don't like to have a 
milkman calling at the door early in the morning. They may feel 
nervous; and another thing, they have to pay for the milk by the 
week or by the month, and when the man presents his bill they just 
don't like that bill. 

Another reason is that they niever see the milkman ; they can't get 
what they want or when they want it, and people are only working 3 



2836 CONCENTRATION OF ECONOMIC POWER 

or 4 or 5 days a week and so they spend as much time as they 
can, I presume, at their cottages in the country or with farmer 
friends, and anyway they prefer to go and get their milk. 

Sometimes I think it is just an excuse to use the automobile, but 
it doesn't make any difference ; they go out and shop at any rate. In 
Detroit there are two or three other cash-and-carry, firms that do a 
tremendous business. One is the Sander's Dry Cleaning Plant; 
another is the Saunder's Confectionery. 

Dr. Howe. Is it not true that the bacteria count rises when milk 
remains out on the doorstep ? 

Mr. Johnson. Very quickly. Milk is the most perishable thing, 
and loses its flavor more quickly than anything. 

Dr. Howe. Even if it is pasteurized? 

Mr. Johnson. That is true. I can tell by looking at it that it is 
2 or 3 days old, even though it is still sweet. 

Dr. Howe. Tell me, are you able to make money on this basis? 

Mr. Johnson. Yes. 

Dr. Howe. I don't want to divulge the details of your private con- 
versations with me, but I think you told me that you were making 35 
percent selling milk for 6, 7, and 8 cents. Is that correct ? 

Mr. Johnson. That would be the gross profit. I couldn't — I handle 
my business different from anybody else. I am alone. 

Acting Chairman Iving. You don't have a large, expensive 
bureaucracy that you have to handle? 

Mr. Johnson. No, sir. A long time ago I kind of soured on effi- 
ciency experts and foremen and that sort of thing. I found out 
that foremen and superintendents gave me more trouble than my 
employees, so I have no foremen, no salesmen ; but I pay my men a 
little better wages than I would have to pay out to foremen, Wliat 
I would have to pay out to foremen I pay my employees direct and 
I find I get better results. 

Mr. Berge. How many employees do you have ? 

Mr. Johnson. I have all together about 150, about that. 

Dr. Howe. Is there any reason why the handling of milk cannot 
be done through plants of your size just as well as through plants 
that handle a million quarts a day ? 

Mr. Johnson. If I had a million quarts I would do it for less. 

Dr. Howe. But there is no reason why small plants like yours, if 
they are free from oppression, cannot distribute milk economically 
as you are doing. 

Mr, Johnson. No reason at all. 

Dr. Howe. It isn't necessary for it to be a large capitalized in- 
dustry ? 

Mr, Johnson. Not at all. 

Acting Chairman King. I would like to inquire what kind of plants 
"^you have distributing from the city. Do you have to buy buildings 
or rent rooms ? In what manner do you acquire plants ? 

Mr. Johnson. I rent a store on good streets. I try to rent as 
small and cheap a store as I can, but I don't get on any back streets 
or poor streets, I rent good buildings because I try to keep the char- 
acter of my place just as high as possible, I put in quite expensive 
fixtures and expensive paint. I have good help. Most of my girls — 
a lot of the girls all have to be high-school graduates and grade A 



CONCENTRATION OF ECONOMIC POWER 2837 

students, a lot of them. I insist that my standards be very high. I 
won't hire a girl that smokes. 

Dr. Howe. I would like to begin on another series of questions, 
Mr, Johnson. Wliat difficulties or obstacles have you had in Detroit 
beginning with the opening of your plant in 1936 from either agen- 
cies of the government, city or otherwise, to make it difficult for 
you to enter this business? 

Mr. Johnson. Can I be arrested for contempt of court? 

I caught a large milk company in Detroit predating its milk, and 
I complained to the board of health about that and I will never do 
that again because I had at least six inspectors to go through my 
plant. So if you criticize a public officer, it certainly is very poor 
policy. 

Dr. Howe. What happened to you when you were starting your 
business? Were there any obstacles thrown in your way either by 
the milk association, the other distributors, or by the city itself? 

Mr. Johnson. Do you want to know a few of them? 

Dr. Howe. Yes; as many as you want to tell. 

Mr. Johnson. To begin with, I started in the city of Hamtramck, 
which is entirely surrounded by Detroit. Hamtramck is industrial 
and the milk business is industrial because we have to work nights 
and make a lot of noise and clatter, and that is the reason I located 
in Hamtramck. I bought my milk from the Hastings Milk Products 
Co. — my raw milk supply — at Hastings, Mich. They were licensed by 
the State of Michigan. The second or third day afterward the city 
of Hamtramck revoked my milk license because I didn't buy from 
the Michigan Milk Producers Association. 

Dr. Howe. What is that? 

Mr. Johnson. That is supposed to be a cooperative. They control 
85 percent of the milk in the city of Detroit. 

Dr. HoAVE. A farmers' cooperative? 

Mr. Johnson. A farmers' cooperative. 

Dr. Howe. Go on. 

Mr. Johnson. So I told them where I was going to buy my milk 
in the first place. The inspector said, "That doesn't make any dif- 
ference ; we will just revoke your license." 

I said, "I am entitled to a public hearing, am I not?" 

He didn't know, so I went and got a lawyer — 2 lawyers and, by 
the way, at the present time there are 3 firms of lawyers camping 
on my trail all the time; my opposition has 12 lawyers watching 
me every day, taking photostatic copies of everything that I do, every 
move that I make, if there are any documents placed on file. 

That is the present thing. The last thing before I left Detroit, I 
had 25 complaints 

I guess I will go back. Anyway, my license was revoked and I 
got a lawyer and he asked for a public hearing before the committee 
of the Hamtramck council, and we went up and had a public hearing 
and two of them voted to revoke the license and two of the council- 
men voted that I should have a license, and the fifth man asked the 
public — ^the place was just packed, there wasn't standing room, with 
people who were listening there — and he said, "How many people 
use Johnson milk?" and they said, "We all do." That wasn't true, 
but there was a small-sized riot, and the president of the council 
voted for me, so I got my license. 



2838 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. Was the only charge against you on which 
they based the revocation of your license, that you didn't buy direct 
from the farmers? 

Mr. Johnson. No; from the Michigan Milk Producers Association.* 
That was the word of the inspector. He really got rough and he 
was so quarrelsome they didn't dare ;^o on. 

I got my license, I agreed to buy direct from the farmers and come 
under Detroit inspection as soon as I could, and so I got a license 
to sell milk. 

Two or three days later a man came in. I have had experience in 
the milk business "and know what to look for. I have been in the 
milk business all my life. I have sold milk to stores, restaurants, 
retail. I have done everything in the milk business, every part of it. 
That is all I do know. The next day a, man by the name of Moore — 
2 or 3 days later — came in, who stated he was city inspector, and I 
said, "Employee of the State of Michigan?" 

"Yes." 

I said, "Who is the other man?" 

"He is Mr. Hoffman, inspector for the bottle exchange." 

I said, "Mr. Hoffman, have you got a star?" 

He said, "No." - _ 

"Outside." He didn't go and I chased him out. 

So Mr. Moore stayed in my place of business 3 days, an employee 
of the State of Michigan, and took cans away that had "Borden's" 
stamped on them, or National Dairy, or Detroit Creamery. These 
cans supposedly belonged to the farmers, they were not my cans, and 
the farmers were shipping milk direct. Finally at the end, of 3 days 
I told Mr. Moore I was tired seeing him around there and I figured 
he should do some inspection other places than in Detroit. So I 
called up the State Capitol at Lansing and asked by what authority 
he was in there taking the cans away from the farmers. Some of 
them had rust spots, were cracked, and so forth. 

They called the fellow to the telephone, and he disappeared and I 
didn't see him any more. 

Then I had telephone calls that my place would be bombed, and I 
said, "Tell me which one you are going to bomb. I don't care ; there 
is no law against it ; if you are going to bomb it, I can't stop you ; but 
why not tell me which one?" After that they hung up. 

It ran along, all sorts of things; little, minor instances occurred; 
every day it would be this or that or something else ; and they started 
what they called economy milk, used Borden's bottles and Detroit 
Creamery bottles and all the other dealers' bottles, used everybody's 
cases, and they sold milk for 6 cents a quart or 7 cents a quart, which- 
ever price they could get. So I complained to the State again, and 
they came down and made this man get his own bottles, and for a few 
days he used plain bottles. He was buying milk, supposedly, from 
the Detroit Creamery, a small company; and then he disappeared. 
They found he was hurting the market more than he was harming me. 

Of course, when I came into Detroit I analyzed the situation this 
Avay : That I figured out about what I could sell my milk for, figured 
the price I would pay the farmers, how much my profit would be, and 

1 Testimony of Mr. B^rnie Beach, Secretary-Manager, Michigan Milk Producers Associa- 
tion begins on p. 2884, infra. 



CONCENTRATION OF ECONOMIC POWER 2839 

talked it over with the board of liealth, and he saw my way. He could 
see where there would be a good profit in it for me. 

Anyway, the only way that I figured that the other companies could 
meet me would be to beat my price; and if they drove the price of 
milk in Detroit down to my price, it would amount to $24,000 a day. 
There are 600,000 quarts a day used in Detroit ; and if they dropped 
4 cents to meet my price — and I knew that was the only way they could 
hold their customers — it Mould cost them $24,000 a day ; and I didn't 
think they would do that. 

Dr. Howe. It would cost the distributors? 

Mr. Johnson. It would cost the distributors $24,000 a day. 

Senator King. To meet your price. 

Mr. Johnson. To meet my price, because people actually preferred 
to pay the same price at my milk depots as the milk is delivered for 
at the homes. Now, since I am selling 4-percent milk, they can't take 
the business away from me. If a customer quits me for any one 
reason and theyhave to get the 3- or 3i/^-percent milk, they come back 
and say they prefer the 4-percent milk. 

Dr. Howe. What help did the district attorney give you? 

Mr. Johnson. I think he gave me a great deal of help. When I 
first had my license in Hamtramck they seemed reluctant to give me a 
license in Detroit. I went down to see the assistant district attorney, 
Asher Cornelius. He came to the plant and said: "Why don't you 
have a license?" I said there seemed to be some objection to giving 
me one. Pie told me to start.' in business without a license, and if I 
was arrested, he would see to it that I received justice, so that after- 
noon I went down to apply for a license^ and I got it. Prior to this 
time, shortly before I came into the picture in Detroit, there had 
been a lot of bombings. 

Dr. Howe. Bombings of what? 

Mr. Johnson. Bombings of milk plants, so I was told by my attor- 
ney that Duncan C. IMcCrea called in the Borden Co. and the Na- 
tional Dairy, Ebling Dairy, and Detroit Creamery, and he said, "If 
we have one more bombing in this town I am going to send an officer 
out and bring you in." 

They said, "We have nothing to do with this." 

He said, "If there is one more bombing, we will put you behind 
the bars, and from that point we will investigate." And so that 
stopped the bombings in Detroit. 

Dr. Howe. Was that bombing related to pasteurization plants or 
to stores? 

Mr. Johnson. Pasteurization plants. There were no depots or 
stores before I came to Detroit. 

Dr. Howe. These were other independents who are not inside the 
combination ? 

Mr. Johnson. I suppose ; I wasn't in Detroit. 

Dr. Howe. Did you have any other conferences with the district 
attorney with respect to your protection? 

Mr. Johnson. There might have been a few telephone calls back 
and forth. 

Dr. Howe. But he has given you assurance that the district attor- 
ney's office would give you all the protection that any other business- 
man enjoys? 

124491— 39— pt. 7 T 



2840 CONCENTRATION OP ECONOMIC POWER 

Mr. Johnson. He wrote me a letter to that eflPect. 

Dr. Howe. Now, will you pjo back to Grand Rapids a minute? 

Acting Chairman King. May I ask one question? Did the district 
attorney or the law-enforcing agencies of the city take cognizance of 
these bombings and of the efforts which were made^ from your state- 
ment, to interfere with your business, and arraign any of them 
before the courts? 

Mr. Johnson. No; they didn't. All that sort of thing just ceased 
at once J after Mr. Duncan C. McCrea's conference with these-milk 
companies, it stopped. But that was prior to my coming into Detroit, 
shortly, within a month or 2 or 6 months before I came. 

Acting Chairman King. You referred to a number of incidents, 
Bome of which you call minor, which have interfered with your busi- 
ness, which would indicate, from your statement, a sort of conspiracy 
upon the part of some persons to drive you out of business. 

Mr. Johnson, There is a real conspiracy. We haven't got to that 
yet. The real conspiracy is this: The largest glass company in the 
United States paid one man $1,900 to sign a -.petition of bankruptcy 
against me. I would call that a conspiracy. At least I feel that way. 

Acting Chairman King. Did he sign the petition? 

Mr. Johnson. He signed the petition; yes, sir; and at the present 
time there are three firms of lawyers' watching every move I make, 
and two of them are attorneys for the Producers' Association ana 
they call in other attorneys. There are so many of them there is 
no way of pinning it on one single one. 

Acting Chairman King. It is the Milk Producers' Association you 
refer to? 

Mr. Johnson. Yes, sir. 

Acting Chairman King. So that some of the farmers, then, are in 
this conspiracy, if there is a conspiracy? 

Mr. Johnson. The manager, not the farmer himself, because all 
the milk I get is directly from members of the association. 

Acting Chairman King. Would they not be responsible for the acts 
of their manager, .or would they not be taking cognizance of his acts? 

]Mr. Johnson. They know about it ; yes, they do. 

Acting Chairman King. Have they protested against the apparent 
injustices to which you are being subjected by various milk distribu- 
tors? 

Mr. Johnson. Yes; these meetings are being held at the present 
time, and I hnve no trouble in getting milk. I get all the milk I 
want. The fact of the matter is, I would say that practically every 
farmer shipping milk into Detroit wants to sell milk to me. 

Dr. Howe. That is because they know what they are going to get 
at the start? 

Mr. Johnson. They Imow exactly what they are going to get for 
the milk. Then, I have been in business in Michigan now for about 
17 years, and no farmer has had any cause for complaint for 17 years. 

Dr. Howe. You buy milk at a flat price rather than a grade price? 

Mr. Johnson. Yes, sir. 
^ Mr. Berge. Are these farmers violating the terms of their coopera- 
tive membership when they sell to you? 

Mr. Johnson. Yes. 

Mr. Berge. Many cooperatives, I thinly do permit a certain amount 
of the product of the farmer to be sold to nonmembers. 



CONCENTRATION OF ECONOMIC POWER 2841 

Mr. Johnson. I tried to buy milk from the cooperative on the 
same basis as the other dealers and they refused to sell it to me. I 
tried many times, and they refused to sell me milk, even when I 
offered to pay cash on delivery. ' 

Mr. Berge. Are any efforts made to discipline farmers who sell to 
you? 

Mr. Johnson. No; this particular manager of the cooperative is 
afraid to be seen alone in the country. He is yerj^ unpopular. 

Actin«T Chairman King. Why do they permit him to be their man- 
ager, if he resorts to these practices? 

Mr. Johnson. "Well, it is a peculiar situation. He is elected by di- 
rectors, and the directors or oilicers — there are 21 directors and they 
elect some sort of committee and he is appointed by this committee. 
They can't get rid of him. There are so many conflicting interests 
that it is hard to do anything. 

Dr. Howe. McCrea is State district attorney, rather ,than Federal 
district attorney, is he not ? 

Mr. Johnson. He is prosecuting attorney of Wayne County.* 

Dr. Howe. You started to tell the story about the difficulty in get- 
ting bottles, or something like that. You have to have bottles for 
Belling milk. Who was the company that you were buying yoiir 
bottles from ? 

Mr. Johnson. The Owens-Hlinois Glass Co. 

Acting Chairman Iving. Is that the company that made the effort 
to prevent you from getting bjottles? 

Mr. Johnson. No; they sold me the bottles. They delivered two 
carloads of bottles not ordered. Then their employee, Verne Harris, 
paid their agent $1,900, presumably to sign a petition in bankruptcy 
against me. This is when I was building a new daii-y. It is quite a 
long story. 

Mr. Davis. Mr. Johnson, have you had any difficulty in buying 
bottles? 

Mr. Johnson. No, because I had my bottles on hand when I started 
in. I didn't need any bottles. I had another company and didn't need 
to btiy any bottles, but two of the largest companies selling me dairy 
machinery refused to sell me dairy equipment. 

Dr. Howe. In other words, you couldn't get people to build a plant 
for you. You couldn't buy equipment for it ? How did you get your 
plant built, then? 

Mr. Johnson. I shopped around until I got a man that would. 
These two companies, one the Creamery Package Manufacturing 
Co., and the other the Cherry Burrell Corporation, refused to seU 
me. I suppose they hoped to get some big orders from the big 
companies or the combine; but ^hey didn't get them. 

Mr. Davis. What excuse did they give for not selling, if any? 

Mr. Johnson. They didn-t give me any. They delayed it and de- 
layed it and didn't show up. I had dealt with them for a good' 
many years prior to this. They felt a little bit ashamed of them^ 
selves too. 

Dr. Howe. Did you complete ,the milk-bottle story, Mr. Johnson- 
everything that happened in connection with the Owens Glass Co. '^ 

Mr. Johnson. No. In that case they tried to throw me into bank- 
ruptcy. 

» An affidavit of milk marketing conditions In the Detroit area, later snbmitted to the- 
Inderal Trade rommisslon by Mr. McCrea, Is Included In "Exhibit No. 370-A," appendix., 
p. 3194 at p. 3225. 



2842 CONCENTRATION OF ECONOMIC POWER 

Dr. Howe. How did they do that? 

Mr. Johnson. I owed one man $12 past due on this glass account, 
and I owed another farmer who claimed he had some money coming. 
Altogether it made $500 that I owed three people, and they asked 
that a receiver be appointed. 

When that was done, everything I owed came due, and it caused 
lots of trouble. Finally Judge Ernest O'Brien decided I was not 
bankrupt and asked that I jjay the money for the bottles, and I did, 
and tliey didn't collect it, and they appealed the case and told me 
it would take 10 years before it would be settled, and it is still in the 
court of appeals at Cincinnati, notwithstanding that I am fluid, or 
whatever you call it when a man is not bankrupt. 

Acting Chairman King. Does the record show that the Owens 
Glass Co. initiated those proceedings against you? 

Mr. Johnson. No; not the public records, but the private records 
of the bank show it. The}^ have a record of the check. One attor- 
ney I know has a record of the check and the whole proceedings, 
the time, the name, the amount, everything. 

Acting Chairman King. I might add that that organization, that 
company, has been before this committee.^ I am sorry we didn't 
Jiave that information when one of the Owens Co. was on the stand. 
We would have asked for an explanation from him. Proceed. 

Dr. Howe. How did they get these claims against you, Mr. John- 
son, in order to attempt to throw you into bankruptcy ? 

Mr. Johnson. They tried to buy claims. Mr. Sullivan, attorney, 
offered a man a thousand dollars for a claim. Burger & Sullivan 
are attorneys for the milk dealers of Detroit, and he happened to 
offer a personal friend of mine, that I had done business with a long 
time, $1,000 for money that I owed him. That was the Johnson 
Boiler Works of Ferrysberg, Mich. 

Dr. Howe. How much was the amount? 

Mr. Johnson. I forget just the amount. It was about a thousand- 
dollar claim. 

Then they solicited all my farmers. There were as liigh as 15 
men out in the country going from farm to farm soliciting my 
farmers. This farmer that signed the petition in bankruptcy got a 
letter that read, "Enclosed please find $100 as per instructions from 
Mr. Beach, of the Milk Producers Association." Afterward they 
claimed this $100 that he was paid was an advance on money that he 
was to get for milk that he sold afterward. 

Acting Chairman King. Is' a representative of the Depaitmeut of 
Justice here? 

Mr. Ferguson. Mr. Berge. 

Acting Chairman King. I take the "responsibilit}', speaking for 
myself only. I think that this situation ought to call for an inves- 
tigation of the proceedings there by the Department of Justice to see 
whether or not the Federal statutes have been violated, and if they 
have, to initiate necessary prosecution. Proceed. 

Mr. Berge. I accept your suggestion. Senator King, and we will be 
glad to look into it. 

Dr. Howe, ^^^lat were your attorney costs in connection with these 
proceedings? 

1 Hearings, Part II, p. 474 et seq. 



CONCENTRATION OF ECONOMIC POWER 2843 

Mr. Johnson. I paid him the first year $5,000. He is now suing 
me for $22,000. 

By the way, the attorneys, Benjamin, Lieb, and Berris who are 
attorneys for I3urger & Sullivan, who are attorneys for the Detroit 
dealers, said if I paid them $750 they would drop this appeal against 
me. 

Acting Chairman King. I think perhaps the bar association ought 
to make some investigation of the conduct of the lawyers. 

Dr. Howe. Let's go back to Grand Rapids, where you were deal- 
ing with the i-elief association there. If I remember correctly, you 
had a contract with the local relief association to provide people 
on relief with milk. Is that correct ? 

Mr. Johnson. That is right. 

Dr. Howe. You had your own pasteurization plant there? 

Mr. Johnson. Yes, sir. 

Dr. Howe. And you entered into a contract there to buy milk, 
pasteurize it, and distribute it to milk depots for distribution to the 
people on relief. Is that correct? 

Mr. Johnson. That's right. 

Dr. HoAVE. When did you enter into that contract? 

Mr. Johnson. About 1932 or 1931. 

Dr. Howe. And how long did you continue to supply relief milk 
in Grand Rapids? 

Mr. Johnson. Until 1935. 

Dr. Howe. At what price did you deliver milk to the shops where 
it was distributed under that contract ? 

Mr. Johnson. As low as 3.7 cents per quart. 

Dr. Howe. And what was the highest price that you charged the 
relief administration ? 

Mr. Johnson. I think it was 5.2. 

Dr. Howe. Then the milk at these shops was distributed by whom? 

Mr. Johnson. By people on relief. 

Dr. Howe. How many shops were there in Grand Rapids? 

Mr. Johnson. Thirty-one. 

Dr. Howe. That went on for how many years; did you say? 

Mr. Johnson. About 3 years; 3 or 4 years, something like that. 

Dr. Howe. Was there a large volume of milk that reached the 
relief consumers under that arrangement? 

Mr. Johnson. Yes; at one time they had a man that figured out 
how many calories of food a man or child should have a day and said 
they were going to compel them to take so many calories in 1 quart 
of milk. It amounted to quite a little bit. Then they deducted those 
calories from other stuff on relief that he was supposed to get. 

Dr. Howe. And milk was tlierefore a primary diet of children 
and people on relief at this period? 

Mr. Johnson. That is right. 

Dr. Howe. Do you know anything about what happened to the 
general liealth <jf cliildren on relief and cliildreii in the schools? 

Mr. Johnson. The health officer of the city of Grand Rapids told 
me all the undernourished children were in the so-called better-class 
districts and that there were no more underweight children in the 
open-air rooms. And he also told me this, which is quite interesting 
to me, that when the children or the people on relief had all the milk 



2844 CONCENTRATION OF ECONOMIC POWER 

they wanted, their saving in doctors' bills amounted to the cost of the 
milk. 

Dr. Howe. In other words, the milk didn't cost anything. 

Mr. Johnson. That is right. I don't know how that was, unless 
the doctors charged a lot. 

Dr. Howe. The saving in one case was equal to the cost in another. 
Is that correct? 

Mr. Johnson. Yes. 

Dr. Howe. Was this milk in Grand Kapids pasteurized ? 

Mr. Johnson. Yes. 

Dr. Howe. Pasteurized at your plant? . 

Mr. Johnson.. Yes. 

Dr. Howe. You did all the trucking! 

Mr. Johnson. Yes. 

Acting Chairman King. The witness wants to make an explanation. 

STiSnC PROFIT TO DISTRIBUTOR IN FLUID MILK INDUSTRY 

Mr. Johnson. I want to make one explanation on the low-price 
milk. When I took the relief contract it was always contingent on 
■what I paid the producer; that if the price went up to the producer, 
my price advanced that equal amount to the relief administration. 
I insisted on that because I didn't want it to be said that I broke 
down the fanners' market because at that time I had the idea even 
then of developing these milk depots and trying to sell to the public 
I tried to sell to the public at that time, but I was stopped. 

Dr. Howe. You were stopped? 

Mr. Johnson, Yes. 

Dr. Howe. But you insisted yourself that the price that should 
be paid to the farmer should be fixed by the public authorities. Is 
that correct ? 

Mr. Johnson. No, no; the price that I got for my milk should be 
governed by what I paid to the farmer. On the other hand, I told 
the farmer, "You can go ahead and get yourself some more money, 
because I can collect it automatically from the relief administration." 
But if the farmer had asked for a cent a quart more it still would 
have been the lowest priced milk in the United States, wouldn't it? 

That would have been a tremendous increase. I was trying to 
build up the farmers' market because I am not interested so much 
in what I pay for milk. 

Dr. TiioRP. Mi\y I ask one question? Does that mean that in 
general in the milk business the price that is paid to the farmer affects 
the total price but doesn't affect necessarily your processing or dis- 
tribution costs? In other words, if you paid the farmer more you 
yourself wouldn't need to get more for your part of the price? 

Mr. Johnson. Not at all, it doesn't make any difference; it makes 
lio difference to me at all. 

Mr. Bali.inger. That is assuming a large spread in the market 
makes no difference. 

Mr. Johnson. I mean, my costs are stationary ; my costs of pasteur- 
ization and my help, regardless of what I pay — 3, 4, 5, or 6 cents a 
quart for milk. 



CONCENTRATION OF ECONOMIC POWER 2845 

Dr. Howe. Just to interject a question there. You said that your 

Elant costs in Detroit were 41/2 mills a quart. Suppose you were 
andling and pasteurizing, instead of 40,000 quarts a day, 100,000 
quarts of milk a day. What would your plant cost be? 

Mr. Johnson. I couldn't say, but it would be somewhat less. The 
cost of handling a quart of milk today in a milk plant is less than 
it ever has been. The machinery is so improved and so perfect and so 
good today that you can handle a quart of milk for a great deal less' 
than you could a few years ago. The same way with pasteurized 
milk; your costs in the plant are a great deal less than they were a 
few years ago. 

Dr. Howe. In an efficient plant, would you say that milk can be 
received, pasteurized, and bottled for 41^ mills a quart? 

Mr. Johnson. Yes. 

Dr. HuwE. In an efficient plant, should it ever be three-quarters of 
a cent a quart ? 

Mr. Johnson. I wouldn't want to say about other people's business, 
I don't know, but my costs in my plant for a period of a good many 
years, 10 or 15, haven't been over a half a cent. My business is just 

fetting to the point now where it is getting along; it has been 
eveloping. 

Dr. Howe. You can take raw milk on one side and put it down on 
the other side of your plant for half a cent a quart without the cost 
of the bottle? 

Mr. Johnson. That is exclusive, of course, of the distribution cost. 

Dr. Howe. Yes, sure; exclusive of your stores; but as a manufac- 
turing proposition you can manufacture milk under your pasteuriza- 
tion or health ordinance for a half a cent a quart. 

Mr. Johnson. That is in volume. 

Acting Chairman Iving. Has your business increased in the past 2 
or 3 years during the periods of depression, and expansion, if there 
has been any? 

Mr. Johnson. I started 3 years ago, in 1936, with no business at 
all, and I am thejourth largest in Detroit today. Of course, that is 
due to the public liking my milk. 

Acting Chairman Iving. I would like to ask one question. Wliat 
is the usual delivered price per quart in Detroit, in the city of 
Detroit? 

Mr. Johnson. Prior to my coming to Detroit it was 12 cents. 

Acting Chairman King. What is it now? 

Mr. Johnson. There is no price now. It is any price they can get. 
The market is very much demoralized, as they call it. 

Acting Chairman King. What do you get? 

Mr. Johnson. I sell 3-percent milk for 6 cents a quart, 31/2 for 7 
cents a quart, and 4-percent milk for 8 cents a quart. I probably 
sell 20 quarts of the 4 percent to 1 of the lower test. People prefer 
tlie 4-percent milk. 

Mr. Davis. Mr. Johnson, your differing percentages, 3, 31/^, and 4 
percent, merely refer to the butterfat content, do they not? 

Mr. Johnson. That is right. 

Dr. Ho\vE. What is the prevailing butterfat prescribed by the 
health ordinance? 



2846 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. In the city of Detroit it is 3 percent and I have it 
3.5 in competition because the cities of Dearborn, Highland Park, 
Hamtramck, Burndale, and Binningham, suburbs of Detroit, have 
3.5. Otherwise I would just have 3 percent and 4 percent. 

Dr. Howe. So you sell 3-percent milk, which is required by ordi- 
nance? 

Mr. Johnson. That is right. 

Dr. Howe. For 6 cents a quart. 

Mr. Johnson. Yes. 

Dr. Howe. And then you ask your customers to pay for luxury 
milk, which is 3.5 butterfat and 4 percent. 

Mr. Johnson. That is the minimum in these several towns. 

Dr. Howe. Oh, yes. 

Mr. Johnson. But they prefer the 4 percent milk. 

Dr. Howe. That gives them more cream. 

Mr. Johnson. Yes. 

Dr. Howe. To go back to Grand Kapids, did you have any trouble 
there under this health contract or relief contract for selling milk the 
way you were selling it? Did you have any trouble there like the 
Detroit troubles ? 

Mr. Johnson. It was the same thing; only in Detroit the board of 
health was honest and I don't think they were in Grand Rapids. I 
had bacteria counts of 1,000,000 in Grand Rapids and I hired a 
chemist, unbeknown to the Board of Health of Grand Rapids, and 
I had to pay him $100 a month to test my milk every day for bac- 
teria, and it dropped down to 2,500 or 3,000, so we weren't on very 
friendly relations. Every time I saw them I told them about it. 
Then many times I attempted to sell milk from the depots to the 
public, the same as I did on relief, and Mr. Beach of the Michigan 
Milk Producers' Association said if I would do that he would call 
a strike. Finally I did it and he did call a strike and took all my 
milk away from me. I just got this relief contract and I had put 
up a $10,000 penal bond for observation of the contract, and I was 
afraid I would lose that, so I had to sign an agi'eement with the 
milk dealers of the city of Grand Rapids that I would abide by all 
the rules and regulations of the Grand Rapids Milk Dealers' Associa- 
tion, then I could have my milk back. 

Dr. Howe. Was there an association of distributors in Grand 
Rapids? 

Mr. Johnson. Yes. 

Dr. Howe. Made up of whom ? 

Mr. Johnson. All the distributors. 

Dr. Howe. Who were they? 

Mr. Johnson. Well, all of them, 65 distributors. 

Dr. Howe. Were National Dairy or Borden in Grand Rapids? 

Mr. Johnson. Yes. Grand Rapids Creamery Co. is a subsidiary 
of National Dairy Corp.? 

Dr. Howe. Is Borden in Grand Rapids? 

Mr. Johnson. No. 

Dr. Howe. Are those two large companies represented in Michigan 
in other cities than Grand Rapids and Detroit? 

Mr. Johnson. Well, in Lansing and Detroit ; and, of course, they 
have manufacturing plants in various cities. 



CONCENTRATION OF ECONOMIC POWER 2847- 

Dr. Howe. Do you know whether they distribute elsewhere than 
in those three cities? 

Mr. Johnson. No ; I don't. 

Dr. Howe. " Is that the only trouble you had in Grand Rapids in 
carrying out your contract ? 

Mr. Johnson. That was all. Well, they took it away from me 
two or three times and impeached the city manager, and all that sort 
of thing. I found my bottles tampered with and destroyed; those 
are minor things; we expect that in the milk business. 

Dr. Howe. What was the price that the relief administration is now 
paying in Grand Rapids? 

Mr. Johnson. I don't know, but it was taken out of my depots and 
put on the wagons in Grand Rapids, I suppose, at about the same 
price. I am not familiar with Grand Rapids any more. 

Dr. Howe. So the relief administration raised the relief burden by 
shifting from your method of distribution to wagon distribution. 

Mr. Johnson. Yes. , 

Acting Chairman King. Is that relief agency there now in charge? 

Mr. Johnson. No; they have all been changed around. But that 
was more due to Leon C. Coller, the milk administrator. They 
claimed it was un-American to have these milk depots. One relief 
client said that all he had to put his milk in was a hole in the ground 
and he would prefer to get his milk from my depots where there was 
ice and electric refrigeration. 

Dr. Howe. Did the relief people in Grand Rapids object to getting 
their own milk at your shops? 

Mr. Johnson. Not at all; they were for it; they like it because it 
was so favorable. The actual people who had charge of relief wanted 
it that way, but it was taken away from them over their heads. 

Dr. Howe. Did children call for it, or mothers, or working men 
when they came and went to their work ? 

Mr. Johnson. Everybody. I will say most of the people who drove 
automobiles would come in and get it. 

Dr. Howe. That is in Detroit. 

Mr. Johnson. Yes. 

Dr. Howe. But not in Grand Rapids. 

Mr. Johnson. Not in Grand Rapids. 

Dr. Howe. What did you distribute per day in Grand Rapids? 

Mr. Johnson. At one time for a short period it varied from 7,000 to 
20,000 quarts a day. 

Dr. Howe. Seven to twenty thousand? 

Mr. Johnson. Yes. 

Mr. O'Connell. "When you refer to relief agencies in Grand Rapids 
are you referring to a State or local relief agency, or Federal agency? 

Mr. Johnson. It would be all under the hands of the State at that 
time. 

Mr. O'Connell. State home relief, so to speak. 

Mr. Johnson. Yes. The State took it over from the city. In 
1932 the city finances broke down, they didn't have any money, and 
the State took it over. 

Mr. O'Connell. Coming to your business in Detroit, do you operate 
through a corporation or as an individual doing business under uie 
name of the Johnson Co.? 



2848 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. As an individual. 

Mr. O'CoNNELL. Can you tell us in a general way what the amount 
of your investment in Detroit is ? 

Mr. Johnson. Well, I probably have $150,000 in equipment. 

Acting Chairman I^no. I wanted to ask one further question. 
How many farmers' associations do you buy milk from? 

Mr. Johnson. I buy milk from about 700 producers and they 
all were formerly members of the Michigan Milk Producers Associa- 
tion. You see, the Michigan Milk Producers Association controlled 
95 percent of the milk coming into Detroit. 

Acting Chairman King. Then you had to deal only with the milk- 
producers of one organization. 

Mr. Johnson. Yes ; but not with the organization. 

Acting Chairman ICing. I think I asked this question before, but 
I want to get it more firmly in my mind. Did the farmers from 
whom you were buying milk know of the treatment to which you 
had been subjected as you have indicated, by the various distributors 
or companies? 

Mr. Johnson. Yes; they do. They are still being worked on. 
They keep men out there constantly telling them they have to do this 
and that; they keep somebody on the road all the time calling on 
my farmers, knocking me. They have meetings at least once a week 
knocking me. In the words of Mr. Beach of the Michigan Milk 
Producers Association, "If we don't get rid of Johnson, it is just 
too damned bad for us." 

Acting Chairman King. What is his name? 

Mr. Johnson. Beach; Bernie Beach. 

The thing tliat nobody knew but me at the time I came to Detroit 
was public preference. I don't believe the other dealers yet believe 
the public prefer to buy milk from depots, but a large percentage 
of people actually prefer to buy their milk at the depots regardless of 
the cost. 

COSTS OF HOUSE-TO-HOUSE DELIVERY SERVICE 

Mr. Berge. Along that line, no doubt there are some people who 
still prefer delivery service. Have you any idea how much more it 
"would cost to institute a delivery service or how much more you 
would have to charge if you were to go into that type of distribution? 

Mr. Johnson. I would have to charge about the same as the other 
dealers. 

Mr. Berge. You mean what they are charging now in meeting your 
competition? Is that what you mean? 

Mr. Johnson. Yes. 

Mr. Berge. Except possibly some of them may be selling tempo- 
rarily below cost. 

Mr. Johnson. Yes; they are temporarily below cost. 

Mr. Berge. You would have to raise. your price some, I take it, in 
other words, to install that service. 

Mr. Johnson. Yes; but I have no intention of doing it, and the 
people don't want that service. 

Mr. Berge. I know that. Wliat I wanted to get at was on the basis 
of your experience what you would think milk could be reasonably 
sold at in a house-to-house delivery on a free competitive basis. I 
thought your opinion as an expert in 'the milk business would be 



CONCENTRATION OF ECONOMIC POWER 2849 

worth something as to how much additional you would have to 
charge if you were to go into that business. 

Mr. Johnson. Well, if you were in a block where there were only 
7 milk dealers you wouldn't have to charge as you do in one block in 
Detroit where there are 58 dealers deliver ng milk. There have been 
a lot of evils spring up in the milk business in the last few years;' 
they haven't taken advantage of the modern methods of transporta- 
tion. Where there was a saving they could pass on to the public 
they have tried to keep that for themselves, and things got top- 
heavy. 

Mr. Berge. Would you venture an opinion as to how much you 
would have to charge if you went into the delivery business? 

Mr. Johnson. If the city would give me exclusive right to one 
section, it would be very little more than my price today. If I had 
to go out and compete with these other dealers today, if people 
didn't want to buy their milk that way — but I think it is passe; there 
is no need of trying to do something people don't want. The only 
reason I am getting along at all is because I am giving people what 
they want in the way they want it, 

Mr. Berge. But there are some people who prefer delivery service. 

Mr. Johnson. IMaybe the present price is too low, maybe the pres- 
ent price delivered is too low, and the price on the depots is too high. 
Perhaps a person who goes to my milk depot should buy his milk fop 
lO^cents a quart less if you want that personal service to your home. 

Mr. Berge. Before you wen.t into this business they were charging 
about 12 cents and they came down. I take it that if you went 
into the business you could do it somewhere between 7 and 12 cents 
and I thought you might have an opinion on it. 

Acting Chairman King. The cost of equipping a business for de- 
livery is considerable, I assume. 

Mr. Johnson: Yes; it is. 

Acting Chairman King. You would have to buy wagons and auto- 
mobiles. 

Mr. Johnson. Yes. 

Acting Chairman King. Is there such a lar^e proportion of the 
cost of the milk to the ultimate consumer required just for the dis- 
tribution to tlie house ? 

Mr. Johnson. Here is what has happened in the milk business. A 
milk route used to be delivered by the horse, 4 blocks one way, 4 
blocks this way, 4 blocks back. When they went into the autoir.obila 
distribution, when your driver leaves your plant he is out of your 
control. They take these trucks and drive them like touring cars 
and they might go over here to a restaurant and you can't say much 
about it because they will quit and take the route and go to soma 
other company. Another thing is that there is credit. Where the 
routes used to be a few blocks long they have got up to be 50 mileS 
long. So it is impossible. One route might cost you 2 cents to 
deliver and another might cost you 10. 

Mr. Berge. In any event, you wouldn't think it would require a 
6-cent differential to get the milk around in house-to-house delivery, 
would you? 

Mr. Johnson. Delivery costs in the city of Detroit are at least 5 
cents. 



2850 CONCENTRATION OF ECONOMIC POWER 

Dr. Thorp. Do I understand you to say that there was one block 
where there were 58 different distributors making delivery? 

Mr. Johnson. This was in the paper. I don't know whether it is 
true or not. When I read it I figured it was probably a busy inter- 
section where there happened to be three or four creameries. The 
duplication of service doesn't mean a thing. 

Dr. Thorp. I take it that your feeling would be that there could 
be decided economies if there were a more organized delivery pro- 
cedure rather than this large number of smaller-scale operations. 

Mr. Johnson. Yes. 

Mr. Davis, Mr. Johnson, you make a remark in answer to the 
first question by Mr. Berge that it would cost very little more 
delivered anywhere nearby, but that it would cost more farther. 
Some of the milk distributors will deliver milk anywhere they get an 
order for it, no matter how great the distance, perhaps. If some 
system could be worked out as suggested by Dr. Thorp by which 
they could have depots for distribution and work out from those 
depots only within a reasonable distance of that particular depot, in 
other words, from the pasteurization plant, for instance, a large 
truck would taKe the milk to this and that and the other distribu- 
tion plant and let the small delivery trucks operate out from there 
only a short distance away; if that were subdivided, wouldn't it 
make it much cheaper than to send it such long distances, you say 
sometimes 10 miles? 

Mr. Johnson. Well, every time the legislature meets in Michigan 
these milk interests are trying to get a law establishing their com- 
pany as a public utility or semipublic utility. But the people object 
to that. They are afraid of it. The public, as a rule, are scared to 
death of anything that looks like monopoly in the milk business, and 
that is because you are dealing with women who have instincts that 
are closer to home than other people's. That is one of the things 
that you can't figure out or don't know until you actually deal with 
the public. 

One of the reasons in Detroit for any success, or part of the success 
that I am in business at all, is because the people are afraid of 
monopoly. They don't want that. They don't want anything that 
savors of that. 

Acting Chairman King. Are you through with the witness? 

Mr. Ballinger. I think we may recall him for a few things this 
afternoon. 

Acting Chairman King. The committee will adjourn until 2 : 30 
o'clock. 

(Whereupon, at 12 : 25 p. m. a recess was taken until 2 : 30 p. m. of 
the same day.) 

AFTERNOON SESSION 

The hearing was resumed at 2 : 35 p. m., upon the conclusion of the 
recess. 

Acting Chairman King. The committee will be in order. Proceed, 
Mr. Ballinger. 

Mr. Ballinger. Mr. Johnson, this morning the question was asked 
you how much it would cost you to distribute milk in Detroit on a 
house-to-house basis rather than selling from your depots. I think 



CONCENTRATION OF ECONOMIC TOWER 2851 

your answer was not entirely clear to the committee, and I would like 
to ask you this question again. 

Before you entered the milk business in Detroit you said that milk 
was selling at 12 cents a quart. After you entered this market, you 
were selling at 6 or 7 cents a quart. If you went in, or if you had 
gone into this business of distributing your milk from door to door, 
rather than selling it over the counter in deposits, would it have cost 
you 12 cents to distribute the milk? 

I am asking you this question because we are maintaining in this 
hearing before the Temporary National Economic Committee that the 
retail price of milk is set by the big distributors and that this fixed 
price is a burden upon consumers of milk. If, as might be inferred 
from your testimony this morning, it would cost you 12 cents a quart 
to distribute milk in Detroit, then the price which j)revailed in this 
market before you entered it would not be a monopolistic price in the 
sense that it was an exorbitant price, using this system of distribution. 

Mr. Johnson. Well, Mr. Ballinger, if I were distributing house to 
house I would save the cost to the depot and I also have now one- 
cost distribution. I deliver the milk from my dairy to the depots. 
I would save that cost, and the additional cost would be — at the 
present price I am paying the farmer it would be 8 cents. 

Mr. Ballinger. You could have distributed it to consumers at 
about 8 cents on the basis of door to door business? 

Mr. Johnson. I used to be in the retail business so I know about 
what the costs are. 

Dr. Thorp. May I ask whether this relates to the 6- or 7-cent milk — 
with which butterfat? 

Mr. Johnson. That would be the 7-cent milk. 

Mr. HiNRiCHS. You are now paying 3l^ cents for milk, so your 
estimated cost is 4% cents for door to door delivery. 

Mr. Johnson. I am now paying Zy^ cents. 

Mr. HiNRiCHS. Wasn't that your testimony this morning? 

Mr. Ballinger. He doesn't distribute from door to door. 

Mr. HiNRiCHS. You said this morning you were paying the farmer 
31^ cents, and you estimate 8 cents as the cost of taking the milk from 
the farmer and getting it to the consumer's doorstep 

Mr. Johnson. To be conservative I would be safe in saying 8 
cents. 

Mr. Hinrichs. If you were pressed? You say this is a conserva- 
tive estimate. How much could you shave off that ? More than the- 
two-thirds ? 

Mr. Johnson. I am not in that business. I don't believe in it; it 
is passe. ^ It is all just a question of qualification, anyway, because I 
have no intention of getting into that business, Wlien I was in that 
business I used to figure about 3 cents over what the milk cost after 
it was pasteurized, and you can figure from that point yourself. If. 
you pay the farmer 5 cents, it is going to be 8 cents. 

Mr. Hinrichs, Three cents after it was pasteurized, 

Mr. Johnson. After it was pasteurized, 

Mr. Hinrichs. And half a cent for pasteurization. 

Mr. Johnson. That is right; 3I/2 cents. 

Mr. Hinrichs. So the figure is somewhere between 314 and 4 cents.. 

Mr, Johnson, That is right. 



2852 CONCENTRATION OP ECONOMIC POWER 

Dr. Howe. And the total is between 7 and 8 cents. 

Mr. Johnson. Yes; the present price paid the producer. 

Acting Chairman King. In a large city where so many people live 
in rented houses and in large apartment houses, would the plan you 
have adopted in Detroit be satisfactory? 

Mr, Johnson. It is really more satisfactory. 

Acting Chairman King. Do you think people who rent apartments 
in lar^e apartment houses would go to some station or depot and buy 
the milk and carry it home? 

Mr. Johnson. Yes; I think they do, because they go and carry 
everything else home. In these large apartments they have very 
little delivery. • 

Acting Chairman King. Would the conditions prevailing in Detroit 
be typical of conditions prevailing, for instance, in Chicago, Kansas 
City, in Birmingham, Ala. ; San Francisco, Seattle ? In other words, 
is there any uniformity in the prices of milk and its productSj in all 
parts of thfe United States, and are the prices and conditions uniform ? 

Mr. Johnson. Yes, sir; I have found people in every comer of the 
United States, in a small village or lar^e city, are practically the 
same. There is practically no difference in people. When I was in 
business in Grand Rapids, a city of 100^000 they liked this method, 
and when I go into Detroit, a city pf approximately 2,000,000 they 
still like it because they are the same kind of people. 

Acting Chairman King. I had in mind in my question the physical 
condition, climatic conditions, the freight rates, the distance from 
large cities, and the wage scale. And all of those conditions which 
enter into our economic system. Wliether or not you could use De- 
troit — it may be favorably or unfavorably situated, I make no state- 
ment — as a basis to determine what would be a fair and just price in 
every part of the United States, rural, urban, and suburban, near the 
coast, in the interior, places where the feed is scarce and where they 
have to import it, where the rates of freight are high — all of those 
conditions which enter into the final economy and into the final costs 
of the product. 

Mr. Johnson. I think this method would be favorable in every city 
in the United States. 

Acting Chairman Kjno. I am not speaking about the method ; I am 
speaking about the cost, whether you could lay down a uniform ceiling, 
so to speak, and say that costs all over the United States ought to be 
the same in the production of milk and in the distribution of it and 
the sale of it to the consumer; wliether in the city, big city, little city, 
small communities, seaboard, and so on, you could say that there must 
be a uniform price and the uniform price would be just and fair in 
every part of the United States, under all conditions. 

Mr. Johnson. Not in the production of milk. I think in certain 
sections it would be cheaper ; but in the distribution, whether North, 
East, South, West, large or small cities, I think the costs are prac- 
tically the same, because one thing offsets the other a little bit. For 
instance, were I in a small town, my costs in some things might bo 
higher and in others lower; but in the large city my costs in some 
things would be lower, because there would be so many more cus- 
tomers. Where I had to pay a little more for some things, like power, 



CONCENTRATION OF ECONOMIC POWER 2853 

or a little more for help, my extra distribution would make it easier. 
I have found in the so-called more difficult cities it is really easier. 

Acting Chairman Kino. I had in mind an investigation which was 
conducted in the District hare a number of years ago/ and I recall 
very distinctly that one of the reasons assigned for the high price of 
milk, I believe, was that in the States from which the milk came there 
had been a shortage of feed ; they had to import it at double or treble 
the cost which had prevailed when they had ample feed supply, and 
they justified high prices for the production of the milk from the 
farm because of the enormous amount which they claimed they had 
to pay for feed. 

Mr. Johnson. That is not truej because they don't pay but very 
little more for cream, for instance, in Washington than I do in Detroit 
or Milwaukee. 

Acting Chairman King. I am speaking of the farmer, the man who 
produced it. They claimed that they had to charge more for the milk 
because of the higher price they had to pay for feed. 

Mr. Johnson. There is not as much difference as there is in price. 
The cost of handling a quart of milk in every city is practically the 
same. 

Acting Chairman King. I don't make myself clear. I am not refer- 
ring so much to the handling; I am speakin": about the production of 
it, whether the farmers who produce the milk could have a uniform 
price paid to them which would be just because of the variation, 
climatic conditions, wage scales, cost of feed, cost of freight, and so 
forth. 

Mr. Johnson. I think they could. In the South they have 4 cow3 
and expect to make a living on them, and in Wisconsin they have 
20, and one offsets the other. 

Mr. Ballinger. From your experience in the milk business, Mr. 
Johnson, do you think that the big distributors of milk are interested 
in developing the market for fluid milk? 

Mr, Johnson, No; I don't think so. The National Dairy, through 
the subsidiary, Kraft Cheese, sells oleomargarine, and I think they 
are trying to kill the fluid-milk business and get it all into cans 
so they can control it. 

A few years a^o a can of evaporated milk sold for the same price 
as a quart of fluid milk; and they are equivalent,, nearly equivalent, 
10 grams in Washington for 6 cents, to a quart of milk. It takes a 
huge investment to go into the evaporated-milk business, 

^ Mr, Ballinger. From your experience, have you observed that the 
big distributors of milk are sort of on their toes for introducing im- 
provements into the business? For instance, you are apparently the 
author of a new system of distribution. You thought this out; you 
were a small man; you put it into effect. Have you observed that 
the large companies are equally receptive to ne\/ ideas? 

Mr. Johnson. I don't know of a single new idea they ever 
thought of. 

Mr, Ballinger, You said this morning that you had some plumb- 
ing difficulties before you left town. Will you explain what they 
were? 



» See footnote 2, ^upra, p. 2817. 



2854 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. I have 40 depots, and I had 30 complaints where the 
plumbing or building inspectors had gone around and wanted to 
know who put the plumbing in, and made me furnish the name and 
address of the plumber, the number of the permit, and every one was 
just a little bit different. These buildings were rented, and I had 
nothing whatever to do with the plumbing or the construction of 
the building. 

Mr. Ballinger. In other words, you think these troubles you have 
had in plumbing emanated from the same source as your other 
troubles. 

Mr. Johnson. Exactly, the same scheme of harassment. 

Mr. Ballinger. Are you in favor of cooperatives? 

Mr. Johnson. I am not in favor of them as they are in Detroit, 
where they control 95 percent of the milk at one time. I am if they 
are competitive. 

Mr. Ballinger. In other words, the cooperative movement must be 
kept competitive, 

Mr. Johnson. Yes. A cooperative in milk in Detroit wouldn't sell 
me milk at any price. 

Mr. Hinrichs. Are your plants organized? 

Mr. Johnson. No, sir. You mean organized labor? 

Mr. Hinrichs. Yes. 

Mr. Johnson. No ; I pay from $1 to $2 more than the wage scale 
in Detroit. They attempted to organize my employees and they 
refused to go in. I have a base pay of $7 a day for all my help, 
that is, in the plant or on the truck. I pay every man the same 
wage, whether he is a good man or a poor man. If he is a good 
man I trv to give him a little better job to compensate. 

Mr. Hinrichs. Your truck drivers are paid at the same rate as 
your people in the pasteurization plant? 

Mr. Johnson. That is right. 

Mr. Hinrichs. You have only a single wage in the plant? 

Mr. Johnson. $42 a week. 

Mr. Ballinger. Have you ever had a strike? 

Mr. Johnson. Never in my life. 

Mr. Ballinger. Those are all the questions I have to ask. 

Dr. Thorp. I would like to ask a little about what is apt to happen 
if the tendency continues for shifting distribution of milk according 
to the use of depots. Let us suppose that there is some considerable 
group in the population, maybe a third or a half, which would still 
wish to have door-to-door delivery. Would you expect the result to 
be increased price for the door-to-door delivery; in other words, 
would we get a wider differential or isn't there any considerable 
relationship between the volume there and the cost per quart ? 

Ir. Johnson. I am no prognosticator of the future. I can't tell 
v^hat anybody wants to do. I know this: If you have got money 
to spend, there will be somebody to take it from you. If you want 
your milk delivered, there will be someone there to deliver the milk 
for you. But if you want to cut the cost of delivery, you could dis- 
continue some of this duplication of service. 

Mr. Ballinger. Except for you they wouldn't have had the chance 
of electing this choice. 

Mr. Johnson. Not in Detroit: no. 



CONCENTRATION OF ECONOMIC POWER 2855 

MILK PRICE PAID TO FARMER IN DETROIT AREA 

Mr. HiNRiCHS. Mr. Chairman. [To witness] This morning you 
said that you paid a tenth of a cent above the blended price. By 
blended price, what did you mean ? " . 

Mr. Johnson. Ten cents a hundred, to the farmer. 

Mr. HiNRiCHS. But the blended price is an average of the price 
that he gets for fluid milk and surplus milk. 

Mr. Johnson. I don't think anybody knows what it is. They 
advertise that they pay the farmer $1.90 when he actually receives $1 
a hundred. I used to be able to get the statements back from the 
producer but in the last 3 months they made a change in the method 
of paying. They print the statement of what the farmer gets for his 
milk on the back of a check, then when the farmer cashes his check 
the statement of what he got for his milk goes back to the company 
made out, so there is no way you can tell unless you get the checks. 

Mr. HiNRicHS. By the blended price you mean the average price 
the farmer gets, what he is finally paid for his milk, no matter what 
purpose it is used for. 

Mr. Johnson. That is right. 

Mr. HiNRicHS. You said, if I remember correctly, that you have no 
trouble in getting farmers to sell to you, that rather most of the 
time you have too much milk. 

Mr. Johnson. That is right. 

Mr. HiNRicHS. With a price a tenth of a cent better than the aver- 
age you ought to be in a very favorable position as a buyer. 

Mr. Johnson. Well, sir, I saw some farmers over in Lansing at 
a hearing of the milk-control meeting and they told me if I came 
back to Grand Rapids they would give me milk 3 months for nothing. 

Mr. HiNRicHS. You are, however, selling about 6 percent of the 
fluid milk in Detroit. Was that your figure, approximately? 

Mr. Johnson. Between 4 and 6 percent ; I don't know exactly. 

Mr. HiNRicHS. Between 4 and 6 percent of the fluid milk. Would 
you be in a position to purchase all of the milk offered in the Detroit 
milkshed ? 

Mr. Johnson. Certainly not. 

Mr. HiNRicHS. Oi this basis ? 

Mr. Johnson. Certainly not. I think it would take the Federal 
Government to buy all that milk. [Laughter.] 

Mr. HiNRicHS. The answer is very well taken. I gathered that 
Mr. Howe is introducing his testimony as a picture of something 
of an ideal competitive situation, or at least moving toward an ideal 
competitive situation. That would be correct, would it not, Mr. 
Howe? 

Dr. Howe. That is one element in it. 

Mr. HiNRicHs. If all the competitors in the market who could 
handle the volume of milk business in Detroit were to offer this single 
price as you do, could they take all of the milk that was offered ? 

Mr. Johnson. If the milk market in Detroit was competitive, the 
farmer today would probably be getting $2.40 for his milk rather 
than $1.50. 

Mr. HiNRiCHS. For milk that is to be drunk out of the bottle. 

Mr. Johnson. For what these dealers have to pay, whatever they 
use it for. 

124491— 39— pt. 7 8 



2856 CONCENTRATION OF ECONOMIC POWER 

Mr. HiNRiCHS. Some of that milk that is now bought goes into 
butter and cheese, does it not? 

Mr. Johnson. No, not any of it. All the mHk tKat is bought goes 
either into milk or cream, fresh cream, sweet cream. You see, we are 
limited to the milk we can buy by the Detroit Board of Health regu- 
lations; we can only buy milk from farmers who have a permit from 
the Detroit Board of Health to sell milk. 

Mr. HiNRicHS. And those farmers sell exclusively fluid milk? 

Mr. Johnson. Yes, and they are not allowed to sell anything else 
except fluid milk. The farmer really has a monopoly on it, because 
there are only about enough farmers who have passed the board of 
health regulations to supply the milk that is furnished in Detroit. 
There aren't many more farmers that are able to supply Detroit's 
milk. 

Mr. HiNRiCHS. Wliere does the milk for butter come from, then? 

Mr. Johnson. Well, it comes from beyond the Detroit milkshed. ^ 

Mr. HiNRiCHS. Then there is no surplus milk being sold in this 
area ? They don't have a class 1 and a class 2 price ? 

Mr. Johnson. Oh, yes, they do. Milk was short last fall, and they- 
still paid the farmers a 50-percent surplus. They had an under- 
standing with the producers' association^ ahead of time that they 
were going to pay only so much so they could get out and compete 
with my milk depots. Mr. Beach ^ made that statement himself. 

Dr. Thorp. Were you here this morning when Dr. Howe talked 
about class prices, milk selling at two different prices, the milk for 
fluid consumption and the milk for butter consumption. 

Mr. Johnson. No, I wasn't. 

Dr. Thorp. That was a situation that was described. I gathered 
that that sort of situation does not control in the Detroit area. The 
farmer, in other words, sells only fluid milk. 

Mr. Johnson. The farmer sells fluid milk, and when he gets his 
check he gets paid for class 1 and class 2, and he doesn't know for 6 
weeks after he sold his milk how much of either class he is going to 
get paid for or how much he is going to get paid for either class. 

Mr. Ferguson. And he has to depend upon what his purchaser 
says. 

Mr. Johnson. Exactly. He is absolutely in the hands of one man, 
the manager and the milk company. 

Mr. Hinrichs. What is class 2 milk? 

Mr. Johnson. I don't know. I don't buy that way. The class 2 
milk is what they don't want to pay $1.90 for, the way I look at it. 
They only want to pay $1 a hundred for that. That makes it class 2. 

Mr. Hinrichs. Assuming that these companies were honest in their 
boolvlceeping 

Mr. Johnson (interposing). They are not, why assume it? 

Mr. Hinrichs. ^Vliat do they say the thing is for? Is it the milk 
they put into butter and cheo«e? 

Mr. Johnson. They say they pay $1.90 so the consumer thinks they 
are paying a high price and thty can make the farmers believe they 
are paying $1.90. 

Mr. Hinrichs. I think you said they pay $1.90 for fluid milk, class 1. 

^ Mr. Beach subsequently appeared before the Committee on May 1, 1939. His testimony 
begins infra, p. 2884. 



CONCENTRATION OF ECONOMIC POWER 2857 

Mr. Johnson. That is right. 

Mr. HiNRicHS. And how much for class 2 milk! 

Mr. Johnson. The condensery price or whatever they a^ee on. 
They change it every month. They, might pay the butter price, they 
might decide this month they need to have a check-off of 7 cents a 
hundred. The farmer, when he sells in the Detroit area, signs a 
contract with the Michigan Milk Producers' Association to take for 
his milk whatever they see fit to give him. 

Acting Chairman King. But the milk association is their own or- 
ganization, isn't it? 

Mr, Johnson. It is their own organization in this way : That if you 
were a dealer over there you would insist upon your farmers be- 
longing. The dealers insist on the farmers belonging to that associa- 
tion or they won't buy their milk. 

Mr. HiNRiCHS. This class-2 milk purports to be going into butter 
or into condenseries or into cheese ? 

Mr. Johnson. Yes. 

Acting Chairman King. Not into butter. 

Mr. Johnson. It is never used for butter, because there is a short- 
age of fresh milk. It is never used for butter. 

Mr. Hinrichs. It purports to go into condenseries. 

Mr. Johnson. No, no, no. 

Mr. Hinrichs. Wliere does it go? 

Mr. Johnson. It just goes into cream. 

Mr. Berge. Isn't the class-2 milk any milk that isn't sold as fluid 
milk, whether it goes into butter or cheese or .canned milk or whatever 
it is used for? 

Mr. Johnson. That is right. Every man might have a different 
answer. I should think the best way to do is ask the man who is 
buying milk on that basis. I don't buy on that basis and every man 
has a different idea. They tell you Avhat they think you want to hear. 
One man says he uses it for butter because he thinks you want to 
hear that. You evidently want me to say it is used for butter. Were 
I another company, I would tell you yes, but actually it goes into the 
bottle as fluid milk. 

Mr. Hinrichs. I think your suggestion is very wise. I would be 
glad to have an opportunity to talk to people that are doing it and 
I am glad you confine yourself to the thin<r you do know. But the 
amount of this class-2 milk is so large that it brings the average that 
is paid down from an offered price of $1.90 for class-1 milk to a 
general average of $1.50; is that correct? 

Mr. Johnson. That is right. 

Mr. Hinrichs. So apparently very large quantities are going into 
class 2 consumption. 

Mr. Johnson. That is right, apparently. 

Mr. Hinrichs. Apparently? 

Mr. Johnson. Apparently, yes. 

Mr. Hinrichs. My question then is, could you and 20 other com- 
petitors like you take all of the milk that is oiffered at the fluid milk 
price which you are paying, because some of what was offered to 
you, you would have to sell into secondary uses, into manufactured 
uses, isn't that correct ? 

Mr. Johnson. Yes, but if all the milk in Detroit were sold under 
my method of distribution, we would be short of milk. Cream is 



2358 CONCENTRATION OF ECJONOMIC POWER 

being shipped into Detroit from Ohio, for instance. Ohio ships 
cream into Detroit. There actually is a shortage of milk in Detroit. 
You see, Michigan is an industrial State and Detroit is an industrial 
city. This class 1 and class 2 is just imaginary, just to make the 
farmer feel that he gets a big price for his milk, to make the consumer 
feel that he gets a big price, when actually there is no surplus of milk. 

Acting Chairman King. May I inquire; you referred to Ohio. 
Isn't it possible that in Ohio they would have a surplus of milk for 
use for fluid milk, and therefore they have the secondary milk which 
they ship into Michigan or some other State ? 

Mr. Johnson. There are board-of-health regulations. In Detroit 
Vti have to have the farmers under direct inspection of the Board 
of Health of Detroit, and they limit the area. They go out, saj^ a 
hundred miles from Detroit. But there are no board-of-health in- 
spections of the plants, only of the plant from which you get the 
cream. 

Acting Chairman ICing. My recollection of the hearing in the 
District a number of years ago ^ was. to the effect — my memory may 
be imperfect — that in the area from which the milk came, they called 
it the Maryland and Virginia milkshed, there was more primary 
milk, fluid milk, produced than was required, and therefore they 
had to classify it as fluid and secondary,' or surplus, and therefore 
they made a distinction in the price between the fluid and the 
secondary. 

Mr. Johnson. That is right, but at. the same time they were im- 
porting all the cream into Washington. They still are. There is a 
firm close to Detroit shipping cream to Washington today — or was 
a few days ago. 

Acting Chairman King. That may be. 

Mr. Ferguson. Mr. Johnson, you said, I think in your statement 
this morning, that you were thinking about going into production 
of cheese and some of these processed products. 

Mr. Johnson. Only cottage cheese, that is all. 

Mr. Ferguson. Do you know, Mr. Johnson, whether or not there 
is more profit in manufacturing and selling the processed products 
of milk than there is in selling fluid milk? 

Mr. Johnson. I was talking with a man who claims he is an official 
of the Kraft Cheese Co., and he claims that the Kraft Cheese Co. 
made $30 000,000 last year and had to turn over $12,000,000 to the 
National Dairy because they lost money, and the Kraft Cheese made 
eighteen million then. 

Mr. Ferguson. As I understand from the testimony of Dr. Howe 
and from j/our testimony, the purchasers, the distributors of milk, pay 
less for the milk that they buy from the farmer that they put into the 
processed products. 

Mr. Johnson. That is right. 

Mr. Ferguson. So that they pay less for the product on the one 
hand and charge the consumer more on the other hand. 

Mr. Johnson. That is right. 

Mr. Ballinger. Mr. Chairman, we are ready to release this witness. 

Acting Chairman King. If there are no other questions, thank you 
very much, Mr. Johnson. 



See footnote 2, p. 2817, supra. 



CONCENTRATION OF ECONOMIC POWER 2859 

Dr. HoAVE. I think the point just brought up is very important, one 
of the most important of all the facts. You said earlier that you 
thought the big distributors discouraged the use of fluid milk in order 
that they might have a larger supply of milk to go into the processed 
products, so that the inference was that they were possibly interested 
m discouraging the use of fluid milk in order to make larger profits 
out of a surplus milk which went into the manufacture of butter and 
cheese and other things. Was that the proper inference ? 

Mr. Johnson. No ; I am talking about fresh milk and fluid milk all 
the time. I think they discourage fresh milk because they don't care 
very much about the fresh-milk market because they sell enough any- 
way, and they are trying to encourage substitutes, like evaporated milk. 

Evaporated milk requires a huge investment to build a plant. But 
they can ship three or four trainloads of evaporated milk out of Wis- 
consin and break the farmers down in Michigan ; and they can ship 
three or four trainloads of evaporated milk out of Michigan and break 
the farmers down in Indiana. They like that sort of thing. They 
store up huge stocks when the price is low. If you listen over the 
radio, you would think the only milk fit to feed your children was 
evaporated milk, and I never saw anybody yet who would use evapo- 
rated milk and oleomargarine when he could get butter and fresh 
milk. 

Dr. Howe. Is that why the consumption of evaporated milk, accord- 
ing to the statistics of the Federal Trade Commission, has gone up 
over 100 percent in 15 years? 

Mr. Johnson. That's right. 

Dr. Howe. What do you charge for a pint of cream? 

Mr. Johnson. Fifteen cents. 

Dr. Howe. For a pint ? 

Mr. Johnson. Fifteen cents for a pint, two half pints. 

Dr. Howe. What was it sold at before you began to sell cream ? 

Mr. Johnson. Fifteen cents for a half pint, twice the price I charge. 

Dr. Howe. Have you had any experience with a bottle exchange ? 

Mr. Johnson. Yes ; I know how they work. 

Dr. Howe. That has been introduced in evidence. How do they 
work? 

Mr. Johnson. I will talk of the one I know about Grand Eapids 
and Detroit. To belong to the bottle exchange you have to belong to 
the milk dealers' association, and when you are in the old-style milk 
business you can't get your bottles back unless you belong to the 
dealers' association, because you have to have your name blown in 
the bottle. In my type I charge 5 cents deposit, and if they don't 
want to bring the bottle back they don't have to, but they do bring 
it back. Then, if you don't do what the milk dealers' association tells 
you to do; if you don't set the price at what they tell you to set it, 
your Avages, for instance — I have always been criticized because I was 
a traitor to my class and paid too high wages. But then I wouldn't 
get my bottles back. They would be destroyed or lost, or they wouldn't 
pick them up, or something else. That is how bottle exchanges work; 
and then they pass a law and make it legal. 

Dr. Howe. You made one other statement after the hearing this 
morning that if 25 percent of the milk distribution in a city was 
controlled, it was in effect a complete control. 



2860 CONCENTRATION OF ECONOMIC POWER 

Mr. Johnson. I think the control of 25 percent of any commodity in 
a city controls that commodity. 

Mr. Berge. Mr. Johnson, the production of milk fluctuates a good 
deal from season to season, doesn t it ? 

^Ir. Johnson. That's right. 

Mr. Berge. Heaviest in the spring and early smnmer ? 

Mr. Johnson. That's right. 

Mr. Berge. Now, the demand is fairly constant, isn't it, through- 
out the year ? 

Mr. Johnson. That's right. 

Mr. Berge. Then, if in any milkshed like Detroit you are going to 
produce enough milk to supply the fluid-milk demand the year round^ 
you will necessarily have a surplus at one time of the year that can't 
be marketed for fluid-milk use. 

Mr. Johnson. That's right. 

Mr. Berge. Well, then, if everybody in the city were in the same 
business you are in, the other, the surplus, wouldn't be cared for.. 
That is, there must be some of the milk from a given milkshed, at 
least during part of the year, going into class 2 use, must there not^ 
or else the market will be glutted and the price of class 1 milk will ga 
to pieces during that surplus-milk season-? 

Mr. Johnson. I wouldn't say the price of class 1 would go to pieces, 
but your selling price might go to pieces. Years ago we used to 
charge one price in the winter, when we paid more for milk, when 
the cost of production was high and milk was fairly short. In the 
summertime we sold milk for less when we bought it for less. But 
in late years the production of milk in the winter months, due to 
silos and better barns, and such things, has been better. That con- 
dition has changed the same as roads and trucking and everything 
else has changed. 

Mr. Ferguson. Shouldn't the consumers have the advantage of this 
seasonal production? 

]Mr. Johnson. That is my theory. My theory is the consumer 
and the public should have all the advantage. 1 don't think I can 
exist at all, only on the sufferance of the public. I don't think I 
have any right to be in the milk business, only that I am giving the 
public a good deal. The farmer, he has to depend on the public. 
I think the public is the last word in all answers. The farmer is 
out for himself, I am out for myself, and the public sit back and 
the public certainly is in the majority. 

In the city of Detroit there are 50 or 60 distributors, probably, 
and there are 2,000,000 consumers. Along that line, your organized 
labor : The business agent for the milk-wagon drivers went to Homer 
Martin — did you ever hear of him, C. I. O. or U. A. W., I don't 
know which it is — and they said, "What about this man Johnson? 
'We have got to get rid of him; he is doing this and that." 

Homer ^lartin said, "How many drivers are there?'* 

They said : "There are 2,000 milk-wagon drivers in the city of 
Detroit," and Homer Martin said, "There are 2,000,000 citizens of 
Detroit who are more important than the 2,000 milk-wagon drivers," 
and he said, "I understand that Johnson's standards are high, his 
wages are a dollar a day higher than yours. The best thing you 



CONCENTRATION OF ECONOMIC POWER 2861 

can do is go about your business, because you may be starting some- 
thing you can't finish." That was Homer Martin's answer to the 
milk-wagon drivers' union of Detroit. 

Acting Chairman King. The labor union prevails in the trucking 
business, I suppose? 

Mr. Johnson. Yes, exactly, sir. I have no objection to unions, 
but if I have 14 drivers they would certainly be outvoted when it 
came to 2,000 drivers in the other 2 or 3 companies. I don't think 
I would stand much show. 

Acting Chairman King. You don't have a closed shop? 

Mr. Johnson. No. 

Mr. HiNRicHS. He doesn't have any union men at all. 

Dr. Thorp. You felt that the control of 25 percent was sufficient 
to control a market. I have had the impression, from listening to 
your testimony, that in the Detroit market, at any rate, your opera- 
tions were of considerable influence, and that is only 4 to 6 percent. 

Mr. Johnson. No; it isn't I. It is the public that is buying my 
milk that is keeping after these other companies. The public are the 
ones that made it hard for them, not me, or it was the conscience of 
these birds, whichever way you wanted to put it, because they could 
see the trend of the public. When people will go to my depots and 
buy milk, notwithstanding what they have heard, and when they can 
have milk delivered to the homes — I will show you something. This 
man Gabel, or his father, sold out to National Dairy or Borden for 
$2,000,000, and they said, "We are going to start a milk depot next 
door to every one of Johnson's." Here is one, selling milk right next 
to mine, and he didn't take one customer. 

Acting Chairman King. Why was that, because the public believed 
in you ? 

Mr. Johnson. Yes. The public said, "He has had all the money out 
of us he should have years ago ; it is time somebody else had a chance," 
and they even went so far as to tell the customers, "AVhat do you deal 
with Johnson for? We will get you something anyway." 

Mr. Davis. Mr. Johnson, don't you think it is likely that your cus- 
tomers have in mind that if they go to your competitors to get a tem- 
porary better price, that may result in putting j'ou out of business, 
and when you get out of business, that they will all have to go back 
to paying 12 cents, or whatever they were paying before? 

Mr. Johnson. Twelve cents for 3 percent milk. That is exactly it. 
Every day I get letters telling me this, and every day I get telephone 
calls. It is the first time in my life that I ever knew milkmen to be 
popular. It is generally complaints. 

Mr. Ballinger. Though you operate an open shop, you pay higher 
wages than the union rates? 

Mr. Johnson. Yes ; and when I came into Detroit I brought along 
that idea. They were paying around $22.50 to $25 a week for inside 
help and I immediately paid $42 a week, and that made quite a hit, 
even with the union members. At least there was a mark for them 
to shoot at, but as I said this morning, my theory of labor is different 
from other people's. Some people will have one man drawing $60 a 
week, a straw boss, and a dozen men getting about 15 cents an hour, 
and he will be chasing the life out of them, and I don't believe in that 



2862 CONCENTRATION OF ECONOMIC POWER 

sort of thing. I hire a man and expect him to do a man's work, and 
if he doesn't I fire him. Before I hire him I tell him there is nobody 
over him except me. 

Acting Chairman King. Thank you very much. Call your next 
witness. 

(The witness, Mr. Johnson, was excused.) 

Mr. HiNRicHs. I would like to ask some questions of Mr. Howe. 

TESTIMONY OF DR. FREDERIC C. HOWE, FORMER CONSUMERS' 
COUNSEL, AGRICULTURAL ADJUSTMENT ADMINISTRATION, 
WASHINGTON, D. C— Resumed 

CONSUMPTION OF DAIRY PRODUCTS 

Mr. HiNRicHS. Mr, Howe, you spoke just now about an increase, 
did I understand you to say, of 150 percent in evaporated milk ? Was 
that the figure you used? 

Dr. HoAVE. In Milwaukee it increased 139 percent, to take one city. 

Mr. HiNRiCHS. The only figures that I have in front of me are the 
figures of agricultural statistics for 1938 published by the Department 
of Agriculture, page 346. Those extend back to 1927; a comparable 
table appears in the 1936 statistics. That goes back to 1925. There 
the per capita consumption of evaporated milk in 1925 was 11.1 
pounds. In 1936 it was 16.6 pounds. Isn't one of the very significant 
developments which has been going on the substitution of evaporated 
milk? 

Mr. Simpson.^ That is correct. 

Mr. HiNRiCHS. The per capita consumption of condensed milk has 
gone down quite substantially from 2.6 pounds per capita to 1.9 pounds 
per capita. Those are the figures that I am taking from the Year 
Book of Agricultural Statistics. The production in 1937 — I don't 
have the 1938 figures — according to Survey of Current Business was 
less than in 1936, so that part of that movement which seemed to be 
attributable to a movement against fluid milk was actually a movement 
against condensed milk. 

Mr. Simpson. If you combined condensed and evaporated milk, you 
would find that there has been almost doubled production over the 
15-year period, and those are fig-ures of the Department of Agriculture. 
They have given me 1922, 1923 figures for comparison with those of 
1938. 

Mr. Da\'IS. How about the increase in powdered milk ? 

Mr. Simpson. I don't happen to know those figures, Mr. Davis. 

Mr. Davis. Are those figures given there powdered or dry milk? 
There has been quite a development along that line. 

Mr. HiNRiCHS. I thought they were included with the evaporated 
•milk figures. I know nothing about the milk business, but I am lack- 
ing something in the picture of the character of the demand for milk 
products that makes it difficult to evaluate the testimony as to what 
the shifts would be, and I was trying to develop information along 
the lilies from your experts of what the demands for these various 
products were. 

^Keraper Simp-on, «<»nomist, Fedwal Tiade Commission. 



CONCENTRATION OF ECONOMIC POWER 2863 

Mr. Davis. That is the reason I asked about powdered milk, because 
I think tliat is in the picture. 

Is it not a fact, Dr. Howe, that powdered milk is the kind that is 
generally exported from this country because it keeps better and is 
shipped much more easily, particularly in tlie Tropics ? 

Dr. Howe. I can't speak with exact knowledge as to powdered milk, 
but it is a commodity which has been growing in use in recent years. 
It is being bought by the United States Government and being shipped 
to the South and being shipped, I believe, to Puerto Rico and else- 
where in connection with the fight against pellagra. 

It is, I believe, also used in connection with the production of 
ice cream. A few years ago producers looked upon it as a rather sur- 
plus product that they didn't know what to do with, but as I recall it 
now the price has gone up very materially lately in connection with 
the increased consumption. That is my very limited knowledge of 
that subject. 

Mr. HiNRiCHS. Dr. Howe, what was the year of maximum per 
capita butter consumption in this country? 

Dr. Howe. I don't know it. 

Mr. Simpson. I can give it to you, 1932. 

Mr. HiNRiCHS. What happened to the wholesale price of butter 
between 1929 and 1932? 

Mr. Simpson. It fell very much. 

Mr. HiNRiCHS. It fell very substantially? 

Mr. Simpson. Yes. 

Mr. HiNRiCHS. We come back again to this question of what hap- 
pens if you start marketing all milk at a common price. Mr. John- 
son was paying $1.60 in a market where the class 1 price was $1.90 
and where the class 2 price was not given, but the net price for all 
milk according to Mr. Johnson was averaging $1.50 a hundred. The 
statement has been made that a lowering of the price of fluid n)ilk, 
getting a single price for all milk, will very greatly increase the 
consumption of fluid milk. I think that everyone would agree with 
that statement. It is important, however, to the deliberations of 
this committee when we are looking for ways to improve the 
consumption of milk products, to improve the position of the farmer 
at the same time, if we can. We need to make sure of what we are 
doing. 

Dr. HowT5. Certainly. 

Mr. HiNRiCHS. It then becomes a question of how much would the 
consumption of fluid milk be increased, because if you have a common 
price for milk it means that the price of milk going into butter 
and cheese and other manufactured milk products is going to be 
higher than it is at the present time. That would be correct, would 
it not? 

Dr. HowT.. I am going to turn that over to Mr. Simpson. He seems 
to have that, if you will permit me to. He has made special studies 
of this in connection with the Department of Agriculture. 

Mr. Simpson. This morning the question was put as to the effect 
of a change in price on the consumption. That was not answered. 
I think that one answer is that in New York the State Department 
of Agriculture gave figures and text to show that during the so-called 
years of prosperity, from 1925 to 1930, the consumption of fluid milk 



2864 CONCENTRATION OF ECONOMIC POWER 

rose considerably. Incomes were pood, and prices remained stable 
or rose with the price of fluid milk. During the depression, when, 
thfe retail price was kept rather rigid, when it dicln't decline, and 
yrhen incomes were reduced, the consumption of fluid milk decreased 
considerably. Part of that was a change in the consumption of 
cream, but I don't think all of it was. 

In other words, if you would reduce the price of fluid milk you would 
undoubtedly increase the consumption of fluid milk. 

The second point which you make is that if the class 2 and 3 and 4 
prices are not kept low butter will have to be sold at a higher price; 
canned milk will have to be sold at a higher price. I think our posi- 
tion is that there is no reason why the fluid-milk consumer should have 
to pay a higher price in order to make canned milk and processed 
cheese and centralizer butter cheaper, because we feel that the most 
important of the milk products is milk, and there is no particular 
advantage in having a low cost of raw material on milk products if 
that lower cost involves a higher price for fluid milk. Does that 
answer your question, Mr. Hinrichs? . 

Mr. HixRiciis. It doesn't answer my question. It is a very clear 
statement of your position and would be the result, I presume, of 
purely competitive price fixing. But if the elasticity of demand for 
butter is substantially greater than that for'milk, it is conceivable thut 
a fall in the price of fluid milk would result in a smaller aggregate 
increase in the use of milk than the decrease in the use of milk go^ng 
into butter and cheese that would result from the higher pnce of 
butter. 

I would like to ask^ if I may, that the Federal Trade Commission 
introduce into the testimony at this point an expert statement on their 
own responsibility, or from the Department of Agriculture, as to what 
the relative shift in demand would be for any given change in price. 

Mr. Fei;guson. Mr. Chairman, Mr. Simpson, I am not quite sure 
whether I understood Mr. Hinrichs correctly or not, but he used an 
expression which I have never heard before — competitive price fixing. 

Mr. Simpson. I think Mr. Hinrichs probably meant the price that 
should be fixed under the competitive system. Isn't that the impli- 
cation ? 

Mr. Hinrichs. That will do. 

Mr. Simpson. You see, Mr. Hinrichs knows just as well as I that 
these questions of the problem of figuring the elasticity of demand of 
butter and cheese andmilkinvolve very complicated statistical refine- 
ment. I think that we have a great deal of good common-sense evi- 
dence that if you lower the price of fluid milk that people who can 
aflford to buy it will buy it, and I think Mr. Johnson's testimony, the 
testimony of the Department of Agriculture, the New York State 
Department of Agriculture, and other evidence is sufficient to prove 
that if you lower the price of fluid milk there will be a greatly 
increased, or should be a jjreatly increased, consumption of fluid milk. 

All of this is hypothetical. We can draw charts about it but we 
can't definitely answer your question. I think there will be a great 
shift in the consiiinption of butter if the price of butter were to change, 
but it is interesting that during the depression there was a large per 
capita consumption of butter, and the reason for that, or one of the 
reasons, was that the price fell very low, and the reason the price fell 



CONCENTRATION OF ECONOMIC POWER 2865 

Tery low was because the distributors were able to pay the farmer 
a very low price for milk and were able to sell butter very cheap, at 
the same time they were maintaining the retail price of fluid fresh 
milk, a product that we think should be cheap during depressions for 
people who can't afford to buy- many different kinds of food. 

Mr. HiNRiCHS. Mr. Simpson, your position is very clear. My po- 
sition is merely that I don't want to engage in a study or possibly 
make recommendations which would lower the total consumption of 
milk in the country of all types without at least knowing about it. 
You speak of the difficulty of these computations. There arei 
techniques which have been developed as one of the contributions 
which the agricultural economists have made to our body of knowl- 
edge in the last 20 years, which enable rather good guesses to be made 
as to the probabilities, and I still say that I would appreciate an op- 
portunity to see an expression of expert opinion on that subject if 
you care to introduce it. 

Mr. SiMPSox. I might say this one thing in closing: We have a 
good deal of evidence in the facts that have been brought out here that 
people will consume more of all the milk products when the price is 
sufficiently lowered. We have evidence that the consumption of 
canned milk, condensed plus evaporated, taking the two together, has 
increased materially as a result of the lowered price. 

We have some evidence in the other milk products, and I think that 
we have sufficient evidence in the testimony that has been given and 
in other of our studies to show that if you get fluid milk cheap enough 
you would have an increased consumption of fluid milk. 

Acting Chairman Kino. If there is an increased consumption of 
fluid milk, would there not be repercussions with respect to the price 
of other commodities, say butter? 

Mr. Simpson. There might. We would have more fluid milk con- 
sumed, less canned milk consumed, less processed cheese about which 
we haven't said very much. 

Acting Chairman Kino. And less butter. 

Mr. SiarpsoN. And less of certain types, as well as less butter, but 
I think you would have more fluid milk produced and the farmer 
under your surplus system would get a higher average price because 
the more milk that goes into fluid milk under your base surplus plan 
the higher the price the farmer gets. 

Acting Chairman King. But the higher the price of fluid milk 
the less, especially in periods of depressions, is consumed and the 
greater quantity of milk if the production, is substantially the same, 
goes into subordinate products — butter. 

Mr. Simpson. Yes, sir. 

Acting Chairman King. So it balances itself. 

Mr. Simpson. Well, it balances, except that we feel that fluid milk 
is one of the essential products, one of the essential necessities in the 
workers' diet, and we feel that perhaps processed cheese is much more 
of a luxury product and canned milk a less desirable product than 
fresh milk. 

Acting Chairman King. Is that all that you have ? 

Dr. Howe. One fact that might be added to that is that the 
farmers are able to produce much more milk than they do at the 
present time, so that all of the milk that is needed for butter and 



2866 CONCENTRATION OF E(JONOMIC POWER 

cheese might very easily be supplied even if it all went into fluid 
milk. 

Mr. Ballinger. Senator, we are going to move into a new industry 
now, and not for a very long time, and then if we have any time 
left we would like to move into still another industry, if you will bear 
with us. 

Dr. Howe. In order to complete my presentation, which has been 
interrupted by the next witness, I shall submit the balance of my 
testimony as an exhibit. It relates to the extent of monopoly in the 
dairy industry. 

Mr. Baughman. Mr. Chairman, may I follow that through at this 
time before the witness is called? In behalf of the Federal Trade 
Commission I want to offer a report on Concentration of Control 
Over Sales and Distribution of Milk and Dairy Products under Pub- 
lic Resolution No. 113, Seventy-fifth Congress, and to add to that 
this statement, that the figures and statements therein come from the 
correspondence with the companies therein named, except in Balti- 
more, where our own attorney examiners investigated the facts and 
otbained those from the records of the companies. 

Acting Chairman King. Is that a very large report? 

Mr. Baughman. Just for the files. 

Acting Chairman King. It may be received. 

(The report of the Federal Trade Commission on Concentration 
of Control Over Sales and Distribution of Milk and Dairy Products 
was marked "Exhibit No. 370" and is included in the appendix on 
p. 3135.)^ , 

Mr. Ballinger. We are now going to examine the monopolistic 
practices in the poultry industry, and I want to call Mr. Peterson 
to the witness stand.. 

Acting Chairman King. Do you solemnly swear to tell the truth, 
the whole truth, and nothing but the truth, in these proceedings, so 
help you God? 

Mr. Peterson. I do. 

TESTIMONY OF LEROY PETERSON, FORMER CODE ADMINISTRATOR 
FOR THE POULTRY INDUSTRY, NEW YORK CITY 

monopolistic practices in the poultry industry 

Mr. Peterson. Leroy Peterson. 

Dr. HoAVE. What is your present position? 

Mr. Peterson. Employed bv the Federal Government in Mew 
York City. 

Dr. Howe. Prior to that? 

Mr. Peterson. Employed by the Fedei-al Government in Wash- 
ington in the Resettlement Administration. 

Dr. Howe. And prior to that? 

Mr. Peterson. I was the code supervisor for the live poultrv in- 
dustry in the New York City area. 

rr.v,^"'^ Rebuttal to the Testimony of Officials of National Dairy Products Corporation and 
ane Borden Company" was introduced during hearings held October 24, 19o0 It was 
marked "Exhibit No. 370-A" and is printed, in connection with "Exhibit No. 370." at ap- 
pendix p. 3194. Testimony of witnesses from National Dairy Products Corporation and 
The Borden Company begins on p. 2958, infra. 



CONCENTRATION OP ECONOMIC POWER 2867 

Dr. Howe. You have also been a banker? 

Mr. Peterson. I have. 

Dr. Howe. What company? 

Mr. Peterson. Guaranty Trust Co., Irving National Bank, and 
the Amalgamated Clothing Workers Bank, for which I was cashier. 

Dr. Howe. You were also in the real-estate business, were you not? 

Mr. Peterson. I have been. 

Acting Chairman King. What position do you now have? 

Mr. Peterson. I am working with the Board of Education and 
W. P. A. in a rehabilitation project in New York City. 

Acting Chairman King. How long have you been with the 
W. P. A. ? 

Mr. Peterson. About 6 months. 

Acting Chairman King. Are you in what is called the Youth 
Movement ? 

Mr. Peterson. No, sir. 

Acting Chairman King. Proceed. 

Dr. Howe. You were code administrator for the poultry industry 
in New York City under the A. A. A., as I recall. 

Mr. Peterson. The A. A. A. and N. R. A., a joint code, and the 
arrangement on Avhich I was made code supervisor was somewhat 
unusual. The industry and the Department selected me, but the 
industry agreed I could not be discharged by them but only by Sec- 
retary Wallace or the head of the N. R. A. 

Acting Secretary King. You didn't have charge of the Schechter 
case for the Government, did you? 

Mr. Peterson. I did; I developed the original Schechter case be- 
fore it got into other hands. 

Dr. Howe. You were appointed code administratoi' when ? 

Mr. Peterson. In April 1934. 

Dr. Howe, And prior to that you had made some studies of the 
poultry industry as well as other agricultural commodities in con- 
nection with the consumers counsel division, had you not? 

Mr. Peterson. Something over a year. 

Dr. Howe. Now then, Mr. Peterson, you start right in and de- 
scribe the conditions as you found them in the poultry industry and 
your own experience. You be your own witness and just tell the 
btory without interruption. 

DESCRTI'TT •" OF I'OUL'rRY industry in new YORK CITY 

Mr. Peterson, i nave lived in New York for the last 25 years and 
had been somewhat familiar with the poultry industry before I be- 
came a code supervisor, and I think it might be advisable, if T may, 
to tell a little of the industry itself, its physical set-up, to give a 
background to the practices that were inherent in this industry 

Acting Chairman King. Is this in the past or in the present? 

Mr. Peterson. It is as it exists for the last 10 years and today. It 
liasn't changed, I believe, ph3'sically, in the last 25 years. 

Dr. Howe. I might say, Senator, that the last exhibit is with I'e- 
spect to terminal marketing conditions in New York City. 

Mr. Peterson. The live-poultry industry in New York is a pe- 
culiar industry in this respect, that the New York market is the 
largest market for live poultry in the country. The annual volume 



2868 CONCENTRATION OP ECONOMIC POWER 

of business is about 200,000,OOP pounds, and the dollar volume is 
something around $50,000,000. ' That is the retail price. The con- 
sumers of live poultry are predominantly Jewish, followed next by 
Italian, and interestingly enough by Chinese, and also a rather larger 
number of families who have been bom and brought up in the coun- 
try and who move to New York and who still have a taste for fresh- 
killed poultry, but the predominant business is done with Jewish 
people. 

Acting Chairman King. You mean the consumption or sale? 

Mr. Peterson. The sale and consumption. The business, although 
it is confined to New York City in sales, is definitely interstate in 
that these chickens which arrive in New York City come from 41 
States of the Union, that is to say practically all the States east of 
the Rocky Mountains. The chickens come into New York City in 
three ways. In former years they came in entirely by carload lots. 
Then an express business was built, up and now the trucking business 
has become a large part of the method by which chickens are brought 
in. At the present time about a quarter or a third of the chickens 
come into New York from the eastern and contiguous States, and 
the balance come in by carload lots from States as far west as Mis- 
souri and Texas. . 

The industry has been about the same in the physical sense for 
many years. It is made up of from 27 to 30 commissionmen. They 
are located in West AVashmgton Market, which is near Fourteenth 
Street and the Hudson River. There they rent stalls from the city, 
have chickens for sale, and maintain their offices. 

All the chickens that come in by express and truck come to this 
terminal, but by far the largest number of chickens come in by car- 
load lots at a terminal at Sixtieth Street and Hudson River, main- 
tained by the New York Central Railroad. 

I thinlc it is important to give a little description of the physical 
lay-out of this place, because it has to do with the situation in which 
racketeering and monopoly developed. It is a large railroad yard, 
in which about 100 cars can be sided at one time. There are large 
open spaces, and extending at one end of the yard are some very 
large warehouses. These formerly and sometimes now are filled 
with feed which is sold by service companies, and also contain large 
numbers of empty coops in which these live chickens are placed. 

The industry for many years has had a number of situations 
develop which give one the impression that it is the kind of indus- 
try that any kind of racketeering can prosper in, and it has really 
a much worse reputation than actually exists. I recall an incident 
when I was asked to be code supervisor. I went up to the market 
at Sixtieth Street, went into one of these large warehouses, and a 
man asked me immediately if I would like to have a bodyguard. 
Well, it sounded ridiculous and I said of course not, I asked him 
why. He said, "Well, these big crates have a way of tipping over on 
people that we don't want around here" — which was a form of 
intimidation which was common in the industry but which is of 
really no consequence. 

At this Sixtieth Street terminal each morning about 9 o'clock two 
or three hundred slaughterhouse operators, the buyers of chickens 
from the commission men, and the commission men assemble in an 
open space for the making of the market. 



CONCENTRATION OF ECONOMIC POWER 286^ 

In the center of this group, until last year, was a member of a 
private organization that published information about poultry and 
produce, and with great shouting and noise and turmoil he would 
attempt to pick out of the air and the noise what seemed to be the 
price of 9 or 10 grades of fowl and chicken, and he would announce 
that that was the buying price for various grades of fowl over the 
country. 

That would instantly be wired over the United States, and that 
would become the base buying price for chickens throughout the 
country. 

Shortlv after I became code supervisor, we found that at certain 
times of the month large numbers of carloads of third-grade 
chickens would come into this yard. They came in from various 
States. We traced their source and we found that those chickens 
were coming in consigned to one of the market men from the large 
packers. They were known as throw-ofis, or a type of cull, and 
they were sold a very depressed price. Carloads would come in 
without much notice and the price would go down considerably. 

It happens, of course, when there are 9 or 10 grades of a product 
and the price is made on one of thenij there is usually a relationship 
between all those grades. We found that from time to time these 
packer chickens were depressing the market and we had no idea why 
that was occurring until we had occasion to talk to some hucksters — 
they call them in the West — who assemble and buy the chickens from 
farmers and from shippers. We found this interesting fact. About 
the day, or the day following, that large numbers of chickens 
would come into the New York market and depress the price, Inm- 
dreds of buyers for the large packers from Chicago, Kansas City, 
and St. Louis would move up and down the Mississippi Valley and 
buy millions of pounds of chickens from the farmers, based on that 
price, to put into dressed poultry. 

In other words, through an interesting connection between a small 
market in New York for live poultry, producers of chickens through- 
out the Mississippi Valley were forced to sell their chickens at a 
price 1 or 2 or 3 cents a pound below what would be the normal 
price they might get. 

That, of course, is not particularly a part of the live-poultry 
business in New York, but it seemed tq be of sufficient importance 
to mention. 

The industry, as I said a moment ago, is made up of about 27 
commission men, about 150 to 200 slaughterhouse operators who buy 
the chickens from the commissionmen, and the slaughter operators 
who sell in turn to butcher stores, chicken dealers, and so forth, 
throughout the city. Chicken dealers and butcher stores are not a 
part of this code, or are not a part of the industry of which I am 
speaking. 

EFFECT OF LABOR TJNIONS IN THE FOULTBT INDUSTRY 

Mr. Peterson. The industry has been for many years 100 percent 
unionized. There are three unions in the industry. The teamsters 
and the handlers of the poultry are members of a teamsters' union 
and they have an international affiliation. There is what are known 
as the patent-car men. These cars in which the chickens are brought 
into the city are called patent cars and there is a union whose sole 



2870 CONCENTRATION OF ECONOMIC POWER 

function is to unload chickens from the car to the platform, and then 
another union load the crates into a truck, and still another union 
hauled them in the trucks to the slaughterhouses, and each of those 
groups took a substantial fee for their services. 

Mr. HiNRicHS. Pardon me, it wouldn't be unusual, would it, to have 
three different occupations, I mean to have three individuals doing 
these various jobs? Certainly you wouldn't expect a man to pick up 
a box of chickens and run to the truck with them and then jump on 
the front seat of the truck and drive away. 

Mr. Peterson. Oh, no ; I think probably what is in 3'our mind will 
be explained as I go on v/ith what I am discussing. I think I se^ 
what you have in mind. 

There is still anotlier union in the industry which is made up of 
about 50 or 60 men of the Jewish faith who are known as schochets. 
They are the men who kill the chickens. They are known sometimes 
as rabbis. They di-ess in a costume similai- to rabbis, and they also 
have a union, known as the schochtem union. If there are any peo- 
ple here who disagree with my use of Jewish tenns, they will under- 
stand. 

This union developed into a real monopoly. The^ set up such 
standards that only a very small mnnber of men could join it. They 
finally reached the point where they were receiving $60 a week for 
about 30 hours' work. They had great difficulty in finding an inter- 
national affiliation, and they were anxious to really get into some of 
the broader A. F. of L. international unions. 

A great many of these men, as tliey finished their work around 12 
o'clock, had much time on their lumds, and they in turn joined up 
with Jewish hospitals for tlie purpose of ])erf()rming a Jewish rite on 
males. They had sucli luck in forming (heir schochtem union for 
killing chickens that they formed a union known as mohels. A 
mohel is a man who performs this rite on Jewish boys. After they 
formed this union they desired to get an international affiliation. 
Well, that was somewhat difficult, and they finally were invited to 
become a local of the International Association of Meat Cutters, 
which is a national organization. 

I am going into some detail about these unions because they are a 
very integral ])art of the monopoly which was built up. 

Acting Chairman Ktxg. I suppose all those unions i'(»]lal)orate.d or 
were integrated. 

Mr. Peterson. Yes; I am coming to that, that they all did integrate 
very closely with the market men, with the slaughterhouse opei-ators. 
in order to set up a very tight monopoly. 

I want to go into this matter somewhat of the unions because in 
my opinion, the success or failure of a union is almost entirely deter- 
mined by the type of its leadership. At the present moment all the 
leaders of these unions are in Sing Sing. They happen to be at this 
moment. During the period in which we were operating the code 
these men were actually running their unions. 

Acting Chairman King. They have been succeeded by others, I 
suppose. 

Mr. Peterson. But of not quite the same caliber. 

In order to give you a little picture of the type of men who are 
oi)erati_ng these unions, because I think that is very important, I 
might just tell one incident. 



CONCENTRATION OF ECONOMIC POWER 2871 

You probably recognize the name of Arthur Herbert, known as 
"Tootsie" Herbert, one of the leaders in the teamsters' union. He is 
a capable man ; he organized well, he managed to get a 100 percent 
union, he got" $47 a week for his men for a 40-hour week. But many 
of us thought that his prime interest wasn't in the unioji activities. 

During the period of the code he was about to be returned to a 
Federal jail for violation of a consent decree which Mr. Rice,^ of the 
Department of Justice, took care of. And the day before he was to 
go to jail he happened to come in to see us to discuss the matter of 
his union, and so on. I would certainly say that the unions gave 
us flill cooperation in the operation of our code, and we were on 
friendly terms with all of these men, and I said, "Well, Mr. Herbert, 
you shouldn't be sorry about going to jail, because a lot of good labor 
leaders have gone to jail in their time." 

"Well," he said, "who, for instance?" 

The first name that came to my mind was Eugene Debs. I said, 
"Mr. Debs went- to jail." 

He said, "He's a damned radical." 

I bring that out because I want to get into your mind the attitude 
of these union leaders as to their function. 

It might, at this point, be interesting to state, and you will recall 
from the daily papers, that on the trial which Mr. Dewey was carry- 
ing on in New York recently, the first trial against Mr. Hines was 
declared a mistrial by Judge Pecora because the poultry industry was 
mentioned — even mentioned. ;. There is nothing further in that ex- 
cept many of us in New York felt that there was a definite tieup 
between the unions, the service agencies, politicians, and so forth, 
and I would like to bring that out in connection with another union. 

The patent-car men were the men who were hired to take the chick- 
ens out of the cars and put them in coops. You may feel that I am 
going afield, but these points do tie in. Men in Sin^ Sing and Auburn 
Prison in New York State, in order to get on probation or parole, must 
have a job to ^6 to when they get out. Many times these men are 
friends of politicians; and in order that a politician may get a man 
out of jail, he must have a job for him, and the patent-car men's union 
was made up almost entirely of men who are arranged to be 
taken out of prison and allowed to unload a car or two a week so that 
they could tell the parole commission that these men had jobs and 
there were about 300 of those men who unloaded one or two cars a 
week, who got $5 or $10 a week, and the rest of the time no one knows 
what they did, but every one of them had a long jail sentence. That 
union is still operating in New York City. 

All these chickens that come into New York City — it is true now 
and has been all the time — are not graded. They are bought by huck- 
sters and by commissionmen over the country and come in in cars or in, 
trucks, and are sold through the slaughterhouses directly to the chicken 
markets, and then it is entirely up to a housewife to be able to select a 
good, fresh-killed chicken. There is no grading in the industry. 
That hag brought some very severe evils which are, I believe, a little 
bit too technical and are really not of importance to bring in, except 
that one of the clauses of the code was to establish w'hat we called 
straight killing. It meant that if persons bought chickens, a chicken 
dealer bought chickens, he must buy a coop or half a coop. He 
couldn't select them. We felt that by allowing people to select out 

1 Walter Bice, Special Assistant to the Attorney General. 
124491— 39— pt. 7 ^9 



2872 CONCENTRATION OF ECONOMIC POWER 

of a coop a buyer would feel all these chickens and handle them pretty 
roughly; by the time 10 buyers had gone over a chicken pretty thor- 
oughly that chicken became a cull. These culls were not salable so 
the business agents of the union would takes these culls for themselves. 

At the end of the day these fellows would then take a couple of 
coops of these culls which would be worth 10 or 15 or 20 dollars, out 
to slaughterhouse operators who dealt exclusively in culls; they 
would have them killed in any manner they saw fit, and then they 
would manage to work them back into the retail trade. That is an- 
other type of the dishonest practices that were allowed to go on in 
the industry. 

, Acting Chairman King. Do those practices exist today and do 
they promise continuation? The reason 1 ask is, I want to learn 
whether or not this committee is looking at conditions as exist 
today and prospectively, or whether we aio holding a sort of post 
mortem over conditions in this poultry industry. 

Mr. Peterson. I am trying to state here conditions as they exist 
today. I would say definitely that some of these situations are not 
as bad as they were, and the situation that I am going to describe 
now is not as bad now as it was some time previous. 

PRACTICES TENDING TO CREATE A MONOPOLY IN THE POULTRY MARKET 

Acting ChaiiTnan King. The contention of you and your associ- 
ates is that the practices there tend to monopoly, or are a monopoly ? 

Mr. Peterson. Yes, sir. 

Acting Chairman King. And that the public suffer by reason of 
those monopolistic and unfair practices. Is that the contention ? 

Mr. Peterson. Yes, sir ; that is. There is in addition to the people 
in the industry that I have mentioned two service companies, one 
called the New York Trucking Co., another called the New York 
Coop Co. The New York Trucking Co. have an exclusive privilege 
of hauling all the chickens that come into the New York market, 
and they furnish all the coops. 

Acting Chairman King. How did they get that exclusive right? 

Mr. Peterson. It was given them by the 27 commission men at 
the West Washington Market. They have held that for many, many 
years- and that has been one cf the severest incriminations of the 
industry. Because of the exorbitant charges for coops — and I 
might go into that just a bit — ^this still exists. 

The New York Trucking Co. charge a certain fixed price per coop 
for every chicken that comes in New York in carload lot, whether 
they haul it or not. They then charge an additional price for every 
coop they do haul. They also charge a certain price for the use 
of a coop, whether it is used or not, and then an additional price 
for those they do use. It seems fantastic, but it actually exists. 

What that means in dollars and cents is that all those' charges are 
put back against the commission man and he, in turn, charges all 
those charges back against the shipper, who is in turn, the producer. 
In other words, through the connivance of the commission men, the 
uniono, the slaughterhouse operators, and these two service agencies, 
the producers for years and years and years have been mulcted out 
of hundreds of thousands of dollars a year which has been divided 
up among this group and charged back'jtgainst the producer. 



COXl^ENTKATION OF E(JONOMK: POWER 2873 

Acting Chaiiman King. Have not the State or municipal authori- 
ties, under municipal or State laws, carried on an investigation and 
instituted proceedings to terminate such evil practices? 

Mr. Peterson. I think everj^ lav»'-enforcement agency in New Yorlr 
City, the State of New York, and the Federal Government that has 
jurisdiction, has taken action, and from time to time th6y manage to 
obtain a little help for the producer ; but some of these practices still 
exist, and if any of you have occasion to visit Sixtieth Street and 
Hudson River any morning you will see these things actually in 
operation. 

Mr. Berge. The same coop is used again and again, isn't it ? 

Mr. Peterson. It is. 

Mr. Berge. They are leased, are they not, from some company ? 

Mr. Peterson. The New York Coop Co. 

Mr. Berge. What is cost of a coop ? 

Mr. Peterson. Well, they are a large, heavy coop; they weigh about 
100 pounds. The actual cost is about $3. 

Mr. Berge. What do they rent for ? 

Mr. Peterson. The figure now, I think, is 65 cents, and they can use 
them from 30 to 40 times. They maintain them, however; they have 
to keep them in repair, and when a slaughterhouse operator returns a 
coop for which he pays nothing, he gets 20 cents, and that comes out 
of the producer. 

Mr. Berge. Well, they pay a pretty good rate of return on the 
investment, though, apparently about $20. A coop makes about 
$20, possibly, during its life.* 

Mr. Peterson. I should say that — not as much now as it formerly 
did. The New York Coop Co. and the New York Trucking Co., on 
the basis of investigations made by the Department of Justice, were 
found to make a very substantial profit in this business. 

Mr. Bekge. I was under the impression they could be used a good 
deal more than that, several hundred times, but I may he wrong. 

Mr. Peterson.* Not that often. They are wooden and they are not 
treated very carefully and they do break. 

Acting Chairman King. Did the Federal Government or the State 
under State law bring injunction proceedings against these combina- 
tions? 

Mr. Peterson. They did. 

Acting Chairrnan King. And I suppose decrees were entered enjoin- 
ing them from continuing these practices violative of Federal or State 
law or both. , 

Mr. Peterson. Yes, sir. 

Acting Chairman King. Have any of those decrees been enforced ? 

Mr. Peterson. They have; and various people of the industry have 
gone to Sing Sing, They come out again and they go back. Arthur, 
Herbert, I think, has been in Sing Sing three times now. 

Mr. Berge. Wasn't there a criminal su't under the antitrust laws 
against some of these people a few years ago ? 

Mr. Peterson. Yes; against price fixing. 

Acting Chairman King. Do you mean to confess that municipal, 
State, and Federal authorities are impotent to deal with this 
monopoly which is so injurious to the producers of chickens through- 
-it the United States? 



2874 CONCENTRATION OF ECONOMIC POWER 

Mr. Peterson. I wouldn't like to leave the impression that it is 
impossible. However, there is still a great possibility for improve- 
ment in that industry. The very nature of the industry is that it is 
dealing in a perishable product in which there is a tremendous pos- 
sibility for quick profit or quick loss. 

■A slaughterhouse operator I saw, who used to have a very small 
shop when I was there, had a beautiful new car and seemed to be 
very prosperous. I said, "What has happened?" 

"Well," he said, "recently we have a strike in the industry." By 
"strike" I do not mean a labor strike. They don't have labor strikes. 
They are mostly strikes between slaughterhouse operators, butchers, 
and commission men, and so on. He said, "I didn't join up with 
them this time," and on an investment of $2,000 in his business he 
made $1,000 a week clear profit, net profit, over a great many weeks. 
For years that man made an income of $50 or $60 a week out of the 
business. And then, of course, there have been these unusual combi- 
nations of a 100-percent organized industry with definitely dishonest 
labor leaders conniving with commission men, who, in truth, are not 
commission men at all but who maintain buying agencies in the West 
where they really own the chickens, and^ slaughterhouse operators 
who come in and out of a business several times a year. 

The Schechter case^ which you mentioned. Senator: The Schech- 
ters, five brothers, have failed, I suppose, 15 times in that industry. 
They make a settlement of 20 cents on the dollar, and the next day 
they are back in business again. One really must understand the 
people, the nature of the business, to understand how this sort of 
thing can go on. 

The basic thing that I would like to bring out is that it is possible 
in the live-poultry industry in New York City for commission men, 
slaughterhouse operators, that is the merchants of the business, to 
connive with dishonest labor leaders, to form a monopoly; it is pos- 
sible, of course, that that might happen in any otlier type of indus- 
try, and during the period in which they could hold this monopoly 
they could put the price up 3 or 4 cents a j)ound. That, of course, 
sounds something like 1 cent a quart for milk, but on a volume of 
200,000,000 pounds, that is a real item. 

I might go just a moment into the question of price. A fancy 
Indiana fowl, which is supposed to be one of the best that comes 
out — it doesn't necessarily come from Indiana — sells in that area for 
13 cents a pound. The huckster who picks them up from the farmer, 
if this is a strictly commissio'n business, gets 1 cent ; loading into the 
car at the point of shipment costs a cent a pound. The freight, plus 
commission, plus handling charges, runs up to 41/2 cents a pound. 
That is all these trucking and cooping activities. It is then sold by 
the commission man to the slaughterhouse operator for 19 cents a 
pound. We have accurate figures on slaughterhouse operations, and 
it is just a clean-cut and just as definite as the pasteurization of 
milk. It is a fixed thing and it is 4 cents a pound, A man can't 
operate on less than that and many of them go wav above it. 

He then sells the chicken to a chicken store and he, in turn, sells 
it to the consumer for from 27 to 30 cents a pound. The mark-up, 
then, runs from 13 cents to the producer to 30 cents to the housewife. 

Acting Chairman King. Thirteen cents that the producer gets, 
and the consumer pays what? 



CONCENTRATION OF ECONOMIC POWER 2875 

Mr. Peterson. From 27 to 30 cents. 

Dr. Thorp. May I ask whether these various activities are con- 
trolled from the point of view of the entrance of new people into the 
activity ; in other words, you spoke of 27 commission men, I believe. 
Would it be difficult for another individual to enter into the com- 
mission business? 

Mr. Peterson, It is very difficult; and it is interesting that some 
of these present commission men are the second and third genera- 
tion. You recall, maybe some of you gentlemen, that back in 1914 
a man by the name of Baff was murdered in West Washington Mar- 
ket. His son and grandson are now in the business. It is very diffi- 
cult for a new man to come in. One of the most successful commis- 
sion merchants, however, now in West Washington Market was 
formerly a business agent for the Teamsters Union, and he is now 
one of the largest operators. 

Acting. Chairman King. I suppose he would have to conform to 
the practices of those various unions which are all integrated. 

Mr. Peterson. He helped set up those practices. 

Acting Chairman King. He had to get the consent of the Truck- 
men's Union and those other three or four unions that you have 
described ? 

Mr. Peterson. That is right. 

Mr. HiNRiCHS. Pardon me; is that a correct conception of the 
function of the unions in this picture? In order to come into the 
commission business I gather that a man needs either a license or a 
bodyguard ; I don't know which, do you ? 

Mr. Peterson. He doesn't need a bodyguard. I would like to dif- 
fuse your mind of that. There is none of that sort of thing going ou 
now. 

Mr. HiNRicHs. Any man is free to go down on that pier as a com- 
mission merchant who thinks there is a living in it ? 

Mr. Peterson. Using their term, if he can "muscle in." It is pretty- 
difficult to work in. 

Mr. HiNRiCHS. Will you be a little more explicit on what the func- 
tion of the union is in that situation ? Does the union have any inter- 
est in keeping an additional commission merchant from coming onto 
the dock? 

Mr. Peterson. No. It doesn't make any difference to them. 

Mr. HiNRicHs. The relationship of the union has to do with, 
among other things, for example, the moving of the chickens from 
the dock where they are received to the slaughterhouse. 

Mr. Peterson. That is right. 

Mr. Hinrichs. And the commission merchants have found that it. 
is a convenient device for making sure of their exclusive control if 
they can negotiate a closed-shop agreement in return for some limi- 
tation on the handling of chickens from the dock to slaughterhouses. 
Is that the essential function? 

Mr. Peterson. Yes. If a new commission man or a new slaughter- 
house operator comes into the business, they immediately organize 
his shop and he signs an agreement and he cannot hire outsiders or 
cannot move poultry; he cannot do anything with poultry unless all 
the unions are integrated in his plant. 

Mr. Hinrichs. You don't object to the fact that these men are 
organized ?' 



2376 CONCENTRATION OB^ ECONOMIC POWER 

Mr. Peterson. Not the slightest. 

Mr. HiNRiCHS. In fact, you think they should be organized? 

Mr. Pei"erson. I do ; since it is the law of the land. 

Acting Chairman King. It isn't the law that they shall be. 

Mr. Peterson. That they are permitted to be. 

Mr. HiNRicHS. But essentially this is a case of being used to 
carry out the purposes of a group that is in a position to make a 
rather large profit by its control at that bottleneck. 

JSIr. Peterson. That is right. The union men with dishonest 
leadership have been used to take the place of — if I may be per- 
mitted to say it, in certain types of industry- -extremely shrewd 
lawyers, and in* other industries of gangsters, to enforce whatever 
thing they wanted to do to either violate the law or get around the 
law. 

Mr. HiNRiCHS. But the union doesn't have any initiative in de- 
termining whether a man should be a commission man or not? 

Mr. Petterson. Not the slightest. 

Acting Chairman King. But could he succeed in getting truckers 
to handle his products without the consent of those unions? 

Mr. Peterson. Well, I would put it this way. Senator : He couldn't 
even enter into the business unless the other commission men told 
the leaders of the union that they would like to have him in. 

Now, I purposely left out some of the more flagi-ant things that 
have gone into this industry, because many of them no longer exist, 
but I would like to specifically state that within the last 10 years 
this situation has existed. It no longer exists, but I would like to 
mention it becavise it could happen any time again in this industry or 
in another. 

Acting Chairman King. Were you familiar with the building in- 
dustry at the time when Mr. Samuel Untermeyer prosecuted the 
labor leaders and sent a number of them to jail? 

Mr. Peterson. Yes, sir. 

Acting Chairman King. Is the situation here with these unions 
something similar to the building-trade union, as their organization 
was developed, during the trial of those cases? 

Mr. Peterson. I would say not, because in the poultry industry 
none of these practices which are pinned and laid to the unions 
could possibly exist without the connivance of the merchants. 

Acting Chairman King. You mean the commission merchants. 

Mr. Peterson. The commission merchants are really at the heart 
of the situation and they can decide whether any of these practices 
shall go on or not. 

Acting Chairman King. Proceed. 

CONNIVANCE TO CREATE A MONOPOLY 

Mr. Peterson. Some years ago this industry reached its peak in 
its monopoly practices. 

At that time the unions were strongly organized. There was a 
definite number of commission men; and they were forcing the 
slaughterhouse operators to buy chickens from them only. And they 
gradually kept putting the price up and up. The consumer couldn't 
pay, so the slaughterhouse operator attempted to buy chickens out of 
New York City. This is all on the Department of Justice records. 
The other two terminals are in Newark and Philadelphia, where 



CONCENTRATION OF ECONOMIC POWER 2877 

tliese slaughterhouse operators could buy chickens and bring them 
in by trucks. 

Individuals — it has never been quite definitely confirmed as to who 
they were — would meet these trucks on the way over through the 
meadows in Jersey City and over across the Hudson and actutUly tip 
the trucks over into the meadows; they would find that their engines 
were filled with emery ; they would find if they left their chickens for 
a little while, within a few hours all the chickens would die, and 
aft«r a post mortem they would find that these chickens were fed 
sand and gi-avel and plaster of paris. Plaster of paris, if a chicken 
eats it, will harden in its stomach and it cannot make droppings, 
and therefore unless it is killed in 2 or 3 hours it will die. 

All those things were definitely practiced as common things in 
order to continue this monopoly, and this is also a definite matter of 
record. At least 10 of these 12 individuals connected with this indus- 
try in some way or other over a period of the last 5 years have been 
found murdered. They are people of no great importance in the 
industry — I am only stating that as a fact, it is a matter of record — 
but the general impression was that they knew too much about some- 
thing. That is all out now. I want to make it clear that those things 
do not exist now. At the height of the monopoly it was simply im- 
possible for anybody to get a live chicken in New York City unless 
he went through this procedure. It even got to this point, that the 
unions and the commission men and the group were so strong that if 
a slaughterhouse operater wanted to buy chicken feed to feed his 
chickens from the time he bought them until they were killed, he 
couldn't buy that feed from anybody else except the New York Feed 
Co., which was also a part of this service group, and if they didn't 
buy the feed frOm this company at an exorbitant price, for some 
reason or other the next day a strike would be called in their plant. 
I believe the chicken industry was the first to develop the sit-down 
strike. As long as 10 years ago these men would simply stop work 
and if the manager would ask them, they would say, "You'd better 
call up Herbert," and Herbert would say, "Don't you need a little 
feed today?" "Yes ; I think I do." "Then put the men on," and the 
men would go back to work. 

That is all out now, but that did exist so that they had an absolutely 
100 percent tight monopoly until the city government and the State 
government or the Federal Department of Justice would step in. 
Each time they would step in these conditions would stop until some 
new method was devised, and then for a short time they would be set 
up again and the price would go up 3 or 4 cents a pound and there 
would be a lot of money made. 

Recently, when Arthur Herbert was brought before Judge Pecora 
for various charges, one was embezzling union funds, and he con- 
fessed on the stand that he made an assessment of his union of $50 a 
man, which they paid, and in addition the actual costs of the prosecu- 
tion were paid by the commission men. I think that is important. 

Acting Chairman King. For his defense? 

Mr. Peterson. To protect him. The actual money paid for his 
defense came from the commission men, and at the time of the inves- 
tigation a year or so ago he turned over a check of some twenty-five 
thousand dollars for restitution. of the funds to go back that he had 



2878 CONCENTRATION OF ECONOMIC POWER 

taken from the union. He nevertheless received, I think, about 2 
years. 

Mr. Berge. Two years ago Congress put poultry markets within the 
Packers and Stockyards Act and gave the Secretary certain regula- 
tory powers. I don't just recall how far they go, but has that made 
any difference? 

Mr. Peterson. It has made some difference. There is a man by the 
name of Walker assigned by the Department of Agriculture now in 
New York, but I would say that until a number of definite recommen- 
dations as to the physical handling of these chickens are made this 
situation will always be a chaotic one and one that various law- 
enforcing agencies will have to continually watch. The very nature 
of the business leads to this type of thing. 

Mr. Berge. It is rather curious, though, that it develops differently 
from the stockyards where livestock is sold — cattle and hogs; they 
are a rather high type of businessmen. I don't see why the marketing 
of cattle and ho^ should be fundamentally different from the market- 
ing of chickens in New York, except that it started differently. 

Mr. Peterson. I would say if any of you gentlemen would meet 
any of these commission men you would find them socially most 
charming people. 

Mr. Berge. I didn't mean that, because I have had some experience 
with the Packers and Stockyards Act in the Chicago-Kansas City- 
Omaha stockyards. We have had litigation against those people, and 
I have been on the other side. But, according to common standards, 
they are high-grade businessmen. I am not talking about their social 
lives. Of course, there is a sort of professional aspect about their work. 

Mr. Peterson. This may be digressing, but sometunes one wonders 
what one means by a high-grade businessman and what practices he 
may be permitted to carry on and still be a high-grade businessman if 
he is in a very severely competitive system. 

Dr. Thorp. Mr. Peterson, is there any control over the quantity of 
chickens that would come to this market? 

Mr. Peterson. No. 

Dr. Thorp. How is it possible, therefore, or is it possible, to control 
the price to the consumer, or does that have to vary according to the 
number of chickens which must be moved along through, or are some 
chickens just deliberately removed from the market? 

Mr. Peterson. When we were operating the code we attempted to — 
and this was entirely at the request of the industry — get listings of 
cars of all chickens that would come in during that succeeding week. 
We would only have 5 days in which they could unload. That was 
simply done t-o get some approximation of the supply so that there 
would be a fair chance for the supply and demand to work out a fair 
price. The price changes practically every day, at least it is remade 
every day; it may be the same, but it is remade, and I would say right 
now with the elimination of the Urner-Barry Co. as arbiter of the 
price, the supply and demand principle work fairly well, because it 
was found that without any artificial stimulation either one way or 
another, if they made a bad market, they were bound to lose; if thev 
made it too high, they had to carry their chickens over ; if they made 
it too low, they had a difficult time reporting to the producer of the 
chickens. 



CONCENTRATION OF ECONOMIC POWER 2879 

Dr. Thorp. Then would you say that the thing that happens is not 
so much that the consumer has to pay a higher price as that the pres- 
sure comes on the purchase price so that the distribution of the con- 
sumer's payment between the operators in the market and the farmer 
means that the farmer gets less because of these various monopolistic 
practices which give more control than the distribution process allows ? 

Mr, Peterson. The producer was the man who suffered all these 
3^ears more than the consumer. I might explain this: that it isjiom- 
pulsory on the part of all orthodox Jewish people to use fresh-killed 
poultry, and it is the only kind they can use, so that if the price is 
too high they just don't buy it, but if the price comes down there 
is a tremendous increase in purchases. If there is a large supply that 
comes in from various sources and it depresses the price, it is never 
very difficult to sell all of those because many consumers have come 
immediately into the market who would otherwise stay away. 

Dr. Thorp. You meant that if they used poultry, it was compul- 
sory that it be fresh killed, not that they have to take poultry. They 
have a choice. 

Mr. Peterson. Of course. 

Mr. Davis. Mr. Peterson, in describing the method by which the 
price is arrived at each day, I understood you to say that there was 
an apparent auction and amidst great confusion the auctioneer would 
announce the price of the different grades for that day. 

Mr, Peterson. It wasn't an auction. It was a little different than 
that. The slaughter house operator, that is to say the buyer, and 
there were 200 of those and *about 20 sellers, would all get around 
together, walk up and look at the chickens and look at the cars and 
then go off in a corner and the statement made by the Urner-Barry 
Co. was that on the strength of one or two or more bona fide sales 
between a buyer and a seller at a price he would set that as the 
price for that day. When we were m the code, which is now some 
years ago, I attended that market every day, and from time 
to time we felt* that certain commission men happened to have a 
number of cars of a "certain kind of chickens, we would find that 
the price, from our own judgment — and after all it is a matter of 
judgment — would be maybe a cent or so higher than it seemingly 
ought to be. So we instituted a practice of asking the buyer, that is 
the slaughterhouse operator, if he really did make that sale, at what 
price, and since we Avere on very friendly terms with most of these 
fellows they would often admit that that was what was known in the 
trade as a monkey sale, that was simply a request on the part of the 
commission man to say that he was going to buy those but in reality 
he would pay a cent or so less so the commission merchant could step 
up the price to all the other people. 

I don't know whether I have made myself clear; it is a practice 
that was engaged in. 

Mr. Davis. That is what I wanted to get at. I understood from 
your description that the fixation of prices was largely a "phony" 
proposition. 

Mr. Peterson. Not always. I am sorry if I gave that impression. 
Many times it was a perfectly sound price based on supply and de- 
mand, but other times it would be a fixed price, either up or down, 
depending on which commission merchant happened to have either 
more or less of a certain kind of chicken. 



2880 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. I understood you to say in your direct tes- 
timony that some person in that group would stand up and make a 
statement, apparently after having secretly conferred with some com- 
mission merchant, and that would be the price. Wasn't it an auction 1 
Mr. Peterson. He would listen to the conversations of commission 
men with buyers, of sellers with buyers; it was not secret — well, 
sometimes it was ; yes, sometimes those conversations were secret. As 
code supervisor, I would have to walk pretty fast sometimes to keep 
up with those fellows and listen to what they were saying, to see what 
really was happening. 

Mr. DA^^[s. What was the function or official position of this man 
to whom you refer who would announce the price that was then an- 
nounced locally and throughout the country? 

Mr, Peterson. He had no official position in the industry, and at 
the time of the passage of the amendment to the Packers and Stock 
Yards Act, or shortly after that, he disappeared from the scene. 
Now, the price is made between the buyer and the seller and in 
mutual agreement they say today the price will be so and so. 

Acting Chairman King. Do the commission merchants have rep- 
resentatives out in the sections from which the chickens are pro- 
duced? 
Mr. Peterson. Yes. 

Acting Chairman King. Did you discover during the code and since 
then that an effort was made to restrict the number of chickens which 
were to be shipped or to discourage the producers of chickens from 
shipping and thus lower the price in the begiiming when the pro- 
ducers of the chickens arranged to ship them to the market? 

Mr. Peterson. Once in a while the commission merchant would at- 
tempt to do that, but there are so many factors over which he had no 
control that often he would lose more money than he made, because if 
he happened to say, "Well, I will buy a certain number of Indiana 
fowl and get them into the market quietly," maybe two other commis- 
sion men would have done the same thing, and he might have paid a 
half a cent a pound more. In a sense, it is a very difficult market to 
give any guesses as to what might happen in any week or day, because 
there is no control over the chickens that go into the market. 

Acting Chairman King. Do you have anything to do with the mar- 
keting of butter and cheese and eggs? 

Mr. Peterson. Nothing whatever; entirely live poultry. 
Acting Chairman King. Anything else? 
Mr. Ballinger. Nothing else. 
(The witness, Mr. Leroy Peterson, was excused.) 
Acting Chairman King. Next witness. 

Mr. Ballinger. That is. about all we care to put on today. How- 
ever, tomorrow morning, Mr, Chairman, we have asked Senator 
O'Mahoney to permit us to put on a witness from New York, Mr. 
Amen,^ to discuss conditions in the terminal market in New York City. 
Acting Chairman King. If there is nothing further, we stand ad- 
journed until tomorrow at 10 o'clock. 

(Whereupon, at 4:30 p. m., a recess was taken until Saturday, 
March 11, 1939, at 10 a. m.) 

I Mr. John H. Amen, Special Assistant to the Attorney General of the State of New 
York. He did not appear before the Committee. 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEK 



SATUBDAY, MARCH 11, 1939 

United States Senate, 
Temporary National Economic Committee, 

Wa-shington, D. C. 

The committee met at 10:20 a. m., pursuant to adjournment on 
Friday, March 10, 1939;- in the Caucus Eoom, Senate Office Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman) and King; Representa- 
tive Williams; Messrs. O'Connell and Hinrichs. 

Present also: Thomas C. Blaisdell, Jr., representing Securities and 
Exchange Commission; Willis J. Ballinger, director of studies and 
economic adviser to Federal Trade Commission; and Dr. Frederic 
Howe, former consumers' counsel, Agricultural Adjustment Admin- 
istration. 

The Chairman. Let me say to those who have gathered that the 
Trade Commission advises me this morning that one of the witnesses 
which it was proposed to put on the stand today for some reason or 
other has been unable to appear, and it is deemed inadvisable to pro- 
ceed without him.^ If there is no objection on the part of members 
of the committee, and I assume there will be none, we will not call 
the meeting together today and I will call the committee again on 
Tuesday morning at 10 o'clock. 

(Whereupon, at 10: 21 a. m., an adjournment was taken until Tues- 
day, March 14, 1939, at 10 a. m.) 

* See footnote 1 on preceding page. 

2881 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



MONDAY, MAY 1, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:20 a. m., pursuant to adjournment on 
March 17, 1939, in Room 224, Senate Office Building, Senator Joseph 
C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman), Representatives Wil- 
liams and Reece; Messrs. Ferguson; Davis; O'Connell; Patterson; 
and Henderson. 

Present also : Edward Eicher, representing Securities and Exchange 
Commission ; Milton Katz, representing Department of Justice ; Fed- 
eral Trade Commissioner Charles H. March; Willis J. Ballinger, 
director of studies and econ-^ mc advisor to the Federal Trade Com- 
missioner; Dr. Frederick w. Howe, representing Department of 
Agriculture ; Andrew Tackett and R. A. Putzier, attorney examiners ; 
Kemper Simpson, economist; and Wilbur Baughman, attorney, Fed- 
eral Trade Commission. 

The Chairman. Will the committee please come to order? 

The committee has been called this morning for the purpose of 
hearing statements which have been offered on behalf of certain indi- 
viduals and corporations and associations in the milk business as a 
whole. After the conclusion of the hearings presented by the Federal 
Trade Commission some weeks ago, the chairman of the committee 
and the executive secretary received numerous telegrams" and tele- 
phone calls and letters from persons who felt that the story of milk 
had not been told as adequately as they would like to have it told. 
This committee being in search of information and as much fact as 
it can develop was very glad to assure those who communicated with 
it that an opportunity would be provided for them to appear before 
the committee and present their statement. 

We are not engaged in any controversy. That statement has been 
made over and over again by the chairman and by others on behalf 
of this committee. iTow we are interested only in developing the 
facts with respect to industrial and economic organizations, in the 
hope of laying the basis for a better solution than has been developed 
as yet of all our economic problems. 

Now, in conformity with the practice which has been followed in 
the past, each witness will be required, of course, to testify under oath. 
The first witness this morning speaks on behalf of the producers' 
association of Michigan, Mr. Beach. Is he here present? Will you 
come forward, Mr. Beach. 

Do you solemnly swear, in the testimony you are about to give, to 
tell the truth, the whole truth, and nothing but the truth, so help you 
God? 

Mr. Beach. I do. 

2883 



2884 CONCENTRATION OP ECONOMIC POWER 

TESTIMONY OF BERNIE F. BEACH, SECRETARY-MANAGER, MICHI- 
GAN MILK PRODUCERS' ASSOCIATION, DETROIT, MICHIGAN 

The Chairman. Will you be good enough to state your name? 

Mr. Beach. Bernie F. Beach. 

The Chairman. Where do you reside? 

Mr. Beach. My .home is in Pontiac, Mich, My business address is 
in Detroit, Mich., and I am secretary-manager of the Michigan Milk 
Producers' Association. 

The Chairman. What is that association? 

Mr. Beach. Would- you wish to have me read a statement relative 
to that, Mr. Chairman? Or do you prefer that I answer? 

The Chairman. I thought we would develop some of these pre- 
liminaries. Please state what this association is. 

formation and purposes of MICHIGAN MILK PRODUCERS' ASSOCIATION 

Mr. Beach. It is a producers' organization of dairymen, organized 
in August 1916, and it is comprised of approxinjately 80 to 85 percent 
of the producers around the principal market of Michigan, which is 
Detroit, and then other groups of producers that are around various 
other cities in Michigan. - 

The Chairman. How was it formed? 

Mr. Beach. The formation of it is by means af a membership con- 
tract between the individual member and the organization. The in- 
dividual membership contract specifies that the association is the 
selling agent for the individual member. 

The Chairman. You speak of a contract between the individual 
and the organization. Now how is the organization formed? 

Mr. Beach. Well, that goes to mak'^ nt its — it is a purely coopera- 
tive farmer organization. 

The Chairman. Is it a corporation? 

Mr. Beach. Yes; it is a corporation. 

The Chairman. Charter issued by what State? 

Mr. Beach. By the State of Michigan., 

The Chairman. Have you a copy of the charter ? 

Mr. Beach. I believe that I have a copy out here. I am not real 
positive about that. I know I have the constitution and bylaws here. 

The Chairman. Please leave a copy of the charter with the com- 
mittee. If you don't have it with you, file it later, please. And you 
may also file a cop;j^ of the constitution and bylaws. 

Mr. Beach. I will be glad to file copies oithe contract^ also mem- 
bership agreement.^ 

The Chairman. If you please; yes. Now, tlien,. vou have pre- 
pared a written statement which has been submitted to the committee? 

Mr. Beach. Yes; I have; but I understood that this meeting was 
going to be held at an earlier date and that statement was prepared 
rather hurriedly, which directly was in reply to some of the ques- 
:ions that were raised or some of the statements that were made by 
a previous witness, and it seemed to me that that did not fit the re- 
quirements of the committee, and I feel that aft^r your announce- 

rJ^.^L.??'^^^ i"-^!- submitted a copy of the articles of associatiou of the Michigan Milk 
Producers' Asjoeiation. which was introduced during hearings held Miv 2fi iqV<) "f 
was marlted "Hxhibit No. 636" and is Included in thi appendix on p. 3279 ' 



CONCENTRATION OF ECONOMIC POWER 2885 

ment this morning that it certainly did not. So I did prepare what 
I felt was a statement more nearly in line with the things that you 
woiild prefer to have before you on the broader aspects of the coop- 
erative, which I represent. 

The Chairman. But you did not submit that other statement to 
any member of the committee? 

Mi\ Beach. No; I did not. It is not a controversial one; I will 
say that. 

The Chairman. Well, generally it is the rule of the committee not 
to permit witnesses to read statements, because ordinarily it takes 
more time than necessary, and we would prefer to have you sum- 
marize the situation as you see it. 

Mr. Beach. I will be very glad to do it that way. 

The Chairman. You may file the other statement with the com- 
mittee, but I think it will be preferable if you just summarize it. 

Mr. Beach. I have briefly spoken about the set-up of the Michigan 
Milk Producers' Association. The financing of the association is 
through what is called membership dues, consisting of 1 cent per 
hundredweight if it is on manufactured milk only, 2 cents per hun- 
dredweight if it is -on milk like in the Detroit market; or special 
services are performed as in some of the smaller markets, it might 
be higher than that if authorized by the producers themselves. The 
purposes behind the organization are that the dairymen recognize 
that one individual producer, previous to the organization being 
formed, was oftentimes played against another individual that was 
selling milk in the same market. 

The Chairman. Played against another? 

Mr. Beach. That's right. 

The Chairman. By whom? 

Mr. Beach. Ustially by the milk buyer and/or groups of producers 
were played against another group of producers, and therefore it 
brought home to them the necessity of having their organization 
through which they sold their milk collectively. 

The matter of establishment of price between the organization and 
the buyers of milk is on a bargaining basis. The association is what 
is called a bargaining association ; they choose from among their mem- 
bership delegates based upon 2 delegates for the first 50 members and 
1 for each additional 50 or fraction thereof in any one of the locals. 
Those delegates then choose what they call a sales committee. It 
makes a large selling committee in the market of Detroit particularly 
of about 35 to 40 men, but there are natural advantages of having that 
large group of producers act upon such a selling committee. They 
meet with a milk buyer from time to time and endeavor to agree with 
the milk buyer as to the price and the plan upon which they will sell 
milk to the milk buj^ers on behalf of the membership which they rep- 
resent. They sometimes are unable to agree, and under those circum- 
stances arbitration has been resorted to, and the Detroit market, pri- 
marily, there never has been withholding of milk by the members of 
the organization. Arbitration has been the way out of some of the 
difficulties that they have found themselves in rather than to have a 
milk strike. , _ 

Among other things which the association does and which are ex- 
tremely important, is to guarantee a market to every member of the 
association. In other words, there is no member of the organization 



2886 CONCENTRATION OF ECONOMIC POWER 

- that finds himself without a market in 10 days or 15 days from a given 
time or at any time. They feel that every member of the organization 
has as much of a right to have his milk market guaranteed to him as 
any other member has. That is accomplished very largely by a pool- 
ing plan v^hich is used in the market whereby, if a aroup of producers 
or an individual producer, for some reason or other, but usually it is 
by groups, his milk has to be manufactured or the milk from a group 
of them has to be ma.nufactured, then those who remain in the market 
at that time have a certain deduction made to make up the difference 
between the price on manufactured milk and the average price that 
would be paid to all producers. In other words, they share and share 
alike in the milk marJkets, and that has been an established custom for 
a long' number of years in the principal markets of the State of Michi- 
gan — all of those in which the association operates. 

The association also guarantees the pay for the milk. This is purely, 
you might say, a mutual cooperative plan whereby, if 200 buyers are 
sold to, as^s about the case, and one buyer to whom the milk goes fails 
to pay for his milk for some reason or other, possibly going into bank- 
ruptcy — and natural 1}^ we have quite a few cases of that kmd — those 
indi^^idual producers do not suffer on account of that. They are paid 
by the association out of the reserves that are created from the mem- 
bership dues of 2 cents per hundred, as it is in most cases. 

The Chairman. How do you determine the number of members? 

Mr. Beach. By actual number of contracts in existence between the 
members themselves and his organization. In other words, we can 
count at any time the number of contracts that are in effect, member- 
ship contracts or membership applications, as we call them, and are 
shipping milk. 

The Chairman. Then to join this cooperative it is necessary for a 
producer to file an application ? 

Mr. Beach. He files an application for membership; yes. 

The Chairman. What happens to the application in the ordinary 
routine ? 

Mr. Beach. If he is in a position to deliver his milk to a market or 
company with, whom we deal, where we can guarantee him a market 
and where we can guarantee to pay for his milk, we accept him. If he 
should happen to want to sell to a milk distributor where we cannot 
guarantee to pay for tKe milk due to the financial condition of the 
particular buyer, then we have to say to him th|it we cannot accept a 
contract unless arrangements can be made to have your milk sold to 
a company where we feel that we can guarantee to pay for it. That 
doesn't mean by any means that we are able to avoid losing some 
money, because in the ordinary course of events milk is paid for on the 
15th of the month following the month of delivery, and there are 
companies that fail to pay rather quickly. 

What we do try to do is to obtain ^curity based upon financial 
statements which we secure from milk buyers from time to time if 
such financial statements show that such security really should be 
given. .i 

The Chairman. Then the number of members which you may ac- 
cept depends, actually, upon the number of buyers with whom you 
make contracts. 



CONOENTKATION OF ECONOMIC POWER 2887 

Mr. Beach. Well, yes ; strictly speaking, I believe you can say that 
that is true. 

The Chairman. And you make contracts with only those buyers 
Avhom you regard to be sufficiently stable to enable you to guarantee 
the payment to all your members? 

Mr. Beach. That statement is correct. However, we naturally are 
interested to two things. One is to have as large a percentage of the 
producers around a certain market members of the organization as it 
is possible to have. That makes for a better organization, it makes 
for the perfection of better marketing practices. Therefore, we are 
interested in another thing, and that is having them first as members 
and second selling to just as many buyera as we can. We would 
prefer to sell to all buyers if we can. That is to the advantage of the 
producer. 

The Chaibman. All right. Now, what determines whether or not 
you can sell to a particular buyer? 

Mr. Beach. Well, there are several different things. From our 
standpoint, the principal things is, will a buyer buy the milk, will he 
pay for it in accordance with what we feel is a fair basis and one 
upon which we are willing to sell to all buyers in that particular 
market ? 

The Chairman. How do yout determine what is a fair basis? 

Mr. Beach. I hadn't quit finished ; pardon me, Mr. Chairman. 

The other thing that is just as important in determining whether 
or not we sell to him is whether or not the buyer will agi-ee to do 
that. It takes two to make a bargain on that, and while we may be 
willing to sell, the buyer may come back and say that he is not 
willing to pay that price, he can buy cheaper, he is not willing to 
guarantee that he can pay for the milk, he is not willing to buy upon 
the basis which we are willing to sell to him, and therefore that might 
be the limiting factor. 

Your other question. Senator? 

(The reporter read the chairman's last previous question.^ 

Mr. Beach. In determining a fair basis of sale to a milk distributor 
there are several different things to take into consideration. From 
the standpoint of the producer, if I were to name my own idea of a 
proper price arrangement, it is this. 

The Chairman. I don't know that I am interested at the moment 
in your own idea. I am interested in the basis which is actually 
used. 

Mr. Beach. Well, it is a bargaining proposition, and in bargaining 
the supply of milk is taken into consideration from the standpoint 
of the producer and the demand for it; in other words, in setting 
forth our arguments we know the supply of milk, we know the 
demand for milk, we know the cost of. producing the milk fairly well, 
and we use that as a basis, and we use all of the arguments that can 
be used in an endeavor to get a fair price for the producer and one 
that will enable him to continue his business, if possible, at a profit. 

The Chairman. Wlio exercises this judgment, Mr. Beach? 

Mr. Beach. This sales committee of producers, of which I spoke. 

The Chairman. How many members are on that ? 

Mr. Beach. Approximately 35 — 35 to 40. It varies from time to 
time. 

124491— 39— pt. 7 10 



2888 CONCENTRATION OF ECONOMIC POWER . 

The Chairman. How often do they meet? 

Mr. Beach. Once per month or oftener. They may meet two or 
three times per month ; they always do meet at least once per month. 

The Chairman. Do you sell to all buyers on the same basis? 

Mr. Beach. Yes; we do. 

The Chairman. There is no variation among the buyers ? 

Mr. Beach. No ; there is not. Some buyers have slightly different 
set-ups, but as nearly as we have been able to work out we have the 
same plan and same price basis in everything, accommodating it to 
that particular set-up, so they are on the same basis. 

The Chairman. When you determine what the basis of sale is, 
you require all buyers to meet those terms ? 

Mr. Beach. That is right. 

The Chairman. Do you find any difficulty in that ? 

Mr. Beach. Yes; we find difficulty in this way: Some buyers don't 
seem to want to do that, and we have had to break away from 
some buyers or they have broken away from purchasing milk from 
the Association because they did not wish to buy upon our terms of 
sale. That hasn't been in any large quantity, however, but some- 
times new buyers come into the market and we are unable to make an 
arrangeinent with them. They start comparatively small, are able to 
get a small amount of milk, and gradually increase that to a larger 
amount as time goes on. 

The Chairman. Are there any other restrictions that you impose 
upon the buyers in addition to this one of agreeing to your price ? 

Mr. Beach. There is one other ; yes, there are at least two more that 
I think of. One is that we must be privileged to check-test on the 
butterfat content of the milk that goes to his plant from producers. 
We even go so far as to insist on the part of _some distributors, due 
to discrepancies found from time to time, on check-testing on all milk 
that goes into his plant. In other words, he might check against us, 
but our test is the one on which the farmer must be paid. That is 
one thing. 

Another thing is that we demand the privilege of having a certified 
public accountant of our choice and under oiir pay go into his rec- 
ords, so far as the use to which that milk is put is concerned. If we 
wanted to for credit purposes go into the other angle of his business, 
because we were of the opinion that we nf^^^ded to do it in order to be 
sure, that we could continue to get paid for the milk, we might also 
do that. 

Still further, however, if we feel that a distributor may not pay 
for his milk, we either endeavor to obtain security from him or insist 
upon cash on delivery. 

The Chairman. Do you impose any regulations with respect to the 
quantity to be purchased? 

Mr. Beach. Not particularly. If he purchases only that for his 
fluid milk, then he must pay the fluid-milk price for that which he 
purchases. In other words, he settles upon a classified basis for his 
milk. If he purchases a lot of milk in proportion to his fliiid-milk 
sales, then he pays for his fluid-milk sales at the higher price and the 
remainder of the milk upon the lower price. 

The Ch A IBM AN. Is the buyer who is under contract to your organ- 
ization at liberty to buy milk from any other source or any other 
producer? 



CONCENTRATION OF ECONOMIC POWER 2889 

Mr. Beach. Yes ; and, in fact, practically all of them do. I put into 
the exhibit a list of the buyers to whom we sell and stations through 
which those producers deliver that are not members of the associa- 
tion, and the number of producers at those stations that are selling 
milk and have been for quite some time that are not members of the 
association. 

The Chairman. You do not, then, impose any restrictions to the 
effect that these buyers must purchase all of their milk from your 
organization ? 

Mr. Beach. No; we do not. 

The Chairman. You have a definite contract as to the amount to 
be purchased? 

Mr. Beach. By the distributor? 

The Chairman. Yes. 

Mr. Beach. No; we do not. That might vary. The distributor 
largely makes his own choice about the amount that he buys. 

The Chairman. You say largely. Now that is a qualifying phrase. 

Mr. Beach. Yes; just this qualification. We really have two types 
of distributors. There is the distributor that owns and operates his 
own receiving station in the country. He does not have quite as 
much control about the exact amount of milk that he may take, if 
he owns and operates that receiving station, because he usually takes 
the amount that comes in there. Then we have the other type of 
distributor that every day orders the amount that he wants, or that 
he needs, and we operate certain receiving stations, and he gets from 
us his daily requirements every day. That is why I had to use the 
term largely, because it must be modified a little bit, according to the 
condition. Our general set-up I think it is rather interesting to have 
brought out, that the general set-up that we use and have used for 
the last 12 years anyway, is one that is very much in conformity with 
the plan that is used through the license system of the A^gricultural 
Adjustment Administration. We had in the Detroit market about 
the fourth, I believe it was, license of those issued by the Agricul- 
tural Adjustment Administration, and all the matters of pooling 
milk which I have spoken of guarantee the market for the riiilk and 
equalizing it so that all distributors pay the same for their milk, 
according to the way it was used; all of those things were incor- 
porated in the license. All of those things had been done before the 
existence of it, or it went into effect. In other words, the license was 
put into effect and practically did the same things as had been done 
before. 

Now then 

The Chairman (interposing). The result, then, I take it, is that all 
the distributors pay the same price for their milk? 

Mr. Beach. In accordance with the way it is used. That is right, 
if you take the use. 

The Chairman. And all producers get the same price for their 
milk? 

Mr. Beach. That is right. 

The Chairman. So that to the extent that the distributor buys his 
milk and the producer sells his milk, your organization has been suc- 
cessful in, shall I say, stabilizing the price on each hand ? 



2890 CONCENTRATION OF ECONOMIC POWER 

Mr. Beach, Well, we feel that we have been a strong factor in 
stabilizing it. I don't mean by tlmt, but what w,e have some im- 
stabilizing influences over which we have no colitrol. 

The Chairman. You have done away, in other words, with com- 
petition among distributors for the milk of the producer and com- 
petition among the producers for the market of the distributor? 

Mr. Beach. There are, of course, those people that sell milk to 
about 12 or 15 milk distributors in the city of Detroit with whom we 
do not deal so that we are constantly in competition with those. 

The Chairman. But I mean within the 

Mr. Beach (interposing). Within our own organization that would 
be true. Now, likewise, after the Federal license was taken on in 
1937, I believe it was December 1937, we endeavored to carry out 
the same arrangements that we have under the terms of the Federal 
license, practically the same thing ; but we are very largely on intra- 
state market. That being the case there wasn't the possibility of 
enforcement like there would be with interstate commerce. We had 
under Michigan Milk Producers' Association in Michigan 11 licenses. 
In other words, covered not only the Detroit market but we had a 
separate one for Grand Rapids, Muskegon, Battle Creek, Kalamazoo, 
Ann Arbor, Bay City, Flint, and Saginaw., 

The Chairman. You spoke a inoment ago about the system which 
you used of having an auditor chosen by you to inspect the books of 
the distributor and of insisting upon the right to test the milk used. 

Mr. Beach. Butterfat content. 

The Chairman. Now if a distributor may buy from others than 
your organization, how is it possible for you to conduct this test of 
butterfat with any accuracy? 

Mr. Beach. Well, you see the only thing that we are interested 
in is to test the butterfat content of the milk that comes from the 
farm of a member of our organization, and we test only on the farms 
of those that are members. The distributor might not properly pay 
for milk on the proper butterfat basis that came from the man that 
is not a member, but that is no concern of ours. 

The Chairman. You conduct your test, then, on the farm and not 
in the processor's quarters? 

Mr. Beach. We test the milk, sample it, and test it as it comes into 
the plan or into the station, and before the individual's milk loses 
its identity. 

The Chairman. How about classification? 

Mr. Beach. In what way do you mean? The classification we 
have? We at the prei3ent time only have two classifications — that is 
fluid milk and the milk that is not sold as fluid milk — it divides itself 
into those two classifications. The milk that is not sold as fluid 
milk, a portion of it may go into cream; a large portion of it is 
manufactured; some of it finding its way into butter and powdered 
skim milk. That is rather a common thing in the manufacture of 
milk; manufactured milk goes in a small amount into powdered 
milk and those byproducts, but very largely it is either in fluid 
milk or into cream, or into butter, and powder skim milk. 

Senator King. What proportion is fluid and what proportion falls 
in another category ? 

Mr. Beach. I filed that statement, giving that information jand 
must answer the question this way, I would "sa qui'j'kly. m round 



CONCENTRATION OF ECONOMIC POWER 2891 

inimbers 60 percent is fluid milk, ])articiilarly at this time of the 
year, and 40 percent has to be manufactured. 

Senator King. I understood your testimony that the Department 
of Agriculture assumes the prerogative to license you to do purely 
intrastate business. Is that true ? 

Mr. Beach. The license was given — there was some interstate com- 
merce, but the amount of it we have to admit is very, very small. 

Senator King. Does the Agriculture Department still claim the 
right to license you to do business ? 

Mr. Beach. No;-this was in 1933. 

Senator King. That is when Mr. Tugwell's operations were very 
pervasive, is it not? ^ 

Mr. Beach. Well, I think that I have to say that probably our 
idea, or the idea of those with whom we have worked Vvithin the Gov- 
ernment, hat^ been changed somewhat as years go by as to approxi- 
mately what the set-up on interstate commerce must be, from the 
standpoint of enforcement. 

Ssnator King. But under those regulations to which I have re- 
ferred, was there not a very considerable monopolistic control of the 
purchasing and of the buying possibly, indeed probably? I have in 
mind particularly the operations in the California field as to which 
I made some inquiry, and it would seem to me that those regulations 
made for monopolistic control. I wasn't quite sure where the monop- 
oly was, whether in the buyer or seller, or in the organization that 
purchased the milk and made distribution. 

Mr. Beach. I think I get the import of your question. I can well 
see that you might raise the question. However, there is this situ- 
ation. The producer of milk, not going into any length as to the 
necessity of trying to make sure that he has a certain degree of 
stability in connection with his business, and we could talk a long 
time about it, which I will not do ; however, he has a certain amount 
of control affecting his business by parties that are not primarily 
inieresied in his welfare. 

Speaking particularly from the standpoint of the State of Michi- 
gan there are those milk buyers that do things that very materially 
affect and adversely affect the returns that that producer is able to re- 
ceive and rather than to have the control that affects the producer in 
the hands of milk buyers that are not sympathetic toward the pro- 
ducer, some that are probably and some that are not, the producer 
prefers — generally speaking, 95 percent of the producers in Michigan 
prefer — some type of control whereby there is someone that does not 
have a purely selfish interest that has something to say about the 
conditions under which his milk can be sold and under conditions 
that his milk probably will be bought, and so we in Michigan have 
become very much interested in a State milk marketing bill, which 
by the w^ay last Thursday passed our lower house of representatives 
by a vote of 78 to 9, which is rather indicative of the way they feel 
that this problem must be approached to try and help save the pro- 
ducers^ of milk in the State of. Michigan, which represents approxi- 
mately one-third by value to the agriculture in the State. 

The Chairman. Is that the legislation to which you referred in 
your original statement? 

1 Rexford G. Tugwell, former Administrator of United States Resettlement Administra- 
tion. 



2892 CONCENTRATION OF ECONOMIC POWER 

Mr. Beach. It is. 

The Chairman. Having been suggested or recommended by Gov- 
ernor Murphy's committee? 

Mr. Beach. That is right; that is the legislation that came from 
the milk-study commission of 1935 that was appointed by ex-Govefnor 
Murphy. 

The Chahjman. But that recommendation was not made until 
after Governor Murphy had retired from oflfice? 

Mr. Beach. Well, the work of the committee started, as I recall, 
last October — September or October; it was not quite complete when 
Governor Murphy retired from office, but it was changed but very 
little, however, after he retired from oiRce. It was practically com- 
plete before. 

The Chairman. That is to say, the study was complete but the 
recommendation was not made by Governor Murphy, was it? 

Mr. Beach. Not directly by Governor Murphy, but the same com- 
mittee held over and the new Governor said he was willing to accept 
the report of the committee, regardless. 

Mr. Davis. Did this committee recomm.end this bill? 

Mr. Beach. They did ; they recommended this bill, and by the way 
the bill particularly covers the things of 'whicii 1 have been speaking 
relative to all producers being paid the same, share and share alike, 
in the market; all distributors ]>aying the same price for milk, and 
that is the basis of the whole thing. 

The Chairman. Now, when you refer to all producers, do you mean 
all who are members of your organization, or all producers? 

Mr. Beach. I refer to all producers ; I mean all producers, because 
we feel that even though a man is not a member of our organization 
he ought to have the same privileges of the market. Maybe we are 
trying to be too broadminded on that, but that is the only attitude 
to take, anyway. And we still further feel that if a distributor to 
whom we do not sell milk is buying and selling milk in the market, 
that he should be just as much required to comply with those regula- 
tions as those to whom we sell; in other words, it must be market 
wide. 

The Chairman. What type of regulation will be imposed upon the 
distributor if this bill should be enacted into law ? 

Mr. Beach. A few important things, as far as an imposition on 
the distributor is concerned; first, every distributor in the State of 
MicMgan would be licensed. There would be a board of five headed 
by the commissioner of agriculture. This board would define a 
marketing area, probably Detroit would be one marketing area. 
Then they would hold a hearing at which time all interested parties 
would come — producers, milk distributors, consumers, and anyone else 
that might have any interest in the arrangements in that particular 
market — and after that hearing the board would have the power to 
determine and issue an order as to the price that should prevail for 
milk to the producer, and if it were to be sold on a classified basis, 
they would determine the classes that would prevail. If a base 
plant were going to be used in the market, that is an individual pro- 
ducer-base plant, it would come in the order as to what type of base 
plant is to be used and every distributor then would be required to 
pay upon that basis. Otherwise, he would run the risk, naturally, of 
having his license revoked. 



CONCENTRATION OF ECONOMIC POWER 2893 

The Chairman. How is this board set up ? 

Mr. Beach. It is chosen by the governor. As I recall, each in- 
dividual for 3 years, excepting the commissioner of agriculture who is 
chairman, and he is chosen at the will of the governor — I don't 
know just how long. 

The Chairman. Subject to confirmation by the senate? 

Mr. Beach. No, it is not ; and it ])rovides now that there would be 
two producers on that committee or board, and while it was orig- 
inally set up that there would be two distributors, it was changed 
by amendment) the other day, last Thursday, and now it is one dis- 
tributor, one consumer; so the total makes two producers, one dis- 
tributor, one consumer, and the commissioner of agriculture. 

The Chairman. To what extent would the board be free from 
executive interference, in your judgment? 

Mr. Beach. I don't know. Well, that is always a question, of 
course, and I cannot answer that, excepting to say that we feel that 
there is a choice of two things; one is to have unscrupulous prac- 
tices continually taking hundreds of thousands of dollars out of the 
producers' pocket year by year, or trust that this will be a fair 
board set up that will have something to say and will be fair 
and free from political entanglements, and will 

The Chairman (interposing). And free from economic entangle- 
ments? 

Mr. Beach. That is right, and help to save the agriculture of the 
State, which needs assistance. 

The Chairman. In other words, your organization endorses this 
bill, does it ? 

Mr. Beach. We do. 

The Chairman. N,ow, in other words, then, your position is that 
the state of instability which in your opinion arises from free com- 
petition among producers to sell to distributors, and among distribu- 
tors to buy from producers, has resulted in such abuses and in such 
poor prices to producers that it is desirable to set up a State board, 
charged with the power and the responsibility of fixing the price 
which the distributor must pay and which the producer can get? 

Mr. Beach. I do, absolutely. 

Senator King. That is a return, is it not, to the N. K. A.? Isn't 
that what you are seeking? Establishment of the N. R. A.? Let 
me explain a minute so you will understand. And if that, we may 
do that with milk, may we not do it with potatoes, beets, peas, and 
every commodity, whether of the farm, mine, or mill ? 

Mr. Beach. It is a partial return — you have asked my opinion; 
I will endeavor to answer. It is a partial return, or the use of the 
principles of the A. A. A. I am not so familiar with the N. R. A., 
but I am somewhat familiar with the triple A and previous agree- 
ments. It is a continuation of that in intrastate commerce and the 
question might arise, well, as to whether or not we could do it with 
potatoes, beans, sugar beets, and so on, but as I see it it is an entirely 
different proposition because you have on the part of the producer' 
of milk something wliich has to be sold today. I have rye on my 
farm that was grown 2 or 3 years ago ; I don't need to sell it for the 
next 6 years, but the milk produced this morning must be sold to a 
buyer before nightfall, and tonight the cows are going to be milked 



2894 CONCENTRATION OF ECONOMIC POWER 

again, and the farmer is up against that ; he can't stop. And another" 
thing. The city people, consumers, say that we have to have it and 
that they sent out inspectors to the country to tell the farmer what 
he sells — and I am for it — but they sent inspectors out to the farmer 
and say, "On this farm you have to have a milkhouse with a certain 
amount of insulation around your milk tank, a certain amount of 
light in your barn, a certain kind of stable; you have to keep them 
so clean; you have to keep your barnyard so and so; and this and 
that; and the other thing;" and the farmer is being asked by the 
consumer to do certain things, or his market is denied to him. 

Now, then, isn't it fair that the producer, then, can come back and 
say, "Can't I from governmental authority in the State of Michigan 
have some degree ot assurance that after T do all of this that some 
unscrupulous milk buyer is not going to ruin me?" That is why I 
say the milk business is one thing; potatoes, which you can keep; 
beets, which you can store for a long time; or beans — and we grow 
70 percent of the navy beans of the United States in the State of 
Michigan — are different things. 

Senator King. I suppose oranges and grapefruit, and so on, you 
place in the same category of commodities that may be kept for 
some time? 

Mr. Beach. I am not going to discuss those because we don't grow 
those in Michigan. 

Senator Kino. Isn't the purpose of your plan to prevent competi- 
tion and to compel regimentation? You have to get a license in 
order to produce ; you have to get a license in order to sell ; you are 
subject constantly to the inspection of cities and counties and the 
State, and those organizations, together with your organization, de- 
termine what shall be produced and what prices shall be paid to the 
consumer and under what conditions the milk may be sold? 

Mr. Beach. Let me agree with you, for the sake of just this fur- 
ther statement, that the producer is under regimentation today on 
the quality of milk he will produce, and he is under a direct or in- 
direct control — I am going to be very plain — because unscrupulous, 
selfish milk buyers oftentimes much in the minority, but the minority 
can spoil all of the good arrangements that may be made by the 
majority, and after that is done the producer feels that if they are 
going to go that far with it that he should have some degree of 
protection to be sure that his business can operate and continue on 
this rather vital problem of which the city demands in large 
quantities. 

Senator King. Isn't it the case that in most business activities the 
person is denominated an unscrupulous dealer if he cuts prices or 
does not conform to some kind of regimentation prescribed by the 
business itself, or by the industries? 

Mr. Beach. I will tell you what I mean by unscrupulous dealer, 
or one that really tears down the livelihood and hurts the livelihood 
of the producer of milk. That is one, and we have had them in the 
Detroit market, that has gone into the country and among approxi- 
mately 14,000 producers that ship milk into the city of Detroit you 
can pick up one here and then one some place else, and out of 14,000 
you can get some to ship milk to you. The fair milk buyer probably 
can get all of his requirements from farmers living next door to 



CONCENTRATION OF ECONOMIC POWER 2895 

each other. The unfair one is very apt to have to cover several 
counties to get liis supply, and then after lie gets his supply upon 
certain promises made to producers, and we faced them; I know 
what I am talking about; after he has the milk supply and particu- 
larly duririg the time when there is. an excess of milk produced, a 
surplus of milk as we are coming into now, then that same distribu- 
tor will say to them, "Either take a lower price for your milk — " 
he doesn't say to them, "I know you don't have any other market 
for it excepting me," but he says to "either take a lower price for 
your milk or else I will cut you off." And I have a telegram here, 
and it is on exhibit, of a distributor in Detroit that testified before 
this committee on March 10. 

Senator King. You are referring to Mr. Johnson ? ^ 

Mr. Beach. Yes, sir. Whereby on January 31 he sent a telegram 
to a hauler that was hauling in, I understand,- two loads of milk and 
simply said \)n February 1, which was within 24 hours, "I won't 
take your milk any more." Those were not just the words that 
were used ; I have the telegram ; you can refer to that ; but that was 
the intent and purpose of it. Now, that farmer had built up his 
business with expectancy of supplying that particular company and 
then had that happen. Now, then, the producer had previously been 
sharing in that market and he felt he should be privileged to 
continue. 

And then another thing: Asking the producer if he will wait 
awhile before he gets his pay for milk. Those are things that the 
producer is oftentimes helpless to prevent, on account of being rather 
widely separated from other producers that may be shipping milk 
to the same company. 

Senator Kjng. Just one question. Are you not operating now 
under a code with respect to the nonfluid milk? A code provided 
by the Department of Agriculture. 

Mr. Beach. For evaporated milk we are. In other words, I won't 
try to repeat the formula, but evaporated milk is set according to 
formula. 

Senator King. There is a code provided by the Agriculture 
Department ? 

Mr. Beach. That is right. 

Senator King. And you distributors, and manufacturers for that 
matter, are operating under that code ? 

Mr. Beach. I am not a distributor or manufacturer, but as pro- 
ducers we are selling our manufactured milk under that code. 

Senator Kjng. They fix the price' in that code? 

Mr. Beach. That is right. 

The Chairman. Mr. Beach, first let me say the telegram to which 
you refer is that which you submitted to the committee with your 
statement ? 

Mr. Beach. That is right ; the committee has that. 

The Chairman. It might be proper at this mention of it to have 
that entered into the record here. Have you any suggestion about 
that. Judge Davis ? 

Mr. Davis. That is perfectly all right. 

1 MrT" George A. Johnson, who testified before the Committee on March 10, 1939 ; see 
testimony, supra, p. 2820 et seti. 



2896 CONCENTRATION OF ECONOMIC POWER 

The Chairman. I don't want to divert testimony at this point to 
any controversial matter, because I -want to develop a little bit. 

Mr. Da-^^s. I assumed that, and so I am leHinjr the examination 
continue, intending to ask some questions later in connection with 
that telegram. At the proper time we desire to introduce something 
which explains the fact. 

The Chairman. Let that be done at the proper time. Now, Mr. 
Beach, returning to this board, which is to be set up under the legis- 
lation that you have had endorsed by the State of Michigan, will 
you please describe again the qualifications of the members? 

Mr. Beach. Yes; of course. The chairman is the commissioner 
of agriculture, who is an appointee of the Governor, and his qualifi- 
cations might var}', but usually he at least is a producer-minded 
man. 

The Chairman. He represents the producer primarily? 

Mr. Beach. Well, he represents the State, really; as far as agri- 
culture is concerned. 

The Chairman. But he is selected because of his knowledge of the 
producers' problem and his S3^mpathy with the producer? 

Mr. Beach. Well, yes; possibly coupled with his undoubted fair- 
ness to all of the citizens of the State of Michigan. I believe it is 
only fair to any commissioner of agriculture to say that, and I 
believe that is the type we have in Michigan. 

The Chairman. We always hope that public officials are fair. 

Mr. Beach. I don't necessarily mean that should be confined to 
Michigan, either, but I know those in Michioan. But the two pro- 
ducers, both of whom must receive their principal livelihood from 
the ownership or management of one or more dairy herds; in other 
Avords, their majority interest must be in the producing of milk. The 
two producers. 

The Chairman. Now, you have a commissioner who is producer 
minded and two producers; now, who are the others? 

Mr. Beach. Then one consumer that has no pecuniary interest in 
either the distribution or the production of milk. And then one 
distributor. 

The Chairman. I suppose by that he could not own stock in a 
large company engaged in the distribution or in the ownership of 
distributors ? 

Mr. Beach. You mean the distributor? The consumer? That is 
right. 

The Chairman. And another one is the distributor? 

Mr. Beach. That is right. That is more or less unqualified. That 
is, they just stay under distributor, if I remember the phraseology 
correctly. 

The Chairman. So that on this board of five members 

Mr. Beach. That is right. 

The Chairman. You have a distributor who is primarily interested 
in the maintenance of — T was going to say prices, but I don't want to 
seem to be using any language that might be subject to misinterpreta- 
tion, so I will say who is primarily interested in the milk business, 
and two producers who are primarily interested in the milk business ; 
a commissioner who is producer minded, and one consumer. Now, 
with that set-up and referring to your previous answer with respect 



CONCENTRATION OF ECONOMIC POWER 2897 

to the effect of this legislation, and of your plan on the price received 
by the producer, and the price paid by the distributor, is not the effect 
of this entire arrangement to enable those who are primarily inter- 
ested in the production and distribution of milk to fix the price to the 
consumer ? 

Mr.- Beach. No. It might have a stabilizing influence on the 
price of the consumer. However, here is another interest that we 
can't forget. The producers very well know that their interest is 
directly tied up with the consumer, particularly as regards the amount 
of milli tliat they are going to use. They must use a maximum 
amount of milk for the best interests of the producer. Second, the 
price to the buyer must be right, as compared with a national market. 
Or, as happened in Pittsburgh when they got the price too high, they 
went outside of the State of Pennsylvania and brought in milk from 
the State of Ohio and bought it for less money. The producers of 
Michigan are not interested in having a price that is so high but what 
their milk will be sold over a long period of time, and in the largest 
quantities possible for fluid-milk consumption. - 

The Chairman. Are you, then, interested in keeping the price so 
low that the consumption shall increase? At the same time main- 
taining the cost of production for your producer ? 

Mr. Beach. Yes; with that modification the answer is absolutely 
"Yes." 

The Chairman. What do you do to bring about that result, if 
anything? 

Mr. Beach. As far as we are concerned, aur interest lies in making 
this fair price to the producer; of the competition between distribu- 
tors, which should be free and open, and certainly in Detroit it is 
open, whether it is free or not, I don't know ; but it is certainly wide 
open; and if it is, then the distributor can distribute his milk any 
way in which he wishes to; he can sell it in anyway that he feels 
that he can that will pay him so that he can continue to stay in 
business. 

The Chairman. You say the competition in Detroit now is free 
and open? 

Mr. Beach. I would say it is; milk can be bought there all the 
way from 6 cents per quart up to — I don't know whether you would 
have to pay 11 or not; you might if you got into special milks. 

The Chairman. How does that price of 6 cents compare with the 
price which you say is representative of the producers, deemed to be 
a proper price? 

Mr. Beach. You mean to the consumer? 

The Chairman. Yes. 

Mr. Beach. Well, that is a question that it hardly seems as though 
I ought to endeavor to answer. 

The Chairman. You are in this business now ; one of your primary 
objectives is to see that the producer gets a proper price; that it what 
we are interested in ; so I am asking you — now that you tell this com- 
mittee that you can buy milk in Detroit for 6 cents — what is the 
effect of that price upon the producer? 

Mr. Beach. Well, if what has happened is our criterion of what 
probably would happen, then I would say it is very detrimental to 
the producer to have a 6-cent price. It is almost ruinous to him. 



2398 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Then you are opposed to that degree of competi- 
tion which reduces the price of milk to the consumer at 6 cents a 
quart? 

Mr, Beach. I am opposed to ruinous competition. 

The Chaijrman. You deem that to be ruinous ? 

Mr. Beach. I really do, but I am primarily concerned in a price 
to the producer that will give a fair i^turn to him and if that will 
not take care of itself, the resale, then probably some different ar- 
rangement ought to be made on that. 

The Chairman. Your contention, I take it, is that competition, 
while it may result in according sweet milk to the consumer, has the 
effect of driving the producer to a market to which he can sell at a 
profit? 

Mr. Beach. That is true, and here is a thing that makes it doubly 
bad. You take the city of Detroit, with which I am most familiar ; 
from 1920 to 1929 there was an ever-increasing market ; that is, every 
year more milk was needed than was needed and used the year 
before. That means, then, that during that time the creameries were 
driven out of business. I mean the butter factories, or the creameries 
that make butter; sometimes we refer to milk distributors as cream- 
eries, but now I mean those butter plants in the country within that 
territory were driven out of business. The condenseries were driven 
out. Some of the buildings are still there but the condenseries were 
driven out because of the demand for this milk for fluid-milk pur- 
poses. 

Now then, after that has been done, then today when the farmer 
that is in that territory and has been encouraged to ship his milk 
to Detroit, has to depend upon that market, then he ought to have 
some degree of protection that ruinous prices will not prevail that 
will drive him out of business. 

The Chairman. Now you spoke a moment ago of surplus and said 
that it was about to appear in the market. Did I understand you 
correctly ? 

Mr. Beach. In May and June ordinarily more milk appears when 
grass comes on, of course, than at any other period of the year. We 
usually hit our peak about the 1st of June, although at all periods 
of the year we have had an excess over and above that required for 
fluid milk; even in November, which is the shortest month of the 
year, from the standpoint of production, we had 35 percent of milk 
that was not used for fluid-milk sales. 

The Chairman. Now during this month you will probably be pro- 
ducing more milk than can be consumed by the inhabitants of Detroit. 
Is that correct? 

Mr. Beach. That is right. 

Senator King. That is not true if you sell at lower prices ? 

Mr. Beacti. It is impossible to sell milk, in my opinion, so low 
that you could sell all the milk that might be available in May and 
June, because there is a limit to what people will use in the way of 
milk, if you give it to them, and it certainly would ruin the farmer if 
he went through that painful process. 

Senator King. Wliat can you tell the committee with respect to the 
consungiption of milk in Detroit ? 

Mr. Beach. I am not— do you have any particular point in mind? 



CONCENTRATION OF ECONOMIC POWER 2899 

The Chairman, I just want to know if the people of Detroit are 
getting all the milk they could actually consume ? 

Mr. Beach. In answer to that question, they are getting all that 
they apparently will purchase and consume. 

The Chairman. Yes ; purchase at the price which is made possible 
to them under the conditions which you have described. Now, what 
I am trying to get at is whether or not they actual]}' buy all the milk 
they could use. How many people are on relief in the city of Detroit, 
do you know? 

Mr. Beach. I can't answer that question offliand. I am sorry I 
didn't come prepared ; there are quite a few on relief, but I can't give 
definite figures. 

The Chairman. I suppose you recognize the fact that the more 
relief people there are, the less consumption there is of all agricul- 
tural products, and of all industrial products? 

Mr. Beach. That is right. 

The Chairman. Now, it is a matter of great concern to the pro- 
ducer's association to make certain that all the inhabitants of the 
area you serve are capable of purchasing all that the body needs ? 

Mr. Beach. Tliat is very true. Of course, this raises another ques- 
tion, whether the producer possibly can afford to produce milk so that 
the cost of getting it to that consumer in the city can still be met and 
the price to him can be any less than what it is under the prevailing 
price in the city of Detroit. 

The Chairman. And that, of course, is the fundamental question 
which this committee is trying to develop, not only with respect to 
milk but with respect to all other commodities ; what is the best means 
of adjusting the producing capacity and consuming capacity, and that 
is why I am directing my question to you as an expert upon milk 
and as the leader of an organization which is actively engaged in 
promoting a specific kind of legislation. That is why I want to have 
your testimony with respect to the consumptive power of milk of the 
people of Detroit, and you have not studied that? 

Mr. Beach. Here is the situation relative to consumption. Ap- 
proximately 30,000,000 pounds of milk per month is used for fluid 
milk sales in the city of Detroit, and whether that price is low, as it 
is now, or higher, as it has been at some times, seems to affect that 
consum])tion but very little. As nearly as we know, during the month 
of April, as nearly as we have been able to predict, when the price of 
milk dropped 2 cents per quart in the city of Detroit, it apparently 
has not affected consumption to any great extent. It might be instead 
of selling 30,000,000, maybe 31,000,000 might be sold; but there is a 
point below wliich it is rather difficult to go and at the same time have 
people use more of a particular commodity. I have gone into stores 
and asked if they ever had at the close of the business day any 6-cent 
milk left, and I find that they don't even sell it all at 6. 

The same store may have milk selling for 8 cents, and the milk that 
sells for 8 cents, to the extent of about 3 or 4 quarts of that to 1 quart 
of the 6, oftentime. The clerk made the statement that tlie only 
people that buy the 6-cent milk are the people that cannot afford 
to buy the 8. However, in milk depots that have that difference, 
the real difference in value of the milk, the real difference in value 
of the two milks from the standpoint of cost, is 40 cents per hundred- 



2900 CONCENTRATION OF ECONOMIC POWER 

weight, and the difference in cost to the consumer as it is resold 
to them because of the difference in butterfat is 92 cents per hundred- 
weight. In other words, the consumer seems to prefer 92 cents per 
hundredweight more and pay 8 cents per quart than to buy it for 
92 cents less, even though the value is only 40 cents less. This matter 
of buying on the part of the consuming public apparently is some- 
what lacking in their understanding of all the facts that. go to make 
up their purchase value. 

The Chairman. Now, the board, the establishment of which you 
recojumend for the State of Michigan, is empowered to, as I under- 
stand your testimony, or is to be empowered to fix the price which the 
distributor pays the producer? 

Mr. Beach. That is right. 

The Chairman. Is it also authorized to fix the price which the 
consumer pays? 

Mr. Beach. There was an amendment attached last Thursday 
which provided that in an emergency which might result in the 
destroying of the purposes of the act, which would be to make a 
fair minimum price to producers, they might during such emergency 
establish prices under which the distributor cannot sell. That 
amendment was put in last Thursday. 

The Chairman. Now, what control do you recommend to be set 
up oyer the discretion of the board ? 

Mr. Beach. The discretion of the board in that bill as I under- 
stand it, is somewhat defined as to the producer. We have in our 
Stat€ those i^roducers that say that the only way to establish a 
price on milk is according to the cost of producing. In other words, 
figure that out and that is it. ' Now then, that is not in the bill. It 
states that they might base their price, or shall base it, upon cost of 
producing same. However, they must take public welfare into 
consideration, and also supply and demand of milk. Now, that pat- 
tern is set up to go by in establishing a fair price to the producers. 

The Chairman. Any pattern with respect to distributors? ■ 

Mr. Beach. What was that? 

The Chairman. The pattern which you have just described is 
wholly from the point of view of the producer. Now, is there any 
pattern from the point of view of the distributor? 

Mr. Beach. I am sorry I cannot answer that question. I don't 
believe — I may possibly have a copy of that bill here v»nth that 
amendment just attached last Thursday. I wasn't in Lansing when 
it was brought up, but my understanding is that it provides that a 
distributor, if the board feels that an emergency exists, that during 
such emergency their measuring stick will be whether or not the 
distributor selling below his cost, apparently for the object of driv- 
ing people out of business because he happened to have more reserve 
than a large group of distributors in a market happened to have. 

The Chirman. In both instances the judgment lies with the board 
to determine these facts which control its own action ? 

Mr. Beach. That is subject to approval by the court which could 
be carried up to the Supreme Court, and that is very clearly set 
forth in the bill. 

The Chairman. There is an appeal ? 



CONCENTKATION OF ECONOMIC POWER 2901 

Mr. Beach. That is right; yes. A great deal of caution has been 
used on that because that has been one of the weaknesses of some 
of the other State milk-control bills. 

Senator King. I have one or two questions before I leave for 
anotlier committee. The greater part of the milk which is pro- 
duced now is produced by members of the milk-producing associa- 
tions ? 

Mr. Beach. In the Detroit market alone; we cannot determine 
exactly, but approximately 80 to 85 percent of the milk in our esti- 
mation is produced. '■] 

Senator King. Has there been a constant drive by milk associa- 
tions to compel — probably that is too strong a term — to influence all 
farmers who produce milk to join the milk-producers" associations? ^ 

Mr. Beach. I would say one of the main things that producers must 
do for tlie benefit of themselves and their neighbors is to encourage 
that other neighbor to cooperate with him on the sale of his product. 

Senator King. That encouragement has gone to the extent in many 
instances in many districts, has it not, of being practically forced? 

Mr. Beach. If so, I am not familiar with it. That is not true in 
Michigan, and I can only speak for Michigan, the State of Michigan. 
Also, I am sure that you will find the Federal Government has also 
encouraged the organization of farmers' cooperatives, and that that 
has been the case in Michigan, but in 23 years in several markets of 
Michigan not more than 60 or 65 percent of the producers ai-e in a 
producers' marketing organization. 

Senator King. Hasn't there been a very close union, if I may use 
that expression, between the farmers' association, milk-producers' asso- 
ciation, and the distributors, so that they have, shall I say, synchro- 
nized or coordinated their efforts w^ith a view to raising prices and 
maintaining prices, and have they not utilized the code and other 
instrumentalities set up by the Federal Government in order to effec- 
tuate tlie purposes I have indicated? 

Mr. Beach. I can again only speak from the standpoint of Michi- 
gan, and I can't agree that that is true from my knowledge of the 
business there. There are many cases wherein milk distributors are 
doing all they can to destroy farmer cooperative organizations. 
Again, if I might refer to a previous Avitr.ess, I just want to say that 
they made a tremendous rating, probably thousands of visits having 
been made by the representatives on the members of oui- organization 
to get them to pull away from that organization and become disor- 
ganized instead of continue to be organized in the way that they have 
been. 

Senator Iving. I suppose your organization has combatted those 
efforts on the part of others and carried on a rather active campaign 
in order to maintain your organization and to increase its power? 

Mr. Beach. We have done just this : We have endeavored to make 
the produced acquainted with the situation that is brought about 
through the lack of cooperation. I want to take credit for our organi- 
zation — I am sure, having carried on very clean, sportsmanship 
activity in connection with the maintenance of our organization, and it 
never can be as strong as it is today, in my opinion, unless that had 
been the case. 



2902 CONCENTRATION OF ECONOMIC POWER 

Senator King. One hundred percent pure ? 

Mr. Beach. No. [ 

The Chairman. Now, Mr. Beach, as a representative of the pro- 
ducers, do you have any choice with respect to methods of distri- 
bution? 

Mr. Beach. Generally speaking, no. Some milk distributor could 
answer this question better than I, undoubtedly, and give j'ou more 
definite figures, but we know that by and large approximately 40 
percent of the milk that is sold as fluid milk is gomg to be sold 
through channels other than home delivery. That has always been 
the past experience. I think you find that is true in most every city, 
on an average, that that is the case. We have no particular choice 
excepting that we like to have systems used, I wouldn't say "a sys- 
tem," but "systems" used that will furnish to the consumer the larg- 
est amount of milk that he will consume under such an efficient sys- 
tem that he will feel that he is not paying for any excess cost over 
and above the services that are rendered to him; and our interest 
does lie in having efficiency practiced, because naturally if efficiency 
is practiced and the price is^ only in line with the service rendered, 
that means that the consumer is apt to use more of fluid sales milk, 
which is the highest price class into which it can be put, and we natu- 
rally have a great interest in that. 

The Chairman. Of course, that is a very general statement. What 
is "efficiency"? 

I am trying to get down to specific details, Mr. Beach. 

Mr. Beach, That is probably an engineering term. 

The Chairman. I think it is one of the terms we frequently use 
to conceal thought. 

Mr. Beach. I wonder if we don't understand each other, though, 
pretty well on what we mean by reasonable efficiency. We have it 
day by day confronting us in everything that we do, and I think 
that efficiency is usually brought about when there is a fair competi- 
tion prevailing, too. 

The Chairman. Well, how about the character of the container 
in which milk is delivered? Do you have any opinions with respect 
to that? 

- Mr. Beach. I really don't believe I do. So far as I am concerned, 
I don't care whether it is sold in fiber or whether it is sold in glass, 
or they put it up in silver jugs. 

The Chairman. I have in mind, merely, of course, the size of the 
container. 

Mr. Beach. No; I 

The Chairman (interposing). You don't think it has any effect 
upon the amount of milk that may be consumed or upon the price 
which the consumer pays, for example, whether milk is delivered in 
-quart jars or half -gallon jars or in pint jars? 

Mr. Beach. It might, Mr. Chairman. However, T have not made 
any study of that field or had experience in it, and therefore it would 
seem to me that my testimony would not be of very much value in 
connection with it. 

The Chairman. Here are two important fields concerning which 
you have been questioned this morning which seem to me to be of 
the utmost importance to producers ; namely, this one of distribution 
and also what may be done to stimulate consumption. I recommend 
a study of those two subjects to the Producers Association. 



CONCENTRATION OF ECONOMIC POWER 2903 

Mr. Beach. Well, if we are not distributing milk, then what shall 
we do — go to those that are buyers of our milk and tell them that 
they ought to change their system? We could suggest it, but of 
course it would be up to them to decide what they did. , 

The Chairman. Of course, you have gone to the State legislature 
to ask for a law which directly affects the distributor, and also the 
consumer, but let's pass that for the moment. 

Are there any other points that you would likd to develop in con- 
nection with this thought? 

Mr. Beach. I believe that fairly well covers all the statements that 
are probably necessary or advisable for me to miike, Mr. Chairman. 
There have been some investigations made in the Detroit market by 
those that represent the Federal Government. 

I feel that they are very well-informed about the situation there, 
and should any of them wish to invetsigate further or ask any ques- 
tions, I certainly would be more than pleased to do my best to answer 
them. 

The Chairman. Your testimony boils down to this, that the free 
open competition in purchase of the producer's milk supply, under 
modern conditions, resulted in such ruinous prices to the producer 
that in your opinion, as a producer, it is necessary for the Govern- 
ment to step in with a price-fixing authority to protect the producer. 
Mr. Beach. That is right. 

The Chairman. And yotW seem to feel that it is more or less a 
choice between evils; the abuses under the present system are so 
great that you prefer to risk whatever danger may be involved in 
the discretionary authority of a Government board. 

Mr. Beach. That is right; based upon studies made in some other 
States, we followed what has happened in New York State quite 
carefully with their most terrible conditions, and we would still say 
"yes" after knowing something about that. 

The Chairman. Then you recognize there are dangers involved 
in the delegation of discretionary power to the price-fixing board? 
Mr. Beach. Always; always. That is true. 

There is one other thing, however, that we mustn't overlook, as 
I see it. The producer of milk, or rather the producer of other agri- 
cultural products in the State of Michigan, most of them can pro- 
duce milk. Therefore, if we try to get a price too high, it is going 
to mean that they are going to quit producing sugar beets, beans, 
potatoes, and many other cash crops that have quite a bit of uncer- 
tainty to their return, and are going to produce the sure product of 
milk, and that in itself would break down an excessively high price 
if it becomes too high, and the producers pretty well understand that. 
In other words, they are in competition with one another on thd 
production of the produce which they have for sale. 

The Chairman. There is another question that I would like to ask. 
What, in your opinion, is the effect upon consumption and on price 
of the establishment of milk depots? 

Mr. Beach. So far as I have observed, if the milk-depot system 
prevails in any market, and it does prevail in the f)etroit market 
somewhat, and of course it is also sold through a large number of 
other stores on a cash-and-carry basis, but if it does, and carries 
an arrangement whereby fluid milk so sold is paid for to the pro- 
ducer on the same basis as other distributors pay that use some other 

124491— 39— pt. 7 11 



2904 CONCENTRATION OF ECONOMIC POWER 

system of delivery, the test of the efficiency will be determined and 
probably either it will live and thrive or else it will not be able to 
meet competition when the same price is paid, and then it would 
simply have to pass out of its own accord. 

In my opinion, however, it would remain and still a fair pric& 
. could be paid to the producer regardless of in which manner the- 
milk would go to the producers. 

The Chairman. Do you have any choice? 

Mr. Beach. We have no choice at all. 

The Chairman. Are there any questions you care to ask ? 

Mr. Ferguson. Judge Davis has some questions to ask. 

Mr. Davis. Mr. Chairman, may I make a brief explanation? 

In connection with the work assigned the Federal Trade Commis- 
sion by the Temporary National Economic Committee, the Commis- 
sion was directed to assemble and report upon the Commission s 
experience with respect to monopolistic practices as evidenced by 
its case work and general investigation. In connection with the 
report thereon, the Commission made a general summary report of 
the results of an investigation of milk and the milk industry which 
it had not long since conducted pursuant to the direction of a joint 
congressional resolution, and it had reported thereon to Congress.^ 

Supplemental to that, the Commission sponsored the introducti(m 
by representatives of the United States Department of Agriculture 
of additional evidence with particular reference to the city of Detroit,. 
Mich., and one reasoji that that was done was because it had appeared 
that from the report to which Mr. Beach has referred, it having been 
made to Governor Murphy ,2 monopolistic price fixing had existed in 
Michigan prior to certain investigations and prosecutions, and the 
entry into the field of an independent, one George A. Jolmson, who 
introduced the method of cash and carry from depots which he had 
. established in various sections of Detroit, with the result that there 
was a very sharp and substantial reduction in prices to the consumer^ 
not only with respect to cash-and-carry milk but also with respect to 
milk delivered in trucks. 

Mr. Beach filed a statement with various exhibits in which he 
sharply challenged the statements, particularly in some respects, of 
Mr. Johnson. He filed a number of exhibits and has also made an 
oral statement today. 

The representatives of the Commission didn't have an opportunity to 
see this statement and exhibits imtil, I think, Thursday, but there are 
certain phases of that and of Mr. Johnson's testimony which we 
would like to further develop in the interest of presenting all the 
facts involved to the committee. 

Now Mr. Beach, in the early part of your testimony you made 
reference to the fees collected from their members by the Michigan 
State As?;ociation, of 1 cent and 2 cents. Now, as a matter of fact, 
your association collects from its members 8 cents for pool fees and 
association dues, does it not — 8 cents on each hundredweight of milk? 
Mr. Beach. % attempted to explain that in the matter of pooling 
milk, there were those whose milk froih month to month had to be 



* Tntrodiiced supra, p. 2S66. as "Exhibit No. .'^TO." "Report of Periprfil Trade romnii-ssion 
on ronf-entraHon of Control Over Sale.s and Distribution of Milk and Dairv Products under 
Public Resolution No. 113. 7P<^h CoiiRress" : included, in the appendix, p. .S1.35. 

* Refers to "A Report to Hon. Frank Murphv. Governor, bv Hon. Raymond W. Starr, 
Attorne.v General of the S'^a+e of Michiean, and Hon. Thurman W. Arnold," A.ssistant Attor- 
ney Oe-^eral. IT. S, Denartment of .Tustice. Relative to the Milk Industry of Micbiffan. 
With Particular Reference to the Detroit Metropolitan Area"-; not entered in the record. 



CONCENTRATION OF ECONOMIC POWER 2905 

diverted directly to manufacturing purposes, and in order that they 
might share in the market as though their milk had continued to come 
into the Detroit market, and instead of they being the ones that 
were being sent to the manufacturing markets solely, in order to take 
care of the difference the producers decided that such an amount 
should be deducted from the milk of those that goes into the regular 
market, the fluid-milk class, with which to make up the difference 
to the other producer whose milk has to go into the manufactured 
class, so it brought his milk up to the price where they all receive 
the same average price. 

In our market no producer knows today whether he may be the one, 
in 30 or 60 days, that may have to be diverted to a manufacturing 
market, therefore they felt that in order to be mutually helpful, that 
very broad cooperative idea should be used of equalizing between 
them, and so that is what the 5 cents per hundredweight is that is 
deducted. The balance, which is 3 cents, is divided in this way: 2 
cents goes to the Michigan Milk Producers Association j speaking 
again about the Detroit market, for the purpose of carrying on the 
work of the Michigan Milk Producers Association, whatever that 
might happen to be. It takes care — I don't know; maybe I have a 
complete financial statement here. If so, I would be very glad to 
furnish one, to show just exactly how that money is used. 

Now the 1 additional cent used, to be used during the time when 
the Federal marketing agreement was in effect in the Detroit market, 
and the association has had to take over the same activities that were 
carried on under the license and agreement in order to continue that 
same general plan and program, and so it was voted by the members 
to have that 1 cent continue to be taken for this purpose. 

But included in that is something of w^hich I might have spoken be- 
fore, some money that is used for advertising purposes to increase the 
sale of fluid milk. 

Mr. Davis. This report to Governor Murphy, to which you referred, 
sharply criticizes this pooling system you have, does it not, and 
charges that it is discriminatory and unfair to some of them ? 

Mr. Beach. Well, if I understand the report correctly, it is very 
commendatory toward an equalization plan of milk. 

Mr. Davis. Yes; but it savs yours is not an equalization plan, does 
it not? 

Mr. Beach. Well, I wouldn't want to answer that without referring 
to it. However, I say to you that, what is it if it is not an equalization 
plan? It certainly is a form of equalization between producers. 

Mr. Davis. Well, if you want to ask me the question, I am willing 
to accept the statement of the attorney general of the State of Michi- 
gan and of the Assistant Attorney General of the United States irf 
their reports to Governor Murph}^ in that respect, and if you will hand 
me that report we will settle just what it is. 

Mr. Beach. Possibly if you refer to that I might be able to assist in 
throwing some more light upon that. 

Mr. Davis. Now, Mr. Chairman, this is entitled "A report to Hon. 
Frank Murphy, Governor, by Hon. Raymond W. Starr, Attorney Gen- 
eral,^ and Hon. Thurman W. Arnold, Assistant Attorney General, 
United States Department of Justioe. , elative to the milk industry of 
Michigan, with particular reference' the Detroit metropolitan area," 

1 Of the state of Michigan 



2906 CONCENTRATION OF ECONOMIC POWER 

which Mr. Beach has filed as Exhibit 3 in his report/ and on page 
31 of this report, under the heading "Inequalities in present plan of 
purchasing milk." I wish to read briefly from the report as follows : 

The Attorney General accepted as a sound principle of the milk industry that 
each distributor in a market should pay the same price for his milk in the 
same use classification as every other distributor in the same market. Many of 
the milk markets of the country operate under what is known as a classified price 
or classified-use plan. Under this plan each distributor pays the same price as 
every other distributor for milk used as fluid milk, fluid cream, and other. In 
theory the plan now in use in the Detroit area is supposed to arrive at that 
result. In practice, it does not work out that way. In Detroit a classified price 
plan for selling milk to distributors is operated in conjunction with a base and 
surplus plan for determining payments to producers. It is possible to operate 
the two plans together in such a way as to make the cost of milk on a use basis 
the same to each distributor as to every other distributor. It is possible, on the 
other hand, under such a plan, for some distributors to get their milk cheaper 
than others. That is what is happening in Detroit today. 

And there is considerably more to the same effects In fact, I wish 
to earnestly commend to all of the members of the conmiittee the read- 
ing of this entire report. It is very illuminative and will shed a good 
deal of light on much of this subject. 

Now, getting back to the question which I asked you, Mr. Beach, 
about the fees which are collected from the members of your associa- 
tion, it amounts to 8 cents per hundred pounds of milk, does it not? 

Mr. Beach. Total deduction. We don't call it fees. The total 
deduction is 8 cents. 

Mr. Davis. Well, don't you call it the pool charge and the associa- 
tion dues ? I believe you call them dues. 

Mr. Beach. That ^ ^right. 

Mr. Davis. It amounts to 8 cents. It produces as much or more 
than $40,000 a month at times, does it not ? 

Mr. Beach. No; it does not, 

Mr. Davis. How much were the total collections during the last 
year? 

Mr. Beach. Pardon me; I was thinking of the two separately. 
Eight cents per hundredweiglit on 50,000,000 M^ould be 40,000 ; yes ; it 
might run to $40,000 per month. I was thinking only of the pool 
deduction. 

Mr. Davis. How much were 3'our total collections in this regard last 
year ? 

Mr. Beach. Well, I can't sav, offhand, but probably it might be half 
a million for all put together. 

Mr. Davis. How much do you have in your treasury now ? 

Mr. Beach. About $300,000— slightly more than that. 

Mr. Davis. Will you explain for what these large sums are expended ? 

Mr. Beach. Yes. The association was organized in 1916. It was 
started by producers giving notes payable to the extent of approxi- 
mately $25 — one every 3 months. In other words, it started from 
scratch, with the understanding that there would be 2 cents per hun- 
di-edweight deducted for the purposes of carrying on the work of the 
Michigan Milk Producers Association. 

A few years after tnat this situation was one which confronted the 
members of our organization, whereby the milk from a group of 

'^A reP"'^ filed with the Committee in reply to a questionnaire sent to ^Itne^es prior 



CONCENTRATION OF ECONOMIC POWER 2907 

producers would go to a certain distributor, and this distributor might 
owe totaling twenty-five or thirty thousand dollars for milk, and he 
would go into bankruptcy or fail to pay. Usually when they do fail 
to pay they do go into bankruptcy eventually, and so the association 
members decided that, with the reserve that they had created, there 
could be put into effect a new contract which would give to the indi- 
vidual producer a guaranty of pay, and I can't answer, offhand, how 
much money has been paid out for that purpose alone, but proi3ably 
it will run about $150,000 since the time that that was put into effect. 

Mr. Davis. That was 23 years ago. 

Mr. Beach, No; that wasn't put into effect when they had no 
money. It was put into effect after they had created a reserve. 

Mr. Davis. About what time? 

Mr. Beach. Probably 12 years ago. 

Mr. Davis. You have been making a collection of half a million a 
year in order to have a reserve of a sum total of $150,000 lost during 
a 12-year period? 

Mr. Beach. To dispose of that $40,000 that I mention, that $40,000 
is paid out every month when it is collected. Pardon me ; you include 
the whole thing. The pool money, which is 5 cents, amounts to ap- 
proximately $25,000 per month, and that is paid out on the i5th 
of this next month. That is not held in reserve. In other words, the 
15th of May that whole $25,000 will be paid out. Therefore, that 
means that $300,000 of that which you mentioned would be paid out 
just over and over. It would be paid out currently every month. 

Mr. Davis. And $15,000 a month for dues is otherwise used? 

PAY FOR MILK GUARANTEED TO PRODUCER MEMBERS 

Mr. Beach. That is right. That is used in several ways. Out 
of that comes the reserve to make the guarantee of pay. That is one 
thing, and that is one of the most important things. 

Another thing is, if a producer is quarantined, due to scarlet fever 
or some other contagious disease, and he is shut off by the board of 
health, he receives a certain percentage of payment from his own 
organization, a sort of mutual insurance proposition in that regard; 
-^d then we have quite a few testers that test the butterfat content 
of milk sold by our members. Those men naturally are paid. We 
have those that do quality work, methylene blue testing, and so on. 
Those are paid from that. 

We also have, naturally, regular expenses like office rent and 
things of that kind, from which that is paid. In fact, if you will 
allow me just a moment, I think I have a financial statement with 
me and I will be glad to give that to you. 

Mr. Davis. Just file it. 

Mr. Beach. I have this, Mr. Chairman. I can give you just as 
much information as you want from this. This is the report that is 
published for our members ; or, I will be A^ery glad to file it. 

Mr. Davis. Just file it. 

The Chairman. It may be filed. 

(The report referred to w^as marked "Exhibit No. 435" and is 
included in the appendix on p. 3233.) 

Mr. Davis. Speaking of audits, which you explained in your 
earlier testim'ony and to which you referred again, how many au- 



2908 CONCENTRAliON OF ECONOMIC POWER 

ditors are employed by your association to audit the books of the 
distributors ? 

Mr. Beach. We employ two regularly. 

Mr. Davis. Well, now, you have 17,000, or approximately 17,000, 
accounts. 

Mr. Beach. No; we do not. We don't audit the producers. We 
audit the distributors. 

Mr. Davis. But don't you have the account of each producer 2 

Mr. Beach. We don'.t have to audit that. Let me tell you why 
we don't. In the first place, 17,000 is over the entire State. We 
have approximately 10,000 in the Detroit territory, but every pro- 
ducer every month knows the price of his milk. And if he is not 
paid properly he vwill send that in to us for adjustment right away. 
He does his own auditing. 

The thing that we have to audit are the total purchases of a com- 
pany; and, by the way, we also have a check on that so that that is 
not much of a job. 

The principal thing we have to audit are the pounds of milk that 
are sold by the milk distributor from his sales records. That is the 
principal thing. 

Mr. Davis. In other words, the producer is supposed to be paid 
upon a basis of use to which his milk was put. That is correct ? 

Mr. Beach. That is right. 
• Mr. Da\t[s. Now, we will say 10,000 men are selling in the Detroit 
area. There are two checks given a month, I believe. 

Mr. Beach. No; one. 

Mr. Davis. Aren't they paid on a 15-day basis? 

Mr. Beach. No; they pay on the 15th of one month for the pre- 
vious month's delivery. There are exceptions to that, but I think 
that 98 percent of the milk that we sell is paid for on a monthly 
basis. 

Mr. Davis. Do you think two auditors can keep up with the use, 
to which the milk of 10,000 producers is put each day by numecrous 
distributors'? How many distributors in Detroit have contracts with 
your association? 

Mr, Beach. We have no written contracts, but those with whom 
we do business, which is the information you wanted, is about 41. 

The Chaibman. May I interrupt at this point that the Members 
of Congress, of course, have be^n summoned to the floor, and I am 
wondering if it would be convenient to suspend nqw and resume this 
afternoon at 2 : 30. I find that room 318, in which the Foreign Ke- 
lations Committee has been holding the neutrality hearings, the one 
in which we have been accustomed to hold our hearings, will be 
vacant this afternoon, so we will recess now to reassemble at 2 : 30. 

( Wliereupon, at 12 : 10 p. m., a recess was , taken until 2 : 30 p. m. 
of the same day.) 

AFTERNOON SESSION 

The committee resumed at 2 : 50 p. m. upon the expiration of the 
recess. 

The Chairman. The committee will please come to order. 



CONCENTRATION OF ECONOMIC POWER 2909 

Judge Davis, are you ready to proceed. 

Mr. Davis. I am. 

Mr. Beach. Mr. Chairman, might I ask if, in view of the fact that 
there were certain things suggested this morning, would it be advisable 
to clear the record on those? There are two or three statements that 
I would like to have included in the record to clear those, if you wish 
jto" have me do it at this time. 

The Chairman. If you have any additional statement to make, I am 
sure the connnittee will be very glad to receive it. 

Mr. Beach. In the first place, based upon questions which you asked 
of me as to the relationship or effect upon producers of price reduction, 
this information has just come to me since we adjourned at noon. I 
received the following telegram from the office of the Michigan Milk 
Producers Association in Detroit this noon. It states : 

Starting today Johnson prices dropped to 5, 6, and 7 cents for Detroit standard, 
3% percent and 4 percent milk, respectively. 

It is signed "C. L. Bolander," who is one of the employees of the 
Michigan Milk Producers Association. 

Now, coupled with that is the fact — — 

The Chairman (interposing). What price does that mean — price to 
the producer? 

Mr. Beach. To the consumer. 

Coupled with that fact, according to what I believe to be reliable 
information, the Johnson Milk Co. is now behind on making payments 
to their producers. I have had statements tendered to me within the 
last few days showing that some producers want to come with the 
Michigan Milk Producers Association because their pay has been 14 
days late, and I have had some that have wanted to come with the 
association — quite a large number — because of failure to receive their 
pay when it wa^ due. 

If that is the situation on the reduction in price, which, of course, 
should be denied by Mr. Johnson if it is not true, and if, in view of the 
fact that he is behind on making payments to producers now, this will 
have to mean one of two things — either })aying the producer less or 
else getting farther behind, either one of which means a financial loss 
to the producer. And if that situation prevails it means that other 
buyers to whom we sell milk will make urgent requests that the price 
be reduced to them so that they in turn can meet that competition; and- 
if that is the case, it means a heavy financial loss to the producers in 
Micliigan. 

I thought that tied in with the questions you asked of me this morn- 
ing, and it miglit help to clarify it, and it is very current. 

Now, the second point I think has to do with the question raised 
by Judge Davis. I am very much like him in that I feel that the 
Department of Justice made^ a very compreliensive and understand- 
able and intelligent report. With the exception of just a few minor 
errors, I am willing to accept it as a basis of fact so far &.S the 
Detroit milk market is concerned. I think, liowever, that along with 
the statement that was read about the pooling matter, that the re- 
mainder of that statement should be read into tlie record, and, with- 
out taking too much time to do it, I would like to refer to page 31, in 



2910 CONCENTRATION OF ECONOMIC POWER 

order that you might follow me if you wish, Judge Davis. This is 
what was said ; 

DEPARTMENT OF JDSTICE REPORT TO THE GOVERNOR OF MICHIGAN 

Mr. Beach (reading) : ^ 

A distributor who sells a liigher percentage of his milk as fluid milk than the 
average of the entire market buys his fluid milk at less than the agreed class 1 
price. For example, during the month of June, 46y2 percent of all the milk 
coming into Detroit's market was sold as fluid milk. If a given distributor buy- 
ing on the base and surplus plan had actually sold 46% i)ercent of his total 
milk purchases in fluid form, his fluid-milk cost would have been $l.JiO per 
hundredweight. Another distributor buying on the same plan and paying the 
same price for his njiilk, but selling 70 percent of his total purchases as fluid 
form, would be paying substantially less than $1.90 per hundredweight for his 
fluid milk. 

Still a third distributor who buys' his milk on the same basis and pays the 
same price for it, but who sells only 30 percent of it in fluid form, pays sub- 
stantially more for his fluid milk than $1.90 x>er hundredweight. Some method 
of equalizing these payments is essential. The only way to bring about equality 
as between distributors and the price paid for their milk is by means of an 
equalization pool. That is the method that was used under the marketing 
agreement and license that were put into effect in the Detroit market by the 
Agricultural Adjustment Administration. 

A distributor who paid his farmers less for milk purchased under the base 
and surplus plan than he should have paid on the use basis, paid the difference 
into a pool operated by a market distributor. A distributor who paid his farm- 
ers more on a base and surplus plan than he should have, passed on the use 
basis, received the difference from the equalization pool. Thus, payments for 
milk are equalized as between the distributors and the inequalities of the base 
and surplus plan were eliminated. 

In September 1937 when the Agricultural Adjustment license was canceled 
the equalization pool went out with it. Distributors purchasing from a cooper- 
ative association refused to go along with the equalization pool on a voluntary 
basis. Some effort was made to get the distributors to equalize the price by 
taking more milk. The plan was that a distributor selling 10 percent more 
fluid milk than the average of the market would take enough more milk for 
manufacturing purposes to bring his fluid sales down to the average of the 
market. 

This effort has not met with any great degree of success. There is very little 
reason for a distributor to buy more milk than he can use. Furthermore, a 
dealer makes money — 

and this is very important, by the way^ 

by keeping the percentage of his fluid-milk saies high, and dealers are in the 
business to make money. As an official of one concern put it. when his attention 
was directed to the fact that his fluid-milk sales were running from 2 to 3 
percent above the average for the market for a period of seyeral months, "If the 
figures didn't come out that way I would have to recommend to my company 
that they cut my salary." 

During June and July 1938 the figures are given in a table here — 

which I am not going to take the time to read, for each distributor 
by number rather than by name. But I want to couple that up with 
the statement that starts in on the last line of page 53, where it says 
as follows: 

Johnson does not buy his milk on the base-and-surnlus plan. He buvs all 
of his milk on a flat-price basis. The price he pays is usually 5 or 10 cents 
higher than the blended base and surplus price received bv producers selling 
throufeh t he Michigan Milk Producers' Association. However— 

HftS^"?!?^ ^^^^ "^ ?^P"/t to Hon. Frank Murphy, Governor, by Hon. Ravmond W; 
oi^ ^•*^*^°'"°*'<? General (of the State of Michi^anf and Hon. Thurman W. Arnold, Assist- 
«? iLri^?™*'^ ^^,?^^^- U"'ted States Department of Justice. Relative to the Milk Industry 
of Michigan, With Particular Reference to the Detroit Metropolitan Area." 



CONCENTRATION OF ECONOMIC POWER 2911 

and here is the crux of the thing — 

it is substantially less than the price distributors buying from the association 
pay for their fluid milk because of the fact that almost all of his milk is sold 
as fluid milk. 

The Chairman. What are you reading from now, Mr. Beach ? 

Mr. Beach. I am reading from the report that Judge Davis read 
from this morning. 

The Chairman. You are reading from the Department of Justice 
report ? 

jMr. Beach. Tliat is right; a report to Hon. Frank Murphy, Gov- 
ernor, by Raymond Starr and Thurman Arnold. This gets at the 
meat of the thing so well that I feel if we get that, a great deal has 
been accomplished in a better understanding. 

As Johnson's fluid-milk sales increase, there is a consequent decrease in the 
amount of fluid-milk sales of other distributors in the market. Unless Johnson's 
lower-priced milk results in an increase in total consumption, an event which ia 
highly problematical, also as the fluid-milk sales of these other distributors de- 
crease, thoy buy less milk from tlioir producers at the higher or class 1 ptlce, 
and more at the lower or surplus price, the result is a lower net return to the 
other producers in the market. 

Johnson's sales are not reported to the producers' association and are not 
considered in arriving at the base price. 

Tlxe reason for that is, of course, he does not do business with the 
Association. 

Johnson's method of buying is undoubtedly a factor in his ability to sell for 
less than his competitors. 

To meet the Johnson competition other distributors insist on paying less for 
their milk. The result is a constant fight to bring the producers' price down, 
with a result that the producer is bearing the brunt of the present price warfare. 
If Johnson were required to pay the same price for milk as other distributors 
are paying, a fair test of the efficiency and public approval of his system of milk 
distribution would be provided. 

And then in*the summary this very significant paragraph is in- 
cluded, on page 62, "paragraph No. 3, starting about in the middle 
of the* page : 

The situation with respect to producers' prices is not entirely satisfactory. 
The Michigan Milk Producers' Association 

The Chairman (interposing). Is that correct, from your point of 
view, too? 

Mr. Beach. Yes ; that is near enough, so we may assume that it is 
correct. 

The price to be paid producers for milk is worked out by agreement between 
the distributors and representatives of the producers' association, theoretically. 
Every distributor should be paying the same price as every other distributor 
for his milk. Due to the different methods of buying milk in vogue in the? 
market, and to the fact tliat distributors are supposed to buy their milk on 
one basis and pay for it on a different basis, there is a great difference in the 
cost of milk as between distributors. Some distributors buy their milk so 
much lower than others that they are able to sell it for substantially less and 
still make a profit. To meet this competition the distributors in the unfavorable 
position seek other means of getting the price of milk down. While the con- 
sumer has gained from existing price competition, the producer has suffered 
from it. 

Milk prices in this area — 

Speaking about Detroit — 

are lower than they have been at any time since 1933. The lack of uniformity 
in the buying of milk is undoubtedly contributing substantially to the present 



2912 CONCENTRATION OF ECONOMIC POWER 

low producers' prices. The producer price situation needs attention. There 
is a strong body of opinion to the effect tliat if producer prices could be sta- 
bilized and all "distributors required to pay the same price for their milk, the 
major difficulties of the Detroit market would be eliminated. 

Since this market is almost entirely an intrastate^ market, such action as 
might be taken toward this end must come from the State. 

The Chairman. Now, does that statement have your approval, too? 

Mr. Beach. It receives my 100-percent approval. 

The Chairman. Then there really is not very much controversy 
here, is there? 

INIr. Beach. Well, there is no controversy between that document 
and me. 

The Chairman. I am trying to find out where there is some real 
controversy, if any. The committee voted to permit you and several 
others to make appearance here because the impression apparently 
had gone about that some, shall I say, inaccurate statements had been 
made. I have noted during tlie life of this committee that tliere is a 
tendency upon the part of persons who may come before it, who may 
expect to be called before it, and who are iiiterested in the matters 
which we are studying, to believe that this is some sort of a prosecut- 
ing agency and that we are trying to lay traps for people. Now, of 
course, there is no basis for that at all. We are merely trying tc 
find out what this very complicated economic problem is and what 
may best be done about it, because obviously every factor, not only 
in "the milk problem but in every other economic problem, is com- 
pelled to turn to government for some sort of a solution. You have 
turned to government voluntarily, just as your producers' association 
in Michigan has turned to the Michigan Legislature to ask for a 
milk control act. Businessmen come to Congress for all manner 
of relief, and Congress very readily grants it. Now, since j^ou have 
placed the stamp of approval upon the report from whicli you have 
just read and from which Judge Davis read this morning, it seems 
to me to boil down to an acknowledgment that 85 percent of the 
supply of milk is controlled by your organization, on behalf of the 
producers. You are frankly endeavoring to serve what I regard to 
be a perfectly proper purpose; namely, to maintain what you regard 
to be a living price for the producers of milk. Vpon the other hand, 
distributors are trying to maintain wdiat they regard to be a price 
that will enable them to meet the prices that you pay and on the 
other hand it is acknowledged by everybody, apparently, that if a 
distributor who does not belong to the distributors' group, which 
meets w^ith you to fix the prices which the distributors pay to the pro- 
ducers, such a person is very likely by his operation to cut the price 
of milk to the producer and at the same time cut it to the consumer. 
Is that a correct statement? 

Mr. Beach. Well, you said that it does not belong to th? dis- 
tributors' group. You probably mpnn by that, if he is not one of 
the distributors to whom we sell. 

The Chairman. Having in mind the statement which you just 
read, that 85 percent of the milk supply of Detroit is controlled by 
thi.s producers' organization for which you speak, and that the price 
which is paid to these producers is fixed by contractual arrangement 
between your group and the distributors. Now I just made the in- 
ference that a man like Mr. Johnson, w4io testified here is certainly 



CONCENTRATION OF ECONOMIC POWER 2913 

not a member of that group which makes the contractual agreement 
with you for the fixing of the price. 

Mr. Beach. To the producer. That's right. 

The Chairman. And his operation, since he is outside of that 
group, necessarily results in a lower price to the producer. Isn't 
that the whole story? 

Mr. Beach. It wouldn't necessarily mean that he would have to 
pay less, but the facts of the case are that he does. 

The Chairman. That is the reason he doesn't join, because he 
wants to buy milk at a lower price and feels that he can make a 
profit that way. That is the free open competitive system. It does 
seem to me — perhaps I am testifying here Judge Davis — but what 
has been said this morning, what has been presented from every 
angle, seems to emphasize that in our present era we are struggling to 
produce results, to produce beneficial results, in a situation which is 
dominated by organizations of one kind or another, as against the 
old system which w^as dominated only by individuals. We had an 
individual economy that seems to be behind us, and we are working 
now in an organizational economy, 

Mr. Beach. Well, in the milk industry, among producers, 85 per- 
cent, while it is a high percentage, is not domination, becatise at the 
time of the license approximately 93 percent of all of the milk in the 
Detroit market was handled upon the same basis. There are some 
markets where it is as high ate 96 percent, which might well be called 
domination, or at least control. But the thing that happens is this. 
There is competition there between the 93 percent and the other 7, 
and the 93 becomes less and the 7 becomes a greater amount. And it 
is always necessary for the 85 percent, or whatever that may happen 
to be, to constantly recognize the 12 or 15 milk buyers that are in a 
market that go out and buy there for less. 

This 85 percent must recognize that and must meet that competi- 
tion, or it soon mean&.that the 85 percent is 82, and then 80 and 75 and 
60, and finally to the point where it is not a very potent factor in , 
the market. 

That competition is really there. If I wanted to- refer to state- 
ments that used to be made back in the N. R. A. days, they were 
to the effect that 10 percent could often bring about a ruinous situa- 
tion for the remaining 90 percent. I believe that to be true, according 
to my observation in the milk industry. 

The Chairman. Would you like to get that other 15 percent into 
your organization? 

Mr. Beach. I will tell you what I would like. We have offered, 
and I am not going to take the time to read the letters but it is a 
matter of record, to sell milk to the Johnson Milk Co., as one of 
those that are outside. I don't care whether the name is Johnson or 
what it is, it is the principle of the thing I am interested in, because 
I dealt with Mr. Johnson of the Johnson Milk Co. and know him. 
But we had a letter from the Johnson Milk Co. on August 3, 1938, 
saying that he was in the market for milk from 200 ad^litionai farms. 
He said, ''If the Milk Producers' Association and the milk dealers 
of Detroit have a surplus, why cannot this milk be transferred to 
my company ?" and I wrote him this two-page letter, which I am not 
going to take the time to read, but it sets forth first that we would 



2914 CONCENTRATION OF ECONOMIC POWER 

sell milk to him on the same basis as we sell to the other distributors 
in the Detroit market, and for fear that there might be some mis- 
understanding, we stipulated what that basis was. That was on 
August 10, 1938, and on August 12 this letter was sent back to us, 
and this is an exhibit that has been filed with the commission : 

No person or persons except myself has any authority to dictate or formulate 
the policy of the Johnson Milk Co. 

Now, included in that we said one other thing, and that is that 
we would want to check test on the milk. When you stop to realize 
that one point, one-tenth of 1 percent, difference in test, means 4 
cents per hundredweight to the producer, or on the volume of milk 
that we handle it means $20,000 per month to the producers, and if 
you take a test to become an efficient tester oftentimes they will 
allow you 1 or 2 points' variation between you and accuracy and 
still you can get a license to test, therefore that check-testing service 
of the association may pay twice the cost of the expense of maintain- 
ing the Michigan Milk Producers' Association. 

I wanted to bring out, Mr. Chairman, particularly that this has 
been done on the part of the Michigan Milk Producers' Associa- 
tion, offering to sell this milk, in spite of the fact that when we dealt 
with Mr. Johnson, of the Johnson Milk Co., who ran under the 
name of the Modern Milk Co. in Grand -Rapids, he got so far behind 
in the payment for his milk, on dues, that he at one time owed 
approximately $2,300 — and on the equalization fee in effect over 
there — and still further, during the Government hearing in Grand 
Rapids, pursuant to the possibility of putting in a license and market- 
ing agreement in Grand Rapids, the farmers from around Grand 
Rapids kept coming to the Government officials and myself and 
asking me if they were properly paid. They were paid a 35-percent 
surplus, and they said, "We know that the Johnson Milk Co. does 
not have that surplus but is short of milk." Therefore, we approached 
the Johnson Milk Co., who was doing business as the Modern Milk 
Co. then, and asked him about it, and he intimated that he didn't 
know. 

Therefore, we tried to get an audit of the books, and first he denied 
it, and it was contrary to an agreement and we had to go into court, 
and here is a record of that court case, and it is stipulated in the 
supplemental statement which I want to have the privilege of filing, 
which I started to read this morning but diverted from it. It is 
rather short, and I will just, leave that with the committee if that 
is O. K. 

So when Johnson realized that he had withheld money from the 
producers and had not paid them properly an amount of $1,200, 
together with $2,300 that was owing to the association on the equal- 
ization account, on advice of his counsel he paid up and did not go 
through a trial in court. 

But in spite of all that, these things that I have mentioned are so 
fundamentally sound that we are willing and glad, contrary to Avhat 
Mr. Johnson said, to sell him milk and have told him so in writing, 
and also have told him so verbally several times, that we were willing 
to, ah^ we still are, so far as that is concerned. 

The Chairman. Well— all right. Judge Davis. Proceed. 



CONCENTUATION OF ECONOMIC POWER 2915 

Mr. Davis. Mr. Chairman, Mr. Beach read paragraphs from the 
conchisions of this report made to Governor Murphy, with approval. 
I want to read two or thres paragraphs that he didn't read, and see 
if he approves those, 

Mr. Beach. Could I ask what page, Judge Davis? 

Mr. Davis. Page 61. The first paragraph is a general explanation 
bi the investigation [reading] : 

It is true there is no eyideuce of any combination or conspiracy in restraint 
of trade covering the sale of milk or its products at the present time. There is 
ample competition in the sale of milk in Detroit today. One concern has started 
a chain of milk depots, 31 or 32 in number, from which milk is being sold on a 
cash-and-carry basis for 6 cents and 8 cents a quart. The difference in price is 
due to the difference in butterfat content. 

Stores are selling milk regularly for 7 cents a quart, and on Saturdays as 
low as 5 cents. 

The prices there for sale by the stores are other dealers than John- 
son, are they not? 

Mr. Beach. I would have no way of knowing. 

Mr. Davis. It is a fact, is it not, that various independents do sell 
their milk through stores? 

Mr. Beach. Oh, yes. 

Mr. Davis (reading further) : 

Milk is bein^T delivered to the home for 11 cents and 10 cents a quart, in some 
instances for as low as 8 cents. New distributors have no difficulty getting into 
the market. There has been a substantial increase in the number of distributors 
in the iiast few years. There is an ample supply of milk within reasonable 
hauling distance from the city. The local health officials have not made any 
limitations on the area of inspection. They will provide Inspection at any 
place that a distributor desires to get his milk. 

During 1934 and 193.5, the Distributors Trade Association, acting in concert 
with the local bottling excliange, was able to maintain prices at a fixed level 
and to prevent effective competition in the sale of milk. Vigorous action by 
the Wayne County prosecutor's office, coupled with the opening of the milk 
depots with their low-priced milk, resulted in a breaking' up of the combine 
and restoration of competition in the milk business. The dealers' association 
was dissolved. There is no formal organization of milk dealers in the" Detroit 
market at the present time. 

Do you approve of that ? 

Mr. Beach. I am willing to accept the statement as given, because 
that doesn't pertain to the producers, the producers' organization. 
I am assuming that the investigators have the same truth involved 
there as they have in the others that pertain to the association. 

Mr. Davis. Right in that connection you have made reference in 
your written statement and in your oral testimony to the Federal 
marketing license which was granted there in Detroit, and you state 
that you are undertaking to carry on in the same Avay. That license 
was first granted, was it not, August 23, 1933 ? 

Mr. Beach. That is right. 

Mr. Davis, And was then withdrawn the following December ? 

Mr, Beach. No; December 19S7, 4 years later, a little more than 4 
years. 

Mr. Davis, Didn't they, first withdraw it and then grant- a new 
license which was later withdrawn in 1937? 

Mr. Beach. Possibly you are right, but they overlapped. 

Mr. Davis. Isn't that correct ? 

Mr. Beach, I will assume that you are correct on that. 



2916 CONCENTRATION OF ECONOMIC POWER 

Mr. Davis. Isn't it a fact that the first marketing license granted 
fixed the price of milk to the consumer at 10 cents a quart ? 

Mr. Beach. Unfortunately I haven't a copy of that license here. 
It is on record here at Washington, and whatever it says speaks for 
itself. 

Mr. Davis. You don't remember that fact? That fact is stated 
in the report to the governor. 

Mr. Beach. O. K., then I will accept it as being right. 

Mr. Davis. And then, after that had run for a fe\^ months and 
they canceled that license and gi-anted another one, it did not contain 
any authority whatever to fix a price to the consumer. Is that not 
correct ? 

Mr. Beach. Th,at is right. The Government changed their policy 
on resale prices. 'That is on resale prices. That is right. 

Mr. Davis. Yes. 

Then isn't it a fact that, as stated in this report to the governor, the 
distributors themselves thereupon formed a combine and fixed the 
price to the <5onsumer. 

Mr. Beach. I don't know that to be a fact. 

Mr. Davis. Do you deny it ? 

Mr. Beach. I don't know. 

Mr. Davis. Well, this report says it did, and you said you accepted 
that. 

Mr. Beach. I will accept the stateitient in the report, but from 
my knowledge of it, the report is not based in this regard on any 
information that was received from me, and I don't know about 
that. I will accept the report. 

Mr. Davis. Wellj it is stated in detail even before the conclusion is 
stated, and it is all m the record. 

Now, then, the price was run up from 10 cents to 11 cents, and then 
to 12 cents, was it not, the price to the consumer ? 

Mr. Beach. You mean off the wagon or through the stores? 

Mr. Davis. Well, now, in that connection isn't it a fact that the price 
was the same whether it was cash and carry or delivered until Johnson 
entered the field ? 

Mr. Beach. No; all the prices weren't the same. I think that you 
will find that there was a quite a wide variation, and I believe that 
many stores sold milk at a different price than the price off the wagon. 
As I recall from experience in the market, that was the case. 

Mr. Davis. And then the distributors announced that they were 
going to increase the price to 13 cents, didn't they ? 

Mr. Beach. Well 

Mr. Davis (interposing). In 1936. 

Mr. Beach. I can't answer from the standpoint of the milk dis- 
tributors. I didn't announce any price and didn't have anything to 
do with any announcement of price. 

Mr. Davis. You were pretty familiar with what was going on in the 
milk industry in Detroit, weren't you ? 

Mr. Beach. Some may have amiounced it ; yes ; that they were going 
to sell milk for 13 cents retail off the wagon. 

Mr. Davis. I read, beginning on page 49 of this report of the 
Attorney General and the Department of Justice : 

On February 10 every distributor in the city made an announcement of an 
increase in the retail price on the following day from 11 cents to 12 cents a quart. 



CONCENTRATION OF ECONOMIC POWER 2917 

There are approximately 46 quarts in 100 pounds of milk. The increase in the 
producer price was 23 cents a hundred, hence an increase of half a cent a quai't 
to the producer resulted in a whole cent a quart increase to the consumer. Im- 
mediately consumer organizations began to raise a great hue and cry. Respond- 
ing to public demand, the prosecutor of Wayne County started action against 
the Metropolitan Detroit Milk Dealers' Association and the officers and directors 
of the bottle exchange, charging a conspiracy to raise the retail price of milk in 
violation of the Michigan antitrust laws. 

A one-man gi'and .jury was convened, and extended hearings were held running 
well into the fall of the year. No indictments were returned, but the hearings 
were widely publicized. At the conclusion of the grand-jury proceedings, quo 
warranto proceedings were instituted by the prosecutor in Wayne County circuit 
court to dissolve that Metropolitan Detroit Milk Dealers' Association for violation 
• of the State antitrust laws. Dairy producers are specifically exempted from the 
pro^•isions of the Michigan Antitrust Act in the following language — 

And it is quoted — 

"It was the position of the prosecutor that while the distributors had a right, 
under the law, to get together with the producers' association and agree on a 
price to be paid producers for their milk, there was nothing in the act which 
authorizetl distributors to get together and agree among themselves on the retail 
price to be charged consumers. 

After a lengthy trial, at which voluminous testimony was taken, the circuit 
court concluded that there was no unlawful agreement in violation of the 
Michigan antitrust laws, and denied the application of the prosecuting attorney 
to have the dealers' association dissolved. 

The court 'took the position that the agreement by which the retail price 
of milk was increased was part and parcel of the agreement to increase the 
price to the producer and could not be separated therefrom. 

Meanwhile another factor appeared in the Detroit milk situation. 

Then it goes on subsequently and explains the entry of the Johnson 
Milk Co, into the field, and the establishment of these milk depots 
throughout the city, and states it resulted in the reduction of the 
price, which was stated over there in the conclusion, which I have 
already read. 

Now, this also says: 

The price he paid — 

That is Johnson — 

is usually 5 or 10 cents higher than the blended base and surplus price received 
by the producer selling through the Michigan Milk Producers Association. 

Mr, Beach. That is the same part I read. 

Mr. Davis. Is it not a fact that IVIr. Johnson has uniformly paid 
a higher price for the milk received by him than the blended price of 
the' producers' association ? 

Mr. Beach. He probably, on an average, has. But while so 
doing, that means if you understand the blending process correctly, 
that lie buys his milk for less — that goes into the fluid-milk sales — 
than what the distributors do that buy from the Michigan Milk 
Producers Association. 

Mr. Da\ts. In that connection you stated this morning that about 
60 percent of the producers generally went into fluid-milk sales and 
about 40 percent into processed. If Mr. Johnson states, and if his 
books show, that he is now and has uniformly sold about 60 percent 
of the milk he bought in bottles, and processed about 40 percent, 
your reasoning just given does not apply, does it? 

Mr. Beach. Yes; it still does apply, because you have got to 
remember one or two things in connection with that. In the first 
place, the 60 percent is taken at this time of the year, when the 



2918 CONCENTRATION OF ECONOMIC POWER 

amount of milk is less than it is at some other times of the year. 
If you recall, he stated 

Mr. Da\t:s (interposing). I am talking about averages. I sup- 
posed you were talking about averages. So am I. 

Mr. Beach. I am not talking about yearly averages. I have sub- 
mitted the yearly averages to your committee. Those are on file 
with you. And whatever those figures show, that is exactly what 
it is, and I can't change it. But it wouldn't be 60 percent. 

Still further, out of that he, from his producers or those from 
whom he buys, takes nothing whatsoever to assist in taking care 
of the milk which has to be taken care of in the market rather than 
to simply be shut off if a producer finds himself in that unfortunate 
position. 

Mr. Davis. You referred to that two or three times, and several 
times in your written statement, to his cutting people off, and you 
have filed as evidence a telegram to one producer. Have you any 
evidence, if so I will ask you to please produce it, of his having cut 
off any except that one producer? 

Mr. Beach. Based upon information which I believe to be true, 
he has done it. This is an incident that I am very familiar with that 
happened just last week. When the Johnson Milk Co. came into 
Grand Rapids and started to purchase milk, he contracted a hauler 
and got him to work up three separate routes. After those routes 
were worked up and became probably paying milk routes to haul 
milk into his plant, he unceremoniously, according to what the hauler 
told me, on onl}^ a day or two of notice, was eliminated from further 
hauling milk. The cans were taken away from him, and Johnson 
put his truck on to take over that business that this hauler had worked 
up, and he said, according to whatvthis hauler told me, that if the 
producers didn't like that, they could keep their milk at home. 

Mr. Davis. What is the name of the man you are talking about? 

Mr. Beach. The name of the man is Clarence Larson, at Belmont, 
Mich. 

Mr. Daat^s. He was not a producer but a trucker ? 

Mr. Beach. He was a producer and a trucker. 

Mr. Davis. What he cut him off from was hauling milk: was it 
not? ^ 

Mr. Beach. That is true, he cut him off from hauling milk, and 
forced the producers to accept something that we maintain a pro- 
ducer doesn't have to accept. We have maintained that it was the 
producer's privilege and right to designate in what manner he was 
going to get his milk from his farm to the first point of delivery. 
That has come up many, many times. 

Senator King. Mr. Witness, don't you think it would be better 
to answer the questions, instead of making explanations of matters 
that are not relevant ? 

Mr. Beach. I thought this had quite a bit to do with it ; maybe not. 
1 ardon me if it doesn't have. He asked me the question, if" I knew 
about any of these being cut off. 

Mr. Davis. Now, if Mr. Johnson has stated in the letter to the 
I^ederal Trade Commission that that is the only one instance in 
which he cut off a producer, can you produce any evidence or have 
you any other letters from any of them to the effect that he cut off 
anybody else, except the man that you talk so much about? 



CONCENTRATION OF ECONOMIC POWER 2919 

Mr. Beach. Naturally, I am not in the business of goinjr around to 
find out why certain people are cut off. 

Mr. Davis. Mr. Cliairman, I would like for the witness to answer 
the question, and then if he wants to make a pertinent explanation, 
of course, he can do that. I asked hin\ if he could furnish any letters 
or telegrams from any other producer -or trucker either, except the 
one he produced. 

Senator King. He can answer that "yes" or "no," if he wants to. 

Mr. Beach. I started to say I didn't make a business of going 
around and collecting that information, therefore, I have none other 
to present. 

Mr. Davis. But you have repeatedly spoken in general terms in 
your statements, oral and written, to the effect that it was his habit 
to do that. 

Mr. Beach. Yes ; but I haven't further evidence than messages that 
have come to me to that effect, 

Mr. Davis. Mr. Chairman, t shall not take time to read the letter 
unless it is desired by some member of the committee. 

The Chaieman. May I say that as I see it, the issue here is not the 
individual conduct of Mr. Johnson. I don't think it is a matter of 
very material interest to the members of the committee. The issue 
here is the type of organization which has been effected to control the 
price of milk to the consumers. This witness has very frankly testi- 
fied that the producers have been organized in order to maintain the 
price for producers. Now, as a representative of an agricultural 
Statp, I have endeavored to do that myself for the agriculturalists of 
Wyoming, particularly those who are interested in producing sugar 
beets, because I believe that the farmer must be given a price that 
will enable him to produce at a profit. But that is a matter of 
opinion. What we are seeking for here are the facts, and the sub- 
stantial fact, it seems to me is, What is the relation between the 
price that the producer gets and the price that the consumer has to 
pay? That is a question which has not been answered altogether, 
without regard to the personal activities of Mr. George A. Johnson. 

INIr. Davis. Now, Mr. Chairman, I agree -with you as to that, with 
this suggestion. Mr. Johnson has testified before this committee that 
he paid more to the farmers for milk than the producers' association 
did. That is corroborated in this report to the Governor and just 
admitted in effect by Mr. Beach. He also stated that he was selling, 
that he went in there and commenced selling, cheaper to the con- 
sumer than the others were selling, and that is admitted and shown 
conclusively. 

The defense offered by Mr. Beach is a constant and continued 
effort to try to destroy Mr. Johnson and make him out a very bad 
character, and I just wanted to show that by documents, just in 
regard to^ome of his statements, you, when you boil the stuff down, 
understand the fact that he has lialf a dozen times in his oral and 
written statements spoken in general terms of his cutting off — "Of 
course, if he just cut off anybody when he wanted to, he could do 
that." I think that is important. He says that is the way Johnson 
can do this, and Johnson denies it, and, we think, if they have any 
evidence more than the one letter, which is explained here and which 
Mr. Johnson will further explain* if desired, that that is pertinent 
to the whole question, as this report to the Governor says. 

124491— 39— pt. 7 12 



2920 COXCEXTUATION OF ECONOMIC POWER 

The Chairman. The witness said he doesn't have any more evi- 
dence, so that puts an end to it. 

Mr. Davis. I know, but that is what I want to show. 

Now, then, you stated at the beginning of the testimony that this 
afternoon you had just received a message that Mr. Johnson had cut 
the price of milk to the consumer again. Is it not a fact that the 
other distributors in Detroit cut the prices 2 cents a quart about 3 
weeks ago? . 

Mr. Beach. I understand that while it might not be a bilateral 
2-cent-per-quart reduction, they did reduce their price to approxi- 
mately the same amount as the Johnson Milk Co. has been selling milk 
for previous to this time. I understand that they met that competi- 
tion, or came pretty close to it anyway. 

Mr. Davis. And they having cut theirs 2 cents a quart, he cuts his 
from 6 and 8 to 5, 6, and 7. In other words, they cut the price 2 
cents, and then he met that by cutting his 1 cent. 

Mr. Beach. No; they didn't meet him because they weren't at the 
meeting point in the first place. In other words, the 2-cent drop 
brought their price down approximately to where his price v»'as, not 
less, and then when they came down to meet his price, quite largely 
the 1st day of ^pril, or about there. Ire now, according to the wire 
that I have received, has dropped, once do\^^n below that. 

Mr. Davis. Isn't it a fact, as stated in this report, that even back 
then some of the dealers were selling milk in stores as low as 5 cents 
a quart? 

Mr. Beach. Not to- my knowledge. It may have been true,. but 
not to my knowledge it wasn't true. 

Mr. Da\is. There are quite a number of other dealers besides Mr. 
Johnson who are selling on the cash-and-carry plan, are there not? 

Mr. Beach. I believe so. 

Mr. Davis. Before we adjourned for lunch we were discussing the 
question of audit, and you stated that you had two auditors. 

Mr. Beach. That is right. 

Mr. Davis. And that the 10,000 of j^,a members who sell their 
milk in Detroit to 41 distributors 

Mr. Beach (interposing). It is approximately 41, that is near 
enough for practical purposes. 

Mr. Davis. These accounts involve a sale in two classes, to "be de- 
termined upon the use for which the milk was put. That is correct, 
is it? 

Mr. Beach. Not exactly, excepting it is' partially correct. If you 
determine that, the difference between that and the purchases is the 
other. All you have to do is determine one and you have the other 
automatically. 

Mr. Davis. Well, now, this report states that in order to determine 
this price under that plan, it Avas necessary to employ higher 
mathematics. Is that correct? 

Mr. Beach. Well, to those of us that work on it it is rather simple 
arithmetic, but I don't know just what you mean by higher mathe- 
matics. 

Mr. Davis. That is the report to the Attorney General. 

Mr. Beach. All right; I will accept it. 

(Senator King assumed the Chair.) 



CONCENTRATION OF ECONOMIC POWER 2921 

Mr. Davis. This is entitled "Detroit Milk Prices, How Calculated, 
Facts and Figures, Michigan Milk Producers' Association, Detroit 
Mich.," and this is a 19-page document, is it not, telling how to calcu- 
late the price the farmer is to get for his milk. 

Mr. Beach. There is a lot oi other information besides that. 

Mr. Davis. Doesn't everything in here, as the title implies, relate 
to the method of calculating the price? 

Mr. Beach. Either directly or indirectly; yes. 

Mr. Davis. I would lil'e for the members of the committee to exam- 
ine that. Yet you say it is a simple method. 

Mr. Beach. Yes; to those that are familiar with it. 

Mr. Davis. I would like it to be filed in the record, but not printed 
unless somebody else desires it. 

Mr. Beach. AVe filed one of these, by the way, as an exhibit. 

(The document referred to was marked "Exhibit No. 436" and is 
included in the appendix on pp. 3235.) 

Acting Chairman King. It doesn't provide for the use of loga- 
I'ithms in ascertaining it? 

Mr. Beach. Oh, no; it is supposed to be simplified to the point 
where probably a sixth-grade student could understand it, 

Mr. Davis. You stated this morning that if any producer was dis- 
satisfied and felt that he was gyjjed, he could make a complaint ? 

Mr. Beach. Oh, no; it is supposed to be simplified to the point 
: Mr. Davis. Yes. 

Mr. Beach. Yes; that is right. 

Mr, Davis. Now, how does he know the use to which the milk was 
put which he sold and which was first carried to a collecting or re- 
ceiving station out in the State somewhere and blended with milk of 
other farmers into a tank truck, and then brought in and sold to some 
distributor? 

Mr. Beach. He knows the answer to that question through accept- 
ing the statement and report of certified public accountants that do 
the auditing to determine just that very thing, 

Mr, Davis. Do you say that two auditors could follow the milk 
of 10,000 farmers every day, distributed by 41 distributors, and see to 
what use it was put, whether it was sold in bottles to the consuming 
public, or converted into ice cream or cheese, or powdered milk, or 
some of the various other surpluses? 

Mr. Beach. That is my statement. 

Mr. Davis. And two men can do that? 

Mr. Beach. Yes, sir; they do do it. They only have to audit — 
let me explain ; it will help to clear it up for you. The report comes 
in at the end of the month from each distributor. That report is 
accepted as being true. At the end of approximately 3 months, or it 
might be every month, if there is a question arises; then the audit 
is made of the distributors' records. 

. Mr. Davis. You mean reports accepted by yau as secretary-man- 
ager? 

Mr, Beach, For the purpose of figuring the price, yes; and then 
the next thing that happens is the^ aiidit is made, , Not necessarily 
every month, but possibly every third month, or whatever the time 
may happen to be, 

Mr. Davis. Mr. Chairman, I have in my hand photostats of seven 
checlcs given to producers by different distributors in Detroit, dur- 



2922 CONCENTRATION OF ECONOMIC POWER 

ing the month of April 1939 in wliich the price is stated and we have 
a witness liere by whom w^e can pro\:e that he cashed these checks 
and had the photostats made, if there is any question about them. 

Acting Chairman King. Have you seen these checks ? Would you 
look at them to see whether you can see that they are correct photo- 
static copies? Would you question them? 

Mr. Beach. No, I would not. I have no w^ay of knowing, but I 
would take it for granted they are probably correct.. 

Acting Chairman King. May they be Exhibit A, then. If neces- 
sary we can identify them later.^ 

Mr. Davis. Now, Mr. Beach, will you please examine those suffi- 
ciently to state wdiether or not they purport to be checks given in 
April for milk delivered in March 1939? 

Mr. Beach. There are just two checks, aren't' there ? Those two 
that I find; others are statements, I believe; these two are; these 
others are 

Mr. Davis (interposing). Statements which accompanied the 
checks, I think. 

Mr. Beach. There are two checks, five statements; and two adili.- 
tional statements accompanying the checks. 

Mr. Davis. Now you issue, or rather your association issues, a 
Michigan Milk Messenger, association organ, 'does it not? 

Mr. Beach. Yes. 

Mr. Davis. Now, in your April issue you give the gross base price 
at Detroit of 3.5 test per hundredweight* $1.68, do you not ? 

Mr. Beach. That is right. 

Mr. Davis. Now, that is for class 1 milk, is it not ? 

Mr. Beach. No; that is for base milk. 

Mr. Davis. That is for what is sometimes called blended ? 

Mr. Beach. Yes; that is a blend of approximately 90 percent of 
all the milk that the association sold in the Detroit market for that 
particular month. 

Mr. Davis. Then there folloAvs, less pool,- 5 cents ; less dues, 3 cents, 
making a total of 8 ; leaving net base price at Detroit $1.60 and gross 
excess price at Detroit 3.5 test per hundredweight, $1.25, from which 
is deducted the 5 cents pool fee, and the 3 cents dues, leaving a bal- 
ance of $1.17. Now, do any of those statements accord with the price 
given here, or do all of them accord with it? 

Mr. Beach. I cannot answer this question because I don't know 
through what station this man happens to be selling milk. I cannot 
identify it from his name and address, where he sells milk, whether 
he sells it in Detroit market or wdiether he sells it to a condensery that 
doesn't have anything to do with this price, or not. I cannot tie the 
two together from the information I have. I would rather take it 
from this, however, that he is a shipper of uninspected milk at a 
condensery, but that is just my guess. 

Mr. Davis. Now, would the Detroit base be written on it if it was 
sold somewhere else to a condensery? 

Mr. Beach. No. The Detroit biise would not, but it might say 
"base" on it as far as that is concerned; it says "base" on it here, but 
does not say what his base is. 

1 Introduced, infra, p. 2937, as "Exhibit No. 4.37," appear in appendix, p. 3244. 



CONCENTRATION OF ECONOMIC POWER 2923 

Acting Chairman King. Is there no identification mark to indicate 
the particular city or community or station from or to which the milk 
was sent and from whom the check was issued or by whom the check 
was issued? 

Mr. Beach. It says "OV" here.; possibly that means Ovid ; it might 
mean that. 

Acting Chairman King. Is that near Detroit? 

Mr. Beach. About 100 miles out. 

Mr. Davis. In the Detroit area, isn't it, milkshed? 

Mr. Beach. Yes and no. There is a milk-receiving station there 
from which inspected milk comes into Detroit, and there is also a 
condensery there owned and operated by the Detroit Creamery Co. 

Mr. Davis. The Detroit Creamery Co. is a subsidiary of what com- 
pany ? 

Mr. Beach. Of the National Dairy Products. 

Mr. Davis. National Dairy Products, which is one of the Detroit 
distributors, is it not? 

Mr. Beach. That is right. 

Mr. Davis. Well, aren't they supposed to pay the Detroit price? 
They are supposed to buy from you, are they not? 

Mr. Beach. Their condensery milk at Ovid ; no. 

Mr. Davis. Wliatever milk? 

Mr. Beach. No ; we don't sell condensery milk to them at Ovid. 

Mr. Davis. May I have those just a minute? Now here is one 
check given by Bordens, Detroit, Mich., pay to the order of John 
Ajoff, $12.27, and they have 1,627 pounds base milk, price $1.05, total 
amount $17.08. Now, that is dated April 13, 1939. How do you 
reconcile that base there with this base that you gave in the Messen- 
ger for March? 

Mr. Beach. The Messenger states that that is f. o. b. Detroit, 
Mich. ; doesn't it ? I haven't it before me, but I think it says 

Mr. Davis. It says "gross base price at Detroit." 

Mr. Beach. This other is net check at his farm. That very largely 
explains the difference between the two. The hauling has to come 
out, just the same as in the case of Johnson, the hauling comes out 
of his $1.50 price. 

Mr. Davis. Now, he gets 85 cents a hundred pounds for his milk, 
doesn't he? 

Mr. Beach. You have the check and I can't see from here. 

Mr. Davis. I beg your pardon . 

Mr. Beach. Well, I fear again, Judge Davis, that w^hat you have 
here is a check from a man selling uninspected milk out of the 
Detroit milkshed over which we have nothing to do, whatsoever, 
because it says "Bad Axe"' on it, and if it is true it comes from 
Bad Axe,^ then it is unins])ected milk, because we have no members 
that sell milk from the Bad Axe receiving station. 

Mr. Davis. Well, did Borden buy uninspected milk? 

Mr. Beach. Oh, yes; they buy a lot of uninspected milk and make 
it into evaporated milk at different places. It couldn't be sold in 
Detroit market as fluid milk because that would be in violation of 
the Detroit Board of Health, and they would put them out of busi- 
ness over night, if they tried it. 



> A town In 'Huron County, Mich. 



2924 CONCENTRATION OF ECONOMIC POWER 

Mr. Davis. Now, you spoke about and stressed the fact that the 
man, of whom the producer made the complaint about Mr. Johnson, 
said, that he got his pay 14 days late. 

Mr. Beach. That is right. 

INlr. Davis. Now, isn't it a very common occurrence for all the 
distributers to be that late in sending out checks ? 

Mr. Beach. No, sir; if we sold milk to a distributor that was that 
late he Avouldn't get his milk. 

]Mr. Davis. Now, here is Borden's check dated April 13, 1939, for 
March milk, and here is the Detroit Creamery Corporation, which 
you say is a subsidiary of National Dairy Products. The check is 
dated April 15 for milk delivered in March 

Mr. Beach. Yes; but 

Mr. Davis. And of course they were not received by them until 
after it had been through the mail.? 

INIr. Beach. Yes; I think I can explain that to you. The check 
that you have dated the 13th of April in payment for March milk? 

Mr. Davis. Yes, sir. 

Mr. Beach. That check is due and payable to the producer upon 
the 15th of April. He undoubtedly received it on the 15th of April. 
Tliat is the date that it is due. Now, the statement that I make 
relative to Johnson is that he tells the f-armers that he only holds 
15 days back, that milk that -he gets the first 15 days of the month 
he will pay for upon the 1st day of April, and he does not live up to 
that agreement, but he sometimes is as much as 14 days late, and 
to the best of my knowledge no distributor to whom we sell that pays 
the farmers is late like that with his checks at all. 

Mr. Davis. Now, that communication to you did not make all that 
explanation, did it? Didn't it just say he was 14 days getting his 
check ? 

]Mr. Beach. Beyond the due date; it is perfectly clear to me what 
he meant and he is, of course, one of several hundred that has been 
in that position. 

Mr. Davis. Now, the only statement that the farmer gets of the 
milk he delivers and the price wdiich he gets is either on the check 
or the accompanying statement, such as these; is that correct? 

Mr. Beach. That may not be the same copy that is used in a 
great many cases. The statements may differ but it would be a 
statement or the information that is on the check relative to his par- 
ticular shipments is on the statement or the check, not necessarily, 
that one. 

Mr. Davis. This is the way your association members handle it, 
is it not? 

Mr. Beach. We send a statement accompanying the check. 

Mr. Davis. Now I want to pass these around to members of the 
committee and let them see that is the notice the farmer gets. 

Mr. Beach. Would you allow me to just make a statement that 
may help clear. up the contention relative to the difference in prices? 
You will note that while our blended price — I believe you (luoted 
at $1.60 in the Michigan Milk Messenger there; wasn't that what 
it said? 

Mr. Davis. $1.60 after you deduct fees. 



CONCENTRATION OF ECONOMIC POWER 2925 

Mr. Be.\ch. Jhat is right ; after everything is dechicted the aver- 
age price on all that base milk, and after you took the sur])lus milk 
into consideration and averaged it, it was $1.56 f. o. b. Detroit, as 
compared with Johnson's price of $1.50 f. o. b. Detroit. That, of 
course, is covered in my statement. 

Mr. Davis. At the same time, I understand, he paid a higher price 
than the blended price? 

Mr. Beach. I don't admit any such a thing. It isn't true, and I 
am unwilliiig to admit something that I know is untrue. 

Mr. Davis. Doesn't he pay a larger price than your blended price ? 

Mr. Beach. No; he does not always; no, sir; he doesn't always 
do that. Sometimes he doesn't do it, and he certainly pays far under 
what v,'e maintain that our fluid-milk price is at which we sell as 
compared with what we sell our fluid milk at. 

Mr. Da\7s. Well, but he pays the same price for everything and 
you pay one price for the fluid milk, and a much less price for what 
is processed. That is true, isn't it? 

Mr. Beach. Yes; that is true, but the average between the two is 
still above his average. 

]\Ir. Davis. Well, you disagree with the statement made then? 

Mr. Beach. I was just going to say that when that report was 
written that report was true, and I am still willing to accept it as 
being true. But since that time, in relationship to our price, he has 
dropped iiis price considerably more than what our price has dropped. 

Acting Chairman King.. May I ask one question, Mr. Witness ? Is it 
not a fact — by putting it in that form. I doii't mean to commit myself 
to any view — but is it not a fact that there has been a great deal of 
complaint, not only in the Detroit district but in the milkshed of 
Washington, the milkshed of California, the milkshed of Chicago, 
and other milksheds that there has been some juggling — and I don't 
use the term otfensively — by which they would differentiate the milk 
and they would allocate to it inferior grade of milk, so-called, al- 
thought it was just as good, a disproportionate amount of the entire 
amount, that you reduce the aggregate amount which the producer 
ultimatel}^ got ? 

Mr. Beach. I can only speak for the Detroit market and, as far as 
I know, while your question is somewhat indefinite, and based upon 
the indefiniteness of it, I couldn't say that it is true in Michigan 
markets, with which I am familiar. I wouldn't want to say any- 
thing about any other market because naturally not being familiar 
witii it I probably wouldn't make a correct statement. 

Actino; Chaiirnan King. Hasn't there been a classification of the 
milk which is obtained by the distributor which has been unfair to the 
producer of milk and certainly unfair to the consumers? 

Mr. Beach. Well, if we thought so we certainly would immediately 
set about to correct it, and everything has been done that possibly 
could be done to make sure that was not the situation. Your question 
is not too specific, but from what I understand of it I Avould have to 
say that, Senator King. 

Mr. Davis. Now you stated this morning in response to, I believe, 
Senator O'Mahoney, that your association didn't require a distributor 
to contract to buy any specified amount of milk. That is correct, 
isn't it? 



2926 CONCENTRATION OF ECONOMIC POWER 

Mr. Beach. Well, that is exactly what I stated. I can't think of 
any variation from that at all. 

Mr. Davis. Now you also have stated and referred to it more than 
once, that Mr. Johnson applied to your association to buy milk and 
that you offered to sell to him on the same terms and conditions as 
you did other distributors. 

Mr. Beach. That is right, 

Mr. Davis. This is the letter to which you referred, is it not, the 
one of August 10, 1938? 

Mr. Beach. Yes ; I have a copy here. 

Mr. Davis. Now I jnst wish to read a little from it, addressed to 
Johnson Milk Co., attention Mr. George A. Johnson : 

We are in receipt of your letter relative to purchasing milk, either from the 
Michigan Milk Producers' Association or from milk dealers of Detroit. Speak- 
ing from the standpoint of the Michigan Milk Producers' Association, I wish 
to say that we can and are willing to supply you with milk. Any milk which 
we furnish to you will be sold to you at the same price and under the same 
conditions as we sell to other dealers to whom we sell in Detroit. You state 
you want milk from 200 additional farms, at 200 pounds per day per fai*m. This 
is 40,000 pounds of milk daily. 

We will furnish that quantity subject to modification mentioned herein and 
you will agree to purchase and pay for same for the period of 1 year from date. 

Mr. Beach. That is right. 

Mr. Davis. Now that imposed a condition which you say you do 
not impose upon other distributors? 

Mr. Beach. We, in starting out with other distributors, have 
reached an agreement with them in starting with thorn new that they 
would purchase milk from us for a period of a year, so that is the 
same as the arrangement made with other distributors that were start- 
ing to buy from us. 

In August 10, 1938, though we aren't interested in making this kind 
of an arrangement to sell milk to a new buyer at the same price that 
we sell to other buyers, on August 10, 1938, and then after the short 
season is oyer with, of November, then have that distributor feel 
that lie is in a position to not use the milk any longer, and then 
will go ahead and cut that milk off. Now then, if we were only going 
to sell to him for a short time we couldn't sell to him at the same price 
that we sell to other distributors; we would have to charge him more 
money. 

Mr. Davis. Well now there is nobody else involved on this, though, 
except Mr. Johnson, is there? You are selling to all tlie other dis- 
tributors, the 41 with- whom you are dealing, without any agreement 
on their part to take it through May or June or any other time, 
isn't that correct ? 

Mr. Beach. Well, I just got through stating that in starting to do 
business with other dealers 

Mr. Davis (interposing). I know. First answer my question. You 
are not requiring that of any one of the 41 dealers 'with whom you 
are doing business ? - 

Mr. Beach. Took it all the time? 

Mr. Davis. Yes. 

Mr. Beach. Yes ; we are. 

Mr. Davis. How do you reconcile that statement that you do not 
require them to take any specified amount or for any specified length 
of time? 



CONCENTllATION OF ECONOMIC POWER 2927 

Mr. Beach. If they take the requirements; they are supposed to 
take the requirements. 

Mr. Davis. Well, "supposed to," but there is no contract about it, 
is there? 

Mr. Beach. I understand legally that there is an implied contract, 
but let me get this situation clear to you. We have done business with 
quite a few of the same companies ever since we started 23 years ago, 
and, occasionally, we have some distributors who quit doing business 
with us. We don't feel that we have to be concerned about whether 
they are going to continue to buy milk from the Michigan Milk 
Producers' Association or not. That is not a point at issue, particu- 
larly with those companies. After the rise we try to meet it when it 
does arise with any company, but here is a new company that starts 
in. Here is a company with whom we have a court record, such as I 
referred to here, that wants to buy milk from the Michigan Milk Pro- 
ducers' Association, or at least so his letter would imply. 

We know him ; we know we have had to go into court ; the second 
time we went in he settled an account with us under threat of prose- 
cution through court. We understand those things and we know 
his record of payment to producers, and we know how he has un- 
ceremoniously cut off producers ; therefore we tried to surround it by 
making it clear to him that we start in selling to a new distributor by 
asking him to buy his milk from us for a year. I could name other 
distributors that have started in business during the last 5 or 6 years 
and that is part of the agreement that we had with them. 

Mr. Davis. Well, why did you say, then, that that is correct, that 
you didn't require them to take any specified amount or for any 
specified length of' time ? 

Mr. Beach. But Mr. Johnson wrote the letter and said he wanted 
the milk from 200 farms. In other words, we replied to him and 
said, "We will give you what you want." He specified his require- 
ments and so we told him we would give him that. Now some other 
dealer might put it differently. Some other dealer might not mention 
200 farms ; might merely say that we want our requirements, but Mr. 
Johnson went so far as to say that he is in the market for milk from 
200 additional farms. Therefore our reply to him was not that "we 
will give you your requirements," but "we will give you that for 
which you ask." 

Mr. Davis. At the same time you treated him differently from what 
you have any of the others? 

Mr. Beach. No, sir ; we did not, according to the best information 
I have. 

Mr. Davis. Will you please name another distributor who has 
entered the business in which you required him to sign up for a year? 
You asked Johnson to sign this, didn't you? 

Mr. Beach. That is right. 

Mr. Davis. You have a place for him to sign it up ? 

Mr. Beach. Well, one that I recall right offhand is the MacDonald 
creamery — C. A. MacDonald Creamery Co. ; they started in during 
the last 6 or 8 years; and another one was the Eisden Co. 

Mr. DA\as. Risden Co. is likewise independent ? 

Mr. Beach. That is right. And another one was W. J. Kennedy 
Dairy Co. Most companies 



2928 CONCENTRATION OF ECONOMIC POWER 

Mr. Davis (interposing). Neither one of those belonged to the 
trust, did they ? They were not milk dealers' associations ; they were 
selling cash and deliver? 

Mr. Beach. You say they were selling cash delivery ? 

Mr. Davis. Isn't that a fact ? 

Mr. Beach. One of them was selling entirely to a group of chain 
stores. In fact, the MacDonald Creamery Co. started very largely 
by selling milk to one group of chain stores, and the other one was 
house-to-house delivery. 

Senator King. May I ask a question? What did the farmer get 
for the milk a quart in your shed, and those with whom you deal ? 

Mr. Beach. You have to take into consideration 

(Senator O'Mahoney resumed the chair.) 

Senator King. How much does the farmer- get? 

Mr. Beach. All right; how far from Detroit do you want the 
farmer to be ? 

Senator King. In j'our milkshed, those with whom you deal. 

Mr. Beach. They receive different prices because those who live 
farther from the market gets less than thoss close in, or do you mean 
f. o. b. Detroit? 

Senator King. Tell me what is the average, say within 10 miles 
of Detroit. What is'the farmer getting? 

Mr. Beach. If that is of particular importance, maybe it justi- 
fies me taking just a moment to do a little figuring. Is that right? 
Do you mean for his base milk or do you mean for his average? 

Senator King. Give me the entire volume which he sells to you. 

Mr. Beach. That has to be manufactured as well as that that goes 
in the fluid milk, is that right? 

Senator King. All right, segregate it later, if you want to. He 
gets about 2 cents a quart, doesn't he ? 

Mr. Beach. I will give you the right answer in a moment. He 
gets too little, I will promise you that. 

Senator King. Why don't you divide with him ? 

Mr. Beach. You ask that of the distributors; approximately 3 
cents per quart at his farm. 

Senator King. That is the entire amount, is it ? 

Mr. Beach. That is for all of his milk. 

Senator King. I find here a farmer got 85 cents for 46 quarts. 

Mr. Beach. You ask me within 10 miles of Detroit, for Detroit 
milk ? How far out is this man ? 

Senator King. March 16, 1939, he got the figures which I have 
indicated. 

Mr. Beach. Is that the Bad Axe check. Senator, out of the fluid- 
milk territory, over which we have nothing to do? 

Senator King. I don't know what it is. 

Mr. Beach. Is that the Borden clieck? This is the Bad Axe check. 

Senator King. The word "base" means Detroit, doesn't it? 

Mi;. Beach. The Borden Co. can explain this. 

Senator King. You know from your experience. Doesn't that 
base mean Detroit ? 

Mr. Beach. No, sir; and I think this check is a Bad Axe check; 
Apparently they send this statement, form of statement of clieck 
that accompanies the payment for milk through the condenseries 



CONCENTRATION OF ECONOMIC POWER 2929 

which they own in Michigan, as they do when they pay for fluid milk 
that comes into the Detroit market. Or inspected milk that comes in. 

Senator King. Regardless of where the milk came from, there are 
46 quarts indicated tJiere for the price indicated ? 

Mr. Beach. For uninspected condensery milk, out in the State of 
Michigan, outside the fluid-milk territory. 

Senator King. Wasn't that within the fluid territory? 

Mr. Beach. I thought I made it clear that it was not. 

Senator King. Doesn't the State inspect? 

Mr. Beach. Not to my knowledge they don't. 

Senator King. Haven't they inspected there? 

Mr. Beach. The Detroit milk suj)ply is inspected by the city board 
of health of the city of Detroit. 

Senator King. Is that the only inspection in the whole State of 
Michigan? You know to the contrary, don't you? You know there 
is a milk inspection there throughout the State ? • 

Mr. Beach. Not to my knowledge ; no. To the best of my knowl- 
edge, there is not. 

Senator King. Generally speaking, there, what is the spread be- 
tween the amount the farmer gets, the producer gets, and what your 
organization gets, and what the distributor gets, what the consumer 
pays? 

Mi\ Beach. I wouldn't want to attempt to answer that question 
without properly preparing the figures so that when you receive them 
from me you could depend upon them as being as accurate as the 
other information that I tried to give. Let me make this suggestion : 
'.1 do feel, however, that what you can get in the course of testimony 
that might be offered by milk distributors themselves, a complete 
break-down of that portion of the consumer's dollar that goes for 
any particular purpose whatsoever. So your question would be very 
well answered and much better than what I could now. 

Senator King. Isn't it a fact that the farmer in any part of Michi- 
gan and in all parts of Michigan doesn't get more than from 2 to 3 
cents for his entire milk output ? , 

Mr. Beach. Right now that is true. 

Senator King. And what do^s the consumer have to pay? What 
is the spread between what the farmer gets and what the consumer 
has to pay? 

Mr. Beach. You are talking about two separate things. 

Senator King. Of course they are. I want to know what the 
farmer gets, who produces the milk, for producing the milk, and 
what the consumer has to pay for it. 

Mr. Beach. This is evaporated milk. If you want to know what 
the consumer has to pay for this 

Senator King. The entire amount that the farmer sells to your 
organization. If the farmer brings to you a hundred quarts or a;- 
■thousand quarts, what does he get? 

Mr. Beach. I tried to answer that question based upon 10 miles 
out that you spoke of just a moment ago, approximately 3 cents per 
quart. The consumer might pay all the way from 5 cents per quart 
up for this same milk, but you have got to understand that what 
jou asked me, Senator King 



2930 CONCENTRATION OF ECONOMIC POWER 

Senator King (interposing). No; what does the consumer have to 
pay for it? Answer that question. 

Mr. Beach. The portion 

Senator Kixo (interposing). That portion which you stated is 
approximately 3 cents within that area that you stated, what does 
the consumer have to pay for it within the same area and for the 
entire quantity of milk which he produces? 

Mr, Beach. I will attempt to answer your question the best I can. 
In the first place, there is approximately 60 percent of that milk 
today that goes into fluid milk. 

Senator King. I don't care how much ; how much does he get for 
his milk that he sells to you ? 

Mr. Beach. I cannot ansAver the question unless you let me give 
you the complete statement and just exactly as it is. 

Senator King. It seems to me you can answer that. If a man 
brings a load of wheat, beets, or anything, he knows what he is get- 
ting for the entire amount. If a man brings to you during the 
month a thousand gallons of milk, what does he get for that, and 
what do the consumers have to pay for that thousand gallons? 

Mr. Beach. That statement is absolutely unanswerable unless you 
let me make a complete statement relevant to it. Otherwise, I can't 
answer it, because it would appear to be misiliformation. 

Senator King. We will assume you can't answer it — I will, at least. 

Mr. Beach. I c^n answer it, but I have got to give the right answer 
or else I don't want to give it. 

The Chairman. Mr. Beach, while Judge Davis is looking over the 
record, the colloquy which has just been going on returns to a ques- 
tion which I suggested, if I did not ask, earlier in the afternoon, 
namely, that the central fact in this situation, as in many others, is 
What is the difference between what the producer gets and what the 
consumer has to pay? Now, can you give me your answer to that 
question ? 

PRICE OF MILK PAID PRODUCERS COMPUTED ON "CLASS" BASIS 

Mr. Beach. Yes, sir; I can, I hope. Here we have, in the sale 
of this milk, we have out of each hundred pounds that is produced 
by this producer, approximately, last month, 60 pounds of that, or 
60 percent, that goes into fluid-milk channels for which the price, 
f. o. b. Detroit, of $1.90 was received. Now, if that is divided by 
461^, it will give you the price per quart that the producer received 
for that. 

Unfortunately, there are 40 pounds of milk that are left, quite a 
bit of which has to go for manufacturing purposes, and, for the most 
part, it is made in two or three different products. It has been going 
into cream that oftentimes has been going into butter, and, frankly, 
for the dollar that the consumer has b«en paying for butter the 
producer has been getting for that approximately 90 cents out of 
that dollar. A portion of it has been going into powdered skimmed 
milk, and out of that, out of the resale price — I don't know just 
what the proportion is — but the proportion is fairly large that he 
gets out of that. Ar|,d so you can 

The Chairman. You do know the proportion, don't you ? 



CONCENTRATION OF ECONOMIC POWER 2931 

Mr. Beach. Not right offhand. I couldn't answer that right off- 
liand, and my percentage may not be right in conjunction with just 
the percentage that he receives from that portion that goes into but- 
ter. However, the percentage is much higher on that that goes into 
butter than it is the case of fluid milk. 

The Chairman. In other words, the producer gets a certain price 
for fluid milk and he gets a certain different price for that amount 
of the milk which is used for butter and another price for that amount 
of the milk which is used for powdered skimmed milk. 

Mr. Beach. Well, the powdered milk is made from the skimmed 
milk that is taken off from which the cream is made that goes into 
butter. It is — ■ — 

The Chairman (interposing). I am not concerned about 

Mr. Beach (interposing). It is the same 40 pounds of milk. 

The Chairman. The original special price for that, it is included 
in the price he gets for his butter ? 

Mr. Beach. That's right. 

The Chairman. How about evaporated milk? 

Mr. Beach. Well, it might go into evaporated milk instead of but- 
ter. 

The Chairman. How many different classes are there? 

Mr. Beach. Just two. 

The Chairman. The fluid and the butter? 

Mr. Beach. The fluid and manufacturing, but the manufacturing 
might be in the butter, evaporated milk, or one of several other 
things. 

The Chairman. Does he get a standard price for this which goes 
into manufactured products? 

Mr. Beach. Yes; our price has been based upon the evaporated 
milk price plus 15 cents per hundredweight. 

The Chairman. Which is the greater, the price he gets for fluid 
milk or the price he gets for the manufactured ? 

Mr. Beach. The price he gets for fluid milk which has been $1.90 
f . o. b, Detroit for almost a year now. 

The Chairman. Do you ever have any complaints from the pro- 
ducers that an unduly large proportion of the milk that they sell is 
paid for upon the basis of the manufactured rate instead of the 
fluid rate? 

Mr. Beach. Yes. In fact, all producers would prefer to have it 
all paid for upon the basis of the fluid milk. 

The Chairman. That is wlmt you call bottled milk, is it? 

Mr. Beach. That is right. These two prices are blended together 
Avhen the producer gets his check; he gets the blended price, but 
nevertheless in making up that price there are those two component 
parts that go to make the combination. 

The Chairman. And the blended price is less than that which is 
paid for the fluid milk ? 

Mr. Beach. That is right. 

The Cii^viRMAN. Because it is an average. 

Mr. Beach. That is right; and more than that which is paid for 
manufactured milk. 

The Chairman. Some purchasers of milk who are not engaged in 
manufacturing pay only the fluid rate. Is that right? 



2932 CONCENTRATION OF ECONOMIC POWER 

Mr. Beach. Well, there aren't any in quite that category that don't 
have any that is used for other purposes than the fluid-milk trade. 
There is no distributor that can put himself in that position and so^ 
that wouldn't be strictly true. However, there are many that have 
considerably less, have maybe only 10 percent of manufactured milk 
over and above fluid sales, while some other distributors may have as 
much as 70 percent that is manufactured and 30 percent that goes into 
fluid milk. 

The Chairman. Do any of these distributors pay for their milk 
upon the basis of a fluid rate which is less than the fluid rate, which 
is part of your computation of a blended price but which at the same 
time is greater than the blended price? 

Mr. Beach. If I get your question correctly, the answer to that is 
that there are none that do that, but there are some that do this, that 
pay — and here is something that is wrong in the Detroit milk market 
as stated in the report and to which I will readily agree — that a dis- 
tributor may pay the blended price but buy shorter than the average 
of the market. He should pay more than the blended price, you see, 
if he buys short. If most of his milk goes into fluid-milk channels,, 
he should pay more thano the blended price, but he doesn't — ^he pays 
the blended price; therefore, he might gain some difference between 
the two there. 

The Chairman. Now, in the case of Mr. Johnson, to whom refer- 
ence has been made on various occasions this afternoon, what was 
the price that he paid? 

Mr. Beach. The last price that I know of that he paid was a dollar 
and a half for all milk, f. o. b. Detroit. 

The Chairman. How did that compare with the blended price ? 

Mr. Beach. That was 6 cents less. 

The Chairman. Than the blended price? 

Mr. Beach. Let me see. Our price for all of February — I have all 
those prices here somewhere, but let me stick to the one that I had 
quoted in the testimony, or the statement that has been made to the 
committee, the last half of February. I have the letter which Mr. 
Johnson wrote to' his producers stating that his price starting the 
16tli of February was $1.50 f. o. b. Detroit, and our price for the 
month of February was $1.56 for all milk f . o. b. Detroit for the same 
month. 

The Chairman. If any dealer, Johnson or anybody else. A^as offer- 
ing a price so much lower than your blended price, where did he get 
his customers? 

Mr. Beach. You mean his producers? 

The Chairman. His producers. 

Mr. Beach. He got them when he paid more. He started out to 
pay $1.95 for a year, which, as I understand, he did. I understand 
he gave a definite contract. I understand still further that he told 
the producers that he would talk it over with them at the end of the 
year as to what would be done after that time, but he sent a letter out 
to them when the year was out stating that he had decided to reduce 
the price from $1.95 to $1.40 when the year was up, and the pro- 
ducers, a lot of them from that time to this have written in to the 
association asking if they could come back to the association, but 
particularly at this period of the year, we have plenty of milk to 



CONCENTRATION OF ECONOMIC POWER 2933 

handle, and if we took that milk which may be a surplus for him 
now, it would merely mean that it would have to be manufactured 
and would lower our blended price. 

The Chairman. So they don't fit into the situation now at all 
except that the lower price that is being paid by this independent 

Mr. Beach (interposing). That is right. This hauler, for instance, 
came to me and said that 75 percent of the producers on his route 
would like to come back and ship through the association. 

PROPORTION or PURCHASE PRICE OF MILK RECEIVED BY PRODUCER 

The Chairman. Now, then, going back to your own price, by and 
large on the average, what proportion of the price the consumer 
pays is received by the producer? 

Mr. Beach. Just a moment, here. Let me figure this out. For 
that portion ihat is used .as fluid milk it is slightly over 4 cents per 
quart delivered at Detroit. The blended price which Senator King 
asked me about is slightly under 3 cents, if you turn it back to the 
farm, on the haul which comes directly into Detroit. 

The Chairman. Let me put it this way : Of course there has been 
a change, apparently, in the price that the consumer pays, according 
to this report which has received the endorsement of everybody con- 
cerned, it being an accurate statement of the facts. The price of 
milk at one time to the consumer, of bottled milk, was extremely 
high, I mean it ran as high as 10 or 11 cents. 

Mr. Beach. Yes. 

The Chairman. Then there was some court action of one kind or 
another and the price to the consumer broke, did it not? 

Mr. Beach. That is right. 

The Chairman. It was much lower. 

Mr. Beach. It broke, I wouldn't necessarily tie it up with the court 
action, but it broke anyway. 

The Chairman. Whatever the. cause was. 

Mr. Beach. That's right ; it came down. 

The Chairman. So there has been a variation in the price to the 
consumer. 

Mr. Beach. That is right. 

The Chairman. Now, by and large, speaking now of bottled milk, 
does the producer receive as large a proportion of that final con- 
sumer's dollar as you as a representative of the producer believes 
he should? 

Mr. Beach. That is a most difficult question to answer upon today's 
market. 

The Chairman. You pick your market and answer it seriatum. 

Mr. Beach. The continuing prevalence of our price that we have 
had for the past few months, with the extremely low price that exists 
in the city of Detroit today, I would say that we get as much as we 
can expect to get and be anywhere near reasonably sure we will get 
pay for it, which is a very big concern today as to Avhether those 
to whom we sell milk can continue to pay for their milk. 

The Chairman. Up initil the time Avhen the price broke, from Avhat- 
exev cause, what was the situation then with respect to the spread ? 

Mr. Beach. The relationship? I believe that it would be of inter- 
est to you to go back just a little bit. Wlien our price was $1.45, this 



2934 CONCENTRATION OF ECONOMIC POWER 

goes back to about 1933, the price of milk to the consumer off the 
wagon, which is the one which is oftentimes quoted, usually the one 
that is quoted, was 9 cents. Then the price went up to the producer 
to $1.85, which was 40 cents out of the 461/2, and the price went up to 
the consumer to 10 cents. Then the next move in the market was the 
price went, to the producer, to $2.25 for fluid sales milk, or another 
40 cents out of 461/^, and the price to the consumer went to 11 cents. 

Then there were other things that came into the market that had a 
tendency to increase, as distributors claimed — that is up to them to 
show and not to me. They claimed that there were certain expenses 
that entered in that made it impossible to sell milk at 11 cents and 
pay $2.25. That is when the price of milk went to 12 cents off the 
wagon, generally speaking, and the producers' price went to $2.48. 
In other words, that was a direct split of 46 cents out of a hundred 
pounds of milk, and 23 cents went each way. 

Then the price for 15 days was $2.68 to the producer and it was 13 
cents to the consumer; and then the price broke and started down 
again and when it started down, instead of going down by easy stages 
of $2.48, $2.25, $1.85, it landed at $1.90, but this matter of resale was 
almost every conceivable price. There were many different prices 
prevailing so far as reselling was concerned and so today it is rather 
difficult for me to say what the reselling price of milk is. 

TRANSPORTATION CHARGES PAID BY FARMER 

Mr. Davis. You stated that last month your association paid $1.90 
for bottled milk, i, o. b. Detroit, It doesn't mean that the farmer 
got that much, does it ? 

Mr. Beach. No ; because transportation charges have to come out, 

Mr. Davis. Now let's see, there has to be deducted from that $1.90, 
5 cents pool charge, 3 cents association dues, the transportation charge 
from the farm to the receiving station, and the transportation charge 
from the receiving station to Detroit. That is correct, isn't it? 

Mr. Beach. Yes ; unless it comes in direct, and if that is the case, 
just from the farm directly to Detroit. 

Mr. Davis. In that event he has to bring it himself or hire some- 
body else to do it. 

Mr. Beach. That is right; the farmer pays the transportation. 

Mr. Davis. Isn't it a fact that the average transportation charge 
from the farm to the receiving station and from the receiving station 
to Detroit in this Detroit milkshed is about 40 cents. 

Mr. Beach. Approximately 37 to 40 cents. 

"spread" between price paid to producer and that paid by consumer 

Mr. Davis. Then 40 cents and then 8 cents used in fees would be 
48 cents to be deducted from what the farmer gets for the milk that 
is sold. That would leave $1.42 for 100 pounds that the farmer would 
get, and there are forty-six-and-one-fraction quarts in a hundred 
pounds. Is that correct? 

Mr. Beach. Yes. 

Mr. Davis. On that basis there was considerable spread when they 
were charging 12 cents and 13 cents to the consumer, wasn't there? 

Mr. Beach. There's always been considerable spread, I'd say. 



CONCENTRATION OF ECONOMIC POWER 2935 

Mr. Davis. Isn't there considerable spread right now when they are 
selling milk for 5 and 6 and 7 and 8 cents right now, cash and carry? 

Mr. Beach. There is considerable. I don't know whether you 
would say there is too much or not, but it is considerable. 

Mr. Davis. In other words, for handling the milk for 1 day in 
Detroit they get approximately twice as much for the milk as the 
farmer gets for owning his farms and operating it and his herd and 
feeding them? 

Mr. Beach. That is right. The producer isn't getting anywhere 
near what he should get for proper levels. 

Mr. DA\^s. We were talking about what you were paying them last 
month for bottle milk. 

Mr. Beach. For what, did you say? 

Mr. Davis. Bottle milk. 

Mr. Beach. Oh, milk that goes into bottles. 

Mr. Davis. Now, the excess milk the same month is $1.43. 

Mr. Beach. Yes. 

Mr. Davis. From which is to be deducted this same 48 cents ? 

Mr. Beach. That is right. 

Mr. Davis. That gets it down to about 85 cents for 100 pounds. 

Mr. Beach. That is right. 

Mr. Davis. Isn't it a fact that even before Mr. Johnson went into 
this area there were times when you got even less than you ai 
getting now ? 

Mr. Beach. Yes; in— — 

Mr. Davis (interposing). Within the past few years. 

Mr. Beach. Well, in 1933, I think when butter was 16 cents per 
pound the price on milk in Detroit was less to the producer than what 
it is today. 

Mr. Davis. How about 1934? You follow the figures here? 

Mr. Beach. Well, whatever the figures are there, that is it; those 
are the facts. 

Mr. Davts. I hope the members of the committee will examine these 
figures. Then in 1935 and 1936 — isn't it a fact that after Mr. John- 
son went into the market the price to the farmers increased for some 
time? 

Mr. Beach. Well, the best thin§ to do is to look at the record-as to 
when he came in and what the price was and whether it did increase 
or decrease. You have that there before you. 

Mr. Davis. He went in in the spring of 1936, didn't he ? 

Mr. Beach. When did he come into the market? 

The Chairman. January 1936. 

Mr. Davis. There is some variation and then it certainly held its 
own and then in 1937 the all-milk price ranged from $1.98 to $2.28, 
which was even more than the preceding year, or in 1935 and 1934. 

Mr. Beach. That is right. 

Mr. Davis. Yes; so he didn't break the market to the producers 
then, did he? 

Mr. Beach. No ; it was a couple of years before he really broke it. 

Mr, Davis. How could one man break the market when he was 1 
of 69 dealers and sells only a relatively small percentage of the milk 
that is sold in Detroit? 

Mr. Beach. Is that a question, Judge? 

124491— 39— pt. 7 13 



2936 CONCENTRATION OF ECONOMIC POWER 

Mr. Davis. Yes, sir. 

Mr. Beach. I doubt if you can say that the Johnson Milk Co. all 
alone broke the market. There are approximately 14 or 15 dis- 
tributors that pay that — pay on a basis somewhat similar to what 
he does — and it undoubtedly is a combination of that that had a 
tendency to break the market down to an unduly low level. Now, 
this is probably true, that the price of milk, both to the producer and 
the consumer, should have been lowered somewhat. 

In other words, there are changes from year to year and from one 
time of year to another time of year relative to supply and demand 
and cost of producing milk, and so on, so that enters into the picture. 
But — let me go just a little further just to finish the statement — when 
he iDegan to take and sell enough milk and take enough customers so 
that it became a vital factor so that other prices were lowered to 
meet that, and then when he was purchasing his milk for less money 
that what the distributors were to whom we sold, then just as the 
report indicates, which we have referred to several times, on page 53, 
I think it is, or maybe Gl, then the other buyers insisted that they 
should be privileged also to buy milk for less money, and on account 
of the one buying for less and the pressure of others that insisted 
that they should be privileged to buy for less or buy on an equality 
with the other fellow, that is what reduced the price to what seems 
to me to be an unduly low level from the standpoint of the producers. 

Mr. Davis. The complaint in many industries is that there is no 
competition in buying, and, if there is only one buyer, one or two or 
three buj^ers, that there is no competition and they have to sell all 
the time in a buyers' market. Generally speaking, is it not true that 
the more people there are wanting to buy a commodity that somebody 
else wants to sell, the more competition there is for it, and it is more 
likely to boost the price instead of the reverse. 

-Doesn't that obtain everywhere else? Isn't that a well-known 
matter of economics? 

Mr. Beach. Well, I haven't particularly observed that that was true 
in the milk business. I wouldn't want to say, without carefully 
thinking it through, whether that is the philosophy that seems to 
work out definitely in selling milk or not. I haven't observed that 
it does. 

Mr. Davis. Mr. Chairman, of course there are many matters that 
might be asked about, but I don't want to take up the time of the 
committee too long, but I would like to ask Mr. Beach what your 
previous experience and connections were before you went into your 
present position. 

Mr. Beach. I will be very glad to answer that. In the first place, 
I was born and brought up on a farm, Tuscola County, Mich. I 
went to Michigan State College for 4 years, was graduated from 
there and then taught agriculture in a high school for 2 years at Hart, 
Mich. After that I became county agricultural agent. My particular 
work as county agricultural agent had to do with cooperative market- 
ing orgnnizations. After serving 2 years in that particular county, 
I was called into another county to act solely on the matter of organi- 
zations in connection with cooperative marketing. That was in the 
Detroit fluid-milk shed and> as a result of that and becoming ac- 
quainted with the dairymen that had to do with selling fluid milk. 



CONCENTRATION OF ECONOMIC POWER 2937 

they wanted me to become associated with the Michigan Milk Pro- 
ducers' Association as an employee, which I did, which was approxi- 
mately 17 years ago. After about 8 or 9 j^ears — •! have forgotten 
just how long; that is immaterial — and during which time I served 
as assistant secretary to the Michigan Milk Producers' Association, 
the secretary resigned and, therefore, they asked me to become secre- 
tary-manager of the Michigan Milk Producers' Association, in which 
capacity I have served during the last, I think it is about 10 years, 
but it might be 8. It is whatever it is, anyway, whatever the record 
shows. 

Mr. Da\^s. Are you identified in any way, either as a holder of 
stock or interest or otherwise, in any concern engaged in the milk 
industry ? 

Mr. Beach. I am a stockholder in the Michigan Producers Dairy 
Co., which is a cooperative organization, organized under the Gapper- 
Volstead Act, at Adrian, Mich., and which the Michigan Milk Pro- 
ducers Association helped organize. That is the only company in 
which I have any financial interest in any way, shape, or manner 
whatsoever, and I am a part of that the same as hundreds and 
probably thousands of other farmers are in the State of Michigan. 

The Chairman. There are the exhibits which have been presented. 
Have them printed in the record. 

(The exhibits referred to were numbered "Exhibits Nos. 436, 437, 
439, and 440," respectively, and are included in the appendix on pp. 
3235, 3244, 3245, and 3246.) 

The Chairmak. Which statement is that? 

Mr. Beach. That is the statement I started to read this morning, 
and I feel it probably should be made a part of the record. 

The Chairman. You will be satisfied if we file it? " 

Mr. Beach. Yes, yes. 

The Chairman. You see, there is a difference between the printied 
record and filing. 

Mr. Beach. I didn't understand. 

The Chairman, This may be filed, not to be printed in the record. 

(The statement referred to was marked "Exhibit No. 438" and is on 
file with the committee.) 

The Chairman. Is there any further statement that you care to 
make, inasmuch as this hearing has been held at your request and 
I want you satisfied that you have had every opportunity to make a 
statement. 

Mr. Beach. I think there is just one statement that maybe I ought 
to make to clarifv the record, based upon a question that was asked 
by Judge Davis, I believe, this morning. He asked about this pooling 
proposition, and the amount of money that was involved, and it just 
happened that I happen to have with me for the purpose of studying 
our auditors' report the last report that our organization has on that, 
and I thought that maybe just this might be said relative to it. It 
rather seemed to me that you were endeavoring to point but that" 
maybe 5 cents per hundredweight or a half million dollars was quite 
a lot of money. It is, but you must understand that this business 
which we do is approximately $20,000,000 worth of business per year, 
and the report for the first 6 months of the fiscal year starting the . 
first of October and ending March 31, 1939, shows the reserve that 
has been retained from that is $12,648.26. In other words, the amount 



2938 CONCENTRATION OF ECONOMIC POWER 

of money that you have spoken of aside from this reserve is paid out 
by the month each month to the producer, and it is not the accumu- 
lation of a great deal of money and finally paid out or retained. 

Mr. Davis. But in addition to that you have been collecting 3 per- 
cent dues which don't go into that pool at all, but go for whatever 
you want to use it for in the association, and that, as you said this 
morning, amounts to about $15,000 a month. That would be $180,000 
a year. That is correct, isn't it? 

Mr. Beach. I gave you the exact statement, the last financial state- 
ment. 

Mr. Davis. That is essentially correct, about $180,000 a year that 
you collect that is not dissipated in any pool arrangement? 

Mr. Beach. That is right. That is from the entire organization. 
Now, I might say 

Mr. Davis. And you now have in the treasury approximately 
$300,000. 

Mr. Beach. That is right, and that $300,000, you want to remember 
what that has to do besides carrying on the activities of the asso- 
ciation. 

Mr. Davis. I just asked for the facts. 

Mr. Beach. That among other things is money which has been 
used for the expenditure or the purchase of several plants for the 
benefit of the members, and is the reserve behind the guaranty of 
pay of better than a million dollars' worth of milk per month, and 
under these circumstances my chief worry is w^hether there is enough 
in the reserve to be sure that the farmers will get their pay. 

Mr. Davis. Why do you have misgivings about $108,000 a year 
being sufficient when you have only had to pay for losses $150,000 all 
told in the past 12 years? 

Mr. Beach. Because under the present conditions there can enough 
distributors go into bankruptcy in Detroit this month or the month 
after that they would be owing the farmers something like fifty to 
one hundred thousand dollars in toto. 

Mr. Davis. But 

Mr. Beach. Just a moment. And the producers naturally can't 
receive in payment for their notes brick and mcrtar which is now 
used in receiving stations and so forth tliat have been purchased or 
built, and therefore there must be a very substantial reserve because 
those producers must have their money. I am very proud to say 
that the Michigan Milk Producers' Association has shown a steady 
growth financially and has over a period of years remained in the 
black and on the right side of the ledger. 

Mr. Davis. And yet you fixed a 3 -cent fee on every hundred pounds 
of" milk from every farmer and commenced collecting approximately 
$180,000 a year without any reference to and prior to the present 
situation, did you not ? 

Mr. Beach. The producers in Michigan that are members of the 
Michigan Milk Producers' Association have even gone further than 
that. In some markets they said that L must be 6 cents. Why? 
Because they want an organization that uses as much as 6 cents for 
the service of the members of the organization. They themselves — 
just a moment,^ Mr. Davis — decide that amount, and let me point out 
that there is just one service that is gendered that may pay that 



CONCENTRATION OF E(^OXOMlC POWER 2939 

twice over and that is the butterfat check testing to be sure that they 
are correct on that, which oftentimes means 4 cents per hundred- 
weight on their milk, and if they have that alone the chances are it 
pays more than the cost of the operation of the association. 

Mr. Davis. You say that some of the members said that. As a 
matter of fact, there is not entire unanimity in your organization, 
|is there? 

Mr. Beach. Oh, no ; you can't get 17,000 farmers all to agree. 

Mr. Davis. You had some very stormy meetings recently which 
you called, did you not ? 

Mr. Beach. That is right. I will be glad to have you come to one 
'if you want to. 

Mr. Davis. And the hostility toward you was such that you had 
to be escorted from the hall by policemen, is that not a fact? 

Mr. Beach. That is not true. I never was escorted from any meet- 
ing by policemen with the exception of one where the policeman 
asked me to go in and talk to a group of producers which they were 
having trouble in handling. They said, "You go in with uS and 
then you go out with us." 

Mr. Davis. This paper here, The Advertiser-Monitor, doesn't sdve 
the facts correctly, does it ? 

Mr. Beach. That is right; it does not give them correctfy. 

The Chairman. Newspapermen will please take note. [Laughter.] 

Mr. Davis. This is the Advertiser-Monitor, of Mount Clemejis, 
Macomb County, Mich., March 17, 1939. [Reading:] 

Officers Escort Beach to Safety 

Three members of the Michigan State Police of the Romeo Post and four 
Macomb County sheriff's officers were called to Droop's Hall at Waldenberg 
at 10 : 30 last night to escort Bernard Beach, secretary-treasurer of the Michi- 
gan Milk Producers' Association, from a mass a meeting of 500 farmers when 
fears were felt for his personal safety at the hands of a group inimical to the 
association. Pale and obviously shaken at the hostility of the farmers, many 
of them members of the newly formed Cost of Production Club from various 
other counties who had allegedly packed the meeting. Beach left the speaker's 
stand. 

Now, you called that meeting, didn't you ? 

Mr. Beach. That meeting was called of certain locals of the Michi- 
gan Milk Producers' Association. It was supposed to be certain locals 
m Macomb County. I have got to give you the setting. I think you 
will appreciate it. This hall is over a saloon, and when I went in 
previous to the time of opening the meeting the saloon was filled. 
The other part of the building was a store downstairs. I went up- 
stairs. The seats were all filled. Shortly after I started to talk, 
the other people came up. After a few minutes they started doing a 
certain amount of heckling, and I don't know that there was any 
booing then but a certain amount of heckling; everybody wanted to 
ask questions at once, and some people insisted on asking the same 
questions several times. There were several people there that I noted — 
I would like to have you get this, Mr. Davis, I think you will enjoy 
it — came there from Lapeer Cov.nty, many of whom sell to the John- 
son Milk Co., and people came there from Oakland County that had 
no right in the meeting at all ; and tliey came and attended the meeting 
and they didn't want to meet at all, they didn't want to hear the 



2940 CONCENTRATION OF ECONOMIC POWER 

facts that I was talking about that might lead to their approval of 
this bill that was talked about in conjunction with this particular 
document that we have referred to so many times this afternoon; 
and so I didn't see any State police at that meeting — and it is pe- 
culiar that I didn't if they escorted me out — until after I had walked 
out alone, got out in front of the hall, and there were two State 
police sitting in their car; I don't think they ever saw me; they didn't 
look my way, and I didn't know they were interested in me, and 
therefore I took no occasion to speak to them. I went to my car and 
went home alone. 

I understand that Mr. Johnson made the statement on the witness! 
stand down here that, I didn't go to a meeting in the country alono. 
He cannot prove it, excepting one meeting that I can recall during- 
the last 3 months when I have ever had anyone with me to attend 
any meeting in the country. And on top of that, this same group 
of people have followed me at meeting after meeting, people that 
had no right to be there, people that were not members of the Asso- 
ciation, and carried on in the atune manner; and Mr. Johnson went 
still further; he had someone call my office one day to find out if I 
was going to a meeting about a hundred miles away, because appar- 
ently he didn't want to send anyone -there, that was so far away, 
unless he was cocksure that I was going. He also went to a radio 
station in the city of Detroit and asked them to announce a meeting 
over the radio that was going to be held out at Grass Lake, Mich., 
one. night when this group was going to meet, because he seems to 
show a considerable interest in them. Then, still further, there also 
are rumors that he has gone out of his way and to great lengtlis to 
try to help this group become a rumpus. 

The Chairman. I really think this has nothing to do with the 
price of milk. 

Mr. Beach. He raised the question, Senator, and therefore I think 
it had to be said. 

Mr. Davis. If Mr. Johnson is breaking the farmers' milk price, 
why is it tiiat he has so many friends among them ? 

Mr. Beach. If you want to go into that, here is a matter of court 
record 

The Chairman. Mr. Beach, I really think that this is just a matter 
of personalities. 

Mr. Beach. I am able to do it, Senator, if you will let me. 

The Chairman. I think the committee is not interest°-d in any fur- 
ther elaboration in this phase of the interview. Let me state again, 
have you presented, from the point of view of the producers, the rele- 
vant facts which you desired to present when you asked permission 
to come here? 

Mr. Beach. Yes ; I have, and unless there are further questions 
that the committee wishes to ask of me, with this reservation : If 
there is testimony given that is untrue and anyone that has previ- 
ously testified is given an opportunity to offer any rebuttal, I would 
like to have the same courtesy extended to me that is extended to 
them. That is all. 

The Chairman. You may present any requests :o cross any future 
bridges when they appear. 

Mr. Beach. That is all ricrht. 



CONCENTRATION OF ECONOMIC POWER 2941 

The Chairman. Tomorrow Mr. Davidow, I believe, will appear. 

Mr. Larry Davidow.^ I am here with Kenneth Vardon, president 
of the United Dairy Workers. 

The Chairman. Does Mr. Vardon desire to give some testimony? 

Mr. Davidow. He certainly does, Mr. Chairman. 

The Chairman. When the committee assembles tomorrow, Mr. Var- 
jdon will be called.' ' 

Mr. Davidow. May we inquire when and where the meeting will 
be called ? 

The Chairman. I will make that announcement. 

There are here several documents which have been presented to the 
committee during the recess of the hearings, in response to vai-ious 
requests from members of the committee. They are here offered for, 
the record, to be printed in their appropriate places. 

The committee will now stand in recess. Before I declare the 
recess, Mr. Beach, let me thank you for your presentation tliroughout 
the day. 

Mr. Beach. Thank you for the courtesy extended. 

The Chairman. The committee will stand in recess until 10 o'clock 
tomorrow morning in this hall. 

(The documents referred to were marked "Exhibits Nos. 431, 432, 
433, and 434.") 2 

(Whereupon, at 5 : 10 p. m., a recess was taken until Tuesday, May 
2, 1939, at 10 a. m.) 

J Connspl for Unltort Dnlrv Wnrkpra. Pctrolt. Mich. 

a-Kxhililt No. 4:{r' is liiclndcrt in Part II. uppenrllx, p. R30. "Exhibit No. 4.12" Is 
Incliulfd in Tjut VI, appendix, p. -M^n. -Kxliildt No. 4Xr is inclndod iu Tart VI, appendix, 
p. 2721, "Exliibit No. 434 • la Included In I'urt V, appendix, p. 227C. 



INVESTIGATION OF CONCENTBATION OF ECONOMIC POWEB 



TUESDAY, MAY 2, 1939 

United States Senate, 
Temporary National. Economic Committee, 

Washington, D. C. 

The committee met at 10: 30 a. m,, pursuant to adjournment on Mon- 
day, JMay 1, 193-9, in the Caucus Room, Senate Office Building, Senator 
Joseph O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman), King, and Borah; Rep- 
resentatives Reece and Williams; Messrs. Henderson; Davis; Fergu- 
son; Lubin; and O'Connell. 

Present also: Thomas C. Blaisdell, representing Securities and 
Exchange Commission; Robert E. Sher, representing Department of 
Justice; Donald Montgomery, Consumers' Counsel, Agricultural 
Adjustment Administration ,^ Senator Homer T. Bone, chairman, 
United States Senate Committee on Patents; Willis Ballinger, di- 
rector of studies and economic adviser to Federal Trade Commission; 
Ouy C. Gamble, chief of Temporary National Economic Committee 
studies for Federal Trade Commission; Andrew Tackett and R. A. 
Putzier, attorney examiners; Wilbur Baughman, attorney; and Kem- 
per Simpson, economist. Federal Trade Commission. 

The Chairman. The committee will please come to order. A re- 
quest was made* on behalf of the United Dairy Workers, of Detroit, 
to file a statement with the committee and to present the gist of that 
statement to the committee in public hearing as a result of the previous 
hearings of this committee on the milk situation in Detroit. Mr. 
Vardon is here this morning in response to the action of the com- 
mittee granting liis request to appear. Are you ready to testify, Mr. 
Vardon ? 

Mr. Vardon. I am. 

The Chairman. Do you solemnly swear, in the testimony you are 
about to give, to tell the truth, the whole truth, and nothing but the 
truth, so help you God? 

Mr. Vardon. 1 do. 

TESTIMONY OF KENNETH VARDON, PEESIDENT, UNITED DAIRY 
WORKERS UNION, DETROIT, MICH. 

The Chairman. Please state your name, 

Mr. Vardon. Kenneth L. Vardon. 

The Chairman. What is your position ? 

Mr. Vardon. I am president of the United Dairy Workers Union- 

The Chairman. Of what State and city? 

Mr. Vardon. Detroit, Mich. 

2943 



2944 CONCENTRATIjON OF ECONOMIC POWER 

The Chaibman. How long have you held that position ? 

Mr. Vardon. Since the start of the organization in the early part 
of 1937. 

The Chairman, How many members in the organization? 

Mr. Vardon. At the present time we have about 3,100. 

The Chairman. What are their classifications ? _ 

Mr. Vardon. "We are an industrial organization. "We have the 
plant men, the transportation drivers from the country to the city, 
the deliverymen, the wholesale drivers, anyone who is employed in 
one of our contract dairies is a member of our organization. 

The Chairman. How many contract dairies do you have? 

Mr. Vardon. Twenty-three. 

The Chairman. How many dairies are there in the city of Detroit? 

Mr. Vardon. About 54 or 55 at the present time. 

The Chairman. "What proportion of the dairy workers of com- 
parable classifications are members of your organization? 

Mr. Vardon. I'd say that, in answer to that I can answer on the 
volume of business in the market. "We represent about 83 or 84 per- 
cent of the workers which pasteurize and deliver nbout 84 or 85^ 
percent of the volume of the business in the city of Detroit, metro- 
politan area. 

The Chairman. How many of these' dairies with which you have 
contracts are under independent management, and by independent 
management I mean management for the particular dairy, the indi- 
vidual dairy, without any other dairies? 

Mr. Vardon. You mean they have no other affiliations than their 
own particular concern? 

The Chairman. That is right. 

Mr. Vardon. There are only three of all our contract companies 
that have any other affiliations so far as they are concerned. 

The Chairman. "What are those three? 

Mr. Vardon. Detroit Creamery and Ebling Co., which are units of 
...e National Dairy Co., and the Borden Co., "W. J. Kennedy Co. 

The Chairman. Is the W. J. Kennedy Co. a national company? 

Mr. Varden. It is operated by the United Dairy Co., of Philadel- 
phia. 

The Chairman. How many dairies in the Detroit area are managed 
by the National Dairy Products Corporation? 

Mr. Vardon. Two. 

The Chairman. How many by the Borden? 

Mr. Vardon. One. 

Tlie Chairman. Now you may proceed and make your statement, 
Mr. Vardon. 

organization and purpose of united dairy workers 

Mr. Vardon. Due to circumstances involved here I would just like 
to present a background of our particular organization. We organ- 
ized; in years gone by the workers of the dairy industry worked very 
long hours in the plantr,. They used to work i2 and 14 hours per day 
and on the routes we used to start at 12 and 1 o'clock in the morning 
and continue through until 4 and 5 the next afternoon. Now, I my- 
self worked those hours, and it was unbearable. 



CONCENTRATION OP ECONOMIC POWER 2945 

As things started, as far as Michigan was concerned, in the line 
of organization, the employees in the dairy industry got together and 
formed our organization. We have no one eligible for membership 
in our organization unless he is a member working in a dairy industry 
in our particular locality. The officers and the executive board of 
the organization are all composed of men who came from the rank 
and file. In other words, they were formerly workers either in a 
plant or on a milk route, with a number of years of experience. 

I myself went into the dairy industry about 9 years ago. We 
organized and attempted to get contracts for negotiation; we nego- 
tiated all one summer and were unable to come to any settlement, 
and we had to proceed then to call strikes, and at one time we hjid 
a very chaotic condition in the city, where we had several dairies 
on strike at one time. I say at one time; we had as much as 30 
percent of the volume of milk in the city of Detroit stopped on 
deliveries because that was the only means which we had of obtain- 
ing our contracts. 

We have one of the finest contracts, I think, in existence between 
a labor organization and management in the country, and are very 
proud of it. It is very complete; it goes into all of the details 
mvolved in the particular industry. We found, though, that after 
they had been in operation (it was sif^ned and agreed to in October 
of 1937) — that after the contract was m effect for 4 or 5 months — the 
economic conditions of the m?irket were such that the small individual 
and independent dairies were coming to our organization asking 
for wage relief. 

We tried to understand their problem and went so far in some 
cases as to audit their books or have their books audited. We found 
they definitely were not making money; that in a large number of 
cases the smaller dairies were operating at a loss even then. We did 
not at that time give any wage concessions, but later on when the 
price broke, in May or April I think it was, of 1938, it was necessary 
that our organization take steps in order to maintain our jobs in 
some of these smaller plants, to give wage concessions. 

The Chairman. These were the same plants which you say were 
not making money, according to your audit? 

Mr. Vakdon. That is right. 

The Chairman. And when you speak of a wage concession you 
mean a <;oncession from the point of view of the operator of the 
dairy; you mean an increased wage for the worker? 

Mr. Vardon. No ; I mean a reduction from the contractual wage, 
which they had previously been paying the employees. 

The Chairman. In other words, you, as tne organization, were 
considering whether or not you would accept a reduction of wagdi 
in order to meet the reduced economic status of the operator ? 

Mr. Vardon, That is right. It was necessary that we d6 that. 
You see we have seniority, and se on, and so forth, a working condi- 
tion which to the fellows' tenure of job is very valuable, especially 
in a city such as Detroit where for example the work in the auto- 
mobile industry is so very insecure. Therefore in our industry it 
was necessary for us to understand the econgmics of our particular 
companies in which these men were working in order to maintain 
our jobs there. 



2946 CONCENTRATION OF ECONOMIC POWER 

The Chairman. You regarded it as a matter of supreme impor- 
tance to your members that stability of employment be secured? 

Mr. Vardon. Very true. That is our position on it. In the fore- 
part of, or in the early part of 1938, I would say around in May, 
our organization went on record that the employees in any given 
plant, it was optional to them if they thought it was sound for them 
to take a wage reduction in order to preserve their jobs, that the 
organization would sanction a movement of that kind. 

In the following months we had, I think, about seven or eight dif- 
ferent small companies that appealed to their members or to their 
employees and as an organization I went out speaking for the organ- 
ization and recommended that the employees take a wage reduction 
in order to maintain these companies in business until something hap- 
pened in the dairy industry which would make it possible for the 
companies to pay the former contract wages, or that there was legis- 
lation or something that would clear up the chaotic condition then in 
existence in the market. 

Therefore, about eight or nine of the small companies took wage' 
reductions and instead of the condition getting any better it has con- 
tinually gone from bad to worse. We have for the last 2 years made 
a study. We have understood the problems of cash and carry, Wa 
analyzed the reaction, what has happened in various other markets 
where cash and carry has dominated, and we have absolutel;^ no 
objection to any particular system of distribution, provided it is 
tried fairly, and I don't think that cash and carry distribution in 
Detroit has ever been tried fairly. 

Now, in various other market's, California, for example, we have 
attempted to get information regarding it and we found that the 
information I have on the situation is to the effect that at the present 
time it is practically a public utility affecting the California area 
at this time. Now we had no desire of that in the State of Michigan, 
but we thought it was necessary to have some means of regulation 
where evils of competition would be eliminated. We know of in- 
stances where a caretaker in an apartment house is getting 20 and 
25 percent for allowing various milk companies exclusive use of his 
particular building to distribute his milk to the tenants therein. We 
know of cases downtown in the large wholesale shops that are getting 
35 and 45 percent off the list price, rebates. We know that that is 
being taken out of the payment to the farmer and to labor, and we 
felt that there should be some means of controlling that under the 
laws of the State of Michigan at this time. We absolutely as an 
organization have no option of telling the management that that is 
even an unfair practice, that it should be discontinued. 

The Chairman. Who indulged in these practices? You spoke of 
caretakers of apartment houses as No. 1. 

Mr. Vardon. The dairies. It is one of the evils of the competitive 
system. 

The Chairman. I understand. You said caretakers of apartment 
houses would receive compensation for permitting particular dairies 
to serve the tenants in their building. 

Mr. Vardon. Thafis right. 

The Chairman. What was the other practice? 

Mr. Vardon. Other practices, the on§ I spoke of specifically was 
the giving of large rebates or discounts below the list price. 



CONCENTRATION OF ECONOMIC POWETt 2947 

The Chairman, To whom? 

Mr. Vardon. The large stops, large wholesale stops and even large 
retail stops, in order to secure the volume of business. It is a com- 
mon practice that has been going on to my knowledge for a number 
of years. 

The Chairman. And yon felt that these two practices particularly 
operated to reduce the price to the dairy farmer upon the one hand, 
and to make the employment of the dairy workers unstable upon the 
other? 

Mr. Vardon. That's right. We took this position : We have ob- 
served the manner of competition for a number of years. I, my- 
self, have been on a milk wagon selling directly to the home con- 
sumers, and I know some of the trade evils that exist at the present 
time. 

The Chairman. Do these evils .of which you speak still exist ? 

Mr. Vardon. They definitely do. 

The Chairman. They definitely do? 

Mr. Vardon. They do ; yes. At one time we had milk distributors 
giving anything from bicycles and floor lamps and mixers, electric 
mixers, and all kinds of premium items of that type, in order to 
secure business. We know that that costs money, and therefore the 
consumer is indirectly paying for it or else it is coming out of labor 
or the farmer. Somebody must suffer when somebody else gives 
something away, and therefore we advocated and have advocated for 
years, for the past 2 years, that there be some type of regulation in 
order to control these trade evils in the State of Michigan. 

I was appointed to and served on Governor Murphy's milk com- 
mission in the latter part of 1938, and my position in relation to milk 
control perhaps is very similar to that of Mr. Beach. That is, I am 
very definitely in favor of the present type of control legislation 
which was just recently passed by the lower house in the State of 
Michigan. 

The Chairman. As a member of this commission you were one of 
those who had recommended the passage of this legislation ? 

Mr. Vardon. That is correct. 

The Chairman. In other words, to boil it down to a simple state- 
ment, the position you take is that in order to protect the farmer 
and to protect the worker it is necessary in the milk industry to do 
away with the old competitive system and establish some sort of 
public control, whether we call it regimentation or not — public con- 
trol — the purpose of which is to maintain the price for the producer 
and to stabilize wages and employment for the worker. 

Well now, how about the effect on the consumer ? 

Mr. Vardon. Well, I am of this opinion, that as a labor organiza- 
tion we must take a position in relation to the price the consumer 
will pay. It must be a fair price. I know enough about the dairy 
industry to say that in my opinion for labor it certainly would be 
foolhardy to attempt to set a price that was out of line with the 
ability of the consumer to pay, or the quality that the consumer 
receives on any dairy products. I believe that it is possible, that 
there are in the dairy industry enough good minds, whereas they can 
establish regulations, whereas the producer will receive a fair return 
for his product, that labor will receive a fair return for the amount 
of work that they do and the value of servjce they render to the 



2948 CONCENTRATION OF ECONOMIC POWER 

public, that the milk distributor or the capital invested in the indus- 
try can receive a fair return on their investment, and the consumer 
not pay an exorbitant price. The consumer will then pay a fair 
price, a price justified by the value of the product that they receive. 
We have no desire, and have never attempted to dictate or tell any- 
body the price at which they should sell to the consumer, although. 
I have told the dealers in the city of Detroit when they have asked 
me regarding the economic conditions and the trade practices in. 
effect that there was absolutely no sense to them competing on the 
basis that they have been competing for a number of years. 

The Chairman. But if the producers organize on one hand and the 
distributors and the workers organize upon the other, what protec- 
tion is there for the consumer against the raising of prices beyond 
what the consumer really ought to pay? You state that you would 
like to have fair prices, but what assurance is there that those fair 
prices can be obtained, in the first place, and then maintained? 

Mr. Vaedon. Well, in the first place, when you speak of the 
consumer, >f you raise the price too high, he will not purchase your 
product. You will have a drop of consumption that will hurt the 
income of all parties concerned. We work on a commission basis. 
We receive proportionately on the amount of milk that we sell. 

The Chaibman. Of course that amounts to saying that so far as 
the consumer is concerned, you are willing to let the normal forces 
of supply and demand govern the price that he will pay. 

Mr. Vardon. No ; I was bringing out another point. 

The Chairman. But for the others you want Government action. 

Mr. Vardon. No ; you are wrong there. That wasn't the intention 
of what I was trying to bring out. I was bringing out the point, 
whereas under labor's position naturally we have a selfish motive, 
we are interested in getting a fair return and not being exploited 
by unfair conditions, and therefore our system of receiving payment 
for our work is set up ; whereas we receive payment on the amount 
of milk that we sell, if we sell a lesser amount at a higher price, our 
income is no more tlian if we sell a greater amount at a lower price. 
Therefore we are interested in keeping the price at a level at which 
the consumer can and will purchase. 

For example, in my opinion, I think that under a 13- or 12-cent 
price in the city of Detroit today the consumption would very def- 
initely drop. On the other hand, I don't think that the reduction 
that just recently was effective has helped consumption at all. I 
think in between there is a price at which the consumer" will purchase. 
Below it won't have any effect. Above, it will. 

The Chairman. Is there a lower price than that which is in effect 
which might be charged, which at the same time will produce revenue 
sufficient to protect the producer and the distributor and the worker? 

Mr. Vardon. Lower than the present prices? 

The Chairman. Yes. 

Mr. Vardon. From what I know of the industry, I don't see how. 

The Chairman. If consumption were increased, .wlip.t would be the 
result, in your opinion? 

Mr. Vardon. Below the present level? 

The Chairman. If consumption were increased. 

Mr. Vardon. At the present level of prices today? 

The Chairman. Yes; or at any level. 



CONCENTRATION OF ECONOMIC POWER 2949 

Mr, Vardon. I don't think that even if consumption were doubled 
that the dairies cooperate fairly. 

The Chairman. We are told, for example, by experts in the De- 
partment that the per capita consumption of milk in Detroit is about 
four-fifths of a pint. We are also told by doctors that not less than 
a pint per capita ought to be consumed, but that actually a quart 
•per capita would be a reasonable and desirable consumption. 

Do you and your organization make any attempt to increase that 
consumption, and if the consumption were increased and the price 
to the consumer were lowered, would the revenue still be sufficient 
to maintain the objectives that you desire to gain on behalf of your 
members and on behalf of the members of the producers association? 
Mr. Vardon. Well, first, I think that we contribute more to an 
increased consumption than any other single factor involved in the 
market, and to qualify that I must add that the men whom I repre- 
sent are all experienced, high-class, intelligent salesmen, and they go 
back day in and day out to their customers and try to explain to 
them the necessity of using more dairy products. Naturally, they 
have a selfish motive. At the same time they answer the problem 
of consumption and increased consumption very well. They do a 
very effective job. I have had experience on that and I know what 
I am talking about. I don't think, that under any other system, re- 
gardless of wliat it may be, would the per capita consumption in- 
crease anj' better than it does, or hold up at even the level it is at 
the present time, than through the men going back, constantly con- 
tacting a lady, explaining the valuation of it, the butterfat content, 
what that means, and the body of the milk. Most companies with 
which we have contracts attempt continually to educate their men« 
They, in turn, educate the public. 

The Chairman. Wliat about consumption among the relief fam- 
ilies ? 

Mr. Vardon. I personally can't answer that. I haven't any statis- 
tics and I wouldn't guess. We don't have welfare milk at this time 
in the city of Detroit — fluid milk. 

The Chairman. Can you say from your own experience whether or 
not the families on relief get a sufficient amount of milk? 

Mr. Vardon. I can't say from my own experience ; no. I know, for 
example, the supposition has been made that cash-and-carry distri- 
bution supplies the low-income families. In our city that is definitely 
not true. There are no cash-and-carry depots in the relief neighbor- 
hoods and the low-rent areas which really need that type service. 
There are none in those areas at all. Cash and carry in our city is 
distributed to the higher-class and middle-class people and it is not 
made available to the people in the lower-class neighborhoods. 

The Chairman. Are you familiar with the bill which has just been 
passed by the Michigan House ? 

Mr. Vardon. Somewhat. 

The Chairman. You have endorsed the bill? 

Mr. Vardon. I have. 

The Chairman. Is that the bill introduced by a Mr. Welsh? 

Mr. Vardon. That is right, 116. 

The Chairman. I have before me what purports to be a copy of 
that bill, introduced on January 26 by Mr. Welch and referred to the 
committee on agriculture, and on March 29 reported, substitute 



2950 CONCENTRATION OF ECONOMIC POWER 

adopted, referred to the committee of the whole and placed on general 
orders. 
I find here that section 5 provides [reading] : 

There Is hereby created a milk marketing board to consist of five members- 
as follows: The commissioner of agriculture shall be a member and the chairman 
of the board by virtue of his office, and four other members to be appointed* 
by the Governor, as follows: Two shall be milk producers not connected with 
the distribution of milk except by a bona fide producer cooperative marketing 
association, both of whom shall have as their principal occupation and earn 
their principal livelihood by the actual management of one or more dairy herds*, 
and two shall be distributors. 

I understood from the testimony yesterday that it was provided 
that one of the members should be a consumer. Do you know whether 
or not the bill has been amended since that printing? 

Mr. Vardon. Yes; I have the journal of the passage of that bill in 
the Lower House. 

The Chairman. It is not necessary to get it if you testify that you 
know. 
• Mr. Vardon. Yes; it has been amended. 

The Chairman. So there is now a provision for one member to 
represent the consumer? 

Mr. Vardon. There is one consumer representative, one distributor^ 
two producers, and the Commissioner of Agriculture. 

The Chairman. I probably interrupted the statement that you 
desired to make, so you may proceed now. 

Mr. Vardon. The position on the question you asked in regards to 
consumer, personally I think that all fairminded people and people 
who understand the dairy industi-y have absolutely no desire or would 
attempt at this particular enlightened time to exploit the consumer. 
It would be very definitely detrimental to the farmer; it would be 
detrimental to labor, and it would certainly be detrimental to the 
milk distributor. Now in the representation on that board, we take 
this position in regards to the bill. We know that we have in the 
State of Michigan not only in our Detroit market but in practically 
every other market within the State, a very chaotic condition. The 
farmers are to the point that unless some type of relief is done they 
are either going to take some very radical action to protect them- 
selves or they are goinf^ to cease producing milk. If that happens, 
the consumer will definitely suffer. 

The bill itself, while.it is not the best document in the world, it is 
a start in Michigan. It gives the five-man comn^is^ion the right to 
straighten out, to study, and to understand the fundamental things 
regarding the dairy industry. 

Our position on it is the fact that it is like an autom.obile. You 
may have a very good car, but if you have an inefficient, poor driver, 
the car is no good, and the same thing in my opinion holds true with 
any administrative bill which has a board the type of this, that if 
we have a sound board, the board is sensible and working for the 
benefit of the industry, then the bill will be workable, it will be sound 
and beneficial to the farmers, to the consumer, and to labor. Whereas, 
on the other hand I don't think that an;^ legislative body can draft a 
bill and put a poor administration to direct it and make it workable. 

The Chairman. Have you any opinion with respect to whether or 
not the so-called cash-and-carry system or the establishment of such 



CONCENTRATION OF ECONOMIC POWER 2951 

cash-and-carry depots is a desirable thing if wages paid to labor are 
fair? 

Mr. Vardon. I don't think as an organization that we could take 
the position of saying to the consumer, "You cannot go to the store 
if you desire it." I think that cash and carry is in the market and 
that it will stay if it operates fairly and can exist under honest, com- 
petitive methods. 

The Chairman. Then does the organization have any opinion as 
between the delivery system and the store system? 

Mr. Vardon. No; we deliver, but I think that we serve perhaps 
10 times as many stores as Mr. Johnson ^ serves. 

The Chairman. So your organization has .no opinion ? 

Mr. Vardon. We have no opinion. 

The Chairman. And no choice between the two methods? 

Mr. Vardon. The only thing we ask is that they both compete 
honestly and fairly. 

The Chairman. Have you made any study with respect to the 
form of container in which milk is delivered and the effect of increas- 
ing the size of the container upon the amount of milk consumed, and 
likewise with respect to discounts on deliveries of say 3 or 4 gallons ? 

Mr. Vardon. Well, your question is divided in itself. 

The Chairman. There are two questions. 

Mr. Vardon. First, the question involving the container is one that 
I wouldn't even attempt to answer. It is too controversial. 

The Chairman. Why is it controversial? I am interested in find- 
ing out what the controversy is. 

• Mr. Vardon. Well, first, whether that would increase consumption 
or whether it wouldn't would require quite a lengthy survej^ and 
quite a lengthy study for anyone to answer that correctly ; an opinion, 
yes, but facts would require a long time to get anything that was 
sound. 

The Chairman. Is the controversy merely one of opinion as to 
■whether or not it would increase consumption? 

Mr. Vardon. That is right. In other words, you may have an 
opinion one way and I the other, and while I make some sound 
arguments on my side, there are still a lot left on yours. 

The Chairman. I have taken no sides. 

Mr. Vardon. Well, I know, but in any position there are always 
two sides. 

The Chairman. Do you have any position on this question of dis- 
counts for consumers who buy 3 or 4 quarts of milk daily delivered 
at home? 

Mr. Vardon. I don't think it helps consumption at all. 

The Chairman. You don't think that the small discount which 
could be given on such a system would help consumption ? 

Mr. Vardon. No ; I don't, honestly. 

The Chairman. Proceed with any statement you care to make* 

Mr. Vardon. I think I have practically covered my position in 
regard to it. 

The Chairman. Commissioner Ferguson, do you desire to ask the 
witness any question ? 

^Mr. George A. Johnson, who testified before the committee on March 10, 1939. See 
testimony, p. 2829 et seq., supra. 

124491— 39— pt. 7- 14 



2952 CONCENTRATION OF ECONOMIC POWER 

Mr. Ferguson. Just one or two questions, Mr. Chairman. Mr. 
Vardon, I understood you to say just a few moments ago that the 
cash-and-carry stores are not located in the sections in which persons 
on relief live but are in the wealthy and well-to-do sections. 

Mr. Vardon. I beg to differ with you. I didn't say that. I said 
that the neighborhoods which need the cash-and-carry service and 
low-price milk are not being served at this time. I refer to sections 
of the city of Detroit such as, for example, south of Tireman Avenue. 
Anyone acquainted will know south of Tireman Avenue, just west of 
West Grand Boulevard, which is definitely a slum neighborhood. 

Mr. Ferguson. Yes; well, your testimony is on record there. Let 
it speak for itself. 

Do you, by cash-and-carry stores, mean the same thing as milk 
depots"? Is that true? 

Mr. Vardon. That is true. 

Mr. Ferguson. In the statement that you filed with the committee 
I have found the following language: "A milk depot is an inexpen- 
sive store in a low-rent area." Isn't there conflict between that state- 
ment and the one which you have just made? 

Mr. Vardon. I would say that the statement was incorrect if you 
are taking from that the inference that it is in a low-rent area where 
there are people who are on welfare living^ if that is the inference 
you derive from the statement, I would say that it is incorrect. 

wage scale or route salesmen 

Mr. Ferguson. Mr. Vardon, what is the average wage that you pay 
your truck drivers? 

Mr. Vardon. You mean the salesmen delivering to the homes? 

Mr. Feeguson. Yes. 

Mr. Vardon. The men receive the rate of $12 per week and 14 
percent on the amount of moneys collected. 

Mr. Ferguson. Twelve dollars a week is the minimum? 

Mr. Vardon. That is the salary; yes. 

Mr. Ferguson. And the commission on top of that. 

Do they work every day in the week ? 

Mr. Vardon, No ; they work 6 days a week. 

Mr. Ferguson. What would be the commissions on an average 
route ? 

Mr. Vardon. It is similar to what I attempted to point out to the 
chairman just previously, that depending on the amount of milk sold, 
for example, if the sales are $800 a month or an average of $200 a 
week, which they are not at this time, the men would receive 14- 
percent commission on $200 collected and turned in, which would 
amount, as an example, to $28 a week commission plus $12, which 
would be $40, although I hope you don't take that as an illustration 
of present conditions. 

Mr. Ferguson. How much do they- actually get? What is the 
actual receipt? 

Mr. Vardon. Of about 1,800 men on retail wagons, do you want 
me to strike an average ? I would say at the present time they are 
averaging about 34 to 35 dollars a week. 

The Chairman. Mr. Vardon, may I ask you, while the commis- 
sioner is looking at his notes, whether you have made any survey 



CONCENTRATION^ OF ECONOMIC POWER 2953 

of the difference in the cost of labor to the distributor between these 
two systems of home delivery and store delivery ? 

Mr. Vardon. The present cost? 

The Chairman. Yes; the present labor cost to a distributor be- 
tween the two systems. 

Mr. Vardon. Yes. 

The Chairman. Home delivery on the one hand and store delivery 
on the other. In other words can the distributor deliver more milk 
for the same labor cost to the cash-and-carry depots than he can 
to the individual in his home by the home-delivery service? 

Mr. Vardon. That is where the differential comes in, between cash- 
and-carry system of distribution and the home delivery system. 

The Chairman. What is the differential? 

Mr. Vardon. I would say — well, as an illustration, Johnson, for 
example, pays girls $12.50 a week, whereas on the other hand the girl 
may be doing, in serving, at least double the amount of milk that is 
being sold from a retail wagon. Now, you are ^oing into a rather 
deep problem there because the large differential and his unfair 
methods of dealing has caused him to have an advantage of 4 cents, 
which is not economically sound. 

The Chairman. Well, of course, it is obvious, I suppose, that a 
salesperson standing at a comiter can handle more milk if the con- 
sumers come to the counter. 

Mr. Vardon. That is right. 

The Chairman. Than the the same person could handle ^f he had 
to go to the consumers in a wagon and go from house to house. 
■ Mr. Vardon. Very true, but the point in there is the fact that it 
has never been: really fairly tried. 

The Chairman. What hasn't been tried ? 

Mr. Vardon. The distributing system. In other words, when I 
say that I must qualify it in this manner. There certainly is a dif- 
ference between a cash-and-carry method of distribution, a differen- 
tial which is advantageous to the cash-and-carry system over that of 
the home-to-home delivery, but first cash-and-carry must operate 
fairly, paying the farmers the same price, and at least paying a fair 
wage to their employees. Now that has never been tried in Detroit. 
Mr. Johnson has never operated in that manner. 

Mr. Ferguson. Mr. Vardon, do you know what Mr. Johnson pays 
his drivers, truck drivers ? 

Mr. Vardon. I don't. 

Mr. Ferguson. Don't you know that it is $42 a week? 

Mr. Vardon. I might answer that by saying I know that he pays 
his plant employees $42 a week. 

Mr. Ferguson. Pays what? 

Mr. Vardon. He pays his plant employees $42 a week for a 12 
to 14-hour day. Mr. Johnson made a statement to the effect that he 
was paying more than union wages, in his previous testimony; that 
is definitely not true. 

Mr. Ferguson. Do you know what he does pay them? 

Mr. Vardon. He is paying them $7 a day for 12 to 14 hours' work . 
per day, whereas a union man receives $6 per day for an 8-hour day, 
time and a half for overtime, 2 weeks vacation a year with pay. 

The Chairman. Any other questions? 



2954 CONCENTRATION OF ECONOMIC POWER 

UNIT COST OF HOME DEUVJEY 

Mr. LuBiN. Do you have any idea as to the number of quarts that 
the average driver would deliver to households ? * 

Mr. Vardon. Of course, it varies seasonally, but I would say at 
the present time the average driver is delivering about 200 — we call 
them points— about 260 to 270 points daily. 

Mr. LuBiN. Now, if you put that in quarts of milk, how would it 
run? 

jVIr. Vardon. It is difficult to answer because here the average milk- 
man will deliver to perhaps 200 to 300 stops delivering cream and 
cottage cheese and the various products. Now, our analysis of a load 
is that a quart of milk is a point, or a half pint of cream is a point; & 
pound of butter is a point; a carton of cottage cjieese is a point. 
Therefore, in summing up a milk route we say it has so many points, 
including quarts. Now, in different neigliborhoods it will vary. A 
240-point route, for example, in a low-rent area perhaps would carry 
230 quarts of milk. The 240-point route in a high-rent area would 
probably carry about 180 quarts of milk. The balance would be 
composed of cream and products of that tj^pe 

Mr. LuBiN. Now, you say the average driver would make about 200 
stops a day? 

Mr. Vardon. I would say about 220 or 230, 

Mr. LuBiN. And $6 a day; in other words, the average cost per 
stop is about 3 cents ? 

Mr. Vardon. Well, right around there. 

Mr. LuBiN. Now, is there anything in your contract that limits 
the number of stops a man shall make a day? 

Mr. Vardon. No. We realize too well that in order to compete — 
and naturally we are interested in competing — with the cash-and- 
carry means of distribution, our one solution is a lower unit cost off of 
the wagon. The greater number of units served per wagon, the lower 
proportion of cost per unit. Therefore tliere is absolutely no limita- 
tion in our contract as to the number of units per wagon or per driver. 

Mr. T-UBTN. One further question. Tell me what a swing man is. 

Mr. Vardon. A swing man — not speaking in terms of music — is the 
relief man who relieves the regular fellow on his day off. He swings 
the six routes. 

The Chairman. Does a swing man have regular employment or 
only relief employment? 

Mr. Vardon. He has regular employment. You see. a swing — that 
is musical, too, but in the dairy business it is composed of seven men 
and six milk routes, and they alternate, taking their days off and 
he ffoes in this cycle. 

The Chairman. So that the swing man works 6 days, just like the 
others ? 

Mr. Vardon. Just like the others. 

The Chairman. Any other questions? 

Mr. Vardon. I would like to add this: It is unfortunately true that 
due to the recent drop in milk prices and the present chaotic condi- 
tions our organization has been forced to' strike at various small 
independent companies in order to maintain a living wage. Now we 
have taken the position that we are willing to cooperate with the 



CONCENTRATION OF ECONOMIC POWER 2955 

industry and do everything that we possibly can to clarify the chaos 
and to stabilize the dairy industry in the State of Michigan. Never- 
theless, it has come to the point where today I am firmly convinced 
that unless something is done, either by regulation through the form 
of our particular milk-control bill, or the prices advanced, that there 
are approximately — well, I would dare say even as high as 50 percent 
of the small independent dairies in the metropolitan area of the city 
of Detroit that are going to go out of business. They are operating 
at a loss. Unfortunately I had some statements showing the profit 
and loss statements of these dairies which I mislaid and did not 
bring along. I wish I had them to enter as an exhibit. But these 
small dairies, in fact every dairy, I think, with perhaps the excep- 
tion of Mr. Johnson's, and the reasons are obvious why he isn't oper- 
ating at a loss, are operating at a loss at this time under the present 
conditions, and if something is not done it means that these com- 
panies are going to go out of business and consequently we are going 
to lose our tenure of jobs and our stability of employment. 

The Chairman. What should be done? 

Mr. Vardon. The industry should be regulated by the Government 
to take out the trade evils, and stabilize the industry, making each 
competitor, each distributor pay the farmer the same price and cease 
their unfair evil methods of competition. 

The Chairman. What are the factors which Government regula- 
tion could eliminate, which would save the small distributor, who 
you now say is operating at a loss? 

Mr. Vardon. First — I think I see the thought in mind — ^there would 
be an increase to the consumer, if that is the point you are getting at. 

The Chairman. There would be an increase of price to the con- 
sumer ? 

]Mr. Vardon. Very definitely. 

The Chairman. Now does your organization have any opinion as 
to which is more desirable — the small distributor or the large, well- 
organized and well-financed distributor? 

Mr. Vardon. No; we have nothing in regard to the small, ineffi- 
cient distributor. One who cannot operate on a fairly good basis and 
compete in a fair manner; one who is inefficient we have no use for; 
we don't think he belongs in business ; he is a detriment to the dairy 
industry and to the consumer and everyone involved. 

The Chairman. What your testimony amounts to is an expression 
of belief that open competition in the milk industry would result 
in lowering prices to the producer and making employment insecure 
and wages low to the worker, although it might reduce the price to 
the consumer, and you prefer to have the price to the consumer main- 
tained at a level which will enable the producer to operate at a profit 
and stabilize your employment, and you do not believe that a low- 
ering of the price can be brought about which will so increase con- 
sumption that you could serve the consumers' interest in low prices, 
at the same time serving your interest in good wages and stable 
employment? 

Mr. Vardon. And I offer Michigan as an exhibit. 

The Chairman. Mr. Lubin, you wanted to ask another question? 

Mr. LuBiN. Mr. Vardon, you talked about cash-and-carry firms in 
Detroit. Are there any other cash-and-carry firms? 



2956 CONCENTRATION OF ECONOMIC POWER 

Mr. Vardon. Not exclusively cash-and-carry; no. 

Mr. LuBiN. Are there any the major part of whose business is milk 
and dairy products? 

Mr. Vardon. Well, now for example, we have the W. A. Goebel 
Creamery Co., who has, I think, either three or four cash-and-carry 
stores. They are of a higher class and character than Johnson's, 
though. They are a store that has ice cream and various other 
products, and with very good refrigeration and well set up; a more 
elaborate store by far. 

Mr. LuBiN. Do you know whether Goebel's have any contracts with 
any trade-union organization? 

Mr. Vardon. They have a contract with us. 

Mr. LuiiiN. They pay the union rate? 

Mr. Vardon. Yes ; they do in the plant. The girls in the stores are 
not organized. 

Mr. LuBiN. They are not organized? 

Mr. Vardon. No. 

Mr. LuBiN. Do you know what they pay to their girls? 

Mr. Vardon. If I am not mistaken, I think Goebel is paying $18 
a week to his girls. 

Mr. LuBiN. Would you know how their prices compare with Jolin- 
son's? 

Mr. Vardon. Witli Johnson's? Well, they vary. I think that 
Jolmson's is below them. 

Mr. LuBiN. I was interested, Mr. Vardon, in what you just said 
about the proposed legislation in the State of Michigan and the need 
for stabilizing the industry. When Mr. Beach appeared yesterday 
I was impressed by the fact that that marketing board was to con- 
sist of a secretary of agriculture, whose main function is to protect 
the interests of the farmer; two producerSj and a representative dis- 
tril)utor. Has the question ever been raised by your union as to 
tlie advisability of having a representative employee ? 

Mr. Vardon. The original bill as recommended by the committee 
composed a seven-man board, a representative of labor, representative 
of tlie consumer, two of the distributors, and two of the producers, 
and a commissioner of agriculture, but we have a very peculiar situ- 
ation in Lansing, and we thought it advisable to remove the labor 
representative from the board before it was done for us. 

Mr. LuBiN. Is your organization favorable to the proposed set-up 
of five? 

Mr, Vardon. Yes; we think it is fundamentally sound. 

Mr. LuBiN. What would be the attitude of the organization if as 
a substitute to three producers and a distributor you had four rep- 
resentatives of consumers, the public as a whole? 

Mr. Vardon. As far as we are concerned we would like to know 
that they w^re of high class, intelligent persons, and if they were 
truly understanding the dairy industry and try to answer soundly 
the economic problems involved; we would have absolutely no 
objection. 

Mr. LuBiN. You are not implying that you have the assurance that 
people who are going to be appointed 



CONCENTKATION OF ECONOMIC POWER 2957 

Mr. Vardon (interposing). No; I am implying that I have met 
some people that presumed to represent consumers and made state- 
ments to that effect publicly, that certainly are not qualified either 
as a consumer or in my opinion, anything else, to sit on a commission 
as important as this particular one is. 

Mr. LuBiN. Thank you. 

Senator Borah. 1 understood you to say that a large portion of 
the milk industry of Detroit — independent small people — were doing 
business at a loss and that something would have to be done in order 
to save tliem. My conclusion was that your opinion was to the effect 
that they would not be saved anyway, that there was nothing that 
would save them? 

Mr. Vardon. No. 

Senator Borapi. Form a monopoly and they would pass out ? 

Mr. Vardon. No; that was not my conclusion at all. 

Senator Borah. That was the conclusion I drew ; I would be glad 
to have you explain how you are going to save them. 

Mr. Vardon. Well, first there is absolutely no value on their busi- 
ness today. They are operating at a loss; their statements for the 
last few months have shown a loss. The valuation of a retail point 
of business is completely gone. I can remember when a retail point, 
as I have just previously explained what a point is, was valued any- 
where from $10 to $30, and $35, depending upon the — now that in- 
cludes, I might add, the outstanding, the good will, and the equip- 
ment and so on, and so forth. Today I don't think that the valuation 
of a retail point is above or even level with $1.50 or $2. In fact, 
there is so much retail business ,. for sale in Detroit today that nobody 
wants to buy it. That is all ; there is no value to it. Therefore 
these fellows are in a position where they can't borrow any money; 
no one wnll make any investmei*ts in their business. On the other 
hand, if legislation is passed Avhere they see the possibilities of sta- 
bilization, then the valuation of these businesses will be immediately 
enhanced. They will then be able to borrow enough security, enough 
capital, to carry them through until the bill is effective and until fair 
conditions are in existence. 

That is about the only w^ay that I can conceive that it would be 
possible to keep these small independent dealers in business. 

Senator Borah. Do you think some of them could be saved? But 
I understood you to say a great many could not be. 

Mr. Vardon. Some are so far gone I don't think they could be 
saved. I don't think that would even save them, that is true; but, 
on the other hand, there are others who are peijjiaps just a trifle better 
off that could be saved. 

Senator Borah. You feel, do you not, that ultimately the milk 
industry will have to pass under the control of a monopoly? 

Mr. Vardon. No; I don't. I feel that ultimately the milk business 
will be a public utility. 

Senator Borah. AVhich is another name for the same thing? 

Mr. Vardon. Well, by the Grovernment; yes. 

The Chairman. Mr. Vardon, we are very much indebted to you for 
your statement. You may stand aside. 



2958 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF THEODOEE G. MONTAGUE, PRESIDENT, THE 
BORDEN COMPANY, NEW YORK CITY 

The Chaieman. Do you solemnly swear, in the testimony you are 
about to give, to tell tlie truth, the whole truth, and nothing but the 
truth, so help you God? 

Iklr. Montague. I do. 

Mr. Chairman and gentlemen, I have gone to quite a length to 
present a rather pictorial story to the committee, and I would greatly 
appreciate it if you will permit me to go through the statement. ^ I 
think that many of the questions that may come to your minds will 
be answered in the course of my presentation, and I shall be very 
glad to answer those questions if you permit me to present this 
pictorial presentation to you. 

The Chairman. Very well, you may proceed. 

Mr. Montague. I am appearing before this committee to express, 
on behalf of the oldest and second largest milk company in this 
country, the views of its management on some, of the matters before 
this committee. 

At the outset permit me to express the opinion that your committee 
is engaged in an important 

The Chairman (interposing). Tliis is the statement you have filed 
with the committee, is it ? 

Mr. Montague. No; this is an amplification of it, Senator. Be- 
tween April 8, the date of your letter and this time I have been 
able to amplify considerably with charts and other data the state- 
ment originally filed with thfe committee. 

The Chairman. Of course, the purpose of the committee in asking 
that statements be prepared and submitted to the committee was in 
order to enable us to be fully cognizant of the materials to be pre- 
sented, so that the committee could expeditiously handle the case. I 
feel that ample opportunity was granted you to do that ; I don't want 
to shut you off, but in the interest of orderly procedure, don't you 
believe that you ought to go ahead with the statement which you 
gave to the committee, saying it was to be your statement ? 

Mr. Montague. I have amplified it in the interest of presenting, 
Senator, a more complete picture to you which I think you would 
find very helpful in getting at the real problem. I will make it as 
brief as possible. I think, as a matter of fact, Senator, it will save 
time if I may get to these points that way. 

The Chairman. Of course, the committee and and the members 
of the committee who have been studying the milk industry, the 
Federal Trade Commission, particularly, have not had an opportunity 
to examine the new material which you are now presenting. 

Mr. Montague. I am only preser*:.ig things in chart form, Sen- 
ator, that I presented in veri3al form to the committee on April 8. 

The Chairman. We have tried to have a regular procedure, the 
purpose of which was to make it convenient both for the witness 
and for the members of the committee to f]^et the facts. 
Mr. Montague. I think I can so present them to you. 
The Chairman. Do the representatives of the Trade Commission 
have any feeling about this? 

Mr. DA^^s. Mr. Chairman, if they present a different order and 
an additional statement, the Federal Trade Commission would like 



CONCENTRATION OF ECONOMIC POWER 2959 

to have time for its staff to examine it and be prepared to ask in- 
telligent questions, and consequently would have to ask that a later 
date be set to call the witness back for examination. 

The Chairman. Of course, I understand from Mr. Montague that 
the additions to this statement are amplifications and not changes in 
the points to be emphasize'^ 

Mr. Montague. Precisely. 

Mr. Davis. Evidently he considers them important or he wouldn't 
want to present this statement in lieu of the other one. 

Mr. Montague. It is simply supporting data of the principal 
points I made in the brief filed with the Commission. 

The Chairman. I think with the understanding of the position 
just stated by Judge Davis and that made by you, that in the event 
any material which is not in amplification of the original statement 
is presented, it may be passed over for the present until the Trade 
Commission experts have the opportunity to examine it. 

Mr. Montague. I think they will find this is all in the original 
statement filed with the committee. 

The Chairman. You may proceed. 

Mr. Moxtague. Today the milk industry in this country is in a 
state of flux. The influences which previously governed the produc- 
tion, distribution, and consmnption of milk are under^^oing material 
change. It is impossible at this time to predict the final form into 
which these changinfr factors will be resolved. Much will depend 
upon the future policies of the Government, of organized labor, and 
of farmers. These will determine in large measure how, in the 
days to come, the complex task of providing the Nation's milk supply 
will be performed. 

As everyone knows, in many cities milk prices are too high. That 
is the chief thing with which we are all concerned. Contrary to 
charges often made, however, this is not, in my judgment, the fault 
of the major distributors. It is my purpose here to show you where 
the real trouble lies. 

In the course of my remarks, I will discuss the often raised problem 
of monopoly. . It is true that there are monopolistic practices in the 
milk industry, but these practices are not on the part of the distrib- 
utors. I will show you wiiere the elements of monop'^ly lie. It is 
also my purpose to discuss other subjects concerning which there is 
much misinformation and misunderstanding, namely: (1) The rela- 
tionship between farm prices and retail prices for milk; (2) the 
classified method of buying milk; (3) the facts about the delivery 
of milk to homes and the sales of milk to stores. 

After considering these subjects, I am going to make some sug- 
gestions which, if carried out, we may expect will result in three 
things: First, the assurance to consumers of an adequate supply of 
wholesome milk at lower retail prices; second, the stabilization of 
employment in the milk industry at good wages; third, a greater 
degree of stability in producers' incomes through the establishment 
of sound prices for fluid milk, rather than some unsound prices used 
at present. 

I shall now proceed with a discussion of the matters I have out- 
lined, and my first subject is the farm and retail prices of milk. 



2960 CONCENTRATION OF ECONOMIC POWER 

SEASONAL FLUCTUATION IN SUPPLY OF MILK 

Mr. Montague. In the field of millc production, the most vexing 
problem and the chief cause of the ills afflicting the dairy farmer 
is the present tremendous surplus of milk. Last year saw milk 
production in the United States reach the hij>;hest point in its his- 
tory, and 1939 bids fair to exceed 1938. This mounting surplus is 
the result both of natural causes and current practices which have 
artificially stimulated milk production. 

The effect of normal forces was aggravated by artificial practices. 

Marketing associations have been successful in some instances in 
maintaining high prices for fluid milk which are not based upon real 
values, and governmental price fixing in some instances has operated 
to achieve the same result. 

Governmental price fixing has meant artificial and arbitrary price 
raising. These high fixed prices are very attractive during a period 
of low-production costs and have been a major factor in further en- 
couraging producers to increase their output. The record-breaking 
surplus exists as the inescapable result of these causes. 

Critics bent upon distortion frequently assert that during the de- 
pression the farm price of milk declined more than the retail price. 
Actually in most markets the retail per quart.price declined more than 
the farm per quart price. 

Wages, which frequently depend more upon the bargaining power 
of labor than upon economic facts, are slow to decline in a period 
of declining prices. On the other hand, the cost of the raw milk 
product is influenced to a large extent by the manufactured dairy 
products which are bought and sold in the national and in the world 
market and which normally reflect the laws of supply and demand. 
The value of milk sold for manufacture into butter, cheese, or similar 
dairy products, is, therefore, the real index to all milk prices. This 
fact should be apparent because manufactured milk products provide 
a larger market for the farmer's milk income in this country than 
does bottled milk. In the United States approximately CO percent 
of all the milk and cream leaving the farm goes into the manufac- 
tured products and about 40 percent goes into fluid milk. 

Fluid milk normally commands and should command a premium 
above the basic price for manufactured milk. This premium is paid 
in order to compensate the farmer for providing a stable supply of • 
high-quality milk for city distribution. 

Milk is ultraperishable and very bulky. These stubborn facts make 
it necessary to depend upon high-cost producing areas near cities and 
to reduce to a minimum the time intervening between production and 
consumption^. It must be brought from the farm to the household in, 
an operation performed overnight. Another factor, the danger of 
contamination, necessitates its production under' health regulations 
which add to its cost. 

These requirements — and this is very important — are not present 
in the manufacture of dairy products. In these products a lower 
grade of milk must ,be used, ai;id it can be obtained from areas re- 
mote from city population. The milk is entirely suitable for human 
use when manufactured into these products, but because of the 
distance irom the market or because of tfie quality, it would be 
unsuited to fluid consumption. 



CONCENTRATION OF ECONOMIC POWER . 2961 

On the other hand it should be borne in mind that if more milk is 
produced in any given milk shed than can be consumed in fluid form, 
that milk is worth no more than its manufacturing value, because 
it must go into manufactured products. This is so because the 
products manufactured from high-grade milk in the fluid-milk sheds 
must sell in direct competition with the products produced in more 
distant regions. 

In most localities, the natural calving period, combined with good 
pasturage and warm weather, causes the milk flow to be very much 
greater in the spring and summer than in the winter. A market for 
this widely fluctuating volume must be provided since it is customary 
and to a great extent necessary for major distributors to purchase all 
the milk produced by all the dairymen from whom they customarily 
obtain supplies. Thus, although these major distributors may limit 
the number of farms from which they may purchase milk, they have 
little or no control over the volume of milk received from these farms 
because of the variation in milk production on the individual fanns. 

In other words, to assure for the months of low production a 
supply that will barely meet the demand, it is inevitable — and this 
cannot be avoided — that there will be a large surplus in a period of 
flush production. Consumption varies according to factors largely 
unrelated to the factors affecting production, and unlike some food 
products, particularly luxury foods, the demand for milk is only 
slightly elastic. 

For this reason even a drastic reduction in price will not increase 
consumption sufficiently to absorb an appreciable amount of surplus. 
Consequently, the surplus must be manufactured in the more con- 
centrated and less perishable forms which can be stored for consid- 
erable periods or shipped to other markets which require more of 
the products than are produced locally. 

The relationship between production and consumption in New York 
State is indicated in a compilation showing the average number of 
pounds produced each month, the number of pounds consumed as 
fluid milk each month over a 10-year period. I should like to present 
to the committee this chart which we have had prepared which 
exemplifies this very subject. It is taken from official figures of the 
Department of Agriculture on the total production of milk in the 
State of New York. 

Mr. Henderson. Will the witness identify the chart? 

Mr. Montague. I will offer for the record the chart indicated, 
chart 1, and the supporting data from which it was taken. 

The Chairman. It may be received. This chart was not included 
in your original statement? 

Mr. Montague. It is referred to, but not in this form. 

(The chart referred to was marked "Exhibit No. 441" and is in- 
cluded in the appendix on p. 3247.) 

Mr. Montague. This chart simply indicates what I have been talk- 
ing about, the seasonal fluctuation in milk, products, going from 
something under 400,000.000 pounds in January, or at the low point 
in November, about 300,000,000 pounds, to a high of something over 
600.000,000 pounds. 

The Chairman. What do the solid portions of the column 
represent ? 



2962 CONCENTRATION OF ECONOMIC POWER 

Mr. Montague. The solid line represents the consumption of fluid 
milk and the top lines represent the, production. This shows very 
clearly that production of milk has little relatiqji to 'the use of milk 
in the demand for bottled milk in cities. You will see how inelastic 
or how even the demand runs here, and how uneven the production. 
Obviously, in any shed, this surplus in each of these months must 
be taken care of by somebody. It exists. Something has to be done 
with it. The surplus milk always seeks a fluid market if prices for 
fluid milk consumption are too far above the manufacturing value. 

Now, the income to all dairy farmers did not decline as much as 
farm income from other products. In support of this I will quote 
from page' 78 of part 1 of the report of the Federal Trade Commis- 
sion in connection with the agricultural inquiry in 1937. 

The Chairman. May I interrupt you, Mr. Montague? I have 
been trying to follow you. 

Mr. Montague. The quotation of the Federal Trade Commission is 
a new item, Senator. 

The Chairman. The statement from which you are reading is not 
the same as the printed pamphlet which has been distributed? 

Mr. Montague. This is an addition since that pamphlet has been 
printed, this one paragraph on the Federal Trade Commission report. 
It only signifies, Senator, that the income of dairy farmers in dairy 
production — and I think that is a fact well known by everyone-; — held 
up better in comparison than any other agricultural product. 

The price of butter sold in the open market serves as an excellent 
index of the value of milk used for manufacturing. The comparison 
of New York butter prices from 1929 to 1938, with fluid prices in the 
New York market during the same period, shows that both followed 
the same downward trend. I have a chart on this, which shows this 
relationship very clearly, I think, to the committee. Taking 1929 as 
100 

The Chairman (interposing). Please identify the chart. 

Mr. Montague. I shall offer for the record table 2 and chart 2, 
from which these data were prepared, indicating the source also of 
data. 

(The chart and the table of data supporting it were marked "Ex- 
hibit No. 442" and are included in the appendix on p. 3248.) 

RELATION OF PRICE TO CONSUMER FOR MILK PRODUCTS TO PRICE PAID 
PRODUCER 

Mr. Montague. This represents the New York price of butter, tak- 
ing 1929 as 100, and going down to a low in 1932 of something less 
than 50 percent of its 1929 price. This represents the fluid-milk buy- 
ing price in the New York market, following this same relationship, 
but never going as low as the butter price. 

This is the wage cost. You will recall 

The Chairman (interposing). You say never going as low. In 
1937 it dipped below. 

Mr. Montague. I beg your pardon; for a brief period it has. 
Excuse me. 

Following the wage trend, you will see wages come along fairly 
evenly. As I said, wages did not decline at the beginning of the de- 
pression anywhere near as much as raw-material prices did, coming 



CONCENTKATION OF ECONOMIC POWEU 2963 

down here to a low in 1933 and rising now to a point above 1929. The 
retail price for fluid milk, which is a combination, gentlemen, of high- 
priced wages, high-wage cost, and lower-material cost, naturally fell 
in between these two lines, and has followed a very definite relation- 
ship between the high cost of labor and the lowering milk price 
during this period. 

Dr. LuBiN. Mr. Montague, will you give us for the record the 
source of those materials, the prices and wages, and so forth? 

Mr. Montague. Yes, sir. The wages are taken from our own rec- 
ords of our own company operating in New York. The butter prices 
are the published prices. 

Dr. LuBiN. Weighted? 

Mr. Mo.NTAGUE. It is the simple daily average. The retail milk 
price is taken from our own records^ in New York, the buying prices 
for fluid milk are the buying prices published by the Dairymen's 
League in New York. 

The tremendous quantity of surplus milk in the New York milk- 
shed in the past 10 years has tended to lower fluid-milk prices as 
producers attempted to sell this surplus to a market that could not 
absorb it. 

EFFECT OF WAGE COST ON RETAIL MILK PRICE 

Mr. Montague. During this same period, however, wages of retail- 
route salesman declined only moderately, even in the worst of the 
depression, and have since increased under the spur of union activity 
to approximately the 1929 level. In fact, with smaller loads handled 
on retail delivery vehicles in 1938, the average wage per unit sold 
off vehicles was generally higher than in 1929. This fact, which 
materially affects the price of milk, is too little understood by critics 
of milk prices. It should be emphasized here again that the retail 
price of milk is determined almost wholly by the cost of the raw- 
milk product and the cost of labor. Those two items make up such 
a large proportion of the total cost that other items are insignificant. 

Therefore, as I have pointed out, the cost of the raw product and 
the cost of labor make up so large a part of the expenses of providing 
milk for the consumer that other costs of operation of the business 
are of minor significance in determining prices. 

Now, as an example that I would like, to point out to you, in Chi- 
cago our route salesman have achieved and still maintain the highest 
wage scale in the industry, but in so doing have invited competition 
which has very, very much lower wage costs. This has caused a 
loss of approximately 2,500 jobs for the union membership. Many 
drivers, losing their jobs with major distributors, have gone into 
business for themselveSj handling milk purchased from farmers at 
less than prevailing prices and selling it at whatever price can be 
obtained. The return these men get for their labor is usually much 
less than the wages paid by the distributors whose employees are 
unionized. 

This committee may not realize that our company experiences in 
Chicago a wage cost which is from 25 to 100 percent higher than that 
of dealers employing nonunion labor. Competition from such dealers 
who pay less than union wages and frequently less to the farmer 
than the prevailing price for fluid milk, has caused our Chicago 
operation to lose a substantial portion of its former volume of busi- 



2964 CONCENTRATION OF ECONOMIC POWER 

ness and a reasonable rate of profit has given way to a series of nefc. 



Lest persons bent on mischief attempt to misconstrue my remarks, 
let me emphasize now that our company is not opposed to the union- 
ization of labor and that there are some unions whose officers wisely 
appreciate the problems and the limitations of the industry. 

I believe in high wages, but cannot willingly subscribe to any 
arrangement which deliberately lowers the efficiency of labor while 
increasing its costs. Limitations of this type are not only unfair 
to the consuming public, which ultimately pays the bill, but are un- 
fair to employees. The belated recognition by certain unions of the 
fact that the imposition of excessive labor cost is a form of labor 
suicide in a competitive industry such as ours is ample corroboration 
of this. 

Now, an explanation of milk prices in Chicago may well be found 
in the current wage cost of milk delivered to the doorstep or to 
stores, and it will not be possible to reestablish stable employment in 
our Chicago fluid-milk operation until excessive wage costs in deliv- 
ery are reduced, paving the way for a lower retail price. 

Now let me tell you about our wage contract with the Milk Wagon 
Drivers' Union of Chicago. Accomplished by closed-shop bargain- 
ing power, this contract requires us to pay $48 for a 6-day week, plus 
a commission, and this is important, of three-quarters of a cent per 
point or unit for sales over 190 points per day on home-delivery 
routes. On wholesale routes the routeman receives $49.50 for a 6-day 
week, plus three-quarters of a cent per point on sales above 190 points 
per da}^ and nine-tenths of a cent per point above 762 points daily. 

This resulted in the average retail route salesman receiving in 
February 1939, tlie latest month for which these fif^ures are available, 
$52.82 per week. Owing to the small loads carried in Chicago the 
average wage per quart was approximately 4 cents, which is 1 to 2 
cents higher than in many other large cities. 

The salesmen operating Borden's Chicago wholesale routes received 
an average wage of $79.95 per week during March. This is at the 
rate of $4,157 per year. Five of them received over $100 per week, 
which would amount to niore than $5,200 per year. A reasonable 
wholesale load in most cities is 60 stops a day with an average of 
three cases per stop. If a Chicago wholesale route salesman were to 
deliver a load of this size he would receive $7,534 per year. 

An income of this character compares favorably with that of many 
executive positions and exceeds that of most of the professional 
classes. 

Now, I point this out only to show the big part that labor costs 
play in the pricing of milk. The purpose of the union in imposing 
this wage scale is not simply to obtain a high wage for the route 
salesman in delivering to stores, but to curtail our store business and 
thus keep more of its members employed. 

THE CLASSIFIED PRICE PLAN 

Mr. Montague. Milk for fluid consumption in city markets must 
command a higher price than the price of lower-quality milk pro- 
duced in remote regions for manufacturing. On the other hand, any 
surplus milk produced in high-cost city milksheds, even though it is 



CONCENTRATION OP ECONOMIC POWER 2965 

of the same quality as that sold in bottles, is worth no more than 
lower-grade milk manufactured in regions of lower production costs, 
because the manufactured products sell at the same retail price in 
open markets. 

There is always a substantial number of farmers, producing a high 
quality of milk, who grow dissatisfied when their market is limited 
to the sale of milk for manufacturing purposes. These farmers very 
often seek fluid-milk dealers with no regular source of supply who 
are willing to pay a price that is higher than the manufacturing 
value but well below the going price for milk used for fluid con- 
sumption. Such dealers often buy only enough milk to satisfy their 
bottled-milk requirements and thus obtain their supply at a price 
much less than that of their competitors. Through this buying ad- 
vantage these dealers are able to offer milk to consumers at a cheaper 
price. This takes some of the market of competing distributors, and, 
as a result, a larger portion of the latters' milk must go into manu- 
factured products. This merely shifts the burden to other pro- 
ducers. If it reduces their j)rice too much, they in turn try to jiass 
it on to still others. Thus, in a disorganized milkshed, the surplus 
may be shifted from one ^roup to another, but it ahvays remains to 
be sold at the lower manufacturing price. In the meantime, the cut- 
rate competition in the city market resulting from the availability of 
this low-priced supply makes it increasingly difficult for other dealers 
to pay a high price for milk for fluid consumption, and eventually 
this process breaks the price for all milk down to low levels. 

Attempts have been made to solve this problem in different ways 
in various milk markets. Some producers' organizations have at- 
tempted to reduce the amount of seasonal surplus by various price 
plans that penalize uneven production or reward even production. 
These methods are usually referred to as base and surplus or quota 
plans. The farmer is assigned a quota by his association, which 
is generally determined by his past year's production, and for that 
portion that the farmer produces within that quota he gets the top 
price, and for his excess a surplus price, the whole theory being to 
even out production. 

No one thing in the whole milk industry is less understood than 
this classified method of buying milk from the farmer. It is a plan 
whereby a dealer's cost of milk is determined by the various uses to 
which the milk is put. Because it is so little understood critics fre- 
quently attempt to show that the classified plan was designed by 
milk for manufacturing purposes at low prices, and thereby make- 
large profits, while ostensibly paying higher prices for fluid milk. 
This accusation is not founded in fact. The classified-price plan was 
designed and is supported by producers for the purpose of assuring 
them a higher price for fluid milk than its value in manufactured 
dairy products. 

Under the classified-price plan a dealer's price for that part of 
the milk used for various manufactured dairy products is commen- 
surate with its manufacturing value, and his prices for that part 
sold as fluid milk or cream are considerably higher. His prices for 
the manufacturing uses are usually determined by formulas which 
are based on the market values of butter and cheese, which are the 
two f undanientals of the dairy industry. On the other hand, prices 
for fluid milk, and sometimes for cream, are either determined by 



2966 CONCENTRATION OP ECONOMIC POWER 

bargaining between producers and distributors, or are set by Federal 
or State orders. The blend price paid to producers is merely the 
weighted average of these various prices. 

A simple theoretical example of this classified plan I have here in 
chart form, which will perhaps help the committee to understand 
it. This is a purely theoretical example to show the committee how 
this classified plan works. 

The Chairman. You are now referring to table 3? 

Mr. Montague. Table 3, which I offer for the record. 

(The table entitled "Theoretical Example of Classified Prices" was 
marked "Exhibit No, 443" and is included in the appendix on 
p. 3249.) 

Mr. Montague. It is an example of how the classified plan works. 

Here is a dealer whose total intake was 1,000,000 pounds. This 
has often been explained by the Department of Agriculture, so per- 
haps a number of you men are familiar with it, but in case you are 
not, it is a very good example of how it works. This dealer, out of 
the million pounds, sold only 300,000 pounds of milk as fluid milk and 
bottled milk, for which the negotiated price was $2.50. He had 
only 100,000 pounds in cream, at $2. All the rest of this was an excess 
supply to that dealer. He only needed 300,000 pounds for fluid milk, 
only 100,000 pounds for cream. 

Six hundred thousand pounds of this million pounds was milk that 
was not required for that particular dealer. 

He put 100,000 pounds into evaporated milk at $1.30. I should 
point out here that the evaporated milk price that is paid throughout 
the United States is based upon a formula price approved by the 
United States Department of Agriculture and in operation about 5 
years. That formula price is very, very much lower than most class 1 
prices in cities. That is one of the principal reasons, in that fact 
alone, why evaporated milk undersells fluid milk in most large cities 
by a substantial margin. 

Butter, $1 a hundred, and right today butter will not return to 
the producer much more than 80 or 90 cents a hundred. 

Cheese, $1 a hundred. 

The blending of all that, as you can see by the dollars here, pro- 
duced this net price of $1.58 a hundred. A dealer who bought only 
the amount of milk which he needed for fluid consumption, but 
bought it at the blended price paid by dealers who took all the milk, 
including the surplus and manufactured, in this instance, would have 
a benefit in buying of about 2 cents a quart over the man who bought 
on the classified plan, although the farmers might, in the same in- 
stance, get the same amount of dollars, but the surplus in any case 
would be left in the shed for somebody to take care of. It is only 
shifted from one group to another; it is not avoided. 

It has been contended in previous testimony before this committee 
that the distributor's real cost of milk sold in fluid foiTU is the blend 
price and not the high fluid classification rate. This contention, of 
course, is absurd, because if the average price of all milk is applied 
against the fluid milk it must also be applied against the milk that 
is manufactured. Obviously, no distributor can pay $1.58 for milk 
to manufacture into butter and cheese that will return only $1 when 
sold on the open market. 



CONCENTRATION OF ECONOMIC POWER 2967 

As a rule, the real problem in the use of the classified-price plan 
arises from. the fact that the major distributors usually carry the 
surplus burden. They are the ones who have the plants and equip- 
ment to manufacture the surplus milk most efficiently, and the price 
received by producers selling to them is an average of the high fluid 
price and the manufacturing values. 

Many distributors, on the other hand, customarily buy only enough 
milk to supply their fluid milk and cream requirements. This is 
usually done by "buying short," insofar as their regular supply is 
concerned. For instance, such a distributor may contract to take the 
entire output of a group of farmers so as barely to cover his require- 
ments when milk production is greatest, in June. In order to make 
up shortages in regular supply during the rest of the year he may buy 
varying quantities from various manufacturing plants that have no 
regular city-m.arket outlets. Some distributors also avoid handling 
surplus by shutting ofi' some of the producers selling to them when 
they have more milk than they can sell in fluid form, while others 
will take only part of a farmer's milk'instead of liis entire production. 
With some distributors buying milk for fluid use on the classified 
basis and others buying milk for fluid use at a flat price equal only 
to the blend price, it is obvious that the higher the fluid price is above 
the blend the easier it is for cut-rate distributors to undersell those 
paying the full classification rates. If that fluid price were $3 a 
hundred and the blend still cfeme out at $1.58, that would give nearly 
3 cents a quart advantage to the distributor buying at a flat price. 

In theory, the classified price plan is economically sound. It was 
originated by farmers to obtain a premium for fluid milk which 
higher production costs justified. In practice, however, the plan has 
permitted abuses, such as the exaction of artificially high rates for 
fluid milk, and this has. been particularly true under some types of 
governmental price fixing. 

To illustrate this, let me refer again to table 3. The class 1 price, 
that which applies to fluid milk, is $2.50 per hundred pounds, or 
more than 5i/^ cents per quart. The price for milk used in making 
butter and cheese is $1 per hundred pounds, or 214. cents per quart. 
Thus the class 1 price is more than 3 cents per quart higher than the 
price of milk for butter and cheese. Although this is a theoretical 
example, in many milk markets the difference is even greater. * 

No one will deny that increasing the farmer's income is a desirable 
aim, but when price raising is carried too far the effects are disas- 
trous for the producer, who loses part or all of his market and is 
compelled to find an outlet through cut-rate dealers who pay only 
blend prices. 

As a rule, distributors purchasing milk at the blend price not only 
purchase milk for fluid use at lower prices than do large distributors 
using the classified price plan, but they also avoid the surplus burden 
that their fluid operations create. 

Many of the distributors who customarily purchase at the blend 
price flaunt the edicts of governmtntal price-fixing bodies. Under 
Federal or State control only the companies who accept the moral 
responsibility of compliance pay the prices and conform to the orders 
■established. Let me illustrate. When the A. A. A. milk-marketing 
agreement and order for the New York City area was suspended on 

124491 — 3fi — Dt. 7 IS 



2968 CONCENTRATION OF ECONOMIC POWER 

March 14, 1939, but effective as of February 1, •1939, 43 companies 
were in default in their payments to the producer settlement fund in 
an amount of $589,494.34. This money belonged to the farmers. 
The Borden Co. was not in default. 

When the A. A. A. terminated its milk license for the Chicago area 
in 1934 many companies were in default and 26 companies had been 
cited for violations. Over $225,000 was due the settlement fund. 
Efforts to collect have been unsuccessful. This money, too, belonged 
to the farmers. 

Five years of experience had not found the way to make the willful 
violator comply. 

In 1937, in New -York City, about 40 companies were operating 
after their licenses had been denied or revoked by the State for 
failure to comply with orders of the milk-price-fixing bureau. 

Prices to farmers were set so high that violations of the law re- 
sulted in such large profits as to offer the same incentive to "boot- 
leg" as existed in the days of prohibition, 

A casual opinion, unfounded in fact, has been expressed before this 
committee that some dealers profit unduly from the sale of products 
manufactured from surplus. This assertion is at wide variance with 
the truth. The Borden Co., for example, maintains condenseries 
within or near metropolitan milksheds for the sole purpose of ab- 
sorbing frequent surpluses in fluid milk markets. It is at a constant 
disadvantage in doing so because its chief competitors in the manu- 
facture of canned milk locate their plants and obtain their supplies 
largely in regions of lower cost production, remote from city markets. 

I want to emphasize this. The Borden Co. v/ould not produce a 
single can of evaporated or condensed milk in fluid milksheds were it 
not for the necessity of finding an outlet for the surplus of these 
markets. 

As an example, we pay appreciably more for milk that is made 
into evaporated milk in our plants in the New York milkshed, which 
are operated as condensing plants only when there is a surplus, than 
we do for milk manufactured in our specialized condensing plants in 
the Middle West. Yet the canned milk from both regions sells in 
the same market at the same price. 

In addition to paying higher prices for milk in the fluid milk 
shed, condensing operations located there usually are carried on 
during only that part of the year when production is heaviest. This 
not only creates a serious labor problem but also increases the op- 
erating cost, because overhead costs continue even when condensing 
is not being done. If you will refer back to the chart I showed to 
the committee on fluctuation of production in the New York shed 
it is easy to see why. _ 

Contrasted to this, the condensing plant in the manufacturing 
region operates throughout the year with a correspondingly lower 
unit cost. 

Most of the major dairy products are manufactured by companies 
having no fluid milk operations, and their specialized production is 
the dominant influence in determining the price of all manufactured 
dairy products. 

This fact is clearly shown by a comparison of the production of 
manufactured dairy products in a group of States which include all 



CONCENTRATION OF ECONOMIC POWER 2969 

of the major fluid milksheds and in a group where manufactured 
dairy products offer the chief market for milk. 

I offer for the record table 4 and chart 3. 

(The chart and table referred to were marked "Exhibit No. 444" 
and are included in the appendix on p. 3250.) 

Mr. Montague. These black lines represent the mtlkshed States. 
This represents butter, cheese, and evaporated milk products which 
are practically the commodities that this surplus must go into. These 
States are New York, New Jersey, Massachusetts, Pennsylvania, 
Ohio, Michigan, Illinois, and California, representing 60 percent of 
all the city population in the United States. These eight States— 
Wisconsin J Minnesota, Iowa, Indiana, Missouri, Tennessee, Kansas, 
and Washmgton — represent 14.4 percent of the city population, and 
I ask your comparison between the amount of butter produced in 
these milkshed States and the amount produced in the nonmilkshed 
States. 

The same with cheese. Only 18 percent of the cheese is produced 
in the milkshed States, and 65 percent is produced in the nonmilkshed 
States. 

In evaporated milk, 37 percent is produced in the milkshed States, 
49.4 percent in the nonmilkshed States. 

The Chairman. That simply amounts to saying that in the pop- 
ulous States most of the milk goes for fluid consumption and in the 
nonpopulous States producing milk the largest proportion of butter, 
cheese, and evaporated milk is made from the milk produced in 
those States. 

Mr. Montague. That is right. Senator, except we must bear in 
mind that the surplus, the surplus from these fluid milksheds com- 
petes, must compete, with what is practically the sole market for 
these other areas. Now let me emphasize the effect that govern- 
mental price fixing and the pressure or organized farm groups has had 
upon the price paid Jby consumers for fluid milk. If the prices of 
other dairy products had been fixed on the same butterfat scale as 
fluid-milk prices, taking as an example the recently discontinued 
order in New York, consumers would be paying 70 cents a pound for 
butter, as against the present price of about 28 or 29; 35 to 40 cents 
a pound for American cheese, compared with the present price of 
17 to 20 ; and 10 cents a can for evaporated milk, compared with the 
present price of about 6. 

Now, it should be noted further that this high price fixed for fluid 
milk forces the consumer to pay a high price for bottled milk and 
applies only to a limited group of producers because the greater part 
of the dairymen of the country, those whose milk goes entirely into 
manufacturing, must depend upon the law of supply and demand/ 
for the prices they receive for their product. 

Now, my next subject is the route and store sales. This committee 
has been told that dealers insist that all consumers must buy milk 
through the home-delivery system and it is implied that because of 
this insistence certain consumers cannot afford to buy milk. Now, in 
every city in which The Borden Co. operates our m'ilk is readily 
available in various grades, merchandised through different types of 
service and sold at prices determined by the grade of milk offered 
and the cost of the service rendered. 



2970 CONCENTrlATION OF ECONOMIC POWER 

This is not a recent development but a situation which has existed 
for many years. We are not keeping it a secret. In fact, it is well 
known to every housewife. Consumers who wish the convenience 
of home delivery may have that service. Consumers who prefer to 
purchase milk at stores may do so. To satisfy consumer needs in 
most markets in which The Borden Co. operates there is a differential 
between the price of home-delivered milk and store milk. 

In a further effort to satisfy consumer needs the company is devel- 
oping v»rhere possible the sale of milk in larger containers and we 
have in several markets introduced the sale of milk in 2-quart con- 
tainers at prices substantially less tlian the })rice of 1 quart aiul for 
■additional convenience to households using larger daily quantities. 
In other markets we have successfully introdiiced the paper cc^nhvi nor 
for milk — as a matter of fact I think we were one of the first to 
introduce it — another great convenience to customers purcliasing 
milk through stores. 

New types of distribution have been developed within the ind!is(i;y 
in an effort to overcome abnormal! 3' high cost of raw niillc and labor. 
New methods of sales are being followed. The Borden Co. is engaged 
in a continuous effort to reduce its cost in order to sell milk at lower 
prices. This is a difficult task, because the two chief elements malcing 
up the price of milk are governed largely by factors which have bf-en 
outside of our control. In that part of our business which we do 
control we have been able to effect considerable economies and greatly 
improve efficiency. 

Now, I will not attempt to enumerate the wide variety of milk 

{)roducts manufactured and sold by us. I should like to point out, 
lowever, that The Borden Co. provides for its customers the'r most 
vital food in many different forms and at different prices and 
through different types of distribution. That segment of the public 
which patronizes The Borden Co. is able to purchase a quart of milk, 
or its equivalent, in nutritional value, at a wide range of prices. 

We sell milk at prices which will meet every pocketbook. For 
those consuniers who feel that their means are not sufficient to allow 
for fresh milk there is evaporated milk, wliich contains the san\e 
nutritional qualities. Now, the raw milk, used in the production of 
evaporated milk has, as I have said, been purchased for over 5 years 
under a formula price approved by the A. A, A. 

The United States Department of Agriculture reports that the 
average price paid for niilk used in making evaporated milk in the 
month of February 1939 wag $1.18 a hundred pounds. It also re- 
ports that the milk dealers buying prices for city use is $2.21 per 
hundred pounds. This difference of $1.03 a hundred is 2.2 cents per 
quart in favor of evaporated milk. The February 5-year average 
shows 1.4 cents per quart in the buying price for evaporated miTk 
over the price of milk for city use. Now, the other big factor, labor 
cost, of a can of evaporated milk is less than 1 cent a can, while the 
kbor cost of processing and delivering a quart of fluid milk in New 
York City at retail is almost 4 cents. 

Consequently a can of evaporated milk, the equivalent of a quart 
of milk, has a present price range of 2 cents in raw-milk cost and 4 
cents m labor or a total of 6 cents. There are, of course, additional 
advantages in favor of evaporated milk, such as transportation, re- 



CONC'ENTKATION OF ECONOMIC POWER 2971 

frigeratioii, and other costs which reflect more favorably upon evap- 
orated milk than fresh milk. Now store sales are usually greater in 
large communities than in small ones, and this is due to the fact that 
the difl'erential between store delivered prices is greater in large cities 
because of the higher labor cost. 

Studies made by Cornell University indicate that as early as 1927 
ihome-delivery sales accounted for only 54 percent of all the milk sold 
in the metropolitan area of New York. In June 1938 this proportion 
had decreased to 41 percent.. Similar trends have been noted in other 
large cities in which Borden operates, and in which excessive labor 
costs are reflected in higher prices for delivered milk. Now I offer 
for the record chart 4, which I will attempt to explain to the com- 
mittee. 

(The chart referred to was marked "Exhibit No. 445" and is 
included in the appendix on p. 3251.) 

Mr. Montague. This is smip]y in chart form what the Cornell 
Univei-sity pointed out in 1927. Fifty-four percent of New York 
City's fluid milk consumption was off of retail routes, 45 percent was 
through stores and other channels. Ten years later, 11 years later, 
1938, 41 percent was on retail routes and 58.8 percent through stores 
or other means. I only present that to show to the committee that 
tills trend is quite acute in large cities, the trend from retail route 
to store. 

Now as an example of Mhat happened in New York I have here 
two other cities besides New York. This chart only represents The 
Borden Co.'s sales and not the market, because we have no means 
of getting the entire market, so this represents just The Borden Co.'s 
sales. 

The Chairman. You are now referring to chart No. 5 ? 

Mr. Montague. I am referring to chart No. 5. 

(The chart referred to was marked "Exhibit No. 446" and is in- 
cluded in the appendix on p. 3252.) 

Mr. Montague. In Los Angeles, so far as The Borden Co.- is con- 
cerned, you will see the same trend; from 1936 the retail proportion 
was 35 percent, 33 cercent in 1937, 30 percent in 1938. The wholesale 
increased an equivalent amount, either wholesale or store. 

Here is Detroit, 54 percent in 1936, 53 percent in 1937, 49 percent 
in 1938. I have already given you the New York figures. 

REFLECTION OF LABOR COSTS IN RETAIL MILK PRICES 

Mr. Montague. Now, the cost of labor is a very considerable factor 
in the establishment of the differential between the store price 
and the home delivery. Reduced to its simplest terms, the lower 
store price is made possible by the fact that one man in delivering 
milk to stores can handle approximately the same volume of milk as 
three men delivering retail to homes ; in some cases that is as much as 
four men. The result, of course, is a higher per unit distribution cost 
on retail routes. Thus iii New York City, as an example, the retail- 
route man receives 2.3 cents a quart and a store driver 0.76 cent a 
quart. That is simply dividing the quarts delivered into the labor 
costs. 

The cost of receiving milk, pasteurizing it, transporting it from the 
country to city, and so forth, is practically the same for both home 



2972 CONCENTRATION OF ECONOMIC POWER 

delivery and retail delivery. Yet other labor costs involved in the 
home-delivery business, such as the care of trucks, checking and load- 
ing, accounting, credit, other services, and social-security taxes, bring 
the total labor costs on home-delivery routes to 4.83 cents per quart. 
This figure compares with the unit cost of labor of 2.7 cents for whole- 
sale. 

Now, I have here chart 6, which I should like to introduce for the 
record. 

(The chart referred to was marked "Exhibit No. 447" and is in- 
cluded in the appendix on p. 3253.) 

Mr. Montague. Portraying this in graphic form. This is only our 
own company in New York. Here at wholesale, seventy-six one- 
hundredths of a cent for the delivery to stores ; all other labor costs, 
which includes plant and transporta,tion, accounting, and so forth, 
1.88 cents; social-security taxes, one-tenth of a cent; total, 2.74 cents. 
At retail, 2.30 cents to the retail driver, because again of the lesser 
quantity applied to approximately the same dollar of wages ; 2.35 cents 
for all the other labor costs. That is the reason this is more than the 
wholesale is because of the credit and accounting which is necessary in 
connection with thousands of retail customers that is not necessary 
with a lesser number of wholesale customers, and because the pay rolls 
are larger social -security tax is increasingly more. 

Mr. LuBiN. This merely reports 

Mr. Montague. That is only our own company in New York. 

Mr. LuBiN. Not the subsidiary? 

Mr. Montague. That is our Borden Farm Products Division in 
New York, Mr. Lubin. Now in Chicago the difference in labor cost 
between home and store delivery is even greater. I pointed out the 
very high wages in Chicago ; they amount to 3.2 cents per quart with 
the small loads handled in Chicago ; the total labor cost of getting a 
quart of milk from the country to the home of the consumer is 
approximately 6i/^ cents, of which 4 cents goes to the retail-route 
man. 

I should like to present the labor cost in Chicago in chart form. 

(The chart referred to was marked "Exhibit No. 448" and is in- 
cluded in the appendix on p. 3254.) 

Mr. Montague. This again is only our own company. Here the 
wholesale 1.78, because of that very high commission that I 
spoke about earlier in my testimony. The labor cost other than 
delivery in Chicago is less than in New York, principally because 
of the larger volume handled in country plants and the shorter dis- 
tance to bring the milk in from country to the city. Social-security 
tax, 0.13 as against 0.10 in New York, largely due to the higher wage 
scale. 

The retail route, this being because of the very small loads carried 
in Chicago, 4 cents per quart. All other labor 2.2 cents per quart, 
and social-security cost correspondingly high. I point this out, gen- 
tlemen, just to emphasize the part that labor cost plays in milk prices. 
Now in Chicago the establishment of a 2-cent differential between 
home-delivered and store milk was accomplished over the strenuous 
protest of some union leaders. In 1938 the price charged in Chicago 
by The Borden Co. for milk delivered to the home was 13 cents. Our 
pricei to retail stores was at that time lOi/^ cents. Most stores resold 



CONCENTRATION OF ECONOMIC POWER 2973 

it at 12, which provided a differential of 1 cent between the home- 
delivered price and the store price. 

When this company made known its plans to reduce its price to 
the store from IQi/^ to 91/2 in order to pave the way for a lower price, 
out of stores, some union leaders threatened to strike and tie up the 
•company's deliveries. It was not until 5 months later that the com- 
pany was able to reduce store prices. 

The union continued to exact this high wage and commission rate, 
which, with the small loads carried, made the labor cost at least a 
<?ent per quart higher than in most other large cities. Now the union's 
threat to strike was based upon the fear that a lower store price 
would reduce sales of milk to the home and consequently reduce the 
number of jobs held by the union. There is no question but that the 
growth in the volimie of store sales has reduced employment in the 
milk industry. This is regrettable but perhaps unavoidable if the 
•consumer needs are to be satisfied. 

We hope, of course, that the union will permit the reduction in this 
present very high cost of getting milk to the home in Chicago. In this 
instance it is apparent that strength was used in order to maintain 
temporary employment at the expense of the consumer and expense 
of the members of the union. In discussing the differences between 
store and home delivered prices it should be pointed out that the 
higher labor cost is the principal factor. In recent years cut-rate 
milk depots have sprurig up throughout the country. Some are able 
to sell at lower prices because of advantages in labor cost but where 
the differential is sizable, it almost invariably means that the operator 
of the depot is also paying the farmer less for his milk than com- 
peting distributors. 

As has been previously noted, this big advantage erijoyed by some 
depots is the direct i-esult of the abuses of the classified-buying plan. 
It may be pointed out here that previous testimony before this com- 
mittee sought to compare prices charged for delivered milk in De- 
troit with those charged at milk depots. This is not a sound or 
honest comparison. The two types of distribution offer differing 
degress of service at different prices. They are not comparable. 
Milk prices are determined by costs. The distribution business oper- 
ates on an enlarged volume and an extremely small unit profit. The 
per-quart profit in milk is but a fraction of a cent at the best and 
this small margin makes it impossible to raise or lower prices with- 
out substantial changes in these two elements, raw milk and labor cost. 
The situation is revealed by all dispassionate and impartial surveys of 
the milk industry. All of the studies of price and the costs which 
influence them can lead one to but one conclusion, which might be 
expressed as a theorem. All milk of uniform quality procured at a 
uniform farm price and made available to consumers through the 
same service by labor paid the same wages must be retailed at the 
same price for the simple reason that profits are but a fraction of a 
cent per quart. 

Now my final subject relates — a subject 

The Chairman (interposing). Let me interrupt you here. It is 
now after 12 : 30, 12 : 35 to be exact. If you have no objection, the 
committee will stand in recess until about 2 : 30, when you may pro- 
ceed with the discussion of Borden's position in the industry, which 



2974 CONCENTRATION OF ECONOMIC POWER 

I take it is your next subject. You have completed the preliminary 
discussion ? 

Mr. Montague. Thank you. 

The Chairman. We will resume again at 2 : 30 in this room. 

(Whereupon at 12:35, a recess was taken until 2:30 p. m. of the 
same day.) 

AFTERNOON SESSION 

The committee resumed at 2:50 p. m. on the expiration of the 



The Chairman. The committee will please come to order. Mr. 
Montague, are you ready to resume your statements? 

Mr. MoNTAGUE.^ Before resuming the presentation of my statement 
I should like to einphasize again that we believe in high wages and 
are not opposed to the unionization of labor. We also believe in 
cooperative effort on the part of producers. My statem'ents on these 
facts have related solely to abuses which in my judgment have crept 
into the industry on these scores. 

THE BORDEN COMPANY'S POSITION IN THE MILK INDUSTRY 

Mr. Montague. Now, my final subject is Borden's position m the 
industry. This committee has been told that a vast milk monopoly 
exists ; that it operates on a national basis, controlling prices that are 
paid farmers for their produce and prices city consumers must pay 
for their mUk. Anyone with knowledge of the milk industry knows 
the impossibility of monopolizing either the production or the sale 
of milk on such a scale. The milk industry in this country is not 
controlled by a monopoly. It never has been and it never can be. 
The Nation's milk supply is produced by 4,500,000 farmers. These 
farmers are scattered, living in every State and in nearly every 
county. They market their milk in many ways. 

Some market it through cooperatives; others sell it direct to proc- 
essors ; still others, direct to the consumer ; some sell their produce as 
■milk, others as cream, still others as butter. The prices processors 
must pay for this milk may be determined by national markets, or 
by a Government formula, or by collective bargaining in each market 
for fluid milk. 

These are the practices most generally followed in the sale of milk 
by the 4,500,000 farmers to tens of thousands of processors in the 
48 States. The Borden Co. is but one of these processors, and was 
organized 82 years ago by Gail Borden, one of the founders of the 
Republic of Texas, and the inventor of the milk condensing process. 
Originally engaged only in the manufacture of condensed milk, we 
have gradually enlarged our activities to embrace the processing 
and distribution of fluid milk, asv" ^11 as other dairy products. 

During its long history, Borde^.-s has led the industry in research, 
developing new products and processes which have not only brought 
higher quality products to the consumer, but have also widened the 
use of milk and expanded foreign markets. At no time in its history 
has The Borden Co. been in a position to monopolize the industry, 
and it is not in that position now. If all the dairy products sold by 
The Borden Co. in the United States are expressed in terms of fluid 
milk, the total is less than 5 percent of all the milk produced in this 



CONCENTRATION OF ECONOMIC POWER 2975 

country. This figure, it might be noted, includes not only milk pur- 
chased direct from farmers, but also its equivalent in such prodiicts 
as butter and cheese purchased in the open market. 

Furthermore, Borden's percentage of all milk produced has been 
and still is very small. It has tended to decrease in the last 5 years. 
This reduction is due in part to decreased sales and to the discon- 
tinuance of certain operations by us^ and in part to increased pro- 
duction of milk. Last year as an example Borden's milk purchases 
were only 4.4 percent of the national production; I have a cnart here, 
which I would like to show to the committee and offer chart No. 8 in 
evidence. 

(The chart referred to was marked "Exhibit No. 449" and is in- 
cluded in the appendix on p. 3255.) 

Mr. Montague. I should say at the outset that these fibres are Uie 
total milk production of the United States and are compiled from 
reports of the Department of Agriculture. These figures represent 
Borden's participation in this total production. These figures are, 
of coui-se, from Borden's own records: 5.6 percent, 1934; 5.3 percent, 
1935; 5 percent in 1938; 4.8 percent, 1937; and 4.4 percent in 1938. 
The table with those figures is attached for the record. 

Now, there are only a few city markets where data are available 
showing the total sales of milk in which Borden sales can be com- 
pared. However, the proportion is known in New York Citj^, where 
our largest fluid-milk operations are located and where receipts are 
reported monthly by the United States Department of Agriculture. 
In this market our percentage of total sales has declined steadify. 
amounting to less than 25 percent for last year. I offer table 9 and 
chart 9 for the record, showing our proportion of the New Yofk 
City business. 

(The chart and table referred to was marked "Exhibit No. 450" and 
is included in the appendix on p. 3256.) 

Mr. Montague. This again, expressed in terms of all of the milk 
coming into New York, as per reports of the United States Depart- 
ment of Agriculture and Borden's total percentage of that market: 
30 percent in 1935, 29 percent in 1936, 27 percent in 1937, and 24.8 
percent in 1938. This diminishing share of the Nation's largest milk 
market, the New York metrojDolitan market, is difficult to reconcile 
with the charge of monopolistic activity. And it should be remem- 
bered also that whatever control of prices there has been in Ne\^ 
York City during most of the last 5 years has been exercised through 
Federal and State orders. 

The committee has been told that some distributors effect a mo- 
nopoly of the industry by taking over pasteurizing plants originally 
owned by farm groups. The fact is that few pasteurization plants 
were ever owned by farmers. The older distributors who originally 
sold raw milk installed the necessary equipment when pasteurization 
was recognized by both medical men and distributors as a process 
essential to public health. Now, pasteurization of milk has d history. 

The first pasteurizing plant, I think, was established in New York 
in 1904. Pasteurization of all milk, except certified milk, has been 
recmired in Chicago since 1910 and in New York since 1912. 

New distributors, entering the business after pasteurization became 
compulsory in the larger cities, naturally had to acquire plants, 
either by building them or through purchase, before they couJd dis- 



2976 CONCENTRATION OF ECONOMIC POWER 

tribute milk. In some instances, when pasteurization became com- 
pulsory, producer-distributors erected their own markets. 

There has been and can be no monopoly of the pasteurizing process. 
Wliile it is true that equipment for the efficient processino; of quality 
milk in volume requires a considerable investment, rudimentary 
equipment for processing raw milk is within the means of the 
smallest vendor. 

Actually, in fluid-milk markets in which Borden operates and 
which were covered in charts presented by previous witnesses, the 
number of companies operating pasteurizing plants has increased 
considerably during the last decade, with one exception — San Fran- 
cisco. 

I should like now to present to the comnuttee table No. 8, showing 
the number of pasteurizing plants in 1929 and 1939 in these various 
cities which were mentioned in previousi testimony. 

(The chart referred to was marked "Exhibit No. 451," and is 
included in the appendix on p. 3257.) 

Mr. MoNTAGTJB. Akron, 22 agamst 28; Alatneda County, Calif., 16, 
presently 31; Bridgeport, 8 against 39; Columbus, 18 against 27; 
Detroit, 31 against 56, and so on through, with the exception of San 
Francisco. These figures were compiled, gentlemen, largely from 
responses to inquiries made to health departments. 

Another factor clearly demonstrating the absurdity of monopoly 
is the survey of the company's sales and profits trends during the 
last 10 years. In that period total sales of our company have de- 
creased nearly one-third. This decline is due to several factors, 
among which may be mentioned lower prices and a -marked reduc- 
tion in volume of sales both because of severe com])etition and 
because of the company's withdrawal from certain undertakings. 

SALES AND INCOME OF THE BORDEN COMPANY FOR LAST 10 YEARS 

Mr. Montague. I should like now to present for the record chart 
No. 10 and table No. 9, showing total sales of The Borden Co. over the 
last 10 years, from 1929, rising to a peak in 1930, dropping very dras- 
tically to a low in 1933, coming back only partially in the last year — 
1938. 

(The chart and table referred to were marked "Exhibit No. 452," 
and are included in the appendix on p. 3258.) 

Mr. Montague. An even stronger refutation of monopoly may be 
found in the company's net income, which is often termed "profits" 
but actually includes profits from operations and income from invest- 
ments. It may be recalled that this committee has been told that 
the company exacted undue profits by overcLarging consumers and 
underpaying producers. The fact is, and the fact can be readily 
ascertained from the company's annual published reports, that Bor- 
den earnings declined very drastically and that net income last year 
was less than one-third of that which it was 10 years ago. 

I should like now to present for the record, Mr. Chairman, chart 
No. 11 and table No. 10, showing the net income of our company over 
the past 10 years, 1929 to 1938, rising to a peak in 1930, dropping 
drastically in 1934, and recovering only partially from the low level 
of 1934. 

(The chart and table referred to were marked "Exhibit No. 453," 
and are included in the appendix on p. 3259.) 



CONCENTRATION OF ECONOMIC POWER 2977 

The Chairman. Do you have a chart showing the gross income? 

Mr. MoNxAGUE. Gross sales are on the chart before, Senator. 

The Chairman. Would the gross sales be the same as gross income ? 

Mr. Montague. I should think it would be, wouldivt it? 

The Chairman. Not necessarily. You might have income from 
other sources. 

Mr. Montague. What do you mean by "gross" income ? 

The Chairman. Total receipts of the corporation. 

Mr. Montague. That chart included all income, including income 
we have from investments, and so do our annual reports, Senator. 

Now, I shall try to briefly summarize the points I have made. 

The plain facts are that The Borden Co., handling less than 5 
percent of the Nation's milk supply, with its profit and sales de- 
creasing and its competitors increasing, is not a monopoly. More- 
over, to my knowledge there is no monopoly of distribution in the 
milk industry. ' High prices for milk result from monopolistic prac- 
tices on the part of some associations and some labor-unions which 
are without forward-looking leadership. 

The plain facts are that the. reduction in farm prices for milk in 
the early years of the depression was due to declining national prices, 
and that retail prices were reduced as much as or more tlian farm 
prices^ — even more than the slight and temporary reduction in wages, 
the other big cost factor, warranted. 

The plain facts are that t]ie classified method of milk purchasing 
was established by the producers for the purpose of returning to 
themselves a higher price for milk sold as fluid milk. It was not 
designed to and does not now give our company an advantage in 
purchasing. Through abuses of this classified-buying plan, how- 
ever, artificially high prices for milk havB sometimes been established, 
thereby increasing production and discouraging consumption. 

The plain facts are that the consumers have a free choice as to 
whether they will purchase their milk from stores or have it de- 
liveved to their homes, and as a matter of fact, as I have shown, store 
sales have materially increased during recent years. 

suggestions for improvement of conditions in the industry 

Mr. Montague. In my opinion, conditions in the milk industry 
would be substantially improved if steps were taken to do the fol- 
lowing : 

First, establish and maintain a sound relationship between the 
price paid the farmer for milk which is used for fluid consumption 
and the price paid for milk used in manufacturing. It is the manu- 
facturing price which establishes the fundamental value of all milk 
products. The Borden Co, believes in the proper cooperative activ- 
ities of producers, but it must be borne in mind that the abuse of 
this power has sometimes resulted in arbitrarily high prices to a 
limited group of producers. 

Some of these — again, some of these — have produced large sur- 
pluses to compete with the products of the many thousands of farm- 
ers who have no opportunity to share in fluid-milk markets. 

Second, adjust unreasonable — let me emphasize that, unreason- 
able — wage costs and delivery limitations. The Borden Co. believes 
thoroughly in the right of labor to bargain collectively and in the 



2978 CONCENTRATION OF ECONOMIC POWER 

payment of high wages in return for a full measure of services. It 
should likewise be borne in mind, however, that the abuse of the 
power of collective bargaining l^.as resulted also in artificially high 
prices to consumers. 

If these two basic abuses are eliminated, the following results may 
be expected as a matter of course : 

1. The retail price of milk will find its natural lower level. 

2. Employment will be stabilized throughout the industry and at 
good wages. 

3. The farmer will receive a sound price for his milk for fluid use, 
and production and consumption will be more nearly in balance. 

4. The burden of carrying the surplus will no longer be such an 
onerous one, and all producers and all distributors Avill be more 
nearly on an equal basis. 

5. There will then be no possible justification for governmental 
price fixing. 

Even if for some social reason governmental price fixing is to be 
continued in some form, it is imperative ' that there be a sound 
relationship between the price paid to the farmer for his fluid milk 
and the price used in manufactured products. The present large 
difl*erential cannot continue to exist. 

For reasons founded in its own self-interest The Borden Co. can- 
not forget that the consumer comes first. The very nature of the 
business, the comparative ease with which new competitors find a 
place in it, make low prices as necessary to the established dealers 
as they are desirable to consumers. Thus a distributor either stands 
or falls by his success or failure in keeping his price policies in 
line with competitive conditions. 

The principle of price control and the abuse of milk and labor 
costs fail to recognize these inescapable facts, and as a businessman 
attempting to sell more goods to more people, I would be concerned 
for the future of our company and its ability to operate in the public 
interest if these fundamental facts were overlooked. 

The Chairman. Mr. Montague, I have listened with interest to 
these conclusions and to your recommendations, and I note that you 
put your finger on what you call two abuses, and you say that if 
conditions, in the milk industry are to be improved, we must first 
establish and maintain a sound relationship between the price paid 
the farmer for the milk which is used for fluid consumption, and 
the price paid for milk used in manufacture. 

Then you say, second, "Reduce excessive wage costs." 

In your conclusion, which in your statement as you read it was 
just a little bit different from what it appears in the printed pam- 
phlet, you say, "If these two basic abuses by organized producers and 
organized labor are eliminated" — in your statement you eliminated 
the phrases "organized producers" and "organized labor" — the follow- 
ing results may be expected as a matter of course," and you list 
A, B, C, D, and E, E being that firmer conclusion that the elimina- 
tion of these abuses by organized producers and organized labor 
would eliminate all possible justification for Government price fixing. 

The question I desire to ask is, "VVliat agency in your opinion should 
establish and maintain the sound relationship which you think is so 
desirable, and what agency should reduce excessive wage costs? 



CONCENTKATION OF ECONOMIC POWER 2979 

Mr. Montague. Do you mean what governmental agency ? 

The Chairman. No, no ; what agency ? How are you going to do 
it? You say these are the two abuses that ought to be eliminated, 
and you tell us the benefits that will flow from the elimination. How 
do you propose that they should be eliminated ? 

Mr. Montague. Well, Senator, I think that both of those might 
take care of themselves so far as their elimination is concerned. 

The Chairman. How? This is the very heart of the problem, 
isn't it? 

Mr. Montague. Precisel}'. If there wasn't, or if present govern- 
mental agencies — you wouldn't need any new governmental agencies 
to correct them. Present governmental agencies could correct some 
of these abuses. 

The Chairman. Which agencies? 

Mr. Montague. Well, so far as the producer situation is concerned, 
that would naturally, from the forces of competition, take care of 
itself. 

The Chairman. That is not a governmental agency, is it? 

Mr. Montague. The labor situation requires, I think, in one or two 
places that are extremely bad, the education of those labor leaders. 
As I tried to point out in my brief, they are committing a form of 
economic suicide by continuing the practices that have been continued. 

The Chairman. If you had tlie opportunity right now to lay down 
the rule which would eliminate these abuses, what would you do to 
eliminate them? You have come kindly before this committee to 
help us to make up our minds as to what, if anything, may be done 
to improve the milk industry as well as other industries. What is 
your recommendation there? 

Mr. Montague. Senator, I think that what you have in mind is 
that there might be some governmental agency that would take care 
of this. . ' 

The Chairman. No; I don't have a thing in the world in mind. 
I want to find out what you have in mind. 

You told us what ought to be done. 

Mr. Montague. I think the first thing would be to bring public 
attention to these abuses. 

The Chairman. Of course, we are doing that. 

Mr. Montague. Public attention to these abuses, I think, will go 
quite a long ways in helping correct them. It has in many other 
ways. 

Now, to get into the thought of whether a Government agency can 
correct it, 5 years of experience. Senator, with Government control, 
has not produced the desired result in the places that Government 
control has been applied. I think I pointed out to the committee 
that in the New York market, the last place where Government con- 
trol, to my knowledge, was tried, there was over $500,000 withheld 
from the producers' settlement fund when the order was canceled. 
There has been no way that I know of for the Government to enforce 
these price decrees, and that is why I can't say that the way to cure 
these things is by a governmental agency. 

The Chairman. You want to eliminate Government activity. 

Mr. Montague, i want to eliminate them, Senator, because 5 years 
has shown the impossibility of enforcing them. 



2980 CONCENTRATION OF ECONOMIC POWER 

The Chaibman. That is the capstone of your argument. 

Now, I am merely trying to develop what system you believe would 
be successful in eliminating these abuses. 

Mr. Montague. I think public opinion can do it. 

The Chaieman. In other words, you are offering no suggestion as 
to particular action which should be recommended. 

Mr. Montague. Not other than those two things, Senator. 

The Chairman. Leave it alone? 

Mr. Montague. I think I have shown the coimnittee where Gov- 
ernment control so far has failed in 5 years to correct those abuses. 

The Chairman. You heard the testimony that was given hero 
yesterday. 

Mr. Montague.. That is right. 

The Chairman.' By Mr. Beach, speaking on behalf of the Mich- 
igan Producers' Association. The sum total of which was to the 
effect that the organization of producers is beneficial to the producer 
in that it tends to get him a better price for his product. Do you 
think that is a mistake ? 

Mr. Montague. Well, now, the matter of a better price, Senator, 
that is exactly what I have tried to bring out. In all of the cases, 
or in most of the cases where there has been governmental price 
fixing, the price has been fixed so high 

The Chairman (interposing). Let's forget Government price fixing 
now. 

Mr. Montague. He advocated a Government control law. 

The Chairman. He hasn't got it yet. But he did testify that or- 
ganization of producers has resulted in better prices for producers. 

Mr. Montague. I think that is right. 

The Chairman. So that actually, so far as that particular result is 
concerned, the activity of organized producers has been beneficial to 
the producers themselves. 

Mr. Montague. From the producers' standpoint it is, yes. I would 
say that is true. 

The Chairman. Before the organization of producers extended into 
the fiejd, the farmers' position was considerably worse than it is now. 
Would you say that was correct or not ? 

Mr. Montague. I would say. Senator, that is true largely in fluid- 
milk markets. When it comes to the dairy farmer in total, I haven't 
any figures in mind but I would wonder whether that would be true. 

The Chairman. Well, then, let's step to organized labor, which also 
is guilty of producing abuses, according to youV testimony. You 
heard the testimony this morning of Mr. Vardon that the wages of 
labor and the tenure of employment were very much worse before 
organization came into the field than they are now. 

Mr. Montague. I think his statement was very constructive. I 
would take no issue with his statement at all, and as I have tried to 
point out, I am in favor of high wages. It is only the abuses. Sena- 
tor, that I think have crept into this picture. 

The Chairman. In other words, then, before organized producers 
crept into the picture, the condition of the producer was worse than 
It is now, and before organized labor stepped into the picture the 
condition of labor was worse than it is now, and yet you make the 
concluding statement of your presentation here, in this"sentence: "If 



CONCENTRATION OF ECONOMIC POWER 2981 

these two basic abuses by organized producers and organized labor 
are eliminated," certain beneficial results will follow. Does it hang 
together ? 

Mr. Montague. It is the abuses, not the elimination of organized 
farmers or the elimination of organized labor. Just the elimination 
of those abuses. 

\ The Chairman. Do you think the organized producer, for example, 
is responsible for what you deem to be the unsound relationship be- 
tween the price paid the farmer for fluid milk and for manufactured 
milk? 

Mr. Montague. Yes ; in some markets, because of the high class 1 
price exacted for that milk. I think I pointed out to the committee 
that if the same price — the same price — had been exacted for the 
butter fanner, for the cheese farmer, the consumers of this country 
would be paying 70 cents a pound for butter instead of 28 or 29. 

The Chairman. But there is no way of oil ining that except by 
public education. 

Mr. jNIontague. I think that is the most effective way. Senator, 
because we have had 5 years of control where it hasn't been. 

Tlie Chairman. Then how are you ^oing to etermine what are 
excessive wages costs — by public education also? 

Mr. Montague. I think so. As I pointed out, I am in entire agree- 
ment with the gentleman who spoke on labor costs this morning. It 
is only the abuses. 

The Chairman. You testified this morning that the cost of labor 
and the cost of milk were the primary factors in determining tlie 
final cost to the consumer. 

Mr. Montague. Precisely. 

The Chairman. What other items are there that enter into that 
cost? 

Mr. Montague. Freight, automobile expense, depreciation, taxes, 
accounting, vehicle maintenance, packing, bottle costs. 

The Chairman. And do all these items operate uniformly in your 
business, Mr. Montague? 

Mr. Montague. No, sir; they vary in different markets. 

The Chairman. Do they operate uniformly in the same market? 

]Mr. Montague. I would think pretty much the same. Of course 
there might be some small difference, but nothing very substantial. 
There is not enough, Senator, in those items ; tlie sum total of those 
items is not sufficient to change price levels without some consideration 
in either milk or labor or both. 

The Chairman. I am told that The Borden Co. has two subsidiaries 
in New York, one of which is called the Borden Farm Products Di- 
vision, and the other called Reid's Union Dairy. Is that correct? 

Mr. Montague. That is right. 

The Chairman. Do they both follow the same labor policy? 

Mr. Montague. Both of them are unionized companies; yes. 
' The Chairman. Do they both pay the same price to producers? 

Mr. Montague. I am not familiar. Senator, with the detail of our 
New York operations. I have Mr. Eastlack here, from our New 
York operation, who will be very glad to answer any questions you 
may have on it. 



2982 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Mr. Eastlack, do you solemnly swear, in the testi- 
mony you are about to give, to tell the truth, the whole truth, and 
notning but the truth, so help you God ? 

Mr. Eastlack. I do. 

The Chairman. Proceed. 

TESTIMONY OF JOSEPH EASTLACK, VICE PRESIDENT, BORDEN 
FARM PRODUCTS DIVISION, THE BORDEN COMPANY, NEW YORK 
CITY 

Mr. Eastlack. The question is one that has to be answered in the 
light of varying conditions. At times the Reid's Uwion Dairy, which 
was one subsidiary to which you referred, has paid the same price for 
milk as the Borden Farm Products Division, and at times it has 
not. 

The Ch^virman. What is the difference? 

Mr. Eastlack. The difference within the period of recent years 
has depended primarily on whether or not there has been in effect 
in the New York market regulations fixing the price of milk which 
have been effective, or during periods when there have been no such 
regulations. 

The Chairman. Well, the presence or absence of regulations would 
affect both of the companies the same, would it not ? 

Mr. Eastlack. That is correct. Senator, but the Reid's Union Dairy 
business is at the present time, and for some time in the past has been, 
exclusively a wholesale business. By wholesale I mean selling to 
restaurants and stores, hotels, and other types of business that we 
refer to as wholesale. The competitive situation in the New York 
market has been such that in the absence of regulations it has been 
impossible to pay the same price for fluid milk distributed in those 
channels as is paid for milk distributed to the retail trade. 

Th6 Chairman. Now, with respect to the labor policy, is there any 
difference ? 

Mr. Eastlack. Not to my knowledge, sir. 

The Chairman. And the price charged the consumer — what about 
that? 

Mr. Eastlack. Well, in the case of the Reid's Union Dairy Co., 
the price charged by that company is not to the consumer. Its sales 
are not to the ultimate consumer but to the storekeeper or to the 
proprietor of the restaurant, hotel, or other wholesale type of stop. 

The Chairman. Do you mean that the Borden Farm Products 
division does not engage in any retail sales at all ? 

Mr. Eastlack. Yes; the Borden Farm Products division does en- 
gage in retail sales. It does also engage in wholesale business. 

The Chairman. With respect to the wholesale prices, are there any 
differences between wholesale prices being charged by the two com- 
panies ? 

Mr. Eastlack. There are ; yes, sir. 

The Chairman. What are the factors that go into determining 
those differences? 

Mr. Eastlack. Primarily the extent to which the t\vo companies 
meet the competitive- practices of the market, 
^he Chairman. Do these companies compete one against another? 



CONCENTRATION OF ECONOMIC POWER 2983 

Mr. Eastlack. They do, and in fiJie course of the last several years a 
great deal of the milk formerly sold by the Borden Farm Products 
Division to stores is now sold by the Reid Go., or one of the host of 
Reid's competitors. 

The Chairman. Is that an efficient method of distributing, to have 
subsidiaries of The Borden Co. competing one against the other? 

Mr. Eastlack. Well, it is rather difficult, Senator, to measure 
efficiency in a situation as complex and complicated as the New York 
City market. It is about the only method of survival that we have 
been able to determine upon in the course of events of the last 6 years, 
and to a certain extent it has enabled us to survive. I think Mr. Mon- 
tague pointed out that Borden operations ■ have dropped from 30 
percent of the market in New York to about 24 percent in the course 
of the last 7 or 8 years. 

The Chairman. It would be unfair of me to ask you to state which 
of the two companies were more efficient in distributing its milk, but 
I will ask you which of the two companies has the lower wholesale 
price. 

Mr. Eastlack. Well, for the most part, the Reid Co., sir. 

The Chairman. So that there are some factors that enter into the 
cost in addition to those which were described by Mr. Montague; 
that is, the cost to the consumer? 

Mr. Eastlack. Well, the unit "labor cost is somewhat less on Reid 
because they are servicing w^holesale stops with a package of milk 
that is substantially priced competitvely and therefore serving very 
large stops, and have lesser wage cost per unit of milk distributed. 
' The Chairman. Is there any difference in the grade of the milk 
distributed by the two companies? 

Mr. Eastlack. Not substantially. All milk sold in the city of 
New York must meet regulations established and rather rigidly en- 
forced by the city health department. 

The Chairman. In other words, you sell none but approved milk? 

Mr. Eastlack. That is correct. 

The Chairman. So that the two companies which are competing 
one with another for Borden deal in the same milk substantially ? 

Mr. Eastlack. Substantially the same milk; yes, sir. 

The Chairman. But to sell at different prices ? 

Mr. Eastlack. That is right. 

The Chairman. Though the price to the producer and the price 
paid to labor shows no great variation ? 

Mr. Eastlack. Well, the price to the producer, as I explained. 
Senator, at times is not identical for the two operations. As to the 
price of labor measured in terms of units distributed, it is not 
identical. 

The Chairman. The -price to the consumer however, doesn't 
change ? 

Mr. Eastlack. Well, it has changed with lightning rapidity in the 
last 3 or 4 weeks. Senator. 

The Chairman. Who determines the policy of these two companies 
in competing with one another? 

Mr. Eastlack. Well, I don't know that they particularly compete 
with one another. Senator ; they are both engaged in the same market. 

The Chairman. I understood you to say they did, a moment ago. 

124491 -39— Dt. 7 16 



2984 COxXCEXTRATION OF ECONOMIC POWER 

Mr. Eastlack. In sellino; milk to tlie public. 

The Chairman. What is your position? 

Mr. Eastlack. I am vice president in charge gf milk supply. 

The Chairman. Of which company? 

Mr. Eastlack. Borden Farm Products. 

The Chairman. Do you have any jurisdiction over the Reid Union 
Dairy? 

Mr. Eastlack. Oh, sort of a general jurisdiction. I am not an 
officer of that division. 

The Chairman. But that company can't do anything to which you 
would object? 

Mr. Eastlack. AVell, all milk companies do a lot of things in New 
York, Senator, to which I object, but it doesn't make any difference. 

The Chairman. But I am talking about the companies over which 
you have jurisdiction. 

Mr. Eastlack. Well, the management of the two companies is not 
in a major sense different. 

The Chairman. So that the Reid Union Dairy couldn't sell milk 
at wholesale for a less price than the company of which you are an 
officer, without your consent? 

Mr. Eastlack. Well, that isn't quite an accurate statement. 

The Chairman. I am putting it as a question. I don't want to put 
the words in your mouth. 

Mr. Eastlack. I am not the only officer of either one. of the two 
operations, so that I didn't want to imply that I personally set those 
prices or that my say-so was the only one that was involved. 

The Chairman. And, of course, I wouldn't want to imply that. 

Mr. Eastlack. Our schedules of both the Reid Union Co. and 
farm products division are established by the same group of people. 

The Chairman. In other words, it is a fact that The Borden Co. 
is the controlling influence over both of these other companies? 

Mr. Eastlack. I didn't quite understand that, sir. 

The Chairman. The Borden Co., the officers of The Borden Co.. 
control the policies of all the subsidiaries^ 

Mr. Eastlack. That is not correct. 

The Chairman. It is not? 

Mr. Eastlack. The officers of the farm products division are sub- 
stantially responsible for the operations of the fluid-milk business 
in the city of New York and the officers of the farm products divi- 
sion are not officers of The Borden Co. The designation vice presi- 
dent or president are merely operating designations. 

The Chairman. I see, and you receive no instructions from Mr. 
Montague at any time ? 

Mr. Eastlack. Naturally, CA^ery individual in a large corporation 
collaborates with the top officers of that company, but the Borden 
Co. officers do not dictate policies to its separate divisions. 

The Chairman. And you are a w^holly independent, self-governing 
unit, are you? 

Mr. Eastlack. No, sir; I didn't say that. 

The Chairman. Well, please tell us what you are. I am merely 
trying to get the situation, Mr. Eastlack. I don't want to put words 
in your mouth. 



CONCENTRATION OF ECONOMIC POWER 2985 

Mr, Eastlack. It would not be a correct statement to say that Mr. 
Montague or the other officers of The Borden Co. dictate in detail the 
policies of the operating division. 

The Chairman. Of course, they couldn't dictate it in detail. You 
don't dictate in. detail to your stenographer what she does when she 
comes to work for you. 

Mr. Eastlack. That is right. 

Tlie Chairman. Just what is the connection between the two? I 
am trying to develop 

Mr. Eastlack. As I understand the policy of The Borden Co., the 
various operating divisions, whether they be in New York or Detroit, 
or Chicago, or in other places, operate with a great deal of latitude 
to meet the problems of those markets. Obviously, we all collaborate 
with the officers of The Borden Co. with respect to major policies. 

The CiL^iRMAN. Well, what is the reason that as a major jorcy 
these two subsidiaries are permitted to sell milk at whole ale \t 
different prices? 

Mr. Eastlack. Two reasons, Senator. One is that the total over-all 
cost of operating the Eeid Union Dairy are somewhat less thar in 
the case of Farm Products. The other reason is to meet competition. 

The Chairman. Now, then, in Avhat items are the total over-all 
costs of Reid's Union Dair^' less than those of the company of which 
you are the president — or vice president? 

Mr. Eastlack. One reason is the one I just enumerated, that the 
Reid Union business being concentrated entirely in the servicing of 
large wholesale stops has a slightly lower cost, distribution cost per 
unit, handled. 

The Chairman. Any other reasons? 

Mr. Eastlack. In the Borden Farm Products Division a great 
proportion of the milk sold to stores is distributed off of retail routes 
and obviously for the reasons pointed out in Mr. Montague's brief, 
the cost of distribution on retail routes, whether it be 2. or 3 quarts 
of milk to a store or 2 or 3 quarts of milk to a consumer are higher 
per unit than in the case of the large truck which is handling 150 
cases of milk and perhaps dropping that off at 35, 40, or 50 stores. 

The Chairman. Well, why wouldn't it be better policy, then, for 
the Farm Products Co. to turn all the wholesale business over to 
the other, which operates at a lower cost? 

Mr. Eastlack. I think it would be, but for the limitation that it 
can's be so. Senator. The Borden Co. in its operation of its Borden 
Farm Products Division, in the operation of its retail routes, en- 
deavors to make its service available throughout the metropolitan 
area, and endeavors to make its milk available to consumers in all of 
that area, whether by retail or tlirough stores, and a great proportion 
of the wholesale milk sold under the name of Borden's is sold to 
retail stores that take only 2 or 3 quarts a day, merely as a matter of 
convenience to local residents around those isolated stores. 

The Chairman. Both companies handle about the same character 
of milk? 

Mr. Eastlack. Not substantially different. 

The Chairman. Do they handle different brands? 

Mr. Eastlack. They handle different brands — I don't quite under- 
s:and what you mean. 



2986 CONCENTRATION OF p:CONOMIC POWER 

The Chairman. Do you sell milk under different brands? 

Mr. P^ASTLACK. We sell milk under different desig-nations as estab- 
lished by the health department, grade A milk and gr-ade B milk. Is 
that what you mean? 

The Chairman. I am not familiar with your New York market 
at all. 

Mr. Eastlack. I don't quite get your question. 

The Chairman. Well, is all fluid milk the same, grade A? 

Mr, Eastjlack. Grade A and grade B are totally distinct products. 

The Chairman. I understand. I am now referring to grade A 
milk. Is there any difference in the grade A milk sold by these 
companies or by either of the companies? 

Mr. Eastlack. Not between these companies; no, sir. 

The Chairman. Then grade A milk designates one particular kind 
of milk and there are no different brands within that grade? 

Mr, Eastlack. Well, both Reid and Farm Products distribute 
grade A milk, but in the case of Reid there is very little grade A 
milk involved. Grade A milk is not a substantial factor in store 
distribution. 

The Chairman. Evidently I haven't made my question clear, but 
I think you have answered it to my statisfaction. There are no 
diflerent brands of grade A milk? It is all grade A, no matter by 
whom it is sold? 

Mr. Eastlack. If it is sold by The Borden Co. that is correct. 

The Chairman. That is not true, for example, with respect to 
evaporated milk, is it? 

Mr. Eastlack. I don't know anything about evaporated milk. 
Senator. New York City 

The Chairman (interposing). How about you, Mr. Montague; 
do you? 

Mr. Montague. I didn't get your question. Senator. 

The Chairman. Are there any different brands of evaporated 
milk? 

Mr. Montague. Oh, there are many different brands. 

The Chairman. And what is the distinction among them? What 
distinguishes one from another? I am speaking about the evapor- 
ated milk sold by Borden. 

Mr. Montague. Well, in one brand — you mean in the quality, or 
do you mean in the 

The Chairman. In the quality. 

Mr. Montague. Or in the merchandising policies? 

The Chairman. In the quality, merchandising policies, and in 
the prices. 

Mi\ Montague. There is no substantial difference. Senator, in the 
quality of evaporated milk. 

The Chairman. But there are different brands ? 

Mr. Montague. There are different brands merchandised differ- 
ently. For instance, some of our brands, the labels are redeemable. 
Some of the brands, the labels are not redeemable. Does that answer 
your question? 

The Chairman. Is that the only distinction? 

Mr. Montague.- Substantially. 

The Chairman. You have different prices, however? 



CONCENTRATION OF ECONOMIC POWER 2987 

Mr, Montague. Yes, yes; there is a diflferent price, Senator, cover- 
ing the difference between the cost of the premium label and so-called 
standard-brand price, and so-called off-brand price. I might — you 
may not — be familiar with the evaporated-milk industry. Substan- 
tially the so-called advertised brands; in that are all the leading 
brands in this country which have for years sold at somewhat higher 
price to the wholesale grocer than union brands. Necessarily that 
has to be true because of the cost of advertising and sales promotion 
work involved in the building up of the consumer demand for that 
product. 

The Chairman. So that the only element that goes into the differ- 
ence in the price to the consumer of evaporated milk is the mer- 
chandising policy which is followed in disposing of it? 

Mr. MoNTAorE. That is substantially the difference in cost, in my 
judgment, in all companies in the evaporated milk industry. 

The Chairman. In other words, you are dealing with a substan- 
tially uniform product and for purposes of merchandising it is sold 
in different forms and different prices are charged according to the 
form in which it is presented to the public? 

Mr. Montague. That is right, as far as our company is concerned; 
most all of our milk is, a very, very large percentage of it, sold at 
the so-called standard-brand price. 

The Chairman. Now, Mr. Eastlack said a moment ago that there 
was another reason for the use of these two companies and for the 
different price which was charged by the company. The second rea- 
son you said was to meet certain competitive conditions. Will you 
elaborate on that? 

Mr. Eastlack. I would be glad to. Senator. In the New York 
City market during many periods in the last 7 or 8 years there -has 
been no adherence to established milk costs. Those companies of 
which ours is one have continued to buy their milk on a classified- 
price plan and have paid the high class 1 price which has been pre- 
viously referred to; they found themselves in competition with a 
liost of other companies. In fact, practically all otlier companies 
except three or four in the market bought milk at the blend price 
which has been referred to frequently in the last 2 days. And the 
difference in the cost of that milk at high class 1 prices and blend 
prices has frequently been as much as Ito 2- cents per quart. These 
other companies engaged exclusively in the sale of milk to stores have 
reflected that lower cost of milk in their price policy to stores. The 
Borden Co., in an effort to maintain its position in the market, in an 
effort to make its milk available to the public, iii as many price 
brackets as competition called for, have met that competition in the 
establishment of these lower prices on Reid milk. 

The Chairman. Have you ever heard of what is called a "fighting 
company" in the milk industry? 

Mr. Eastlack. I have, and I believe that in most instances such 
companies are creations that are brought into the picture to do just 
that, and that is not tru«^ of the Reid Co. It has a long and honorable 
history, long before this price distinction came into the New York 
market. And incidentally. Senator, the price distinction has its origin 
in a law passed by the legislature in the State of New York which 
you perhaps have at one time or another heard of, in which there 



2988 concp:ntration of economic power 

was established different price schedules for so-called advertised 
milk and unadvertised milk, and the Reid Co. was in the latter classi- 
fication. 

The Chairman. Unadvertised milk? 

Mr. Eastlack. That is right. 

Tlie Chairman. And the Kew York State Legislature provided a 
different 3<3hedule of prices for the two ? 

Mr. Eastlack. That is right. 

The Chairman. For what reason? 

Mr. Eastlack. Well, I don't know the reason why the legislature 
did it. Those that advocated it probably did it for selfish reasons. 

The Chairman. How would it operate to their benefit ? 

Mr. Eastlack. Well, I have often wondered that myself. 

The Chairman. Well, they must have advanced some argument. 
I never heard of it before, I will say, Mr. Eastlack, and I am merely 
trying to develop the facts, 

Mr. Eastlack. When the original law was passed in New York, 
following a long investigation of the industry during the preced- 
ing summer, the law being passed in March of 1933, the law contained 
a provision which after the then milk-control board, which was estab- 
lished by that original law, should have fixed prices, that all non- 
advertising dealers in a city of more than 1,000,000 inhabitants might 
sell their milk at 1 cent below those fixed by the milk-control board. 

The Chairman. Was it promoted by those distributors who were 
not advertising? 

Mr. Eastlack. I think that is a fair inference, Senator. I person- 
ally don't know who, by name, promoted it, but a sufficient number of 
the legislature was convinced by some method or other that that was 
a desirable practice and it was incorporated in the law. 

The Chairman. Now, you said you had heard of fighting com- 
panies. How are they employed ? 

Mr. Eastlack. I have heard of them Senator, but I have no ex- 
perience with them. 

The Chairman. You never have directed one? 

Mr. Eastlack. No I don't know anything about the operation of 
them. 

The Chairman. Well, have you ever felt the influence of one? 

Mr. Eastlack. Well, I have felt the influence of competition. Sen- 
ator. I don't know whether it was fightino; competition or otherwise. 

The Chairman. Well, I am merely trying to find out whether in 
your experience there has been such a condition that one competitor, 
let me say, would use a subsidiary to sell milk at a much lower price 
than the parent company would normally sell it, for the purpose of 
driving some independent dealer out of business in a particular area. 
Has that ever existed ? 

Mr. Eastlack. Well, I don't know. Senator, whether it ever has 
existed or not. 

The Chairman. I mean within your experience. 

Mr. Eastlack. As a matter of fact at no time in my knowledge has 
there been in New York City any large company with a price of milk 
lower than that established by the small companies which you referred 
to as Lhe independents. 



CONCENTRATION OF ECONOMIC POWER 2989 

The Chairman. Now, Mr. Montague, I have before me page 19 of 
your printed pamphlet in which you say : 

Let me emphasize the effect that governmental price fixing and the pressure 
of organized farm groups has on the price paid by consumers for fluid milk. 

Do you wish the committee to undei*stand that in your experience 
the principal adverse efl'ect felt by the consumer has arisen from the 
organized effort of producers and Government price fixing, and that 
no adverse effect has arisen from organization among distributors? 

j\Ir. Montague. No, no. I only mean, Senator, that the effect of this 
price fixing and the effect of this abuse of cooperative marketing 
associations has had a tendency to increase the cost of milk to con- 
sumers. 

The Chairman. Has there been any tendency to increase the cost 
to consumers by reason of the organizatioiial activities of distribu- 
tors ? 

Mr. Montague. No ; there is no such thing ; there is no organization 
of distributors. 

The Chairman. Then 

Mr. INIoNTAGUE (interposing). That I know of. 

The Chairman. None in any market in which you have partici- 
pated? 

IVIr. Montague. Well, that is a big order, Senator. We operate, I 
think, in something over 50, and I wouldn't want to — obviously I 
can't be in detailed acquaintance with 50 places. 

The Chairman. Well, of course, you would know. 

Mr. Montague. As a general rule, we are not. 

The Chairman. Well, what determines the prices paid by the con- 
sumer ? 

Mr. Montague. The price of milk to the consumer. Senator, is very 
largely made up — in fact, all other elements of the cost sink into 
insignificance when compared with the cost of the milk and the cost 
of the labor and service performed. Those two elements make up 
such a large part of the total cost of servicing milk that all other 
elements are insignificant in determining prices. 

The Chairman. Well, you heard the testimony which was brought 
forth here yesterday to the effect that in the city of Detroit the price 
to the consumer was steadily rising at the time when Apparently there 
was a united action, or a common understanding between the pro- 
ducers' association and the distributors and that it broke about the 
time there was some Government investigation, and in fact, a local 
investigation by the county attorney, and the independent operations 
of Mr. Johnson came into the field. It was denied, of course, that 
one was the cause of the other, but the break in the price to the con- 
sumer occurred at that particular time. Do you recall that testimony? 

Mr. Montague. Well, I recall Judge Davis reading something 
from, I think, Mr. Arnold's report. I have not read that. 

The Chairman. Approved by everybody on the stand? 

Mr. Montague. I have not read that report, Senator. 

The Chairman. But you heard the testimony? 

Mr. Montague. Yes. 

The Chairman. And the testimony was that the price of milk went 
up and then suddenly broke. What I am trying to get at is whether, 



2990 CONCENTRATION OF ECONOMIC POWER 

in your opinion, organizational activity of the distributors had any- 
thing to do with raising that price. 

Mr. Montague. Not that I know of. 

The Chairman. And you wish the committee to understand that 
the only organizations which detrimentally affect the consumer are 
the organizations of producers and the organization of workers, 
whereas the organizations of the distributors are uniformly bene- 
ficial? 

Mr. Montague. Now I don't want to create that impression at all, 
Senator. What I want — the point I tried to get across in my testi- 
mony is that margins are so small, the margin, the operating margin 
is so small that when you raise the price anything like 25 or 30 cents 
a hundred, and I think all members of the Government who have had 
activity in connection with the milk business, the A. A. A. or other 
elements, will substantiate this, that when you raise the milk price 
30 or 40 cents a hundred, you have to raise the resale price. There 
just isn't margin in the business. Everybody would go out of busi- 
ness if that wasn't done. 

The Chairman. Well, it was testified this morning by Mr. Vardon * 
that with respect to 50 percent of the dairies operating in Detroit, if 
certain increases which you felt were desirable from the point of 
view of the producer and from the point of view of the worker were 
granted, it would necessarily result in an increased cost to the 
consumer. 

Mr. Montague. I heard that. The point is that price to farmei-s — 
I haven't in mind. Senator, what the trend of prices was to which Mr. 
Beach testified yesterday ; I think that the price went up ; I have for- 
gotten exact figures, something from $1.45 I guess it was to $2.68 or 
something of that kind. Now, it is just — the margins in the milk 
business are so small that any substantial increase in the cost of milk 
from the farmer has inevitably got to be followed by an increase in 
price to the consumer, or nobody will stay in business. 

The Chairman. What is your opinion about the possibility of stim- 
ulating the amount of consumption? 

Mr. Montague. Well, Senator, as I indicated, I am a believer in 
selling more and more goods to more and more people; all studies, 
however, of the milk business seem to indicate that as far as fluid 
milk is concerned, the demand is only slightly elastic. By that I do 
not mean that the putting of a very high price can't discourage the 
use of it. On the other hand, a very low price doesn't seem to create 
demand in fluid milk that it does in many other products. 

The Chairman. May I now direct your attention to page 6 of your 
original statement and to chart No. 2 (referring to "Exhibit No. 
442") ? 

Mr. Montague. That is it. 

The Chairman. On page 6 of your original statement filed with 
the committee, at the bottom of the page. 

Mr. Montague. Yes. 

The Chairman. I find this statement: 

Critics bent upon distortion frequently assert that during the depression 
the farm price of milk declined much below the normal requirement price. 
Actually in most markets the retail price per quart declined more than the farm 
price per quart. 



1 P. 2955 et seq., snpra. 



CONCENTRATION OF ECONOMIC POWER 2991 

Does that harmonize with the facts set forth in the chart ? 

Mr. Montague. Yes. I think you are thinking in terms of per- 
centage here, Senator. Here is the situation. When you express it 
in percentage, that perhaps has confused you. If the price of milk 
goes up, we will say, just for example, 2 cents, and the price to pro- 
ducer goes up 2 cents, the price to the- producer may have advanced 
40 percent and the retail price only 20 percent. Do you see that? 
Do I make myself clear there? Conversely, on the other side^ as 
prices go down the retail price may drop 20 percent, 2 cents a quart, 
and the farm price drop 2 cents a quart, but the percentage expressed 
in relationship to the farm price is more than the 20 percent on 
the retail. It is because you are. dealing with higher numbers and 
lower numbers, in each case applying the percentage. 

The Chairman. Then do you wish the committee to understand 
that actually the price to the farmer, the buying price of fluid milk 
in cents 

Mr. Montague (interposing). In cents per quart. 

The Chairman. In cents per quart was not, did not fall off more 
than the retail price? 

Mr, Montague. Exactly. 

The Chairman. It did not? 

Mr. Montague. It did not. The cents per quart, not any percent. 

The Chairman. Though the percentage might have? 

Mr. Montague. The percentage 

The Chairman. In other words, drop in the price paid the farmer 
between 1929 and 1932, which represented a drop of 45 percent, was 
in actual cents not more than the drop in the. retail price, which on 
your chart shows a percentage of about 25 percent. 

Mr. Montague. I don't know Avhether I understand your question. 
Mr. Eastlack tells me he has the figures here, if you would permit 
him. It is on a per quart basis. 

Mr. Eastlack. The last prices established by Borden's for retail 
milk at the beginning. 

The Chairman. I beg your pardon. 

Mr. Eastlack. The last price established by Borden's for retail 
milk in New York City, prior to the onslaught of the depression, was 
16 cents per quart,' ancl that was August 11, 1930. 

The Chairman. Wliat was that price? 

Mr. Eastlack. Sixteen cents per quart, delivered to the homes. 
The~ class 1 price to producers, which represented the cost of that 
milk to us and the return to producers for milk sold by us at 16 
cents per quart, was $3.37 per hundredweight. 

The Chairman. Wliat was that per quart, or could you 

Mr. Eastlack. If yoii will permit me to deal with the hundred- 
weight, I will come back to the cents per quart. It is hard to shift 
quickly. 
. The Chairman. Very good. 

Mr. Eastlack. The lowest price to which milk fell, the retail milk 
at the depth of the depression, resulted in a 10-cent price, home-deliv- 
ered milk in New York City. That price was established on January 
23, 1933, and represents a 6-cent reduction to the consumer and the 
class 1 price th^t was established in relation to that 10-cent selling 
price was $1.28 a hundred, or a reduction of $2.19 from the previous 
price paid farmers. That reduction to farmers in cents t)er quart is 



2992 CONCENTRATION OF ECONOMIC POWER 

4.6 and the reduction to consumers is 6 cents, although, percentage- 
wise, the picture is entirely different, because obviously your reduction 
from $3.37 to $1.28 is more than a 50-percent reduction, but in the 
cents per quart the reduction to consumers was 1^% cents more than 
the reduction to producers. 

The Chairman. Well, then, cojisidering the use of the word "dis- 
tortion" in the statement, would you say that the statement of the 
expert who testified with respect to the production in terms of cents 
was any more a distortion than this chart which speaks of the reduc- 
tion in percentage terms? They both deal with the same facts, and 
one witness speaks about a reduction in actual dollars and cents and 
another one presents an argument to rebut it and bases it upon per- 
centages and both are dealing with exactly the same facts. Can one 
be called a distortion and the other not ? 

Mr. Montague. Senator, if I might clear that up for you, this 
chart has more than the one element in it, and- it has been expressed 
in percentage because we have on here 

The Chairman (interposing). I have ?jo objection to your pre- 
senting it in percentage; not at all. The only thing I was question- 
ing about was the use of the word "distortion" in the original state- 
ment, when apparently both the witness who appeared here first and 
you are dealing with exactly the same figure and expressing exactly 
the same state of facts. 

Mr. Montague. Well, I will be very glad to withdraw the word 
"distortion" if you desire. However, Senator, there has been, there 
have been statements made outside of the committee, I mean public 
statements made elsewhere throughout the country, that looked as 
if they were distorted. 

The Chairman. I will grant that in studying any complex eco- 
nomic situation like this in which the milk industry finds itself, or 
indeed most every other industry, it is very easy to deal in emotional 
reactions, rather than facts, and we have been endeavoring to wipe 
away the clouds of emotion and get down-to the facts. 

Mr. Montague. I should be very happy to remove the distortion, 
Senator, the word "distortion." 

The Chairman. Mr. Ferguson, do you have a question? Mr. Bal- 
linger? , ; 

monopoly in the dairy industry 

Mr. Ballinger. Mr. Montague, you say m your statement in two 
places, The Borden Co. is not a monopoly. A little bit later on you 
make the statement that never in the history of The Borden Co. has 
it been a monopoly. Is that correct ? 

Mr. Montague. Yes, 

Mr, Ballinger. Did the Federal Trade Commission in its hearings 
before the Temporary National Economic Committee charge that 
The Borden Co-, by itself was a monopoly ? ^ 

Mr. Montague, I don't think they did, Mr, Ballinger. I don't 
recall the testimony vividly enough to ansAver that question. My 
recollection is that they did not. 

Mr. Ballinger. Let me ask you: Is your conception of monopoly 
that one concern has to have control of production or control of the 

1 Supra, pp. 2751-2880. 



CONCENTRATION OF ECONOMIC POWER 2993 

setting of prices or may monopoly be achieved by two or three con- 
cerns or half a dozen or a dozen cooperating to that end? 

Mr. Montague. Well, I should think there would have to be a 
number of them. 

Mr. Ballinger. That is the way in which the term is used under 
modern conditions. - 

Mr. Montague. Undoubtedly you are familiar, Mr. Ballinger, with 
the statement of the Federal" Trade Commission — I have forgotten 
the exact wording, but in an investigation they made some years ago, 

I am speaking now from memory, I think they said that the first 12-— 

II or 12 — largest dairy buyers in the United States handled only some 
very small percentage of the total ; I don't recall what it is. 

Mr. Ballinger. That may be; I don't know that; I would have 
to look it up, Mr. Montague. Now I want to ask you the question: 
Has The Borden Milk Co. ever, in cooperation with other milk com- 
panies, practiced monopoly, regionally? 

Mr. Montague. Not that I know of ; no, sir. 

Mr. Ballinger. Is it not a fact that the Assistant Attorney General 
of the United States, the attorney general of Michigan, found that in 
'34 and '35 The Borden's Co. in cooperation with other companies was 
practicing monopoly i 

Mr. Montague. I don't know of it. 

Mr. Ballinger. Mr. Chairman, it was read into the record this 
morning or yesterday by Judge Davis. 

Is it not a fact, Mr. Montague, that the attorney general of the 
:State of New York accused The Borden's Co. and five other companies 
rtf practicing monopoly? 

Mr. Montague. You mean Mr. Bennett? Well, he may have, Mr. 
Ballinger. I haven't in mind at the moment the statement he made. 

Mr. Ballinger. I am reading from the report of the attorney gen- 
eral of New York Stafe to the Governor of the State as late as 
March 8, 1938 : 

With the consumer buyer totally unorganized at the present time, it is ap- 
parent that the six dealers referred to have control of the retail market. Nor 
is it necessary that this control be a formal organized control. Under the state 
of facts indicated herein and by the testimony, price fixing is accomplished by 
the simple device of playing follow the leader. 

Now, Mr. Montague, have you ever heard of an organization by the 
name of the International Association of Ice Cream Manufacturers? 

Mr. Montague. Yes, sir. 

Mr. Ballinger. Is The Borden Co. interested in this organization, 
hold any stock or any ties with it ? Is it a member ? 

Mr. Montague. I think we are a member of it. I personally am 
not the member and have no official capacity with it. 

Mr. Ballinger. Is it not a fact, Mr. Montague, that this association 
is at present under indictment in Chicago under the antitrust laws?^ 

Mr. Montague. It is my understanding that they have been in- 
dicted, or are under present indictment. 

Mr. Ballinger. Now, Mr. Montague, on page 8 of this — I haven't 
a printed copy of your statement; I have only the typed copy, but 
you make this statement : 

The cost of the raw milk product is influenced to a large extent by the value 
of manufactured dairy products which are bought- and sold in the national or 
world markets, and which normally reflects the laws of supply and demand. 



2994 CONCENTRATION OP ECONOMIC POWER 

Mr. Montague, have you ever heard of the Plymouth Cheese 
Exchange? 

Mr, Montague. Yes, sir. 

ESTABLISHMENT OF CHEESE PRICE BY ONE EXCHANGE 

Mr. Ballingek. Is it "not a fact, Mr. Montague, that the price of 
cheese is established on the Plymouth Clieese Exchanged 

Mr. Montague. I— you mean the selling price of cheese? 

Mr. Ballingek. Yes. 

Mr. Montague. I think only limitedly. 

Mr. Ballingek. Well, how limitedly? 

Mr. Montague. Well, to tell you the truth, Mr. Ballinger, my 
experience in the cheese business has amounted to about a year and 
a half, and although I was born and raised in Wisconsin, fairly 
near Plymouth,* I have very little knowledge of the Plymouth cheese 
board, if that is what you are talking about. When I lived in Wis- 
consin there was quite a lot in the papers about the cheese board, 
but that is about the extent of my knowledge of it. 

Mr. Ballingek. Well, you don't know anything about the ex- 
change ? 

Mr. Montague. The Borden Co. is not a large factor in the cheese 
business. 

Mr. Ballingek. Do you know whether or not this cheese exchange 
is open for only a half an hour a week ? * 

Mr. Montague. I don't know that for -a fact, no; it may be. 

Mr. Baixinger. Do you know whether at the end of half an hour 
trading an average price is established for the sale of cheese and 
that this price governs the cheese market for one continuous week 
all over the United States? 

Mr. Montague. I don't know that. I did follow this, Mr. Bal- 
linger, in what little I know of the cheese business because cheese 
has a very definite relationship to raw milk prices. I think Dr. Ross 
here made a compilation for me for our company at one time showing 
that the price of cheese, the quoted price of cheese, was just a little 
bit above the price of butter over quite a long period of time; is 
that right, Dr. Ross ? Yes. Very slightly above. How long a period ? 
Ten years' period. In other words, the return — I can't tell you the 
operation of the Plymouth board, Mr. Ballinger, but the return from- 
whatever those prices were compared favorably with the return to 
butter producers for the raw milk. 

Mr. Ballingek. Well, Mr. Montague, if it were a fact — of course, 
we expect to sustain these facts before the Temporary National Com- 
mittee in replying to your brief — if it were a fact that this exchange 
opens for only a half an hour a day per week and if it at the end of 
the trading session in which only a few cargoes fluctuate back and 
forth, an average price is posted and this average price governs the 
sale of cheese for 1 week throughout most of the United States, 
would you be willing to amend your statement that the value of manu- 
factured dairy products certainly with respect to cheese is not gov- 
erned by the laws of supply and demand ? 

Mr. Montague. If you are asking me, Mr. Ballinger, whether or 
not in my judgment, it would make any difference as far as I am 
concerned whether cheese is quoted on every board in the United 



CONCENTRATION OF ECONOMIC POWER 2995 

Stales I say "no." If they Avant to quote cheese on every board in 
the United States I am perfectly willing. 

Mr. Ballinger. Yes; but if it is quoted at one place? 

Mr. Montague. I mean active trading. 

Mr. I3ai,linger. Fixed by one group of men ? 

Mr. Montague, Well, I don't see liow it could be fixed by anybody. 
Tlie normal thing in cheese, Mr. Ballinger — the same relationship 
nuist exist in the price of cheese — I should think, and all studies bear 
that out — to butter as that which I have indicated to you, because out 
in the cheese-producing areas — I came from there, so I know some- 
thing about it — if the price of butter will return more than the price 
of cheese, the cheese maker will turn his separator and separate his 
milk and put the cream into butter and the skimmed milk back to the 
})atrons for the hogs, and there won't be any cheese, so unless the 
cheese price is kept high enough to keep that milk coming into the 
cheese factory that milk will go into butter, as it oftentimes does. 

Now, wiien butter was 2514 cents last year at a pegged price, cheese 
got down, I think, to a dime. I Ivnow that out in ray home State 
there were a lot of cheese factories that skimmed the milk, instead of 
puttijig it into cheese because the price was higher. 

Mr. Baixinger. Well, it is true that prices may be kept in two 
senses; they may be kept because they are fixed or they may be kept 
at a certain level because of the free play of competitive forces. All 
I was saying that if these facts which I adduce to you are true, would 
you tliink that the price of cheese — now, never mind what the price is; 
if it is too low it will have all these effects on butter that you say, but 
just the price of cheese — could you say that the price of cheese is fixed 
bj- com.petitive forces where for one-half an hour a day they peg a 
price and for the next 6 days everybody goes looking at that price 
up on the board and everybody charges that price? 

Mr. Montague. Well, I can't get away from the feeling, Mr. Bal- 
linger. that cheese is fixed by competitive forces and has to be. Now, 
as to the detailed operation of one exchange. I have never been there ; 
I don't know. 

Mr. Ballinger. Mr. Montague, you make the statement that "un- 
like some food products, particularly so-called luxury foods, the de- 
mand for milk is only slightly elastic. For this reason, even a drastic 
reduction in ]:)rice will not increase consumption sufficiently to absorb 
an appreciable amount of surplus." Do you think, Mr. Montague, 
that there are any undernourished children in the United States? 

Ml-. Montague. Certainly, I am sorry to say. 

Mr. Ballinger. Perhaps a good many? 

Mr. Montague. I am afraid so. 

Mr. BalIjInger. Then, if there was a decrease in the price of milk 
substantially, d»m't you think that mothers who have undernourished, 
children on their hands would buy 2 quarts of milk instead of 1, if thft 
price came down far enough? 

Mr. Montague. Well, that, of course, would be hoped for, Mr. Bal- 
linger, but many studies on the subject, 1 think, some of which are 
aviiilpble, indicate that the demand is not very elastic. What I was 
pointing out there particularly, Mr. Ballinger, the price of evaporated 
milk has been very low for some years. It has taken 10 years to 
increase that consumption even as much as it has. But what I was 
pointing out principally is the fact that you can't get away from, that 



2996 CONCENTRATION OF ECONOMIC POWER 

for every hundred pounds of milk you have in November, there are 
from 200 to 300 pounds of milk in a milkshed in June. Now, our 
company is particularly interested, as they should be, in finding ways 
and means to sell milk cheaper, because if we could sell milk cheaper 
over a long period of time — not just temporarily; that would do no 
good — but over a long period of time, with j)roper educational back- 
ground, I think the consumption per capita could be increased, 
although the consumption per capita in the United States, I under- 
stand, is the second highest in the world. 

Mr. Ballinger. We will have something to' say about that later, Mr. 
Montague. On page 12, Mr. Montague, I should like to have you 
clarify the statement a little bit. I am a little puzzled by it, and I 
want to ask you some questions about it. Apparently you are trac- 
ing the Losses of The Borden Co. to this factor : "Competition from 
dealers who pay less than union, wages and frequently less to the 
farmer than the prevailing price for fluid milk has caused our Chi- 
cago operation to lose a substantial portion of its former business." 
Now does that statement mean this, ?,Ir. Montague, does it mean that 
there are milk companies in Chicago which deliver from door to door 
and which hire independent, hire nonunion truckmen and because of 
the economies which they achieve as a consequence of hiring nonunion 
truckmen, they were able to break the price of milk in Chicago? 

Mr. MoNTAGTJE. Partially. ■ 

Mr. Ballinger. Well, substantially or just slightly? 

Mr. Montague. Well, I don't know how many there are exactly, 
Mr. Ballinger, but I think I covered that in my brief. There are hun- 
dreds — I wouldn't attempt to tell you how many — of so-called ped- 
dlers in Chicago. There are hundreds of them in New York. I think 
the e^stimate is about 700 or 800 in New York, who go out and sell milk 
without regard — and there is what represents the difference betweiBn 
that which they pay the processor and that which they collect from 
the consumer. In Chicago there has been a great deal of business 
taken from our company on that basis. 

Mr. Ballinger. Now do you mean when you speak about these 
peddlers, are they the same kind of a person as an over-the-counter 
dealer ? 

^ Mr. Montague. No, no, Mr. Ballinger. They will go out and they 
are really independent merchants; that is what they are; they will 
buv a small truck or truck and buy milk from a processor and the 
difference between what they pay to that processor and the difference 
they sell to the consumer is their wages for that day's work, plus their 
cost of running that truck. A substantial part of the loss — well, yes, 
substantial — of the loss of business that our company has experienced 
in Chicago has been due to that. The rest of it is due to the natural 
, trend, as I explained, from retail route to store. 

Mr. Ballinger. Now isn't almost every milk company which dis- 
tributes rnilk from door to door interested in protecting themselves 
against this kind of competition? _ 

Mr. Montague. Well, Mr. Ballinger, as far as my individual think- 
ing on this subject is concerned, I think that we should be interested 
and we are interested in finding cheaper ways to distribute milk, just 
as cheap as we can. 

Mr. BELLINGER. If the milk companies are interested in their door- 
to-door delivery system, and I take it for granted they are ? 



CONCENTRATION OF ECONOMIC POWER 2997 

Mr. Montague. We are interested in both kinds. 

Mr. Ballinger. Why would they sell milk to peddlers who would 
be undermining that part of the business? 

Mr. Montague. We do not. 

Mr. Ballinger. Why do the others do it? 

Mr. Montague. Because there is a profit in it. 

Mr. Ballinger. As much profit as there is in door-to-door delivery 
system ? 

Mr. Montague. There is no profit. 

Mr. Ballinger. No profit in that? 

Mr. Montague. No profit, but here is what has happened. Here 
is what happened, for instance, Mr. Ballinger. Some milk is loose in 
the milkshed, some surplus milk that isn't handled. That comes in 
and is paid for at less than the class 1 price. As I explained to you, 
it requires a comparatively small investment to put in pasteurizing 
equipment. Someone will pasteiirize that milk and sell it to these 
peddlers at that platform; he has nothing to do with delivery and 
these men simply operate the delivery end of it. 

Mr. Ballinger. Did you say there was no profit in fluid milk? 

Mr. Montague. There is no profit in fluid milk in Chicago. 

Mr. Ballinger. There is elsewhere though? 

Mr. Montague. Some places, some places not. 

Mr. Ballinger. I mean on the whole there is a profit. 

Mr. Montague. Very infinitesimal. 

Mr. Ballinger. Not profitable hardly at all? 

Mr. Montague. I would say we are very disappointed in the profits. 

Mr. Ballinger. You told the committee also that you weren't mak- 
ing any money on the manufactured dairy products? 

Mr. Montague. No ; I didn't say that. 

Mr. Ballinger. You didn't say that? 

Mr. Montague. No, sir ; I said that we would not produce a single 
can of milk in the milksheds, because the cost is higher. 

Mr. Ballinger. I am quoting from your statement, Mr. Montague — 

A casual opinion unfounded in fact has been expressed before this committee 
that large dealers profit from the sale of products manufactured from surplu^. 

They don't make any money out of it. 

Mr. Montague. Will you read the statement to me again ? 

Mr. Ballinger (reading) : 

Casual opinion unfounded in fact has been expressed before this committee that 
large dealers profit from the sale of products manufactured from surplus. 

Mr. Montague. In milksheds. 

Mr. Ballinger. You say it is unfounded. They didn't make any 
profit. 

Mr. Montague. In milksheds. 

Mr. Ballinger. You say in the sale of products manufactured 
from surplus. 

Mr. Montague. That is the only place there is surplus — in tlie 
milksheds. 

USE or SURPLUS MILK FOR MANUFACTURE OF DAIRY PRODUCTS 

Mr. Ballinger. Of course, you use surplus in making manufac- 
tured dairy products, you don't use class 1 milk. 
Mr. Montague. That is right. 



2998 CONCENTRATION OF ECONOMIC POWER 

Mr. Ballinger. Wliat you are saying is whenever you get surplus 
milk and manufacture dairy products out of it you don't make any 
money. 

Mr. Montague. What I mean by that, Mr. Ballinger, is simply 
this : That the surplus we pack in New Yorl^ State, for instance, in 
evaporated milk — I think I proceeded to go on and exemplify that, 
didn't I? 

Mr. Ballinger. No; I think this statement hangs by itself. 

Mr. Montague. Let me try to explain that to you. Evaporated 
milk that we might pack in New York State costs us more, actually 
costs us more to pack than to pack the milk out in Wisconsin or in 
some place that is purely a manufacturing area. Now it costs us 
more for two reasons: First, because the milk costs a -little more; 
second, because we can only run that plant for 8 months, 7 months, 
depencling on when there is a surplus. I think I also made the state- 
ment that from preference we would not produce a single case in the 
milkshed if it wasn't for the necessity of finding, an outlet for the 
surplus. 

]Mr. Ballinger. Can I ask you this question ? Do you consider 
finding an outlet for the surplus milk of the farmer as sort of a duty 
of yours, or are you going to look at it as a business plan. Is it or is 
it not profitable? 

Mr. Montague. We have to look at it from both standpoints as a 
matter of fact. 

Mr. Ballinger. In other words, you are telling this committee — • 
perhaps I may misunderstand you — that you are perfectly willing to 
manufacture at a loss in one area so you may do the farmer a big 
favor, take his surplus milk. 

ISIr. Montague. If we didn't or somebody' didn't take that surplus, 
Mr. Ballinger, what would become of it? 

Mr, Ballinger. I suppose if I were buying steel to make a certain 
product out of steel I would buy only what I wanted. 

Mr. Montague. Well, if the fluid-milk industry were to buy on 
that basis in total, I have shown you here in chart 1, and this is 
fairly indicative of all markets, Mr. Ballinger, that the supply of 
milk" goes from perhaps 100 pounds in November to maybe 300 
pounds in June. You know, some markets don't go quite that 
high; some go even higher. Somebody has got to take care of that 
surplus or this is what is goin^ to happen : That surplus is all com- 
ing down so that this amount right here is going to be paid for it in 
months of big production, this will bring no higher price than this, 
because as long as the price is higher for class 1, that milk is bound 
to seek the higher-pfice market. 

Mr. Ballinger. I just want to get back to what — I am not a busi- 
.nessman; I am an employee of the Government but I thought busi- 
nessmen only purchased what they could use at a purchase. I don't 
understand why you want to go on manufacturing dairy products in 
New York State unless you are getting something out of it. In other 
words, if it is a different kind of business concept here, I want to 
get it. 

Mr. Montague. To tell you the truth, Mr. Ballinger, we are about 
ready to get out. 



Mr, Ballinger. Then would you say, Mr. Montague, that you 
really do make a good deal of money on your manufactured dairy 
products ? 

Mr. Montague, No; we make money in general on manufactured 
dairy products. I don't want to give you the impression that we do 
not, 

Mr, Ballinger, That statement, then, is misleading. 

Mr, Montague, But as far as what we make in the fluid milt- 
sheds — I think if you have in mind that most of the large manufac- 
turers are companies which have very little fluid milk operations, if 
any — for instance, the largest manufacturer of evaporated milk, I 
think, is Carnation, I don't believe they have over one plant in the 
fluid-milk area, 

Mr, BiViiiNGER, Let me ask you another question about the Chicago 
market. You have denoted the peddler. Don't you think that the 
major influence in breaking the price of milk in the Chicago area 
was due to the rise of the so-called over-the-counter dealer whose 
differential in selling price to the public was far below that of the 
peddler whom you described ? 

Mr, Montague, First, Mr, Ballinger, it started with the peddler; 
that was the first of it. In perhaps the last 2 or 3 years,' over the 
counter as much as the peddler. You mean the cash-and-carry store? 

Mr. Ballinger. Yes. 

Mr. Montague. It started ^ery largely with the peddler, and from 
that has grown into this cash-and-carry store, as I recall it. 

Mr. Ballinger. Now, you say that the cash-and-carry system or 
the over-the-counter system owes its success chiefly to the fact that 
the employees — are you going to still say nonunion workers, or are 
you going to say that they purchase more cheaply from the farmer? 

Mr. Montague. Well, Mr. Ballinger, my position on the cash-and- 
carry system — I .am holding no defense for any system — the cash-and- 
carry system, if the farmer gets the same price and with the same 
obligations to take care of the surplus — the surplus is there. Some- 
body has to do it; it car be shifted from producer to producer or one 
group from another, but it can't be eliminated, and equality of wage 
scales, if the depot plan — if you want to call it that — is the thing 
that the American public want and will patronize the most. I hold 
no brief for any other system. 

The Chairman. May I interrupt? I was very much interested in 
your discussion about the way you handle the surplus milk in the 
New York area. I understand your statement made orally as well 
as the typewritten statement that you submitted, that you maintain 
your condensaries in the New York area solely for the purpose of 
preventing the surplus milk which you manufacture into these va- 
rious products from flowing into the fluid-milk market and thereby 
breaking the price. 

Mr. Montague, That is indirectly the fact, Senator, We maintain 
our condensaries in New York because the association of farmers 
insist on something being done with that surplus. 

The Chairman. You don't do it, then, because of the profit that 
you make out of the product of the condensaries? 

Mr. Montague, No. As I pointed out, Senator, we can actually 
produce — I don't want to give the impression that we produce all of 

124491— 30— pt. 7- 17 



3QQQ CONCENTRATION OF ECONOMIC POWER 

our canned milk in New York, because that is not true, or anywhere 
near all of it, but we do pack a lot of it. Now, we could actually 
pack that milk in areas in which we could operate our plants the 
year round at lower cost than we can produce it in New York State 
under intermittent conditions that we have there. 

The Chairman. If somebody else would take the surplus in Ncav 
York, you would be perfectly willing to have them take it and yoii 
would manufacture your product in another shed and make money? 

Mr. Montague. And make more money. 

The Chairman. You do make some money on the condensaries in 
New York, then. 

Mr. Montague. One year we might, and one year we might not. 

The Chairman. So the primary purpose in maintaining the New 
York condensari'^s is to prevent the surplus from breaking the fluid - 
milk market. 

Mr. Montague. That is right, to the farmer. 

The Chairman. To the farmer ? 

Mr. Montague. Yes. 

The Chairman. What effect would it have on you ? 

Mr. Montague. It would have the effect of breaking the whole 
situation when that surplus came on. Senator O'Mahoney, when you 
have 2 pounds of milk to every pound that can be consumed, it is 
impossible, as I think I have pointed out, to expand demand up and 
down. 

The Chairman. You don't follow this policy primarily for tlie 
benefit of the farmer? 

Mr. Montague. Well, it is a dual policy. If that milk came into 
the city, here is what would happen: The price of all milk would 
sink to the lowest manufacturing level. 

The Chairman. And you would suffer by it, every distributor would 
suffer by it, the producer would suffer by it. Is that right ? 

Mr. Montague. Yes; I think that is true. Now, for a time we 
didn't handle any surplus, or very little surplus, in New York. 

The Chairman. What happened under those conditions? 

Mr. Montague. The association that we buy our milk from handled 
most of it, and I believe it is correct that they found on many of the 
products that it had to be put into, that we could do it more cheaply 
and more economically than they could. 

The Chairman. Do other distributors share your view with respect 
to this policy ? 

Mr. Montague. I don't knbw; I have never discussed it with any 
other distributors. 

The Chairman. What proportion of the surplus milk do you take 
for your condenseries in this shed ? 

Mr. Montague. I can't tell you exactly, Senator. We handle, 
roughly, the last calculation that was made, somewhere around 90 to 
95 percent of the surplus that our own operations create. Do I make 
myself clear ? 

The Chairman. I don't know how you create the surplus. 

Mr. Montague. In other words, I have shown you here. Senator, 
that this milk fluctuates. If a farmer produces a hundred pounds over 
here in November— and that is what we need to have in our fluid-milk 
operations as a minimum requirement in November — that same farmer 



CONCENTRATION OF ECONOMIC POWER 3001 

will produce, oh, two to two and a half times as much in June. If it 
took 10,000 farmers, just as an example, to supply us with our require- 
ents at this time of the year, and we will assume that was a million 
pounds, we would have two to three million pounds in June. Now, 
when I say we take care of 00 to 95 percent ot the surplus we create, 
that is what I mean ; we take care of 90 to 95 percent of the increased 
poundage that comes as a result of seasonal surplus on the farms 
within our own surplus operations. 

The Chairman. In other words, you don't take all the surplus of 
the farmers who sell to you. 

Mr. Montague. We fake 90 to 95 percent of the surplus. 

The Chairman. Let's look at the column for May [referring to 
"Exhibit No. 441"] as an example. That indicates that 215, or 
20,000,000 pounds of milk were consumed in the fluid market that 
month. ' 

Mr. MoNTAGtJE. That is right. 

The Chairman. And 376,000,000 pounds apparently were used for 
surplus milk. 

Mr. Montague. Other classifications, other than fluid milk. 

The Chairman. What proportion other than that 375,000,000 
pounds is bought? 

Mr. Montague. I can't tell you that. Senator. This chart is the 
whole State of New York. I can't tell you that. 

The Chairman. You take.X)nly 95 percent of the surplus of your 
own operations. Now, there are other operations in the State ? 

Mr. Montague. That is right. 

The Chairman. Are they as much as yours ? 

Mr. Montague. The total of all the other operations in the State 
is very much larger than ours. 

The Chairman. Very much larger? 

Mr. Montague. Oh, yes. 

The Chairman. What happens to that surplus milk ? 

Mr. Montague. Well, the other elements in the market take care of 
some of the surplus, the Dairymen's League take care of some of it, 
other companies take care of part of it; some companies don't take 
care of any of it. 

The Chairman. Would you say that all of the condenseries which 
make evaporated milk and butter and cheese and the like are operatiujg 
as yon operate, without a profit? 

Mr. Montague. I have no direct knowledge of that. I am per- 
fectly frank to admit to you that other companies have made a great 
deal more money in their evaporated-milk operations than we havfe. 
I know that a contributing factor in that are the somewhat higher 
costs of the milk we pack in New York State. 

The Chairman. Do you think that that would apply in the shed, 
in the New York shed ? 

Mr, Montague. I can't speak about anything except our own com- 
pany, with which I have some familiarity. 

The Chairman. Of course, you keep in pretty close touch with the 
other companies, I assume, and you have a pretty good idea as to 
whether or not they are making a profit where you don't. 

Mr. Montague. I know that the evaporated-milk industry makes 
more profit than we, generally speaking. 



3002 CONCENTRATION OF ECONOMIC POWER 

The Chaikman. In New York State? 

Mr. Montague, I don't know about New York State. 1 would as- 
sume that their costs in the Middle West are just as low as our 



The Chairman. You see you are presenting a rather startling pic- 
ture to my mind. I think of New York City and Poughkeepsie, 
Schenectady, Buffalo, and all the big cities of New York as concen- 
trated areas of population which furnish an ideal market not only 
for fluid milk but for all of these manufactured products, and you 
are telling us that though you operate in that shed, you make profit 
only out of your fluid milk sales and not out of the product of your 
condenseries. 

Mr. Montague. I think I corrected myself, a very small profit or a 
lesser profit on that portion that is.:sold there, and the reason. Senator, 
that there aren't more exaporated milk companies in New York 
State — aren't more companies buying there, instead of buying out in 
Wisconsin, Minnesota, and Tennessee, is the very fact I pointed out to 
you — that those plants can only run 5 months. 4 months, 7 months, 
depending on how the seasons run, and tliat the actual cost of packing 
that milk, even if the raw milk cost were just the same, would still be 
more than it can be packed for out in those other places.- 

The Chairman. You see the general picture that you are drawing 
here by the entire story is that of a distributor of fluid milk and of 
manufactured products, who complains about the adverse effect upon 
the consumer of the organized activities of producers, and the or- 
ganized activity of labor and that you, like the consumer, are suffer- 
ing from the effects and abuses of this organizational development, 
but that your company is absolutely independent, it does not par- 
icipate either by forming negotiations or follow -the-leader device 
in any effort to maintain or to raise the prices. Does that correctly 
state the picture that you want to present? 

Mr. Montague. We have very little control of it. I pointed out 
to you, Senator, when conditions are such that the farmers force 
the price up, the margin is so small in this business — you heard 
the testimony this morning that some of the dealers in Detroit were 
financially embarrassed. The margins are so small that when that 
price goes up there just isn't any other alternative if you are going 
to stay in business than to collect more for it if you are going to pay 
those prices. 

With respect to this si'irplus plan, Senator, I know of two large 
evaporated milk companies w'ho had large operations in New York 
State 12 or 15 years ago. All of them have withdrawn. They are 
both very large companies. 

The Chairman. But the definite conclusion that you want to leave 

with the committee is that Borden's as a distributor and the consumer 

are the victims of the combined activit}^ of the producers and labor. 

Mr. Montague. Only the abuses, Senator; oidy the the abuses of 

those. 

The Chairman. How important are those abuses? 
Mr. Montague. They are very important. 

The Chairman. Then these abuses by these two organized groups 
are bearing heavily upon Borden and upon the consumer. 

Mr. Montague. They are bearing hegivily on the price the con- 
sumer pays for his milk. There is no question about it. 



CONCENTRATION OF ECONOMIC POWER 3Q03 

The Chaikman. And you offer no suggestion as to the elimination 
of these abuses except the prayerful hope that the producer and the 
worker may be educated to take, on the one hand, less for the milk, 
or upon the other, a lower wage scale. 

Mr. Montague. Well, now, on wages, Senator, let me again make it 
clear 

The Chairman. I understand that you say you are a believer in 
good wages. 

Mr. Montague. I am only against the abuses. 

The Chairman. Of course, that is all I am talking about, and you 
speak of the excessive wage scales as an abuse. Now, do you pay 
excessive wages? 

Mr. Montague. We do in some places, in my judgment; excessive 
wage and commission rates. 

The Chairman. Where? 

Mr. Montague. Chicago. 

The Chairman. Do you in New York? 

Mr. Montague. No; I wouldn't think we do; not substantially. 

The Chairman. Do you pay excessive wages in your condenseries? 

Mr. Montague. I don't think so. 

The Chairman. And you don't pay excessive wages in your 
deliveries ? 

Mr. Montague. In Chicago? 

The Chairman. No; New York. 

Mr. Montague. I wouldn't say that they are in ai y way com- 
parative w4th the excessiveness in Chicago. 

Tlie Chairman. And so far as New York is concerned ? 

Mr. Montague. We pay high wages, but we always want to pay 
high wages, but there must be an economic value to that service 
performed, or it is going to continually result, as you can readily 
see, labor costs being such a large proportion of the delivery expense, 
in higher prices. 

The Chairman: But so far as your testimony now goes,. in New 
York you have no complaint of the effect of organized labor, there 
are no abuses in the New York area to which you want to direct 
particular attention. 

Mr. Montague. No substantial abuses. Senator. 

The Chairman. In what other areas beside Chicago do they exist? 

Mr. Montague. Well, that is the principal area. 

The Chairman. How about the abuses by organized producers in 
New York? 

Mr. Montague. Well, New York has long 

The Chairman (interposing). Bearing in mind you maintain these 
condenseries solely for the purpose of helping the farmer. 

Mr. Montague. New York has long had, in my judgment, far too 
high a class 1 price, particularly since the supply in K"ew York has 
become so much greater in proportion to demand than there was 10 
or 15 years ago. I think, speaking from memory, all during the 
twenties there was a shortage of milk an ariual shortage of milk 
in New York milk shed in thp lall. Is that subsfeantially correct, 
Joe? 

Mr. Eastlack. Yes. 

Mr. Montague. In othf»i words, production and demand were fairly 
evenly balanced. Now, since 1930, I don't know what the figures 



3004 CONCENTRATION OF ECONOMIC POWER 

show as to the increase per year or the decreased demand. I think the 
figures show the demand in New York is just about the same as it 
was in 1930, approximately. But production is very much more. 
In other words, the production of the New York milk shed in total 
number of pounds in relation to the consumption is increased so 
much as to bring on an ever-increasing surplus burden. 

The Chaibman. And that is going on all over the country, too, 
is it? 

Mr. Montague. Well, I can't speak for all over the country, but I 
think it is. I think the Department of Agriculture reports show that 
the productions in 1938 were the highest on record, and I think the 
current rate of production of 1939 will exceed '38. That is just a 
belief. 

The Chaikman* With this condition growing worse, as you de- 
scribed it, and since you offer no constructive solution, suggest only 
that the, matter be left alone, what conclusions are we to draw with 
respect to the profit status of your operations ? You see every other 
element here, according to what they say to us, asks for Government 
intervention, and you say let Government stay out. 

Mr. Montague. That is just the point. Senator. Government 
might control this. I am by no means convinced, but I am perfectly 
willing to believe that if (and that is a big "if") the Government, 
if they took control of these markets, would establish a class 1 price 
which had a reasonable relationship, not some fictitious relationship, 
but a reasonable relationship to the value of milk in manufactured 
products, then I think they could probably go a long way toward 
controlling this situation, but so far all of our experiences with 
control have been most unfortunate. It was only controlled for a 
small segment of the industry and not controlled for the rest of the 
industry. 

The reason that I think that the Department of Agriculture's 
formula or code price on evaporated milk has worked fairly success- 
fully is that it has a very definite and reasonable relationship to 
the basic prices of butter and cheese. If the fluid-milk prices, just 
to use that example, had been established by the Government control 
agencies, be they State or Federal or what not, with the same funda- 
mentals in mind, in my judgment we would not have much of the 
confusion that we have here today. 

The Chairman. You say that that type of Government control 
would be beneficial? 

Mr. Montague. I said I hoped it would be. 

The Chaibman. Well, I realize that this is a very complicated 
matter and I am not sitting in judgment upon you, either, let me 
say that. I want to make that very clear, but the evidence all indi- 
cates that the producer believes that the free competitive system has 
operated to his very great disadvantage. The worker likewise feels 
that it has operated to his disadvantage, and both of these at one time 
or another charge that the distributor, without the intervention of 
the Government, will exercise the control over the price by which the 
amount which the producer gets and which the consumer pays is fixed. 

Mr. Montague, What is to prevent them from exercising a price 
that is unfair to the consumer? 

The Chairman. Of course there isn't anything, but they ask mainly 
the establishment of some sort of Government control. I am not 



CONCENTRATION OF P]CONOMIC POWER 3005 

ready to say that it would be a desirable thing to say, but funda- 
mentally I like to think that competition can be restored, not only in 
this but in other industries, and maintained, and that abuses can be 
eventually eliminated, because I don't think it is a desirable thing 
to have private individuals fixing prices, nor do I think it is a desir- 
able thing for Government to fix prices if they can be avoided. But 
Vou give us the picture that the distributors, at least so far as 
feordens are concerned, are victims in this situation. 

Mr. Montague. Of abuses. We are not the only distributor that 
is a victim of it, either. 

The Chairman. When I questioned you as to where those abuses 
exist you speak of a limited area in Chicago, 

Mr. Montague. No, Senator. 

The Chairman, Well, they don't exist in New York, 

Mr. Montague. Yes ; it does. The high class 1 price in New York — 
you are thinking of the labor situation, aren't you, with that? 

The Chairman. Oh, no; I questioned you about both. 

Mr. Montague. I told you that Chicago was particularly burden- 
some from the labor standpoint. Now, the high class price in New 
York, I think there are, I don't know how many, but very many 
markets with class 1 prices very much above what, in my judgment, 
would be the sound price relationship between manufacturing values 
in class 1, not confined to any one or two markets — many markets. 
Now, the costs of distributing milk are so fixed that the prices can't 
go up and down without those two factors. 

The Chairman. Hasn't that come down to a statement that it would 
be a better condition in the industry if the price to the producer were 
a little bit lower and the price to the consumer a little bit higher? 

Mr. Montague. A little bit lower. 

The Chairman, The price to the producer on the average would be 
a little bit lower and the price to the consumer on the average would 
be a little bit higher. 

Mr, Montague. If you are asking me if the returns to the investors 
of the industry couldn't be iiici'eased, I should be very hopeful because 
they have been very meager. 

The Chairman. If they are, that is the inference we get out of it. 
Now, you understand again I am not trying to pass judgment upon 
your conclusion, but that is what you are telling us, isn't it ? 

Mr. Montague. Yes; and I am saying that the price to the con- 
sumer cannot come down; there is no way that I know unless some 
new system of sterilizing milk or some new way of preserving it 
where you can deliver it twice a week or once a week, or something 
of that kind — unless science finds some new ways I know of no way 
to appreciably cut that delivery cost because labor is such a large part 
of it. On Government control I can see very well where someone 
would say with all these chaotic things, "My gracious, we can't do 
anything but have the Government control," 

The Chairman, A lot of people are saying that now, 

Mr, Montague. But we have had Government control for 5 years, 
and at no place did it work, and I have tried to point out here in 
these abuses why it didn't vvork. Now, you have two things. Senator, 
that I think are important in milk control as differentiated from 
«ither control: In the first place, it is to the advantage of the pro- 



3006 CONCENTRATION OF ECONOMIC POWER 

ducer to violate the law. That is the first thing. It is to the 
advantage of the consumer — — 

The Chairman (interposing). You are talking now about what 
law ? 

Mr. Montague. About milk-price control. It is to the advantage 
of the producer to violate the law; it is to the advantage of the con- 
sumer to violate the law. In one instance the producer may eliminate 
from his individual check any surplus obligations that he might have. 

The Chairman. How about the distributor? Does he get any 
advantage from violating the law ? 

Mr. Montague. Certainly he does, as I have shown you in the classi- 
fied buying plan. 

The second is, the consumer benefits when she buys milk cheaper 
than the announced price of price control, and that is the position 
you are in. That is one of the fundamental factors why milk control 
has not worked, in my judgment. The minute that incentive comes 
in there to thwart the law, you are bound to produce a condition 
somewhat similar to the days you had in prohibition, because there 
is too large an incentive. Now, when you narrow that incentive, with 
a lower class 1 price, in my judgment, you will make the workability 
of control more nearly possible if for social reasons it seemed desir- 
able to have price control in the milk-distributing industry. That is 
the main thing. 

The Chairman. It may be that this industry which we are dis- 
cussing now is characteristic of the whole economic problem. 

In the "United States we are told there are from ten to eleven million 
persons unemployed, with 2,500,000 or 2,800,000 persons on W. P. A. 
getting a miserable security wage. These people are not buying your 
milk, they are not buying the producers' milk, and they are not afford- 
ing the market in which labor can find employment, and yet we sit 
around this table and we talk about great surpluses of milk. So it is 
a problem of finding out how best to distribute this product which a 
large proportion of our people need but can't get, and which the 
producers can't sell at a profit, which the distributors say they can't 
sell at a profit. How are we going to deal with this surplus? 

Mr. Montague. Senator, I think that is really the American 
problem. 

The Chairman. It is the problem. 

Mr. Montague. I. think that is. Speaking only for myself, it is my 
belief that farm prosperity comes only, and it seems to me charts 
more or less indicate it, when you have urban prosperity. I agree 
with your statement; you can't have adequate farm prices with 
10,000,000 people out of work. 

The Chairman. Ai^d y^t you suggest to us a reduction of this price 
to the producer on the one hand and higher prices to the consumer. 

Mr. Montague. Only those prices that so far are above the other 
prices. 

The Chairman. That is, the class 1 price? 

Now^ by the way, speaking of class 1 prices, let me refer to chart 
No. 2, which we were discussing a little while ago (referring to 
"Exhibit No. 442") which was presented for the purpose of showing 
tlie^ relation of butter prices to the prices for fluid milk and the 



CONCENTRATION OF ECONOMIC POWER 3007 

variation during the period from '29 to '38 is based, as far as the farm 
price is conQerned, upon the class 1 price, is it not? 

Mr. Montague. Class 1 price; yes. 

The Chairman. Now suppose you had used the price for all the 
other classifications, the blended price. Would that line not have been 
very different from what it is now ? 

(Upon the instructions of the chairman the discussion at this point 
was off the record.) 

Mr. DA\^s. Mr. Montague, you have stressed that one of the abuses, 
as 3^ou undei-stand it, and one of the reasons why the price to the 
consuming public in liquid milk cannot be reduced is because the 
class 1 price, in other words the price of the milk which is to be sold 
in bottles, is too high compared to the price fixed for the lower classi- 
fication. I understand that was your position. Is that correct? ; , 

Mr. Montague. The price that has been fixed, Judge Davis, in 
most instances' for so-called class 1 milk, has, in my judgment, been 
fixed at too high a level over the manufacturing value of milk. 

Mr. Da\is. That is what I understood. 

Mr. Montague. I say that because in my judgment the industry 
and the consuming public and the producers themselves might prove 
to be better off with lower class 1 prices with resulting lower prices 
to consumers. 

Mr. Davis. That is what I understood. What would you think 
about just having one price,- instead of nine classifications and nine 
prices in New York, and then allowing the price on liquid milk and 
tlie price on manufactured fjroducts to become adjusted accordingly? 

Mr. Montague. Well, they will all sink to the level of the lowest 
price, about the level of the evaporated milk formula, in my judg- 
ment. 

Mr. Davis. Do you mean to the farmer or to the public ? 

Mr. Montague. Both. 

Mr. Davis. Well, in other words, you think one of the abuses is 
this disparity in price, yet you don't think it would be a good thing 
to change it. Is that the idea ? 

Mr. Montague. I think, Judge Davis, that you m^y be changing 
it too much. If you let it fall to the lov/est, if you are tliinking of 
Government price fixing that would come into any market and fix 
all the prices at the lowest level of any dairy product, I think that 
that would not be an adequate price to producers in that shed 
so that 2 or 3 years from that time milk would be available generally. 
I think the price would be too low. 

Mr. Da^tes. How do you determine, and who should determine, the 
correct line of demarcation between prices for the different uses ? 

Mr. Montague. Well, the price of milk going into butter, foi^ 
instance, Judge Davis, is governed very largely by whatever butter 
is sold at in the open market. Most of the butter is made in Minne- 
sota, isn't it, and Iowa — through that district ? 

^Ir. Davis, As a matter of fact, the price of butter in the United 
States IS virtually fixed by the Chicago Butter Exchange, is it not^ 

]N[r. Montague. No: I wouldn't say it was. It may be fixed for 
tliat area, but the Chicago exciiange I do r-ot think has any undu^ 
influence. 



3008 CONCENTRATION OF ECONOMIC POWER 

Mr. Davis. It is published in the New York reports and every- 
where else all over the country as soon as they fix the price of butter 
in the Chicago Butter Exchange, and it is pretty generally followed. 

Mr. Montague. It isn't followed on the Pacific coast at all. I 
would say it is the dominant market in Chicago. 

Mr. Davis. I understand the situation out there on the Pacific coast 
has no relation to the balance of the country, and vice versa, but 
otherwise it is. 

Mr. Montague. The Chicago market I would say is the dominant 
butter exchange. 

Mr. Davis. Now, on this question of use, you showed a map there 
showing the surplus, and that there was a surplus each month. How 
much is used constantly in every area for ice cream, for instance? 

Mr. Montague. In every area? 

Mr. Davis. For, we will say, the New York area. It is used every- 
where in large quantities. 

Mr. Montague. The total consumption of ice cream in the United 
States — I can't give you the exact figures, but it is a very small per- 
centage of the total milk supply. Have you the figures. Dr. Ross.^ 
of what ice cream use is? It is very small — 3 or 4 percent, something 
like that. 

Mr. Davis. Is the Carnation Milk Co. still manufacturing dairy 
products in New York? 

Mr. Montague. I can't tell you for sure, Judge; I think they have 
one plant there, although that I am not sure of. I don't know 
whether it is in New York or Pennsylvania. 

Mr. Davis. You say they are the largest manufacturer of dairy 
products 

Mr. Montague (interposing). No; I said they were the largest 
manufacturers of evaporated milk. 

Mr. Davis. They have plants all over the country ? 

Mr. Montague. I don't know^ how many they have. 

Mr. Davis. Well, they don't sell bottled milk, do they ? 

Mr. Montague. They have a few operations on the west coast, I 
think 2 or 3 cities on the west coast, and 1 place in Iowa. Outside of 
that, to my knowledge, and to my knowledge only, from their annual 
reports which are published 

Mr. Davis (interposing). They do not sell in the State of New York 
in bottles ? 

Mr. Montague. They sell canned milk there, lots of it. 

•Mr. Davis. I say in i3ottles.* 

Mr. Montague. No; no bottles. 

Mr. Davis. Now, if it is so much more expensive to manufacture 
evaporated milk in New York State, why does the Carnation Co. 
still do business there in the manufacture of evaporated milk, wlip.n 
they could go anywhere else in the country with a manufacturing 
plant? 

Mr. Montague. I think they have closed about 12 plants in the last 
15 years there — their plants and companies they have taken over. I 
think they built 2 or 3 down in your country.^ 

Mr. Davis. Yes, they did ; and so did your company. 

1 Economist for The Borden Company. 

-Mr. Davis was formerly a Member of Congre.«s ftoni Tennessee. 



CONCENTRATION OF ECONOMIC POWER 3009 

Mr. Montague. Yes. 

Mr. Davis. Can you tell us the price that the farmer was paid, we 
will say, last year on the average for milk in your outlying plants as 
compared to what was paid for it in these large populous areas? 

Mr. Montague. No; I cannot tell you exactly. Judge, because I 
haven't those figures with me. That was somewhere betwecil, my 
guess would be, 3 to 10 cents a hundredweight. 

Mr. Davis. You mean 3 to 10 cents difference? 

Mr. Montague. Yes; higher cost in the fluid milkshed than out in 
the manufacturing area. 

Mr. Davis. You are speaking of it in the New York area? 

Mr. Montague. Yes. New York is the only area, I believe, in 
which we have a condensery in fluid milkshed. 

Mr. Davis. Are you speaking of the farm price? 

Mr. Montague. I am speaking of the farm price ; the actual milk, 
Judge, cost somewhere within that range more than that actual milk 
would have cost out in the other area. 

Mr. Davis. Three to ten cents a hundred pounds? 

Mr. Montague. It might have been at times 15; I guess it was, as 
a matter of fact, as high as 15. 

Mr. Davis. You mean per hundred pounds ? 

Mr. Montague. Yes. 

Mr. Ballinger. Mr. Montague, you say unless there is revolu- 
tionary technique developed on account of the high labor cost in pro- 
ducing fluid milk you don't see how you can get it to the consumer 
anv cheaper. I thiiik you referred specifically to Chicago, wa n't 
that it? 

Mr. Montague. I am hopeful that some way we can find — we 
don't know it now. 

Mr. Ballinger, Why don't you try milk depots? 

Mr. MoKTAGUE. Weil, our position — I am glad you brought that 
up, Mr. Ballinger. Our position on milk depots I think I indicated 
somewhat to you, or any type of distribution, any new type, is this. 
We don't believe — we have been able to see no evidence which would 
lead us to believe — that a large metropolitan population, not just a 
small segment of it but a large part of it, can be adequately served 
by that system of distribution. That is why we haven't gone into it. 

Mr. Ballinger. Do you know how many over-the-counter milk 
dealers there are at present in Chicago ? 

Mr. Montague. No; I do not. 

Mr. Ballinger. I think the Department of Justice reports 8 or 
9 thousand. 

Did you listen to tlie testimony of Mr. Johnson, or did you read 
any of it? 

Mr. Montague. I read parts of it. 

Mr. Ballinger. Do you know he started out selling 26 quarts of 
milk and is today the fourth largest distributor in Detroit? 

Mr. Montague^ That is what I read in the testimony. 

Mr. Ballinger Wouldn't that indicate there might be somethijig 
in the milk-depot idea? 

Mr. Montague. There might be. As I said, I hold no brief for 
any particular form, but I don't believe any large metropolitan area 
could be served. I think if that Avere the only system twe'dn-n Detroit 



3010 CONCENTRATION OF KCOXOMTC rOW'KIl 

it might be quite different. Any of these systems — T tliink the meas- 
uring stick should be whether or not they have inJierent advantages 
that other systems haven't got if you are making final judgment as 
to their eificiency. I think there will always be a market for retail 
delivered milk. It may become more limited, but there will always be 
some market. 

Mr. Ballinger. Mr. Johnson testified, if you look at the record, 
that about 50 percent of his shops were in the exclusive districts of 
Detroit, tliat many rich people came down and bought it, in their 
cars. 

JSIr. Montague. I have no knowledge of that. 

Mr. Ballinger. Mr. Montague, does The Borden Milk Co. import 
milk out of the New York milkshed into the New York market? 

Mr. Montague. For what? 

Mr. Ballinger. I mean ship it in. 

Mr. Montague. Ship fresh milk in, uninspected aiilk? 

Mr. Ballixgkr. No, no; inspected milk, but niilk pui-chased at 
points beyond the New York milkshed, say in Wisconsin. 

Mr. Montague. No; we can't, under the health department rules. 

Mr. Ballinger. For manufacturing purposes, do you? 

Mr. Montaglhe. We don't manufacture in the city of New York. 

Mr. BallingexI. In the New York area you have condensaries, don't 
you? 

Mr. Montague. To the condensing plants we run in New York we 
don't ship milk from Wisconsin in tank cars or tank trucks to New 
York. The freight would be prohibitive. 

Mr. Ballinger. How about New England and Pennsylvania? 

Mr. Montague. I think we have one plant in Pennsylvania. I 
think we have a plant or two in New England. The New York 
milkshed, I think, extends about 400 miles out of New York. Those 
plants are still in the New York milkshed. 

Mr. Ballinger. Do you think under the classified-payment plan 
for class 1 milk and class 2 that the farmer wlio sells his milk can 
adequat'^ly check the books of the distributors to see there is a proper 
allocation of the amount going into class 1 use and class 2 use and 
class 3? Under this classified plan of payment, in New York there 
are nine classifications, aren't there? 

Mr. INIoNTAGUE. That is right. 

Mr. Ballinger. Do you think the farmers can adequately check 
the books of distributors to find thit out, whether there is proper 
allocation — as com]>licated as- this is? 

Mr. Montague. They claim they can. They seem to be very con- 
fident that they can. 

In our case they put a certified pul)lic iccountant on us and do it 
pretty carefully. 

Mr. Ballinger. This has no reference to Th.e Borden Co., and please 
do not understand it so. but did you Ivuow the Federal Trade C<im- 
mission reporred that in the Phihidelphia area alone in 1 year the 
farmers were gYppe<'. of over ^500,000 because milk purchased at sur- 
plus price was used in clasb 1 purposes? 

Mr. Montague. I never read that. We don't operate in Pliiladel- 
phia. 

The Chairman, ^fr. Montgomery, seated -at the table here, is Con- 
sumer's CoMiHol forihe AiiTicultural Adjustment Administration, and 



CONC'ICN rUATION OF E('ON(tMI« I>« AVER 3011 

■vve woiiUl like to have him 'd<k a tew question-, if it is ajL^'eeable to 
you. 

Mr. Montague. If 1 am able to an.sv.er tliem. I ?liall he very glad 
to. 

Mi-. Mont(jo>ikky. I .should like to brin|L' Mi-. Eastlack back to 
c-ii-ciilatioii for a te\\ minutes, and then returii to yon. 
I Mr. Eastlack, durinc: the last 8 months of 1938 were the Borden 
Farm Products Co, and the Reid's Union Dairy Co. in New York 
City })aying the same class 1 prices for milk to the producers ^ 

Mr. Eastlack. They were; yes, sir. 

Mi-. Montgomery. How much difference was there in the prices at 
which those two companies were selling liiilk to the grocery stores? 

Mr. Eastlack. I haven't got tliat particular price schedule for 
that particular ]ieriod before me. "^here was a difference between 
Keid's price and the Borden price to stores at that time. 

Mr. Montgomery. Was the difference during any part of that pe- 
riod as much as 2% cents a quart ^ • 

Mr. EIastlack. I vrould rather testify from something definite 
rather than my memoiy on that. There was a price schedule in effect. 

Mr. MoNTGoaiERY. We had the report that the difference was as 
much as 2Vi cents. 

Mr. Eastlack. Will you give me just a minute to set down from 
memory what the ]jrices were'^ I want to have it accurately. 

During the peiiod, Mr. Montgomery, that you are referring to, the 
price on Borden milk to stores was II14 cents, the price of the Reid's 
milk t(; .stores was 9% cents. 

Mr. Montgomery. Those ])rices were maintained tliroughont that 
]>eri()d to all stores? 

Mr. Eastlack. T woiddn't say that they were maintained without 
deviatioiL New York City is characterized by rather substantial 
deviation in ]:)rices from announced schedules. As a matter of fact, 
the ])rice schedule in New York is pretty much like a timetable. It is 
the time at which trains go, but they .don't always go on time.- 

^h-. Montgomery. Prices were moving up and down from day to 
day? : • 

Mr. Eastlack. That is correct, and mostly down at that time. 

Mr. MoNT<ioMERY, W^as the price on the Borden milk moving up and 
down from day to day? 

Mr. Eastlack. Not to as great an extent as in tlie case of the Reid 
milk. 

advertising an important factor in retail milk price 

Mr. Montgomery. Can you tell us what difference in retail price in 
those stores existed between the Borden milk and the Reid's milk? 
". Mr. Eastlack. No; I can't, Mr. Montgomery. Each storekeeper in 
New York sells at the i)rice that suits his own convenience, and the 
storekeepei-s' prices vary in every block and in every borough. 

Mr. Montgomery if is a reasonable assumption, isn't it, that the 
store kee])ers were selling the Borden milk f<')r a higher price than tlie 
Reid milk? 

Mr. Eastlack. I think that is correct : yes. 

]Mr. MoNT(JOMERY. Call you tell us why. in your opinion, the con- 
sumer would p'Av a higiiei- price for Borden rniit- than she paid in the 
same st(»re or some other store for the Keid milk 07i the same day? 



3012 CONCENTRATION OF ECONOMIC POWER 

Mr. Eastlack. I haven't anything on that. 

Mr. Montgomery. Is the Borden milk advertised ? 

Mr. Eastlack. Borden's have advertised for 75 years, Mr. Mont- 
gomery. 

Mr. Montgomery. Is Reid's milk advertised ? 

Mr. Eastlack. Not to my knowledge. 

Mr. Montgomery. Does the advertisement that Borden's runs on 
the Borden milk tell the consumer that Reid's milk is backed by the 
Borden reputation as a Borden Co. ? 

Mr. Eastlack. I don't recall ever seeing any advertisements of that 
character. 

Mr. Montgomery. I suppose it is reasonable to conclude that the 
Borden advertisements would not tell the consumer what you have told 
us here today, that the Reid's milk is substantially of the same quality 
as Borden's milk. 

Mr. Eastlack. It is customary in advertising pr^oducts to point out 
their virtues, and Borden advertising does just that. 

Mr. Montgomery. The consumer would not know, would she, that, 
as you have testified here today, Reid's milk is substantially of the 
same quality as the Borden milk ? 

Mr. Eastlack. The consumer in the city of New York knows from 
many repeated statements by the Health Commissioner of New York 
City that all milk sold in the city of New York meets the regulations 
of the city, and it is his business to see that it does. 

Mr. Montgomery. Does your testimony indicate that all milk sold 
as grade B is of the same quality ? 

Mr. Eastlack. We think ours is better. 

Mr. Montgomery. Which is better? 

Mr. Eastlack. Both. 

Mr. Montgomery. You still haven't made it very convincing why 
the consumer would pay more for it. 

Mr. Eastlack. I don't pretend to know the minds of 11,500,000 
consumers, a great many of wh( ..n have been good enough to lend 
their patronage to The Borden Co. 

Mr. Montgomery. But you do agree the Borden milk is advertised 
and Reid's is not, and people pay more for Borden milk, and they 
are substantially of the same quality. 

Mr. Eastlack. I see no objection to that statement. 

Mr. Montgomery. Mr. Montague, in the light of that answer, 
would you be willing to amend your, statement that the retail prices 
of milk are determined almost entirely by the *price paid to the 
producer and the cost of labor in moving the milk? Isn't advertising 
another important factor in determining how much people pay for 
milk? 

Mr. Montague. Well, I think that has to be interpreted with a 
difference in the type of service. Advertising is a cost, but it is no 
gucli cost as that. 

Mr. Montgomery. Is there any dfference in the services to the 
consumer in the Borden bottle of milk and the Reid's bottle of milk 
they buy in the same store? 

Mr. Montague. There is to the store. As Mr. Eastlack, I think, 
testified, if I recall his testimony, the Reid's bottle is ery largely 
sold off wholesale routes where ?i driver getting ihe same wage m&y 
deliver 150 cases a day, Avherejss Borden's milk is sold largely oil 



CONCENTRATION OF ECONOMIC POWER 3013 

retail routes that may be only sell 30 cases a day. There is a very 
lar^e difference in the unit cost. 

Mr. Eastlack. That is correct. 

Mr. Montgomery. Speaking for the moment only of the Borden 
and Reid's milk that is sold through the store, the conclusion seems 
to be justified, does it not, that the Reid's milk is sold competitively 
and the Borden milk is sold by advertising. 

Mr. Montague. I wouldn't say that. 

Mr. Montgomery. Have you any explanation of why the consumer 
will pay more for the Borden than the Reid's milk? 

The Chairman. Perhaps the Reid company doesn't have any con- 
tented cows ! 

Mr. Montague. I have none for that. 

Mr. Montgomery. Mr. Montague, you said consumers wherever 
the Borden Co. does business have their choice as to whether they 
want tc buy milk with the full service, delivered at home, or whether 
they want to buy it through the store. Is the Borden milk, wherever 
it is sold through stores, sold through a lower delivered price than 
the home delivered price in the same city ? 

Mr. Montague. I would say that is generally true. 

Mr. Montgomery. Would you know in how many markets that is 
true, where you operate? 

Mr. Montague. I wouldn't attempt to guess. 

Mr. Montgomery. Do you know of any markets where it is not true, 
where you operate? 

Mr. Montague. It didn't used to be true in Milwaukee. Whether 
it is now or not, I don't know. The price was controlled by the 
State. Whether it is true in other places I don't know. 

The Chairman. You mean the State control board requii'e^ the 
dealer to sell the milk at the same price in the store as at homb? 

Mr. Montague. That is right. 

Mr. Montgomery. Where that is the case, has any representative 
of The Borden Co. in any instance you know of appeared before such 
a State control board and objected to such a requirement? 

Mr. Montague. Not that I know of. 

Mr. Montgomery. You don't know of any case where it was pro- 
tested, the requirement that you charge as much at the store as at 
home ? 

Mr. MoifTAGUE. Mr, Eastlack tells me he testified before the New 
Jersey Control Board on the 20th of April on that question. 

Mr. Montgomery. Is it, then, the policy of the Borden Co. to 
testify in favor of a store differential in the cities where you operate? 

Mr. Montague. I would think so. 

Mr. Montgomery. Do you know what you are charging for milk 
delivered to the homes in Kansas City, Mo., at the present time? 

Mr. Montague. No; I don't. \ 

Mr. Montgomery. Do you know what the store price is at that 
place? 

Mr. Montague. No. 

Mr. Montgomery. Do you know what the facts are in Columbus, 
Ohio? 

Mr. Montague. No. 

Mr. Montgomery. In both of those cities the April report of the 
Bureau of Agricultural Economics reports store prices at as high a 



3014 CONCENTRATION OF ECONOMIC POWER 

level as the delivered prices, although they also report that some 
people are selling at store prices of 1 cent less. Would you be able 
to find out whether your company is one that is selling at 1 cent less 
in the stores? 
Mr. Montague. I could find out very easily. 

EFFORTS TO INCREASE CONSUMPTION THROUGH DISCOUNT POLICY IN HOME 

DEUVERT 

Mr. Montgomery. You said you were selling to consumers or ex- 
perimenting with the sale of milk in 2-quart jugs. Is that through 
stores or on the wagon? 

Mr. Montague. It is off routes. 

Mr. Montgomery. How much saving to the consumer per quart is 
there on the 2-quart container? 

Mr. Montague. I can't tell you, because researches haven't gone far 
enough to determine it. 

Mr. Montgomery. I am asking you how much saving there is to the 
consumer buying from you. 

Mr. Montague. At the present time in the experimentation ? 

Mr. Montgomery, Yes. 

Mr. Montague. I think it is 2 cents. 

Mr. Montgomery. Two cents a quart less ? 

Mr. Montague. I think that is it, but that is purely an experimental 
research, Mr, Montgomery. We have no economic facts which might 
lead us to the conclusion that that could be ultimately justified. 

Mr. Montgomery. May I ask whether in any markets you give a 
quantity discount on deliveries to the home, to the customer who 
buys 2, 3, or 4 quarts a day ? 

Mr. Montague. I don't know of any now. 

Mr. Montgomery. Would it be your opinion that this labor cost, 
which you say is a controlling factor, would be less per quart when 
the driver leaves 3 or 4 quarts than when he leaves only 1 ? 

Mr. Montague. Of course, that is really our hope with the 2-quart 
container — that we cannot only get people to use more, but tliat we 
can get the driver to deliver more, thereby reducing the unit cost, 

Mr. Montgomery, Isn't there a reduction in cost now when he leave's 
three or four quart bottles instead of one quart bottle at the home? 

Mr. Montague. I think theoretically that night be argued, Mr. 
Montgomery. I have never seen any definite ngures on it. 

Mr. Montgomery, You are not making any experiment along that 
line, as to the possibilities of increasing the consumption of milk ? 

Mr. Montague, We are doing precisely that in this 2-quart package. 

Mr, Montgomery, That is the only experiment of that type; not a 
quantity discount on quarts delivered? You said your company con- 
trols less than 5 percent of the total milk produced in the country, and 
I think you gave the percentage of milk you control in the New York 
market as about 24 or 25 percent. 

Mr. Montague, As I recall, it was 24. 

percentage of mh^k and dairy products controlled by two major 
distributors 

Mr, Montgomery, What percentage of the home-delivered milk in 
New York City is handled thi-ough the Borden companies? 



CONCENTRATION OF ECONOMIC POWEli 3015 

Mr. Montague. That I can't tell you. 

Mr. Montgomery. Do you know what percentage is handled by the 
Borden and National Dairy Cos. combined on home-delivered milk in 
New York City? 

Mr. Montague. I have no accurate, figures on that. I think any 
figures would be pretty largely a guess, because of the large number 
of peddlers in New York. There must be 800 or a thousand at the 
last estimate, all of which have retail delivery, 

Mr. Montgomery. Have you seen Attorney General Bennett's re- 
port, which states 76 percent of the home-delivered milk is controlled 
by your company ? 

Mr. Montague. Yes; but I think he wholly disregarded the 
peddlers. 

Mr. Easi"l.\ck. He did not say 76 percent was controlled or dis- 
tributed by The Borden Co. 

Mr. Montgomery. The Borden and National Dairy Corp. 

Mr. Montague. He entirely disregarded, as I recall it, all of these 
thousand routes that are independently run. 

Mr. Montgomery. It has been testified before this committee that 
your company has 65 percent of the business in Madison, Wis. Is 
that figure correct? 

Mr. Montague. I think it is not presently correct. 

Mr. Montgomery. What is the percentage, Mr. Montague? 

Mr. Montague. As near as we can determine it, it is about 44, from 
the last available figures. 

jVlr. Montgomery. What proportion of the total cheese production 
in tlie United States is handled through the Borden companies? 

Mr. Montague. I don't know. I don't know what the total cheese 
production in the United States is. ' 

Mr. Montgomery. Mr. Montague, you bring the figure here that 
you handle only 5 percent of the total milk in order to support your 
contention that you aren't a monopoly or monopolistic, but don't have 
the knowledge of how much cheese you control. 

Mr. Montague, Well, Mr, Montgomery, as far as I know, the 
(irovernment report on total milk production is represented in those 
figures, I don't think it is broken down, is it? We took just the total. 
It would be a very simple thing to figure what our proportion of 
cheese is. It is not a substantial figure. 

Mr. Montgomery. Do you know what percentage of the ice cream ? 

Mr. JSIoNTAGUE. No: I don't. 

Mr. Montgomery. Do you know what percentage of the ice-cream 
business you have in any particular market? 

Mr. Montague. Well, they say--I have heard statements that we 
have had 20 percent of the ice-cream business in New York City, but 
I don't know that to be a fact. 

Mr. Montgomery. While we are on the subject of ice cream, you 
stated that products manufactured from surplus milk, coming from 
the fluid milkshed, yield no profit. Is that literally true of ice 
cream? 

Mr. IVfoNTAGUE. No ; it is not true of ice cream. What I mean there 
is, we could buy our requirements for ice cream entirely independent 
of any fluid-milk situation and buy them cheaper or just as cheai>— 
in my judgment, cheaper — than we get them through beiiig assp- 
ciated with the fluid-milk company. 

124191— 39— pt. 7 18 



3016 CONCENTRATION OF ECONOMIC POWER 

Mr. MoNTGOMEi{Y. Mr. Montague, the Consumers' Union in New- 
York, in Ma}' 1936. published reports of tests that it nu\de of 57 
samples of grade A and grade B milk of the Porden and the Na- 
tional Dairy Cos. in New York City. Are you familiar with that 
report ? 

Mr. Montague. No, sir; I ha^e never seen it, 

Mr. Montgomery. The report stated with respect to Borden grade 
A milk that the average butterfat content of tlie sample -selected 
was 3.7 percent, and of the Borden grade B milk tested 3.5 percent; 
that the bacteria count of both grades of milk was very low and 
better than the requirement, and that the difference in retail was 3 
cents a quart. Do you have any reason to dispute the findings of that 
organization? 

Mr. Montague. Are they both pasteurized milk? 

Mr. Montgomery. Yes. 

Mr. Montague. Well, I don't know whether the figures were taken 
reliably or not, Mr. Montgomery; not ever having seen that report, 
it is pretty hard to identify it as being a correct one. 

]\Ir. Montgomery. You wouldn't be prepared to say they were 
incorrect. 

Mr. Montague. I wouldn't be prepared to say they were correct oi* 
incorrect. 

Mr. Montgomery. You have referred several times to the small size 
of the profits per quart received by your stockholders. Are you 
ablcj to advise the committee what has been in recent years the rate 
of earnings on the investments in your companies and how much 
appreciation of assets above cost is included in that investment? 

Mr. Montague. Well, now as to the investment, Mr. Montgomery. 
I can't tell you a historical cost of our balance sheet. I do know 
this; In 1935, I think, or '34, we made an appraisal of our proper- 
ties then in use and wrote off against a capital surplus created. I 
think it was, $23,000,000 out of our plant accounts, so as to be ex- 
tremely certain that our present plant valuations were in no way 
whatsoever enlarged by the period of '20 to '29. Does that answer 
your question ? 

Mr. Montgomery. No ; I was interested in what is the rate of return 
on your investment less depreciation. 

Mr. Montague. Well, let's see. We made last year $6,600,000, 
which included nearly one-half a million dollars from income from in- 
vestments. I also included a very substantial earning in foreign 
countries, where our asset valuation is very low. Our total assets at 
the end of last year were $122,000,000, with goodwill, patents, and all 
figured at $1 ; so, including the return on investments, the return in 
foreign countries, which was verv substantial, the return was in that 
relationship of $6,600,000 to $122,000,000. 

Mr. Montgomery. You have testified as to the increase in the num- 
ber of pasteurizing plants in various markets. Isn't it possible that 
the increase in competitors in the markets where you operate indi- 
cates an attractive profit opportunity to people? 

Mr. Montague. Well, I think it' has indicated this — that where 
people could go in and buy under the class 1 price the profits were 
very attractive. They were very attractive, no question about that. 
To anybody who could go in and buy at very much less than the class 
1 price, they were Very attractive. 



CONCEiXTKATION OF ECONOMIC POWER 3017 

Mr. Montgomery. You said that only companies that did not pay 
the classified price are irresponsible companies. 

Mr. Montague. I didn't use the word "irresponsible." 

Mr. Montgomery, I think you referred to people doing that as 
^'irresponsible." 

Mr. Montague. Did I? 

Mr. Montgomery. Well, nevertheless, in addition to the cases re- 
ferred to by Mr. Eallinger in his question, there are reports in the 
Federal Trade Commission's publications of instances in Avhich large 
companies, it says, were not paying the classified price on the Con- 
jiecticut market. Now, as I undei-stand it, the employees of the Fed- 
eral Trade Commission are prohibited by law from identifying the 
companies referred to in that Connecticut report, but I don't think 
you would be prohibited from identifying them if one of the com- 
nanies is yours. Do you know if one of the companies referred to in 
here is The Borden Co. ? 

Mr. Montague. I said to Mr. Ballinger I haven't read the report 
he referred to. 

Mr. Montgomery. It was published in 1936. 

Mr. Montague. That is, I have no recollection of it. 

The Chairman. Are there any other questions? 

I am sorry ; I have to go to the Senate. That last buzz was a sum- 
mons to vote. 

(Mr. Ferguson assumed the Chair.) 

Mr. O'CoNNELL. Mr. Montague, I should like to ask one question 
which was occasioned by my reading the latter portion of your brief. 
It may have been covered before, but if so, I didn't understand it. 
That is, the portion of your conclusion which feels that one of the most 
important things to be done in the industry is to establish and main- 
tain a sound relation between the price paid to the farmer for milk 
^vhich is used for fluid consumption and the price paid for milk used in 
inanufacture. 

Would it be fair to say it is your belief that a complete absence 
of either State or Federal legislation plus a reduction in, let us 
aay, the bargaining power of the producers' organizations, would 
?:fnable The Borden Co. and other distributors to bring about the sound 
relationship to which you referred? 

Mr. Montague. It is very difficult for me to get that question. You 
ask me if all the present controls that are in are eliminated — and 
what was the rest of it? 

Mr. O'CoNNELL. As I read your report or your conclusion, it seemed 
to me it was your opinion that in the elimination of governmental 
control or price fising, either State or Federal, j)lus the elimination 
of the abuse of the power of collective bargaining of cooperatives 
and other producer organizations, would enable the distributors, 
Borden's and other companies, to bring about the sound relationship > 
to which you refer? 

Mr. Montague. Well, I think a sounder relationship would 
i'aturally occur if the artificial factors, all the artificial factors 

Mr. O'CoNNELL (interposing). But I gather those were the two 
artificial factors that you seem to think, if eliminated, would bring 
Hbout it, 

Mr. Montague. The abuses of those two factors are the things to 
which I refer. 



3018 CONCENTRATTf)N OF ECONOMIC 1m:)\\EU 

Mr, O'CoNNEL-L, But at least you would have a complete elimina- 
tion of all governmental price fixing, either State or Federal, because 
I take it you say there is no positive justificatiq,u for governmental 
price fixing, so you would eliminate governmental price fixhig. 

Mr. Montague. I say there wouldn't be any reason for it if that 
was done, if these other factors were taken care of. 

Mr. O'CoNNELL. But the other factor to which you refer is the 
abuse of power by producers' organizations. Wouldn't it be fair 
to say that that would be eliminated by the reduction in power? 

Mr. Montague. That isn't Avhat I am getting at there entirely; it 
is when you have such a liigli -class price, regardless of how" it is 
secured, the impossibility of enforcement of that high-class price just 
tends to tear the whole" situation down. Now, if the class price is 
more in relationship, there is just thnt mucli less far to go when you 
get down to the manufacturing levels. 

Mr. O'CoNNELL. But the relationship that you want to bring about 
must be brought about by virtue of some sort of a bargaining between 
the producers and the distributors. Isn't that so? In the absence 
of any governmental 

Mr. Montague (interposing). I think it would come by bargaining. 

Mr. O'Connell. So wouldn't it be fair to say that the establish- 
ment and maintenance of the sound relationship which you are talk-' 
ing of but which apparently does not exist today could be brought 
about in your opinion if the bargaining power of the producers was 
reduced? 

I mean, I take it that the sound relationship does not exist and 
that you feel in the absence of any Govermnent control that the pro* 
ducei-s or the distributors could bring about that sound relationship 
to which you refer, if the bargaining power of the producers was 
restricted or reduced. 

Mr. Montague, Yes; if tlie "producers recognized it. I think even- 
tually they would. I think the producers over a long period of 
time could be educated to recognize the fallacy of such a high class 1 
price. As a matter of fact, I think there are some farm leaders right 
at the present time advocating that \(iry thing. 

Mr. O'Connell I see. And you think that if that proper and 
sound relaionship were brouglit about it would result in a reduction 
in the price of fluid milk to the consumer ? 

Mr. Montague. I think it would result in. a reduction in the price 
to the consumer and I think there wouldn't be this excessive high 
class 1 price. 

Mr. O'CoK-NELL. You start wnth eliminating the high class 1 price 

Mr. Montague You go right back to thn point I tried to make that 
the price of milk is so largely dependent upon two things, the price 
that the farmer gets and the labor; that natui-ally. if the i)rice of 
fluid milk goes doAvn, the price to, the consmner ih going to go down. 

Mr. O'CoTSTNELL, Yes : Well now the final analysis in the absence of 
Government control as to excessive laboi costs or price fixing, it i^ 
essentially a matter of bargaining betw^een the producei"s and tiie 
distributors and you feel that wdth the eliminai ion of these abuses 
to which you refer, one of which would be Government price fixing, 
that you would be enabled to better bargain botli with producers and 
labor. • ■ 



COXCEN'IUIATION OF i:CONOMIC POWER 3019 

Mr, ]\roNTAGUE. Uiifler-Governraeiit price fixing Ave don't have any 
bargaining power at all. 

Mr. O'CoNNELL. 1 am assuming — f am going along with your idea 
of eliminating the Government, of not having Government price fix- 
ing, I am trying to see how, if I understand you correctly, you be- 
lieve this thing would work out, if it were followed out along the 
lines of your conclusions. I had a little difficulty 'in seeing just how 
it would work. You don't believe we should have Government 

5 trices. You believe the power of producers' cooperatives, and so 
"orth, is too great; you thiak the power of labor unions is too great, 
so it must be that you believe that by a restriction in those two powers 
the distributors would be enabled to bring about the sound relation- 
ship betAveen the price of lluid milk to the producer and 

Mr. MoNTAGTJL (interposing). I think the very competitive condi- 
tions in the market would bring it about. 

Mr. O'CoNNELL, But you have competitive conditions in the market 
now, do you not? 

Mr. Montague, I say the abuse of these two things, not the power 
of them but the abuse of these two things, is what has caused present 
high prices, 

Mr. O'CoNNELL. Yes. 

Mr. Montague. I think it naturally follows that, without the exer- 
cise of what in my judgment is that abuse, the prices would be lower. 
I think that necessarily follows. 

Mr. 0'CoNNEi.L. How do you think the abuses should be removed; 
by a slow process of education ? 

Mr. Montague. I think the force of public opinion is a pretty potent 
factor. 

Mr. O'CoNNELL. It hasn't operated yet, I take it. 

Mr. Montague. Tliat is right, 

Mr, O'CoNNELL. But you think it Avill. 

Mr. Montague. I can be hopeful. 

Mr. O'CoNNELL. I take it that is your solution, 

Mr, Montague. As I tried to point out to Senator O'Mahoney, Gov- 
ernment price control has so far been quite ineffective, and there has 
been so much abuse of it. 

Mr. O'Connell. Don't misunderstand me ; I was not attempting to 
argue with price fixing. I was trying to find out what you were in 
favor of. My general impression was that we hadn't had a very great 
deal of experience in Government price fixing. 

Mr. Montague. We have liad ,5 years of experience. We have been 
through a period of trial and error, perhaps. 

Mr. O'CoNNELL. My inu^^ression is most of that period was pretty 
much a period of litigation rather than price fixing. 

Mr. Montaglts. That is quite correct. 

Mr. O'Connell. I luean if we hadn't had that we might have a 
better record upoii which to detei-niine whether it Avould be a success. 

Mr. Montagut:. That might be true, but when there is a great incen- 
tive, when you have rliafc great incentive to do tliose things, you are 
bound to have those leirai troubles, I think. 

Mr. O'Connell. Yes: that is a littje more theoretical than woidd bo 
the fact if we had 5 years of actual experience. Isn't that also true? 



3020 CONCENTRATION OF ECONOMIC POWER 

Mr. Montague. I presume if all the legal elements had been already 
adjudicated, that undoubtedly our experience would be more clarified 
than it is at the present time. 

Mr. O'CoNNELL. Why do you suppose the pressure came about 
which resulted in the experiments that we have had in Government 
price fixing? Was the situation worse before the 5-year period that 
you speak of? 

Mr. Montague. The situation was very bad. I don't know that 
they would have gotten any worse. That is a pure guess on my part. 

1 think the emotion at the moment brings on those things to people 
in desperation ; or prices sink so low that they turn to these things, 
which don't prove to be quite lis effective as they originally hoped 
they would be. 

Mr. O'CoNNELL. You probably think that we would be as well or 
better off had those experiments not taken place? The situation 
would naturally have readjusted itself, you believe? I mean I take 
it the situation was very bad. 

Mr. Montague. Yes f that would be mere conjecture on my part; 
it would be just guessing whether it would or wouldn't. 

Mr. O'CoNNELL. What you are substantially proposing is to go 
back and see. 

Mr. Montague. Substantially that. I can't get away from this 
fundamental thing that I have in my mind, that these prices have 
been too high, the relationship between them — maybe not that the 
prices have "been too high but that the difference has been t<"/0 great. 
In other words, we have tried to make class 1 prices stay at the same 
level, or very near the same level, maybe not exactly, as maybe what 
butter was in '28 or '29 at the height of an industrial prosperity. It 
is the relationship I am talking about, not the price. 

Mr. O'CoNNELL. I was just trying to clarify in my own mind how 
we were going to bring about or how you are going to bring about 
the proper relationship. 
• Mr. Montague. I don't think we would have any trouble with the 
class 1 price of $2.45 — I don't think it would have brought the diffi- 
culties, a class price of $2.45 in New York, if the price of butter had 
been 45 cents a pound. 

Mr. O'CoNNELL. You wouldn't think that rather than attempt to 
reduce the class 1 price to bring it more in line with the class 2 
price that it might have been advisable to consider raising the class 

2 price. You can't do that ? 

Mr. Montague. If you could raise the whole dairy level — butter 
and all dairy product prices — where that would create that proper 
relationship, why that is just exactly what, in my judgment, you 
had existing 10 years ago; you did have a better relationship. I 
prefer to talk about relationship instead of abstract price of class 1 
and the price of butter. 

Mr. O'CoNNELL. If we go back to the conditions of 5 or 10 years 
ago and some way or other achieve the sound relationshij) that you 
speak of, would it in all probability be as a result of a substantial 
reduction in the class 1 price or an increase in the class 2 price, or 
both? 

Mr. Montague. I think temporarily while you have this tremen- 
dous dairy production in the whole United States, that it would 
probably be lowering of the class 1 price. 



CO-NCEXTKATION OF I^CONOMIC POWER 3021 

Mr. O'CoNNELL. I take it there is no sign of diminution of the 
tremendous amount of milk. 

Mr. Montague. If j-ou have such a demand hi this country for 
butter or cheese that it ^vould produce a 45-cent price, I don't "think 
you would have very much trouble with those prices. That is the 
relationship that I am talking about there. 

Mr. O'CoNNELL. Thank you very much. 

Mr, Montague. I don't know whether I have gotten it across. 

(Senator O'Mahoney resumed the chair.) 

Dr. Howe, Mr, Montague, you keep very accurate accounting sys- 
tems in your plant, do you not ? 

Mr. Montague, I presume we do. 

Dr, Howe, You have the cost of product ready for delivery? 

Mr, Montague, No; I don't think we keep any cost, do we, Joe, 
as to a unit? We keep costs on a hundred pounds, or things of that 
kind. 

Dr, Howe. Let's have any kind of a unit that you want. You 
probably read the testimony of Mr. Johnson as to his plant cost in 
Detroit, Are the plants of the Borden as efficient or less efficient 
than that of Mr, Johnson, would you say ? Mr. Johnson said it was a 
cent a quart, didn't he ? 

Mr, Montague. He said his production-plant cost with 4l^ million 
quarts was half a cent a quart. 

Dr, Howe. I don't know what he included in that plant cost. 

Mr, Montague. He included all of his plant cost, ready to put them 
into the store — that is, receiving, heating, cooling, bottling — not in- 
cluding the cost of the bottle. Different classifications of cost, 
Dr. Hower, are different v/ith different companies. I think that is 
a lower cost than generally can be done. 

Dr, Howe, How much lower ? 

Mr, Eastlack. I am not quite sure the cost is indicated. What is 
the figure indicated? 

Dr, Howe. Half a cent a quart. 

Mr. Eastlack. As a total cost of plant operations ? 

Dr. Howe. Total cost of pasteurization and bottling, but not in- 
cluding the bottle cost. 

Mr. Eastlack. Including the receiving of -milk from farmers? 

Dr. Howe. We are taking the farmer's price, let's say, at 6 cents, 
delivered at the platform. After that there is a cost between that 
platform and the second platform. What is that cost? 

Mr. Eastlack. Well, it would make a great deal of difference. Dr. 
Howe, as to how this market is organized. 

Dr. Howe. Would you say that Mr. Johnson's quoted cost was 
high or low ? 

Mr. Eastlack. It would depend on what type of operation Mr. 
Johnson has. 

Dr. Howe. Exclusively pasteurization? 

Mr. Eastlack. Well, if it covers only the cost of pasteurization, it 
is tremendously high. 

Dr. Howe. A half cent a quart is tremendously high? 

Mr. Eastlack. For the cost of pasteurization. 

Dr. Howe. And putting it into the bottle? 

Mr. Eastlack. That is another item. 



3022 CONCENTRATION OF ECONOMIC POWER 

Dr. Howe. Putting it in the bottle on tlue wholesale platform. Is 
a half-cent enough? 

Mr. Eastlack. I have never been in Detroit but once and that was 
a long time before he was in operation. 

Dr. Howe. How about your own plant; how does the cost run? 

Mr. Eastlack. We have plants, city plants, and every plant is a 
different operation; it receives its milk in a different way; it has a 
different volume; all those things make or have a tremendous effect 
on cost. In New York City we have plants that operate for as little 
as half a cent or less than a cent; we have other plants that operate at 
a higher cost. 

Dr. Howe. But they all operate proximatelj^ under a cent a quart. 

Mr. Eastlack. I would think any city-plant operation is under a 
cent a quart. 

Dr. Howe. The New York State reports of 1934 covering, I think, 
84.000,000 quarts of milk, show that the cost was 8 mills a quart. 

Mr. Easti^ck. As an average that might be — I would be inclined 
to think it would be quite comparable. 

Dr. Howe. So that exclusive of the cost of a bottle you can lay 
milk on the platform ready to be taken away by buyers at the cost 
of the farmer, which is, say, 6, plus from a lialf a cent to 1 cent, 
]naking a total of frt^m 6I/2 to 7 cents wholesale price for milk? 

Mr. Easixack. Well, if I follow your statement correctly, Dr. 
Howe, you are presupposing that milk is delivered to a city plant at 
a net cost of 6 cents per quart? 

Dr. Howe. Correct. 

Mr. Eastlack. And that the cost of operating that plant and put- 
ting the milk in cases on the platform available for trucks to haul 
away would not be in excess of a cent and a half above that ? 

Dr. Howe. A cent. 

Mr. Eastlack. For most plants Avith reasonable volume I think 
that is practical. 

Dr. Howe. So that in the high milksheds where you pay the maxi- 
mum for milk, that is, 6 cents a quart, milk ought to be available to 
buyers at 7 cents a quart ? 

Mr. Eastlack. If they want to carry it away in truckloacls and 
cases ; yes, sir. 

Dr. Howe. Is tliere any reason why in a free competitive country 
])eople should not be permitted to come to a wholesale plant and buy 
milk for 7 cents or 6 cents a quart, and distribute it in any way they 
see fit, or consume it in any way they see fit? 

Mr. Eastlack. I haven't stated at any time that if anybody wanted 
to operate that way I had any objection to it. 

Dr. Howe. Will The Borden Co. sell milk at wholesale to any 
buyer or to a relief administration at 7 cents a quart or 6 icents a 
quart, whatever the farm price, plus the pasteurization costs? 

Mr. Eastlack. I haven't at any time known of any customers that 
sought to buy milk of us in that way and therefore 

Dr. Howe! Supposing the relief administration came to you in 
New York as a very large buyer of milk and could save possibly 
millions of dollars a year, if it laought at wholesale, what would you 
.sell it to them for? 



CONCENTKATION OF ECONOMIC POWER 3023 

Mr. Eastlack. We would entertain a request from anybody that is 
ready to buy a million quarts of milk delivered at the plant at 1 cent 
a quart above the cost of raw milk delivered. 

Dr. Howe. You will. Up to January 1 last the retail price in New 
York of class A milk was I6i/^ cents a quart, was it not ? 

Mr. Eastlack. Well, I presume. Dr. Howe, you are referring to 
grade A milk. 

Dr. Howe. Grade A milk. 

Mr. Eastlack. There are terms in the milk business we had better 
try to keep straight. 

Dr. Howe. Grade A milk. 

Mr. Eastlack. Sixteen and three-quarters. 

Dr. Howe. Assuming milk can be produced at wholesale for 7 
cents there was a spread in there of not quite 10 cents between the 
wholesale production cost and the ultimate price which the consumer 
paid. 

Mr. Eastlack. I can't agree to your assumption, Dr. Howe. You 
are talking about grade A milk? 

Dr. Howe. Grade A milk; yes, sir. 

Mr. Eastlack. Grade A milk carries a further cost in comiection 
with the method by which it is bought from the farms of about 2i^ 
cents a quart. 

Dr. Howe. But don't pay more than 6 cents base per grade A milk ? 

Mr. Eastlack. I don't knpw what we paid at that time. 

Dr. Howe. It was $2.46, I believe. Now we were talking this 
morning to Mr. Montague. 

Mr. Eastlack. Dr. Howe, that was not the- cost of grade A milk, 
$2.45 a hundred was a class 1 price to which were added substantial 
premiums for grade A milk, both for butterfat and bacteria count. 

Dr. Howe. Well we just had some testimony as to the slight' dif- 
ference between grade A and grade,. B milk. It was almost negli- 
gible. '■ 

Mr. Eastlack. W^ell, of course, perhaps we had better explore the 
difference between grade A and grade B milk before we can make 
any broad assumption. 

Dr. Howe. It is grade A milk that is delivered in bottles at 16% 
c€nts and there is a spread in there nearly of 10 cents. Mr. Montague 
says that the excess cost of milk to the consumer is the farmer's price 
and the weighing price. That being true, and in view of Mr. Mon- 
tague's statement that he desires to deliver as much milk and sell as 
much milk as possible, isn't the thing to do to deliver milk at whole- 
sale plus a reasonable profit, not a tenth of a cent a quart, but take a 
half a cent a quart, deliver as much milk as possible to your stores, 
your merchants, for 7 cents plus a reasonable profit and let them 
distribute it in any way they see fit ? 

Mr. Eastlack. Well, we deliver about 45 percent of the milk that 
we sell in New York City to stores. 

Dr. Howe. But you don't sell it at that price? 

Mr. Eastlack. We sell it at as low a price as we can sell it and 
cover cost of operation. 

Dr. Howe. And so far as you can do so you require stores to sell 
at the same price across the counter that you sell the same milk on 
wagons ? 



3024 CONCENTRATION OF ECONOMIC POWER 

Mr, Eastlack. Well, Dr. Howe, have yon been in New York City 
recently ? 

Dr. Howe. In a country-wide way tliat is true, is it not ? 

Mr. Eastlack. Certainly not true of New Yorli City. 

Dr. Howe. That was true up to the time of the break in the Federal- 
State agreement? 

Mr. Eastlack. It certainly was not. Milk was being sold to the 
public from stores in the city of New York as low as T^/^ and 8 cents 
a quart at the time of the retail price. 

Dr. Howe. For how long a period ? 

Mr. Eastlack. Well, my memory is not quite as long as it might be, 
but ever since I can remember. 

Dr. Howe. Well, as a general thing in a country-wide way, if the 
statement of Mr. Montague is to be taken at its worth, why wouldn't 
it be good business from every point of view to pay the farmer this 
adequate price, make a reasonable charge for your heating and cooling 
of the milk and permit distribution to take any form it saw fit. just 
as other commodities find their own outlets through a great ma] y 
different channels? 

Mr. Eastlack. That is exactly what we are for, Dr. Howe. We will 
sell milk in paper bags, rubber bags, in any way it can be given to the 
consumer in good quality and through whatever channels the consumer 
wants it. 

Dr. Howe. Except that you insist on fixing the price ? 

Mr. Eastlack. Well, customarily when anybody sells, whether it 
be bananas or peas or popcorn or milk; the seller is a part of the 
process of fixing the price. We don't propose the seller has nothing 
to say about the price at which his product is sold. 

Dr. Howe. No, I don't; but under competitive conditions, competi- 
tion fixes that price ? 

Mr. Eastlack. That is right. 

Dr. Howe. In New York City 90 percent of the milk, according to 
the attorney general, is controlled by your- company, by the National 
Dairy Products, and four other corporations, which make it relatively 
easy to fix the price ? 

Mr. Eastlack. Unfortunately the attorney general of the State of 
New York is not here at the moment, but if he made any such state- 
ment he was misinformed. 

The Chairman. Are there any other questions? Mr. Montague, do 
you care to make any further statement ? 

Mr. Montague. No, Senator ; I think I have completed my presenta- 
tion. 

The Chairman. Mr. Eastlack, do you care to add anything to what 
has been said ? 

Mr. Eastlack. I would like the record to show the attorney general 
did not say Borden and National Dairy Products controlled 90 per- 
cent of the milk products in New York City retail only, and those 
figures fail to take into account that the complete facts of the mar- 
ket — — 

Dr. Howe. It was a report to the Governor of New York, a very 
lengthy report. 

Mr. Eastlack. There are at least a thousand peddler routes in New 
York City that were never included in Attorney Bennett's survey, and 



CONCENTRATION OF ECONOMIC POWER 3025 

they all peddle milk from house to house and are therefore door-to- 
door delivery. 

The Chairman. Any other statement ? We are sorry to have kept 
you here so late, gentlemen, but we desired to finish your statement or 
testimony this afternoon. And we are very grateful for your pres- 
entation and thank you for your patience with the committee and 
the staff. 

The committee will stand in recess until tomorrow morning at 10 
o'clock, when Mr. Mclnnerney ^ will be good enough to take the 
stand. 

(Whereupon at 5 : 58 p. m. an adjournment was taken until 10 a. m. 
Wednesday.) 

* President, National Dairy Products Corporation. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



WEDNESDAY, MAY 3, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10 : 25 a. m., pursuant to adjournment on 
Tuesday, May 2, 1939, in the Caucus Room, Senate Office Building, 
Senator Joseph O'Mahoney, chairman of the committee, presiding. 

Present: Senators O'Mahoney (ciiairman) and King; Representa- 
tives Sumners (vice chairman), Reece, and Williams; Messrs. Hen- 
derson; Ferguson; O'Connell; and Patterson. 

Present also: Willis Ballinger, director of studies and economic 
adviser to the Federal Trade Commission; G. C. Gamble, chief of 
T. N. E. C. studies for the Federal Trade Commission; Andrew 
Tackett and R. A. Putzier, attorney examiners; Wilbur Baugh- 
man, attorney, and Kemper Simpson, economist, Federal Trade 
Commission. 

The Chairman. The committee will please come to order. The 
secretary of the committee has handed me this morning the text of 
several que'stionnaires which have been issued from time to time by 
the various agencies. It is deemed advisable that they should be 
filed with the committee records, not for printing, however, and there 
is also included a memorandum on big business, prepared by the 
Twentieth Century Fund, the text of which was requested by the 
committee. 

(The questionnaires referred to were marked "Exhibit No. 454": 
the memorandum referred to was marked "Exhibit No. 455"; and 
both are on file with the committee. ) 

The committee this morning will hear Mr. Mclnnerney at his 
request. 

The Chairman. Mr, Mclnnerney, do you solemnly swear, in the 
testimony you are about to give, to tell the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. McInnerney. I do. 

TESTIMONY OF THOMAS H. McINNERNEY, PRESIDENT, NATIONAL 
DAIRY PRODUCTS CORPORATION, NEW YORK CITY 

Mr. McInnerney. Mr. Chairman, it has been my expectation to 
ask you to allow me to read the statement that we gave you a copy of. 

The Chairman. Inasmuch as that was done yesterday with Mr. 
Montague 

Mr. McInnerney. I would like to offer a copy of the statement for 
you with your records, if you will accept it, please. 

3027 



3028 CONCENTRATION OF ECONOMIC POWER 

The Chairman. It will go into the record as you read it. 

Mr, McInnerney. Now. with reference to that, I have taiieii that 
statement, Mr. Chairman, and cnt out a good deal of it, but I would 
like to read from those passages I have marked; and I have here 
Mr. Bromley, our statistician, oi economist, who will explain the 
charts as I go along. That, it seems to me, will expedite the thing. 

CONTRIBUTIONS TO THE DAIRY INDUSTRY CLAUMED BY NATIONAL DAIRY 
PRODUCTS CORPORATION 

]Mr, McInnerney. Speaking for our company, I am confident that 
I can demonstrate that there is not and caimot be a monopoly in milk 
distribution ; that the profits in our business are moderate. We are an 
up to date, progressive salesman of milk, which is the major product 
of the American farms. 

We have developed a confidence in the quality of milk, ice cream, 
cheese, and other products, which has kept the farmers' income from 
milk above the level of income from other agricultural products. We 
have advised with and aided farmers in improving the quality of their 
milk, thereby increasing their income. We have made fresh, nutri- 
tious milk available daily, irrespective of Aveather conditions, at the 
doorsteps of the homes of millions of i)eople, thereby increasing the 
consumption of milk and improving the health of infants and adults 
alike. 

By paying high wages and providing regular employment W'.» have 
enabled our employees to enjoy a high standard of living. Through 
developing and maintaining over 100 laboratories we have materially 
improved the high quality of our product. Our improvements in the 
technique of manufacturing and packaging cheese are in large measure 
responsible for the fact that per capita cheese consumption has nearly 
doubled in this country in the last 25 years. 

The success of our Kraft-Phenix Co. in perfecting processed 
cheeses of superior keeping quality, suitably packaged in convenient 
containers to meet the desires of the American public, was chiefly 
responsible for this increase in popularity. Cheese is no longer har- 
nessed to old-fashioned cracker-barrel methods of merchandising; 
cheese consumption showed ]>ractically no decline during the depres- 
sion of the 30's, and is today at its all-time peak. This growth in 
the use of cheese and ice cream has increased the market for the 
farmers' milk production. 

The increase in ice cream and cheese consumption since 1925 has 
provided a market for the production of 1.000,000 additional milk 
cows. Today cheese is being produced in the deep South, where liairy- 
ing was scarcely considered practical a few years ago. In the South 
Central States, for instance, there has been a 23-percent increase in 
the number of milk cows on farms in the last 10 years, compared with 
an increase of 13 percent for the rest of the Nation. 

This grow-th in dairying has increased the purchasing power of the 
southern farms. We have further increased the farmers' milk market 
by developing through research new commercial uses for milk. For 
example, we have collaborated with other food industries, notably the 
baking industry, who have made a greater use of milk in their Bread 
formulas. As a result the loaf of bread the public buys today is of 
nnich more nutritiAc food value than the loaf of 10 years ago. 



CONCENTRATION OF ECONOMIC POWBil 3029 

The Chairman. Mr, Mclnnerney, may I interrupt you? The lan- 
<:juage which is used in these two paragraphs mi^ht leave the infer- 
ence in undiscriminating minds tliat National Dairy Products Corp. 
claimed credit for develo])ing a market for the farmers' milk through 
research and also claimed credit for increased consumption of cheese 
and ice cream providing a market for the production of a million 
additional milk cows. Do you mean to give the second inference? 

Mr. ]McInnerney. Yes. I don't want to say we alone, but we have 
done more in developing that consumption of ice cream and cheese 
than any other company. 

The Chairman. And is it your position that if it had not been for 
the National Dairy Co. this consumption of cheese and ice cream 
would not have taken place, this increase? 

Mr. McInnerney. I don't think I coidd claim that for National 
Dairy. That could be applied to the Kraft-Phenix Cheese Co., 
which is one of our subsidiaries. They started on that road before 
they became a part of our company. 

The Chairman. Did they cause the increase in consumption or 
did they take advantage of the increasing demand, the national de- 
mand ? 

Mr. McInnerney. I think, Senator, they caused the increased con- 
sumption. Really, I believe that that is true. 

The Chairman. Pardon me for interrupting. 

Mr. McInnerney. We are currently devoting much time, effort, 
and money in attempting to find wider uses for skim milk and whey. 
Our promotion of processed skim-milk products for animal feeds is 
steadily increasing the outlet for the product in this field. We have 
also helped pave the way for wider use of skim milk and whey de- 
rived byproducts in the pharmaceutical, plastic, confectionery, dye- 
ing, leather tanning, paper, paint, and other industrial fields. 

We have been able to accomplish these results and still sell our 
products at low prices to the consumer. 

Chart 1 shows the small size of our earnings in relation to sales. 

Mr. Bromley,^ This chart, gentlemen, shows the trend of National 
Dairy's total sales, the top line here; the solid portion of the chart 
shows our earnings graphically presented in relation to the size of 
our sales; the lower left-hand portion of the chart shows the number 
of quarts of milk on the average that the National Dairy had to 
process and sell in the form of fluid milk and butter, cheese, evapo- 
rated milk, and other forms of dairy products to make a dollar of 
profit. 

Our profit is somewhat overstated in this chart, as Ave have divided 
our aggregate net profit by the total amount of milk equivalent, which 
we have sold in one form or another. 

The significant part of the thing is the trend in our profits per 
quart of milk equivalent. The lower left-hand or right-hand corner 
of the chart shows the relationship of our profits per dollar of sales, 
7 cents in 1930, at the current time about 3l^ cents — 3.4 cents. 

Mr. McInnerney. I offer this, Mr. Chairman, as a copy of the chart. 

(The chart referred to was marked "Exhibit No. 456" and is included 
in the appendix on p. 3260.) 

The Chairman. It may be received. 

1 Mr. O. B. Bromley, economist for National Dairy Products Corporation, described the 
charts presented by Mr. McInnerney during his testimony. 



3030 CONCENTRATION OF ECONOMIC POWER 

Mr. McInnerney. The large volume of our business permits as to 
offer it at a very low margin of profit. For instance, as chart 2^ 
shows, if a person were to buy all the milk, cream, ice cream, cheese, 
butter, and canned milk he uses in an entire year from us, we would 
make less than 75 cents, one-fifth of a cent per day, on his entire 
annual consumption of dairy products. 

Mr. Bromley. The top portion of the chart, gentlemen^ is repre- 
sentative of the amount of milk and dairy products the average 
consumer in the United States eats in a year, in accordance with the 
estimates of the Department of Agriculture. Were a consumer to 
purchase all of these products from subsidiaries of the National Dairy, 
our profit on his purchases would be about 75 cents a year. These 
purchases are 152 quarts of milk, 17 cans of evaporated milk, 17 pounds 
of butter, 5% pounds of cheese, and 65 servings of ice cream. . Those 
are the approximate amounts that. are consumed. 

The lower portion of the chart shows what our profits would be 
per cow were National Dairy divisions to buy, process, and sell this 
cow's production in accordance with the average usage of milk in 
this country. Profit comes to about $4.50 a year, or ly^ cents per day. 

The Chairman. Isn't the significance of that chart simply that by 
obtaining a large volume of business — a large turn-over — ^you may be 
content with a very small profit ? Naturally, if you multiply a half a 
cent or a quarter of a cent by enough customers, you are bound to 
have a large profit. Does it answer the question as to what advantage 
the consumer might have if, instead of a few large organizations 
handling a very large proportion of the milk business, we had a large 
number of smaller organizations handling the same business? 

Mr. McInnerney. Well, this chart seems to me to prove that, not- 
withstanding our size, or because of our size, we are able to do a 
business at a very low margin of profit. 

The Chairman. I think it establishes that. You are content to 
do your business at a very small margin of profit, but it does not 
prove that the costs of your business are as low as they might be, 

Mr. McInnerney. We will come to that. 

The Chairman. All right. 

Mr. McInnerney. I think you are quite right. It may be that 
our costs are too high, or if they weren't so high we would make a 
little more money. 

The Chairman. And if your costs weren't so high perhaps milk 
would be cheaper to the consumer. 

Mr. McInnerney. After all, it has to stand the tariff, whatever 
it is. 

Mr. Chairman, I offer this chart. 

(The chart referred to was marked "Exhibit No. 457" and is in- 
cluded in the appendix on p. 3261.) 

• Mr. McInnerney. Neither has National Dairy's research and 
product improvement been carried on at the expense of the farmer. 
Our profits in 1938 amounted to only IV5 cents per day, per cow, as 
set forth in chart 2. This is certainly a small return for the services 
we perform. National Dairy compames pay as high prices for milk 
as are paid in any of the markets in which we operate. 

> Referrine to "Exhibit No. 457." 



CONCENTRATION OF ECONOMIC POWER 3031 

Our field men and veterinarians constantly assist our farmers 
to. produce better quality milk. Many of our companies pay pre- 
miums for better than average quality. Sheffield Farms Co., New 
York, alone employs 20 field men and veterinarians, and last year paid 
its farmers over $1,100,000 in quality premiums. 

National Dairy has always paid one of the highest annual wages 
prevailing in any industry. We have also given our employees a 
greater than average measure of job security and continuous em- 
ployment; Our record, set forth in chart 3, shows these facts clearly. 
Our employees have good working conditions; practically all enjoy 
vacations with pay and group sickness, accident, and life insurance. 
Our safety program has reduced auto and plant accidents materially. 

NATIONAL dairy's WAGE AND EMPLOYMENT RECORD 

Mr. Bromley. The chart, gentlemen, contrasts the average wage 
paid by all of National Dairy divisions with the average wage re- 
ceived by employees in 25 other industries of the country. The top 
line indicates National Dairies' average wage; the dotted hne, that 
of the 25 other industries. The difference in favor of National Dair- 
ies' wage — that is, National Dairies' wage has exceeded this other 
average by, I think, from around $6 a week to $12 or $14 a week, 
varying depending on the year. 

The Chairman. What are these other major industries, Mr. Mcln- 
•nerney ? 

Mr. McInnerney. Well, iwe have the chart there showing what 
they are. 

Mr. Bromley. May I read them, Mr. Chairman? 

The Chairman. I will be glad to have you do that. 

Mr. Bromley. Agricultural implement, automobile, boot and shoe, 
chemical, cotton (North), electrical manufacturing, furniture, hosiery 
and knit goods, iron and steel, silk, wool, foundries, machine and 
machine tools, leather tanning and finishing, lumber and millwork, 
meat packing, paint and varnish, paper and pulp, paper products, 
printing (book, job, news, and magazine), rubber, heavy equipment, 
hardware and small parts, other foundry and machine products. 

The Chairman. The 25 other major industries column; is that an 
average ? 

Mr. Bromley. That is arithmetical average for all of those indus- 
tries, Mr. Chairman. 

The Chairman. So that the chart doesn't really indicate that the 
National Dairy Products Corporation wages are the highest wages 
paid by the 25 industries. 

Mr. Bromley. We are not trying to establish that fact. We are 
merely comparing our wage with the average wage of these other 
industries. 

The Chairman. That wasn't stated. 

Mr. Bromley. It should be stated. 

Senator King. He stated it. 

Mr. Bromley. If I stated that, I was in error. 

The Chairman. The point of the chart, of course, is that any one 
or more of the 25 other major industries might actually have higher 
wage rates than National Dairy Products. 

124491— 39— pt. 7 19 



3032 CONCENTRATION OF ECONOMIC POWER 

Mr. Bromley. That is true. If you wish to establish the fact as 
to whether or not I have, I would be glad to have the conference 
board file with you the basic data from which this was compiled. 

The Chairman. It might be well to file that with the committee. 
It wouldn't go into the record, but the committee would like to have 
the source of your figure. By the way, what is the source ? 

Mr. Bromley. It is the National Industrial Conference Board. 

The lower portion of the chart is representative of the employees, 
the average number f employees of National Dairy from 1930 to 
date. The figures at the right show what those are in numbers. We 
started with 36,565 in 1930. At the low point in 1933, 31,775 ; and the 
current number, that is the number last year, about 36,000, 35,911. 

The Chairman. That is a pretty large army. 

Mr. McInnerney. It is quite a city. I offer the chart. 

The Chairman. Certainly, it may be admitted. 

(The chart referred to was marked "Exhibit No. 458" and is in- 
cluded in the appendix on p. 3262.) 

The Chairman. Through how many States are these employees 
scattered ? 

Mr. McInnerney. Well, we are incorporated in every State in the 
United States, I think; we do business in every State with our dis- 
tribution system which is quite an extensive one. We are in prac- 
tically every city that has a road into it with our own mechanical 
unit or our truck once a week, so that we cover the United States 
pretty thoroughly. 

The Chairman. This is a national milk army. 

Mr. McInnerney. Yes. 

The Chairman. What proportion of this number is employed for 
the delivery of milk in all of the movements that go into the actual 
house to house delivery? 

Mr, McInnerney. Well, if you — I think we have about 7,600 
trucks. Is that right? Approximately 7,500 trucks, which would 
mean drivers, of course. Then we have in addition to that quite a few 
horse-drawn — we still have in New York approximately 1,500 to 2,000 
horne-drawn vehicles. I would guess about 10,000 people, not quite 
one-third of the total, are in the distributing ends of the business. 

The distributing end of our business costs in excess of $50,000,000 a 
year. 

I want to clarify it a little bit. I don't contend that we are dis- 
tributing milk as milk in all our Sections, that takes in it our cheese, 
butter, salad dressing, and all that sort of thing. We are not in the 
fluid-milk business in as many places as we are in the distribution of 
cheese. 

The Chairman. But you would still say that approximately 10,000 
persons are employed in the distribution of fluid milk. 
Mr. McInnerney. No, no ; not in fluid milk. 

The Chairman. How many? 

Mr. McInnerney. I should judge around 5,000 — 6,000 I think. 
We have, about 6,000 in fluid milk ; yes. 

In the distribution of fluid milk the week is a 6-day week and be- 
cause we are obliged to deliver 7 days a week we have to have what 
is called a swing man for every six men. In New York City we 
have approximately 2,500 drivers and the 1 for every 6 men means 



CONCENTRATION OF ECONOMIC POWER 3033 

that we have a little over 400 additional men who also work 6 days 
a week. In other words, we have to have lYe men for every truck 
we have so long as we continue to deliver milk on Sundays. 

Mr. Patterson. You mean that swing man is a relief man ? 

Mr. MoInnebney. We wouldn't call him that. He is permanently 
employed, Mr. Patterson. He is on our pay roll with a fixed pay 
the same as a driver. He has a permanent position. 

Checking back here we have in the fluid-milk business all told 
4,500 routes in the distribution of fluid milk. I don't want to bring 
in the social security, but this chart might emphasize that our cost 
of social security last year was $2,750,000. We don't use much of it 
because of our employment. National Dairies has always paid one 
of the highest annual wages paid in any industry. We have also 
given our employees a greater-than-average job security, I have 
read that. 

Improved quality and improved service has meant added costs for 
the milk company. 

The Chairman. May I interrupt to develop a little about that 
annual wage ? All of your employees are on an annual wage ? 

Mr. McInnerney. Well, I think the major portion is in the ice 
cream when your peak in the. summer months is so much out of line 
with the winter I would say that that is so, but I would guess that 
85 to 90 percent are on an annual wage. I don't mean that they are 
paid annually. They are paid so much a week. 

Tlie Chairman. I understand that; but they are given annual 
employment on a yearly basis. 

Mr, McInnerney. Yes, sir. 

The Chairman. In other words, you have stabilized employment. 
You have stabilized the tenure of the job as well as the wage that 
you pay ? 

Mr. McInnerney. We have; yes. In the Kraft organization of 
about 9,000 employees, of course, that work is just as stable as any 
other business.. It is continuous. 

Senator King. What do you mean by the craft? 

Mr. McInnerney. Well, Kraft-Phenix Cheese, Senator, is a sub- 
sidiary of National Dairy. 

Senator King. I was familiar with that. I didn't know but what 
you had some category which performed the incidental work that 
you denominated "craft." 

I want to ask one question. You stated the social-security payment 
there. Does that include the payments made by the employees, those 
that have been made exclusively by employees? 

Mr. McInnerney. It is exclusively our part, two and three-quarter 
million last year. Our pay roll is approximately $65,000,000, and I 
think the basis last year was 4 percent. 

Senator King. What would be the amount paid by the employee^? 

Mr. McInnerney. It is 1 percent, I think. 

Senator King. It would be one-fourth. 

Mr. McInnerney. It is two this year. Last year I think it was 
one. Our figures show, as long as we are on that, if you don't mind, 
in 12 years, taking what we pay and what the employees pay, it would 
amount to $48,000,000 money that would be turned over to the Treas- 
ury of the United States that belonged — maybe it doesn't belong to 



3034 CONCENTRATION OF ECONOMIC POWER 

US, but we have some interest in it, our employees have an interest 
and we have an interest — $48,000,000 in 12 years. 

Improved quality and improved service have meant added costs for 
the milk company. This added cost, however, has not resulted in 
increased charges to the consumer or decreased payments to the 
farmer. Neither has it meant any change in the consistently high 
wages. The performance of Sheffield Farms Co., our New York City 
company, provides a clear example of this. Sheffield has done an 
outstanding job in quality improvement over the past 15 years. 
Despite the fact that wage increases alone during this period have 
amounted to an additional cost of about % of a cent on each quart 
of milk it sells, Sheffield's spread — the difference between its average 
selling price and the price it pays the farmer — has actually been 
reduced ^ of a cent. In the face of increased labor costs, this 
decrease in spread has been made possible only because of marked 
improvement in operating efficiency, resulting from the substantial 
investment made in modern plants and equipment, such as is de- 
scribed in the attached pamphlet entitled "Linking Farm and City." 
The resulting savings have been translated into both lower selling 
prices and higher payments to farmers. 

The Chairman. Now Sheffield operates in what area, Mr. 
Mclnnerney ? 

Mr. McInnerney. In the New York milkshed. Their principal 
business is in New York, B-rOOklyn, and Manhattan. We go up 

The Chairman (interposing). It doesn't operate nationally? 

Mr. McInnerney. No, sir; it operates nationally in its evaporated 
milk and in Jersey, Sheffield are in Jersey. 

The Chairman. Except for the evaporated milk it has a local 
territory ? 

Mr. McInnernet. Yes; you have this booklet which I enclosed in 
the back? 

The Chairman. Yes ; we have all received a copy of that. 

Mr. McInnernet. Can I file that for the record ? 

The Chairman. Yes; it may be filed with the committee. Of 
course, it won't be reproduced in the record. 

Mr. McInnernet. Very well. 

(The pamphlet entitled "Linking Farm and City" was marked 
"Exhibit No. 459" and is on file with the committee.) "^ 

Mr. McInnernet. That is the new modern plant just about com- 
pleted. We think it is the most highly efficient plant ever 
constructed. 

The Chairman. Do you have any other plants like the Sheffield in 
other parts of the country ? - 

Mr. McInnernet. Oh, yes; we have a great many plants. We 
have just finished a new plant in St. Louis at a cost of a million and 
a half. The Sheffield plant cost about $3,000,000. We have just fin- 
ished a Kraft-Phenix plant in Chicago. Wliat we tried to do when 
the depression came, we mapped out a 5-year budget and spent it in 3 
years to contribute our share toward giving employment, so we built 
in that period the big plant in New York, the l3ig plant in Chicago, 
and the big plant in St. Louis. We have — of course, I could send you 
pictures of plants, but we have a great many. 



CONCENTRATION OF ECONOMIC POWER 3035 

The Chairman, Then you have the country divided up into regions 
in much the same way that the Government has the country divided 
into regions, as, for example, under the Federal Reserve Board. 

Mr. McInnerney. We call our regions zones. We have zones 
tl^roughout the United States which cover Northwest, Central, West, 
and so forth. 

The Chairman. In all these zones the policies to be followed in 
the zones are governed by the governing authority of National 
Dairy? 

Mr. McInnerney. Well, the various companies, subsidiaries, re- 
tain their existing organization. When we acquired these companies 
we continued the corporate structure, and while I presume I as head^ 
of National Dairy Co. could exercise that authority, I have never 
found it necessary. But we maintain the local contact, the local 
bank accounts, lend ourselves to local civic aciitivities and the heads 
of our businers are, for instance, Mr. Andre, of Cleveland, quite 
prominent in :ill the affairs there, business there, and is president 
of Telling-Bell i-Vernon Co., which is our company there. 

The Chairman. Yes ; I am aware of that. As a matter of fact, per- 
sonally for 5 or 6 years I have been a patron of the Chevy Chase 
Dairy in the District of Columbia, and it was only recently that I 
discovered that I was a patron of National Dairy Products. I 
thought I was purchasing my supply from a local company, and now 
I find I am purchasing it from a national company. 

Mr. McInnehney. Well, it is a local company. Senator. Mr. Braw- 
ner,^ who is the president of that company, the son of the partner, 
Mr. Brawner, Sr., died about 2 years ago, and he succeeded him. 
His organization and board of directors and officers are just as they 
have always been, so we'd like the public to think, too, that it is a 
local company, although we are not in any way denying that we 
do own the company. 

The Chairman. Of course, that is the same argument that is made 
by the grazing service in the Department of the Interior, for exam- 
ple. Now, our ranch men out in Wyoming like to think that there 
is local management of grazing, but actually the management of 
grazing is not local at all. It is national. 

Mr. McInnerney. Well, it is one of those questions that is before 
us, or at least we are reminded of it constantly. 

QUESTION OF GOVERNMENT CONTROL OF INDUSTRY GENERALLY 

The Chairman. You know, I have the notion, Mr. McInnerney, if 
you will pardon the interruption, that one of the reasons why our 
Government is getting so big and taking so intimate a part in the 
affairs of individual citizens all over the country is because busine^ 
management has become so big that it also takes an intimate part in 
the affairs of the people all over the country. 

If you didn't have this army of 35,000 employees serving milk in 
practically every State in the Union, and numerous other big business 
enterprises having the same sort of set-up, it might not be so neces- 
sary for Government to be so big. 

1 Edgar M. Brawner, whose father was Henry M. Brawner. 



3036 CONCENTRATION OF ECONOMIC POWER 

Mr. McInnerney. Well, I don't know. Thinking along that line 
has changed. When I started this program, and I admit that I bore 
this child, and conceived it. I thought I was doing a wonderful 
thing for the industry, and, of course, I didn't imply or say to in- 
vestors that there would not be a profit in it. Naturally, I couldn't 
have gotten the amount of money out of it unless I had painted an 
attractive picture of the return. 

When I did, I thought I had really accomplished something. 

The Chairman. I don't believe anybody would criticize legitimate 
efforts to make profit. 

Mr. McInnerney. I think we have never done anything except the 
legitimate thing; I hope we haven't. W© certainly wouldn't lend our- 
selves to it. 

Senator King. In view of our statement of our chairman about the 
Government being so big, I think it would be far better for the 
country and for individual initiative development if the Government 
didn't try to be so big. 

Mr. McInnerney. I think I subscribe to that, but I maj^ be a 
little old-fashioned, and not quite as modern as the present thinking 
seems to be. 

The Chairman. Wlien you subtract Senator King's statement from 
my statement, with your approval, then that subtraction answers 
that the only thing that should be left big in the country is business. 

Mr. McInnerney. I can subscribe to that. Of course, the hard part 
of it for a man of my schooling and my thinking is that they charge 
me so much money to do the thing that I don't want them to do. I 
am one of the largest taxpayers in the United States, I mean Federal 
and State. I would think that the balance might be better attempted 
if the Government would consider the business a little more than they 
apparently do. 

After all, when the control bill was put into effect in New York I 
went to see Governor Lehman about it. He had been, one of our bank- 
ing partners, and the result of it was that after 2 years' trial he said 
before a group of farmers in Syracuse he thought that the problems 
of the industry would be better solved by the industry. I think this 
problem of milk distribution is so important and the handling is so 
important to the health that it can be better handled by the industry 
than it can be by any governmental agency. 

Tlie Chairman. You are discussing the heart of the problem now. 

Mr. McInnerney. I might. Senator, say that we are not fighting 
control if it is on a sound, economic basis; and while I don't think 
it is an emergency, it is probably all right and we may have to con- 
tinue a very deplorable condition. It is a good deal easier to fall into 
a hole than it is to crawl out of one. 

Now the industry is in a hole. The men in the industry didn't 
create this situation ; they fought it every inch of the way that they 
could see, or thought they could see; but criticism, and it is a very 
attractive thing to talk to the voter and the public about the justice 
of the high price of milk. As a matter of fact, the caloric value and 
food value makes milk the cheapest food in the world. We had a 
situation in one State in which the mayor of the place, after one of 
these investigations, in big headlines said that the price of milk, should 



CONCENTRATION OF ECONOMIC POWER 3037 

come down to the consumer. It just accidentally happened, unfortu- 
nately for him, the same day the Governor said the farmer wasn't 
getting enough fpr his milk. 

,Well, if you can put that together and make sense out of it, unless 
ypu think of it in terms of appeal to voters, I don't know how you 
could pay a farmer more and sell for less somewhere along the line. 

The Chairman. How is the industry going to govern itself? 

Mr. McInnerney. Well, it always has until the last few years, and 
did a very good job, constantly increasing consumption ; farmers got 
constantly increasing prices. We have worried through many dis- 
tressed conditions; at one time the farmer owed us $4,000,000 for 
money we advanced in the purchase of cows. There was hoof-and- 
mouth disease and other things that went through certain sections; 
the farmers paid us, but we never made a nickel profit on a single 
cow. 

We have done many, many things to help the farmer, not because 
we were any more altruistic than anybody else, but because we believe 
that if the farmer can't be successful, he can't produce our product — 
where would we be ? If the farmer can't give us goods, we won't have 
anything to sell. We do operate 4 farms, but they are relatively 
small in proportion — about 1,500 cows ; relatively small in proportion 
to our total need. We take the product of about one and a half mil- 
lion cows and naturally our bread is buttered in pointing out to the 
farmer and helping the farmer. 

The Chairman. Aren't you overlooking something in that state- 
ment Of course, you are talking only about the milk industry, but 
when you say that industry was always able to govern itselfj and 
things were getting along splendidly before the Government inter- 
vened, aren't you overlooking the fact that industries' efforts to do 
this culminated in a tremendous crash in 1929 ? 

Mr. McInnerney. Well, I don't think it was the fault of industry 
that we had a crash in 1929. 

The Chairman. Was it the fault of Government ? 

Mr. McInnerney. I wouldn't say so; I think it was the reaction 
after a terrible siege of war and everything thrown out of balance. 

The Chairman. Well, did industry cure it? 

Mr. McInnerney. I think industry would have cured it ; yes. 

The Chairman. Wellj it had a chance ? 

Mr. McInnerney. I don't think it had a chance. It did cure it up 
to 1929; it may have lasted a little longer, but when you destroy so 
many lives and do so much damage, you have to rehabilitate a man 
after he has gone through the horrors of w^ar. I was not at war, but 
I was in Washington for 4 years during that time, and I saw a good 
deal of it, and I don't see how you can get back to normalcy with 
the tremendous disturbance of individuals, going up and down the 
line, as quickly as you would like to, but certainly industry was going 
at great speed in the early thirties, '29, '27, and '28. 

The Chairman. After the collapse there was '30 and '31 and '32. 
Did it recover ? 

Mr. McInnerney. It didn't recover, of course. I don't see how it 
could. Cycles don't show it ever has been possible to recover in 
3 or 4 years. 



3038 CONCENTRATION OF ECONOMIC POWER 

The Chairman, Isn't it a fact, Mr. Mclnnerney, that business and 
industry and in fact all the public are constantly turning to Govern- 
ment for assistance and aid of one kind or another? 

Mr. McInnerney. No doubt about it, but that doesn't follow that 
they should have it. 

Senator King. That doesn't follow that it is a wise philosophy to 
adopt? 

The Chairman. No, it doesn't; but let's consider what actually 
happened throughout the life of this country. Beginning in the time 
of Alexander Hamilton right down to this hour Government has 
been delving into the public till to aid business in one way or another. 
We have spent millions on rivers and harbors, for example, to make 
commerce easy. That has been going on from the very earliest times. 
The Government made huge grants of land to help the railroads, 
and in our own time, regardless of whatever administration is in 
power, we have contributed millions out of the Public Treasury for 
the development of aviation. 

We paid an air subsidy in order to develop aviation. We paid a 
mail subsidy to carry mail upon the ocean for the express purpose 
of building up a merchant marine, and even at this moment the 
air lines are appearing before the Civil Aeronautics Authority, urging 
Government to increase the subsidy which is paid to business, so that 
when a business executive comes before me to say Government must 
let business alone, I can't help remembering that there has never been 
a time, so far as I have remembered the history of the United States, 
that business hasn't been coming to Government for assistance and 
help, and getting it. ' 

Mr. McInnerney. No doubt that is true, but that doesn't prove 
that it is right, because the Government does it. 

The Chairman. Not at all. 

Mr. McInnerney. I have been in business a good many years; I 
never came to the Government for any help. I am in a good many 
companies and so forth. Probably in too many, but I nave never 
asked the Government for a nickel ; I have always given them money. 
Now if I were in the business I might be glad to give the Govern- 
ment money because they might need it for war purposes, but purely 
commercial propositions, I don't see any reason to give the air com- 
panies any money, or anybody else in business. 

The Chairman. But when you lay down a general rule, Mr. 
McInnerney, we must look at the general application of that. 

Mr. McInnerney. You are emphasizing the exceptions. There 
are more businesses that have never had any Government subsidy. 

The Chairman. I could stay here for an hour and show I was not 
dealing with exceptions at all, but with the general rule. To begin 
with the tariff, and my friend Senator King would assist me on this ; 
the tariff is an aid to business; it is a tax upon the consumer for the 
purpose of helping business. 

Mr. McInnerney. Absolutely; but it also helps labor and gives 
labor jobs in this country. 

'The Chairman. Surely. 

Mr. McInnerney. I don't want to get into a discussion of tariff 
because I don't subscribe to some of it. 

The Chairman. But you opened the discussion by saying that 
Government ought to let business alone. 



CONCENTRATION OF ECONOMIC POWER 3039 

Mr. McInnerney. I still repeat it. 

The Chairman. We are living under a Constitution which was 
drafted 150 years-plus ago, in which the framers of the Constitution 
conveyed to Congress the power to regulate interstate commerce. 
Evidently expecting that Congress should do it, and when the leaders 
of commerce come before Congress and tell us that there shouldn't be 
any regulation of business, they are merely saying that the fathers of 
the Constitution didn't know what they were doing when they set up 
a Government which should regulate commerce in the public interest. 

Senator King. It seems to me we are getting into an argument 
here as to some of the propositions submitted by my friend, the chair- 
man. I should dissent and dissent very vigorously ; I don't accept all 
of the philosophy and implications and co;nnotations made by my 
dear friend, the chairman of this committee. I think many of these 
evils to which he has referred, for instance the situation after the 
war, resulted from the enormous speculation of the people in the 
United States ; and the war debts and our loaning to Germany 2 or 3 
billions of dollars, which we ought not to have done following the 
war. We know that during 1926, '27, '28, and '29 every farmer 
nearly, boys on the ranch — everybody that could reach a telephone 
would phone into New York to buy stocks and bonds. The people 
were mad in the purchase of stocks and bonds. 

They increased the sale, their indebtedness, billions of dollars. At 
one time in New York City alone there were more than $8,000,000,000 
of loans upon collateral. People would buy stock and they would 
pledge that stock to the bariks and, of course, the stocks amounted to 
prices wholly in excess of any intrinsic value. The result was when 
the people began to appreciate the fact that they had built up this 
inflated situation, then the bubble burst. 

The Chairman. All because Government didn't exercise its duty 
to regulate the sale in interstate commerce of worthless stocks. 

Senator King. The States had the opportunity, and if the people 
had wanted it they could have done so. I am in favor of States' rig:hts 
as against Government supervision upon every activity, but I think 
that this is not germane to the discussion before us, and I wouldn't 
have said a word. 

The Chairman. Only in response to the suggestion of the witness. 
Mr. McInnerney, we will allow you to proceed for a little while. 

Mr. McInnerney. Of course, my statement was predicated on my 
unfortunate experience with Government control, and so forth. I 
think that there are instances in this situation where maybe the 
Government ought to be in control temporarily. I am not fighting 
Government rules or anything else. I am just saying that business, 
our business, is punch drunk from investigations, and so forth. We 
are investigated by the Federal Trade Commission — nice gentleme^ 
they are. I have appeared before them many times. We have been 
investigated by the Department of Justice, not once — I would hate 
to tell you how many times. We are going to be investigated again. 
Senator King was chairman of the last one, which I appeared before 
for 4 or 5 hours, and we don't mind, except it takes our minds from 
our business. 

The Chairman. At least you are here voluntarily. 
Mr. McInnerney. Yes; I appear voluntarily, and I say I am 
enjoying it. 



3040 CONCENTRATION OF ECONOMIC POWER 

Of course. we are goino; to claim all we can. 

The efficiency of our fluid milk distributing companies' route de- 
livery service is not equaled in any other industry. We are deliv- 
ering a perishable 3%-pound package to millions of homes 365 days 
a year, in all kinds of weather, at a lesser cost than ordinary letter 
postage. We do so at a profit that averages at best onl}" a small 
fraction of a cent per quart. 

No other food industry renders a comparable service to the public. 
And it is largely because of this service that milk consumption in 
the United States ranks far ahead of practically all the leading 
nations of the world. Daily doorstep delivery keeps milk constantly 
before the public in a fashion not equaled by any other system of 
distribution. This daily delivery service has been the most impor- 
tant single factor in making milk the largest, most dependable, and 
reliable source of farm income in the United States. Chart 4 ^ shows 
how much the greater stability of farm income from milk has added 
to dairy farmers' purchasing power, 

MILK INCOME TO FARMEES COMPARED AVITH OTHER FARM INCOME 

Mr. Bromley. The top portion of this chart compares percentage- 
wise the trend of farm income from milk with farm income from 
all other agricultural commodities. 

The Chairman. What is the source of these figures ? 

Mr. Bromley. The United States Department of Agriculture. 

The black bur represents the dollars of farm income received on 
the average bfetween 1925-29 from milk. That bar represents 
$1,700,000,000. 

The lighter bar is the figure representative of the same informa- 
tion for farm income from all other agricultural commodities except- 
ing milk. That bar represents $8,524,000,000. The bars in the fol- 
lowing years show the proportion of the average income for these 
two groups, two farm groups, received by farmers for each of these 
years. The lower portion of the chart ■• 

The Chairman (interposing). Pardon me, but l)efore you leave 
the upper portion, you speak of all other agricultural commodities. 

Mr. Bromley. That is correct, sir. 

The Chairman. The Department of Agriculture, I am informed, 
hasn't made any such summary of all commodities. You made that 
yourself, did you ? 

Mr. Bromley. I made that myself from the data supplied by the 
Department of Agriculture. 

The Chairman. How ma,ny other agricultural commodities are 
included ? 

Mr. Bromley. I am not certain of the exact number, from memory, 
Senator. They are in excess of 40 or 50. I would be glad to file with 
the committee the precise source, page, and so forth, of this infor- 
mation. 

The Chairman. Would you be good enough to do that so it may be 
checked with the figures of the Department of Agriculture? 

Senator King. Obviously that included cotton, wheat, rye, bar- 
ley 



•Exhibit No. 460," appendix, d 3263. 



CONCENTHATION OF ECONOMIC POWER 3041 

Mr. Bromley. All of those things down to honey, beeswax, and 
flaxseed. 

It is interesting to note that farm income from milk never declined 
as much aS the average decline in farm income from all -of these 
other agricultural commodities during any of these years from 1930 
, to date. The lower portion of the chart shows what this lesser decline 
in milk, or in the farm income from milk, has meant in added dollars 
in dairy farmers' pockets. This compilation was constructed in this 
fashion, and I will cite one instance only. In 1930, for instance, farm 
mcome from milk was down only 3.8 percent. from its '25-'29 aver- 
age. Farm income from everything else was down 20 percent. The 
difference between those two declines is 16.2 percent. 

If milk had gone down as much as everything els'^, it is quite ob- 
vious the dairy farmers would ha^e received 16.2 percent less of the 
'25-'29 average than they actually did. 

The Chairman. Here again you are comparing the income from 
milk with the .average income from all the others. 

Mr. Bromley. That is correct, sir. 

The Chairman. There may be agricultural commodities which pro- 
duced much greater income than milk for the farmer. 

Mr. Bromley. You are referring percentage-wise? 

The Chairman. I mean actually. 

Mr. Bromley. There are no other single agricultural commodities 
producing more income for the farmer than milk. If you combine 
all meats, it is true, but pork, lamb, and so forth, alone do not. 

The Chairman. Milk itself produces a larger income than any 
other single commodity? 

Mr. Bromley. That is correct, sir, and a more stable income, as this 
chart indicates. 

The 16.2 percent more income that dairy farmers received in '80 
than the average receipts of farmers producing all other types of 
agricultural commodities combined amounted to $274,000,000 m '30. 
You do the same thing for each of these 9 years, and the aggregate 
increase, or rather the additional money dairy farmers received over 
what they would have received had .their income gone down as much 
as all other farm income, amounts to about $1,800,000,000. 

Senator King. Could I ask a question there? In tais decrease in 
the income, was it the result of less consumption or a lowering of 
price ? 

Mr. Bromley. You are referring to production, are you not, Sen- 
ator? 

Senator King. Yes. 

Mr. Bromley. Mr, Mclnnerney comes to that in a few moments, if 
you prefer to wait. 

The Chairman. "What is the chart intended to show, Mr. Mcli^- 
nerney ? 

Mr. McInnerney. It is intended to show that the dairy farmer 
got $1,800,000,000 more than he would have got if he had been in 
ordinary'- agricultural production. Dairy has yielded him more 
money and less reduction in income than any other. 

The Chaiemx*n The only purpose of the chart is to indicate that 
the milk production is the very best of all the farm enterprises. 

Mr. McInnerney. Yes, sir. 



3042 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Of course, while the situation which you describe 
on this chart was developing the production of milk was increasing. 

Mr. McInnebnet. Yes. 

The Chairman. Proceed. 

Senator King. It shows a greater stability, too, in the production 
and consumption of milk than in other commodities. 

Mr. McInnerney. Of course, the dairy farmer found out quite 
some time ago that he can convert his grain into milk and get more 
money for it. Then the agricultural colleges are teaching the dairy 
farmer that a cow below an average cow is a boarder cow, and you 
ought to trade it for one that will yield more. 

The Chairman. I wanted to make sure that the chart was not 
intended to indicate that the price of milk had been maintained at a 
better standard than any other. 

Mr. McInnerney. I don't think that was the intent at all. 

Mr. Bromley. I beg your pardon, sir; I am sorry, I did not get 
the question. 

The Chairman. I said, I wanted to be sure it was not intended by 
this chart to indicate that the price of milk had been sustained, the 
price to the farmer. 

Mr. Bromley, This chart does not indicate that, Senator, Sena- 
tor King's question was germane to your question. We come to that. 

(The chart referred to was marked "Exhibit No. 460" and is in- 
cluded in the appendix on p. 3263,) 

Mr. McInnerney. We are interested and anxious to sell milk by 
any system of distribution which will further increase consumption 
and permit a fair return on the capital invested in the industry by 
both farmers and distributors. 

In evaluating National Dairy's achievements, one must bear in 
mind the small size of the National Dairy Products Corporation in 
relation to the size of the dairy industry. I refer you to chart 5. 
Dairying is one of the largest industries in the Nation, measured 
either in terms of investment or sales volume and profits. That 
is estimated at about $3,000,000,000 annually in sales. 

proportions of total milk production used by farmers, used 

BY entire dairy INDUSTRY AND USED BY NATIONAL DAIRY PRODUCTS 

corporation 

Mr. Bromley. The top line in this chart ^ is representative of the 
total milk production, in the United States. The second line shows 
what we have termed — it is termed in the industry, I think — com- 
mercial milk production. The reason that all of the milk produced 
isn't commercial milk is that there are about thirty-odd million farm 
families, and a lot of the milk that is produced on a farm is con- 
sumed by the farmers on that farm for their family and household 
needs. They sell, therefore, only a portion of their milk. 

This area from the second line down is representative of what 
they seii.. The shaded portion at the bottom shows the am.ount of 
milk required to make the milk and" dairy products that National 
Dairy's divisions sell. This portion is about 11 percent of the com- 
mercial milk production 

""Exhibit No. 461," appendix, p. 3264. 



CONCENTRATION OF ECONOMIC POWER 3043 

Naturally, it. is a smaller percentage of the total milk production. 
We do not use — National Dairy does not use — 11 percent of the com- 
mercial supply of milk produced on farms. We purchase less than 
5 percent direct from farmers. That comes about because a good 
portion of the products that we purchase are already processed 
and manufactured by creameries, cheese companies, and so forth. 

Senator Iving. How do you estimate the amount produced and con- 
sumed by the farmers, not sold? 

Mr. Bromley. That is supplied to me, Senator, by the Department 
of Agriculture. It is part of the Bureau of Agricultural Economics 
statistical information. 

Senator King. Do they furnish an estimate of the amount of milk 
consumed and produced by the farmers? 

Mr. Bromley. They do that. 

Senator King. Have you in mind the percentage of milk consumed 
by tlie farmers? 

Mr. Bromley. Approximately one-quarter of the Nation's milk 
production each year is used by farm families. You mustn't think 
that they bring it in in a pitcher and set it down on a table and 
drink it . They don't do that. I am quoting from memory now, but 
about one-third of that 25 percent, I believe they estimate, is being 
consumed in fluid form. A much smaller portion is fed to calves 
running with cows, and so forth and so forth. 

The other, a little over half of that 25 percent, is used by farm 
families to make farm butter. Again, they don't bring the butter 
in from the churn and put it on the table. I think about half of all 
they make is sold. It is sold, however, to their neighbors. In a 
sense, that milk, a portion of that milk, is commercial milk in that 
the farmers sell it, but it isn't commercial milk in the sense that 
they bring it in their can into the creameries and have a commercial 
creamery make it. 

Senator King. In view of this lar^e consumption by the farmers 
and by their neighbors, the production of $1,750,000,000, or rather 
the value, of the dairy industry ought to be increased some. 

Mr. Bromley. Yes; this other chart referred to the farmers' cash 
income. Naturally you have a value in anything you produce on 
your farm which you consume yourself. If you want to become 
an accountant, and so forth, you can set up anything you wish. 

Senator King. The point I am trying to make is that there would 
be an addition to the $1,800,000,000 by reason of the large amount 
consumed by the farmers themselves, or their neighbors, either as 
milk or butter or other products. 

Mr. Bromley. That is correct. Senator. The Department also 
nas an estimate on that figure. As I recall, for practically all the 
40 or 50 commodities which the Department estimates farm income 
on, they show what is called gross income and cash income to the 
farmers, the difference between the two figures being what you 
mentioned. 

Senator King. It might add 50 or 100 million dollars to the 
$1800,000,000. 

Mr. Bromley. I believe it is somewhat larger than that. 

The CHAiRMAi^. What percentage of the amount of milk sold to 
the general trade was sold by the National Dairy Products Corp. for 



3044 CONCENTRATION OF ECONOMIC POWER 

the year 1938? What is that figure? This young man can answer 
that. It is apparently about 5 percent, but I wanted your exact 
figure. 

Mr, Bromley. The amount of commercial milk, this column here, 
is 37,501,000,000 quarts. Our figure is 10.9 percent. 

Mr. McInnekney. This isn't fluid milk ; that is all milk equivalent. 

The Chairman. I am talking now in terms of this chart. Is there 
any other corporation that sells a comparable amount? 

Mr. McInnerney. No. I think that we are the largest handler of 
milk in the world. 

The Chairman. What is the next largest in the United States ? 

Mr. McInnerney; I wouldn't know, but I imagine Borden. I am 
quite sure it would be Borden. 

Tlie Chairman. Do you know what their sales would amount to? 

Mr. McInnerney. I know their sales as published, and I heard their 
testimony yesterday. 

The Chairman, You don't imply there is a difference between their 
published figures and the actual figure? 

Mr. McInnerney. My recollection is our sales were $334,000,000, 
and their sales were $240,000,000. I think there is approximately 
$100,000,000 difference. 

The Chairman. In terms of percentages on this column, what would 
it be? What I would like to have you do, with a pencil, is mark on 
that column of 1938 the approximate position that would be occupied 
by the Borden sales. 

Mr. Bromley. That I can't do, sir, without referring to the Borden 
report, and I don't know that I can then. 

The Chairman. You have just given me a figure. 

Mr. Bromley. That is in dollars and cents of sales. Senator. I do 
not know whether The Borden Co. published their milk equivalent 
sales. 

The Chairman. Mr. McInnerney, you have a pretty good idea of 
what these other big corporations are doing. 

Mr. McInnerney. I am afraid. Senator, I only know their dollar 
sales, and we haven't bothered with converting it on our basis as to 
what their tonnage would be. The character of the business is en- 
tirely different. 

The Chairman. Well, you have a pretty good idea of how much 
milk they buy. 

Mr. McInnerney. No ; I am afraid I must say I haven't. I don't 
know why I should have. We are competing in many markets, but 
there are lots of markets in which we are not. 

The Chairman. You wouldn't be able, then, even to give an approxi- 
mation ? 

Mr. McInnerney. I think we could get it ; there is no secret about it. 

The Chairman. That is right. Of course there is no secret about it. 

Mr. Bromley. We find that in the Borden testimony yesterday. Sen- 
ator, they say that chey had a milk equivalent of 2.226^000,000 quarts, 
j^ince this black portion represents about 4,055,0005000, the two and 
a quarter would be approximately 50 percent more. 

The Chairman. Is there another large company that deals in milk 
products ? How many large companies are there ? 

Mr. McInnerney. Well, there is a Golden State, Beatrice Cream- 
ery, Fairmount Creamery, a rather large western company, Carna- 



CONCENTRATION OP ECONOMIC POWER 3945 

tion. They, of course, are in one type of business, the evaporated 
business. Pet Milk is rather good sized, also evaporated and in other 
lines. Nestle Foods, also canned milk pretty much. 

The Chairman. These are all national companies, are they? 

Mr. McInnebney. Bowman Dairy in Chicago is a good-sized com- 
pany, but but they are not national. 

Senator King. What do you mean by national — beyond the borders 
of a State ? 

Mr. McInnernet. Bowman may ship a little milk powder into this 
market or the New York market for baking purposes, but it is rather 
small. 

The Chairman. If we were to take the sales of all of these large 
national companies, how much higher would that column run ? 

Mr, Bromley. I don't, I regret, have a T'ederal Trade Commission 
report that contains that information with me. It is my recollection — 
and the representatives perhaps can verify my memory — that if you 
totaled all of the milk equivalent handled by the largest units in the 
industry, my memory runs to 10 or 12, that the total milk equivalent 
they would handle would be about one-third of the commt rcial milk 
production of the country. It was significant that the Fed jral Trade 
Commission in giving that information, which was in conjunction 
Avith similar information for 7 or 8 other industries, pointed out that 
the amount of milk handled by these 10 or 12 largest units in our indus- 
try was proportionately much less than the total volume of production 
handled by the largest units in most other industries. 

The Chairman. I notice from chart 17,^ I think it is, it is indicated 
that in 1935 there were 4,516 companies engaged in distributing fluid 
milk. 

Mr. Bromley. That isn't comparable with what we are talking 
about, Senator, for this reason : That refers to competitors in the fluid- 
milk business in most of the markets in which our units operate. ' This 
thing here includes not only fluid-milk companies but cheese com- 
panies, creameries, condenseries, and the whole gamut of other things 
that handle milk. 

The Chairman. So that if the whole gamut of other things were 
included there would be more than 4,500 separate units ? 

Mr. Bromley. There are 10,000—12,000—15,000 companies in the 
dairy industry, surely. 

The Chairman. So that this chart shows, coupled with- your testi- 
mony, that 10 or 12 companies put out at least one-third of all of the 
commercial milk production handled by 15 or 20 

Mr. Bromley (interposing) . I think it is 12. I may be wrong. 

The Chairman. Thousand ? 

Mr. Bromley. Your guess is as good as mine, sir. There isn't any 
such figure available. 

The Chairman. I am taking your guess. You are the expert. I 
am not. 

Mr. Bromley. Make it 12,000. That is very conservative. 

The Chaitrman. So that 12 companies handle one-third of the 
entire cominercial output handled by 12,000 companies? 

Mr. Bromley. Yes; and the significant point of interest was that 
in our industry that percentage of 30 percent is significantly less 
than the comparable percentage in many other industries. 

' "JEshiblt No. 472," introduced, intTH. n. 3060; Included in appendix, p. 3275. 



3046 CONCENTRATION OF ECONOMIC POWER 

The Chairman. I know. In some industries it rises well above 
80 percent for two or three. 

Senator King. Let me ask a question, Mr. Witness : Are there not 
a large number of cooperatives which produce milk and sell milk, 
even beyond the boundaries of the States in which they are organized ? 

Mr. McInnerney. Yes, sir ; there are many of them. 

Senator King. I know there are cooperatives and producing com- 
panies in California, and they produce a large volume of milk as 
well as butter, cheese, and other commodities. 

Mr. Bromley. The cooperatives sell all over the United States 
certain products. 

Mr. McInnerney. We didn't include Land o' Lakes and Dairy- 
men's League. 

Senator King. Have you included in the production the milk which 
is produced by the cooperatives and handled by cooperatives? 

Mr. Bromley. Again I am quoting from memory, Senator, but I 
think Land o' Lakes, the large butter cooperative of the farmers, was 
included as one of the 12 largest companies. I wish I had the report 
in front of me. I can't carry it all in my mind. 

The Chairman. But there are a large number of smaller com- 
panies, cooi>eratives, and small privately owned corporations, that 
have factories and depots in various States where they assemble their 
milk and from that poinl distribute it to various States and various 
cormnunities ? 

Mr. Bromley. That is correct. 

Senator King. Did you have the Mutual, Creamery Co. among your 
number? 

Mr. Bromley. The Mutual ? 

Senator King. Yes. That, a number of years ago, had, as I recall, 
some 15 or 20 stations in surrounding States where milk was assem- 
bled and from which milk was distributed, and where cheese and 
butter were manufactured. 

Mr. Bromley. I couldn't say, sir. I don't remember. 

The Chairman. The percentage of the total sales in various cities 
held by your company, or by Borden Co., would be very much larger 
than shown in this chart for the Nation, 

(The chart referred to was marked "Exhibit No. 461" and is in- 
cluded in the appendix on p. 3264.) 

Mr. McInnekney. Our percentage of sales would show a larger 
percentage of the total purchase. 

The Chairman. For example, yesterday it was testified that the 
Borden Co. handled approximately 5 percent of the total national 
trade in milk, but in New York City it handled about 24 percent. I 
was wondering what change would be made in this chart if, instead 
of being constructed upon the basis of national sales, it would be 
constructed upon the basis of sales in the big cities. 

Mr. McInnerney. Well, I think in New York City that we have 
a little more in percentage than Borden. I should judge we run 
26 or 27 percent of the business, as near as we can estimate it. 

The Chairma;^. I have before me the report of the Federal Trade 
Commission on sales in the New York area. This is House Docu- 
ment 95 of the Seventy-fifth Congress, first session, on page 88 
of which there appears a table which shows that National Dairy 



CONCENTRATION OF ECONOMIC POWER 3947 

Products Corporation's proportion of the sales in Hartford, Conn., 
amounted to 47.26 percent of milk; in New Haven, 26.88; in New 
York, 24.08; Philadelphia, 31.48; Wilmington, 45.52; Baltimore, 
81.45; Washington, 36.01; Pittsburgh, "42.51 ; and so forth. There 
are several other cities. 

Mr. McInnerney. What is the date of this report. Senator? 

The Chairman. January 5, 1937. 

Mr. McInnerney. Well the percentages have declined in those 
markets from that date until now; I think they are approximately 
correct, so far as Washington is concerned, as long .as you mention 
Washington. We are down below 50 percent in Washington at the 
present time. In Philadelphia we are down below 21, and in New 
York our business has declined just as the others, so that our Pitts- 
burgh business was higher at one time than 42 percent. It is down 
quite considerably. In fact, all of our markets, the percentage has 
declined steadily in the last 3 to 5 years. 

The Chairman. So if a chart were prepared upon the basis of 
the sales in say cities of 100,000 or over, the proportion handled by 
National Dairy Products would be considerably greater than indi- 
cated on this chart? 

Mr. McInnerney. Of course, we are not in many cities; a lot of 
cities we are not in at all. There are a number of cities we don't 
have any business. 

The Chairman. But you have a Nation-wide business? 

Mr. McInnerney. We have a Nation-wide business, but not in 
fluid-milk business. . 

The Chairman. What I am getting at is there is a concentration of 
control of sales in the big cities, much greater than that which exists 
in the Nation as a whole ? 

Mr. McInnerney. I don't quite understand the total of sales. The 
wholesale business in our business is a very fluctuating business. The 
family delivery is the business that because of its more secure posi- 
tion, less changes, even though it isn't particularly profitable at the 
present time, it has been profitable; we are rather jealous of it and 
like to keep it. The wholesale business is a matter largely of pvice 
and with these various controls, and so forth, I made the statement 
that we were penalized for observing the law because we didn't violate 
the law and the chiseler, and so forth, did, and for our good conduct 
we' lost our business, a large part of it. 

The Chairman. I can see how that might happen. 

Mr. McInnerney. There was no enforcement. We think the law 
necessary; it is all right with us; we can live under any conditions. 

The Chairman. But when you organized National Dairy Products 
Corporation you undertook to form a national corporation which 
would deal in this business? 

Mr. McInnerney. Yes. 

The Chairman. And you undertook to go into as many States and 
cities as you could profitably enter? 

Mr. McInnerney. No; we were offered many opportunities to go 
into States that we didn't go. 

The Chairman. Of course, naturally there would be reasons why 
you wouldn't go, but by, and largei the purpose of the company was 
to extend its business throughout the country ? 
124491— 39— pt. 7 20 



3048 GCNCENTRATION OF ECONOMIC POWER 

Mr. McInnerney. Well, that doesn't cover it. The purpose of the 
company, as I saw it, I had a formula I hoped to work out in the 
business. In other words, I figured that if Ave got top-heavy in the 
ice-cream business we wo.uld bring a balance in proportion, just for 
the sake of security of the investment, and I worked out a formula 
based on milk, cheese, ice cream, and so forth, and we acquired com- 
panies based largely on that and, of course, we had to have some 
assets, but we are more interested in earnings. We acquired these 
companies trying to keep our picture in balance. 

The Chairman. Naturally, now, please be assured there is no 

Mr. McInnerney. I don't misunderstand you; I just don't want 
you to make a statement that is not in accordance as I understand 
the picture. I am only trying to straighten it out ; I have no objec- 
tion to any questions you ask me, of course. 

The Chairman. I want you to be sure that I am just seeking infor- 
mation and not trying to imply any criticism of the methods used 
by the corapany, or its purposes, so I say when the National Dairy 
Products Corporation was formed it was formed for the purpose of 
going into this business in a national way ? 

Mr. McInnernet. Yes. 

The Chairman. And naturally you would enter those cities which 
you could enter profitably and you would not buy those corporations 
which in your judgment you couldn't buy to the advantage of your 
stockholders ? 

Mr. McInnerney. Quite right. 

The Chairman. Now what I am getting at was, to determine what 
proportion of the sales in the particular cities in which you operate 
the National Dairy Products Corporation handled — I read these fig- 
ures which you say are substantially correct, the proportion has de- 
creased since the report was filed, but it does indicate that if a chart 
or let me put it in the form of a question — Does it not indicate that 
if a chart were prepared on the basis of sales in the cities in which 
you operate, your proportion of the gross sales would be much larger 
than as shown on this national chart? 

Mr. McInnerney. I think that is fair in most cities. 

Senator King. In some cities there have been encroachments, then, 
upon your field. You have lost more than other competing com- 
panies in some cities? 

Mr. McInnerney. Yes, sir ; it has been our policy not to acquire a 
business that exceeded beyond what we were advised by counsel was 
safe basis; in other words, we were not putting our heads in any- 
body's noose to be told we monopolize or own and control that mar- 
ket. We were very careful. We always figure it isn't percentage of 
a business, but more or less performance. But we don't dominate the 
market in any city, so far as"l know. We are a very large factor, of 
course, but we don't dominate any market. 

Senator King. There wouldn't be a leveling, constant level of pro- 
duction and consumption of ice cream as against fluid milk or butter, 
as against fluid milk , that is to say, there was a variation from time 
to time in the production of butter or ice cream, or your reduction of 
fluid milk, but you tried to maintain a balance so that you would be 
in reasonable relationship between the production of ice cream and 
fluid milk, and so on. 



aONCENTRATION OF ECONOMIC POWER 3049 

Mr. McInnerney. There had been no effort, as far as I know — of 
course, Borden hadn't branched out iit that time to the extent we 
were ; we were the largest but the dairy industry had not received the 
attention of consolidation, so to speak, up to the time I worked out 
my formula. 

The Chairman. I have now the farm report of the Federal Trade 
Commission, table 62, of which, appearing on page 228, it indicates 
that the three largest reporting sellers of fluid milk and fluid cream 
handled 15.6 percent of the total. This is total sales for the whole 
country ; with'respect to butter the same three companies handled 16.3 
percent; with respect to cheese, 42.7 percent; with respect to con- 
densed and evaporated milk, case goods only, 44.3 percent. 

Mr. McInnerney. Th^t last — the three companies handled 44 per- 
cent of evaporated milk; they are not the same companies that were 
milk companies? 

The Chairman. The three largest reporting sellers of each of the 
products listejl. 

Mr. McInnerney. But they weren't the same three ? 

The Chairman. It doesn't indicate they were the same three. 

Mr. McInnerney. Because that wouldn't apply. Senator, as far 
as the evaporated milk is concerned. I have submitted a copy of 
this for your records. You have already seen from chart 4 that milk 
was the mainstay of farm income during the depression of the 30's. 
Chart 6 and 7 show in more detail why milk was able to turn in such 
a good record as a dependable source of farm jDurchasing power. 
Not only were farm milk prices considerably higher than the general 
average of all other farm prices during the depression years, but they 
remained higher in the face of considerably larger milk production 
on farms. With better than average prices and larger than average 
production, farm milk income naturally exceeded the trend in farm 
income from all other agricultural commodities. 

The Chairman. From what page are you reading now ? ^ 

Mr. McInnerney. Page four, fourth or fifth paragraph. 

Mr. Bromley. This is the price farmers received from milk, com- 
pared with the price received from all other agricultural commodities 
during the last several years. It is prepared from data supplied by 
the Department of Agriculture. It is significant that during most of 
these years since 1930 the average farm price related to the 1909-14 
average farm price for milk has been somewhat higher and in some 
instances considerably higher than the average farm price received 
for all other agricultural commodities. It is significant that when 
business is particularly bad, milk's performance from the viewpoint 
of its farm price is substantially better. This chart shows the vol- 
ume (chart 7) of milk production in the country, compared with the 
volume of production of all other farm commodities. 

This presentation was in turn prepared from Department of Agri- 
culture data. The production line for milk shows great steadiness 
and a tendency to increase, particularly in the latter years, '36, '37, 
and '38. The other line shows that aggregate production of farm 
commodities has tended to go — or it hasn't shown any definite trend, 
but in every year it has been proportionably lower than milk. 

iMr. McInnerney had prepared his testimony In the form of a printed statement. 



3050 CONCENTRATION OF ECONOMIC POWER 

As Mr. Mclnnerney has pointed out, this is germatie to Senator 
King's question. In both the instance of farm production and of 
farm price, milk has been above the average of all other agricultural 
commodities combined. In view of that fact it is only natural that 
the data shown on chart 4 would prevail. That is, that the farmers' 
aggregate income from, mislk would be proportionately higher com- 
pared to averages than the farmers' income from other commodities. 

In milk distributing, dairy products have contributed greatly to 
milk's favorable record as a dependable producer of farm income be- 
cause they made good quality products readily available to con- 
sumers at reasonable prices. Consumers must bu}' in large volume 
if farmers are to prosper. 

(Chart 7 referred to was marked "Exhibit No. 462" and is included 
in the appendix on p. 3265.) 

INCREASE IN CONSUMPTION OF DAIRY PRODUCTS 

Mr. Bromley. Chart 8 is interesting, showing, as it does, that 
in the aggregate the per capita consumption of all dairy products 
has shown a greater increase than that of any other type of foodstuff, 
except vegetables in recent years. 

(Chart 8 referred to was marked "Exhibit No. 463" and is included 
in the appendix on p. 3266.) 

I don't know as any particular comment is needed on this chart; 
it speaks for itself, change of per capita consumption during ap- 
proximately the last 15 years ; vegetables up 25 percent ; dairy prod- 
ucts in the aggregate up 6 ; fruits up 5 ; sugar and sirup, up 4 ; meats, 
down 9; and potatoes down 12; and cereal products down 14. In 
each instance those figures being percentages compared with the 
forepart of the twenties. 

(The chart referred to was marked "Exhibit No. 464" and is in- 
cluded in the appendix on p. 3267.) 

The Chairman. To what do you attribute the increased consump- 
tion in dairy products ? 

Mr. Bromli^y. You are asking me, sir ? There has been a concerted 
effort on the part of nutrition and medical authorities during the last 
several years to improve the dietary of the average person in this 
country from the viewpoint of protective foods. That effort hasn't 
been confined to this country; it has been prevalent in every leading 
nation of the world, as far as I am aware. Naturally, as the con- 
sumer becomes better informed as to the merit of certain food in his 
diet, over a period of time, slowly, gradually, he comes to eat more 
of those foods. 

The American is particularly, shall we say, susceptible to being 
healthy. We don't like to be in poor health. We like to take good 
care of ourselves. It is a national habit. 

Vegetables : The nutritionists recommended strongly, and they still 
recommend, that the consumption of vegetables should be increased; 
dairy products, certainly, and fruits. Sugars I am noncommittal on. 
Apparently we like sweets. The cereal products, perhaps, have shown 
the greatest decline because we all do a little less physical work than 
we used to do. It is the nature of our life. 

Mr. McInnerney. Eight there I might say that these dieticians and 
these men who tell you what you ought to eat and how you ought to 
eat it say that for a properly balanced diet the consumption of milk 



CONCENTRATION OF ECONOMIC POWER 3051 

slioiild be increased 50 percent. Well, we have been trying to get part 
of that 50 percent for many years. 

The Chairman. You agree that the consumption can be increased? 

Mr. McInnerney. I don't think there is any question about it. I 
don't think it can be increased at once. There are certain things that 
you have to overcome, according to our men who ought to know, that 
are faults. For instance, there is a thought that milk is fattening. 
Our head of oar laboratory ^ was head of Johns Hopkins, and states 
definitely it isn't. I don't know whether that is right, but I think 
everybody ought to try it and see. The ladies like slim figures, and 
there is a feeling that that has had some sales resistance. How^ever, 
there is a slow increase in the consumption of milk products, but not 
in fluid milk, excepting in canned milk. 

The Chairman. What do you think are the chief obstacles to in- 
creasing cons'imption ? 

Mr. McInnerney. Well, I think we have to overcome these ideas. 
I think price has been a resistance, of course. I think one thing is 
this constant agitation and implication that the milkmen are making 
too much profit and gouging the public. Every time the milk raises 
1 cent in New York there are big headlines in the paper and milk 
drops definitely. It comes back in a few days, but temporarily they 
register a resistance to this increased price. I don't know at what 
price milk would be freely sold, but after all, the industry has pro- 
vided a milk at a low price. In New York, for instance, the mayor 
of New York wanted milk sold for 8 cents. According to the charter 
of New York, New York City cannot sell milk or go into business, so 
the mayor appealed to our competitor, Borden, and ourselves, and 
we, as a matter of public interest, to make milk available to the poor, 
opened up stations at which we sold milk at 8 cents a quart to any- 
body that would come. Borden did the same thing. We paid all the 
expenses and showed a loss, on our part of it, between $2,500 and 
$3,000 a month, and that still continues. The high peak of that busi- 
ness, so far as we are concerned, was about 50,000 quarts a day. It is 
now down to 35,000. 

The reason that it is dropped probably is due to the cheaper price 
in stores, but the public, I don't believe, will constantly go for milk at 
any price. They go to stores so much more conveniently. 

The Chairman. Mr. McInnerney, if it is agreeable to you, you 
will proceed now with the balance of your statement and then the 
committee will stand in recess until this afternoon. I hate to keep 
you away from your New York business. Is that satisfactory? 

Mr. McInnerney. Quite. There is nothing else to do. 

(Representative Reece assumed the Chair.) 

Acting Chairman Reece. You may proceed, Mr. McInnerney. 

Mr. McInnerney. Consumers have used more dairy products in 
their diet not only because the effective merchandising programs of 
dairy products companies have successfully stressed their great nutri- 
tive value, but also because their retail selling price has been lower 
on the average than those of other foods. This is set forth in chart 
9, which I offer. 

Mr. Bromley. This chart, Mr. Chairman, comes from Department 
of Agriculture data. It speaks for itself. I don't believe there is 

iDr. E. V. McCulluin, Baltimore. Md. 



3052 CONCENTRATION OF ECONOMIC POWER 

any need of particular explanation. The dairy products line, repre- 
sentinc; retail prices of dairy products, has been consistently below 
the average consumer prices of all other foods, and both of those lines, 
the retail prices of dairy products and of all foods combined, have 
been substantially lower than the line representing the cost of living 
during the last 9 years. 

(The chart referred to was marked "Exhibit No. 465," and is in- 
cluded in the appendix on p. 3268.) 

Acting Chairman Reece. May I ask what the basis of compari- 
son is? 

Mr. Bromley. I misquoted that. This is from the United States 
Department of Labor, not the Department of Agriculture. They 
publish this information monthly. Congressman, and it is taken di- 
rectly from their records. 

Mr. McInnernet. Of particular interest in this connection are the 
facts shown in chart 10. 

(The chart referred to was marked "Exhibit No. 466" and is in- 
cluded in the appendix on p. 3269.) 

You will notice that the American pays less in relation to his pur- 
chasing power for a quart of milk than the peoples of any other lead- 
ing nations. You will also notice that the per capita fluid milk con- 
sumption is larger in the United States than in any of these other na- 
tions except Sweden. These facts in themselves speak well of the 
efficiency with which the American system of milk distribution is serv- 
ing the best interests of the American public. 

Mr, Bromley. The price of any product in dollars, pounds, shil- 
lings^ or any other denomination of money isn't representative of its 
cost to the consumer, as anyone who thinks the matter through can 
readily see. It is the price of a product, coupled with the average 
rate of pay commonly receit^ed by a large group of people in any par- 
ticular nation, that determines prices. In other words, price is, really, 
How long do you have to work to earn whatever you want to buy, 
whetlier it is an automobile, refrigerator, bottle of milk, or any other 
commodity? In that respect the United States surpasses — I beg your 
pardon ; in that respect the cost of a bottle of milk in the United States 
is less than it is in these other countries. The per capita consump- 
tion of milk in the United States compares most favorably with these 
other countries, but is exceeded by the per capita consumption in 
Sweden. 

Acting Chairman Reece. May I ask if that per capita consumption 
includes condensed milk also? 

Mr. Bromley. This pertains to fluid milk and cream. Unavoidably 
the cream is in there, as the statistical data available aren't sufficiently 
refined to exclude cream from these per capita milk consumption 
figures. 

A.cting Chairman Reece. But how would the comparison of the per 
capita consumption in the different States be affected if condensed 
milk were included also? 

Mr. Bromley. I think that the per capita consumption comparisons 
indicated here would not be materially changed were you to include 
evaporated and condensed milk in these data. I do not liave in mind 
the per capita consumption of evaporated milk in these other nations, 
but I -im quite certain that would be a fact. 



CONCENTKATION OF ECONOMIC POWER 3053 

Acting Chairman Reece. I asked the question, my attention hav- 
ing previously been called to another chart, I believe No. 19,^ which 
indicates that the increase in the consumption of evaporated milk in 
this country has greatly exceeded the increase in the consumption of 
fluid milk. 

Mr. Bromley. That is correct, sir. I believe Mr. Mclnnerney 
would like to comment on that. 

Acting Chairman Reece. I didn't want to bring up a discussion of 
chart No. 19 at this time. 

Mr. Bromley. I do not think these comparisons indicated here 
would be materially changed were you to include consumption of 
evaporated milk and condensed milk. 

Mr. McInnerney. As a final example of the efficiency with which 
milk and dairy-product companies are serving both farmers and 
consumers, may I refer you to the facts set forth in chart 2? This 
chart shows the percentage of the retail price received by farmers 
producing different types of food. Despite their extreme perisha- 
bility, dairy products rank near the top of the list, in that dairy 
farmers receive a larger percentage of th© consumer's dollar than 
do producers of most other types of foodstuffs. 

Mr. Bromley. The data in this chart are copied directly from ma- 
terial supplied by the Department of Agriculture. The onl}^ adjust- 
ment I have made m the presentation of these products is the exclu- 
sion of about 14 products of minor consequence from this list which 
the Department included in its list. All of those products return 
farmers less than the 43 percent which milk and dairy products, 
returned them in 1938. In other words, had those other products been 
in, they would have been in down here some place or other. I ex- 
cluded them primarily because they all were of lesser consequence. 

(The chart referred to was marked "Exhibit No. 467" and is in- 
cluded in the appendix on p. 3270.) 

x4.cting Chairman Reece. That chart, then, would indicate that 
farmers received a larger percentage of the price whicli the con- 
sumers paid for milk and milk products than of any other product 
produced on the farm. 

Mr. Bromley. Not of any other, sir; but of most others, because 
you see pork, eggs, lamb, hens, and navy beans. These products do 
return farmers more of the consumer price than dairy products. 
Dairy products is right here, but dairy products returned farmers 
more than most of these other products! 

Acting Chairman Keece. I misread the chart. 

Mr. McInnerney. Dairy products is sixth on the list. 

Chart 12, showing the break-down of the National Dairy's 1938 
sales dollar into major expense classifications presents clearly the 
small portion remaining for stockholders after farmers, labor, and 
the Government receive their share. 

Mr. Bromley. In late years there has been an increasing tendency 
to show corporations' profit-and-loss sheets in some other fashion than 
the standard bookkeeping terminology, so that the information pre- 

' "Exhibit No. 475," introdncod, infra, p. 3063; npiionrs in app'^ndix on p. 3:278. 



3054 CONCENTRATION OF ECONOMIC POWER 

sented would have more meaning and would be better interpreted by 
the man who. isn't trained in accounting forms and practices. That is 
all this chart shows. It shows that of our total sales dollar, farmers 
and other suppliers got 56 cents, that our employees received 18.5 
cents, practically ; that our operating expenses other than the cost of 
cur materials and wages paid labor amounted to 18.8 cents out of each 
dollar of sales. That includes power, light, heat, cartons, deprecia- 
tion, repairs, and a host of other costs. 

The Government received 2j\ cents out of each dollar of sales, and 
there remanied as our stockholders' equity 3xtt cents. 

Mr. McInnerney. You will notice by that chart that National 
Dairy paid the farmers in 1938 $187,000,000. That is approximately 
$500,000 a day. 

(The chart "How Did National Dairy Use its $.334,300,000 of Sales 
in 1938" was marked "Exhibit No. 468" and is included in the ap- 
pendix on p. 3271.) 

I have a chart here that shows — I won't read it all but just make 
two points — that the milk companies, the farmers sold to milk com- 
panies for resale in cities as bottled milk and cream 14,800,000,000. It 
will also show that farmers sold to creamery butter manufacturers 
and sold to cheese manufacturers, including butter made in dairy — 
for dairy farmers— 20,000,000. In other words, 14,800,000,000 went 
into milk, cream, 20,000,000,000 went into butter, and 3,000,000,000 
went into cheese. It just shows the relative forms. 

CONCENTRATION OF DAIRY PRODUCTION IN NORTH CENTRAL AREA OF 
UNITED STATES 

Mr. McInnerney. Chart 13 shows the great concentration of butter, 
cheese, and evaporated m-ilk production within the borders of 12 
North Central States. These States produce more than 70 percent of 
these products because cost of production, feed, labor, and taxes are 
lowest in this area. 

Since these 12 States support only 30 percent of the total population 
of the country, it is obvious that the major portion of these manu- 
factured dairy products are shipped from these States to other areas, 
principally to the eastern seaboard where population density is greater 
and milk production relatively smaller. I offer this chart. 

(The chart referred to was marked "Exhibit No. 469" and is in- 
cluded in the appendix on p. 3272.) 

Mr. Bromij:y. This information is supplied by the Department of 
Agriculture data. I believe it needs no extensive comment. As to 
butter, cheese, and evaporated milk, three leading manufactured dairy 
products, the most of those products are produced from milk which 
is produced in these 12 States right here, north central dairy region. 
In other words, 70 percent of the production of milk is in that area 
and 30 percent of the requirements only in that area. 

Mr. McInnerney. It is obvious that there must be national prices 
for buiter, cheese, and evaporated milk. Nation-wide conditions of 
suj^ply and demand determine these prices in competitive markets. 

The variations in the wholesale prices of these produ ts from one 
State to another only give effect to differences in transportation costs 
from the area of production to the area of consumption. Second, the 
prices farmers receive for milk used to make butter, cheese, and 



CONCENTRATION OF ECONOMIC POWER 3055 

evaporated milk must fluctuate directly v/ith the Nation-wide selling 
prices of these products. 

Third, the prices farmers producing milk for fluid markets receive 
for the portion of their milk used to make these three basic products 
are also fixed by their Nation-wide selling prices, and can be no higher 
than prices received by farmers in the North Central States, the center 
of milk production and dairy-product manufacture. 

While milk used for the manufacture of butter, cheese, and evapo- 
rated milk must be produced under sanitary conditions, the require- 
ments for its production are naturally not as highly developed as for 
milk designed for sale to consumers in fluid form. 

It costs dairy farmers more to produce milk meeting health-depart- 
ment sanitary standards and sold in fluid form than it does milk pro- 
duced exclusively for manufacturing purposes. Therefore, milk 
producers are justly entitled to a premium for that portion of their 
milk which is sold to consumers in bottles. These higher prices were 
demanded initially by dairy farmers, cooperative associations, so that 
the farmers could receive a price sufficient to cover the higher cost of 
production necessitated by compliance with health-department regu- 
lations. 

This was the genesis of what is now commonly called the classified 
plan of milk buying. The classified plan merely involves paying 
farmers different prices for milk, which will reflect the higher cost of 
producing milk for sale in bottles and at the same time the lower 
value based on the national market price of milk sold in the form of 
butter, cheese, or evaporated milk. In addition to being initiated by 
dairy-farm groups themselves, this classified plan has also been in- 
corporated in the A, A. A. milk orders and licenses. The classified 
price plan wets not conceived by milk dealers or milk companies; it 
was farmer-initiated, and, properly determined, should reflect the 
added cost of producing milk in bottled form. The term "properly 
determined" is important. One notices that farmers producing milk 
in local restricted milksheds designed primarily for resale in fluid 
form are in a position of great strength to dictate the price they can 
receive for milk sold consumers in bottles. This price is commonly 
called class 1 price. This class 1 price should be higher than the 
basic value of milk used for manufacturing as determined by com- 
petitive markets reflecting national supply-demand conditions by only 
the added costs of complying with health-department regulations, plus 
any additional eosts resulting from higher feed, labor, or any other 
higher cost properly chargeable to the cost of producing class 1 milk. 
The class 1 price should be high enough to encourage the production 
of sufficient milk to supply fluid consumption requirements. In actual 
practice, many — I had "most" but I changed it to "many"— class 1 
prices today are considerably higher than these additional costs would 
justify. 

This situatioii and its harmful effect will be developed in my sum- 
mary and recommendation. The reason for this situation — I have 
crossed out a little here. Because of the inducement of the high 
class 1 price for milk which have prevailed in recent years, dairy 
farmers in the milksheds surrounding metropolitan areas have pro- 
duced milk far in excess of fluid-sales requirements. This overpro- 
duction is accentuated because of the normal variation in production 



3056 CONCENTRATION OF ECONOMIC POWER 

between June, the month of high production, and November, the 
month of low production. 

Since fluid milk companies must contract to purchase milk from 
a sufficient number of dairy farmers so that their milk receipts from 
these farniers will be adequate to cover their maximum bottled-milk 
sales requirements during ithe months of minimum production on 
farms, during the remaining months of the year these companies 
must, if the farmer is to have a dependable market for production 
all months of the year, buy, process, and market milk in excess of 
their fluid-sales requirements. 

This excess on surplus has to be made into butter, evaporated milk, 
or some other itiilk product. If that isn't clear, if you want to ask 
any questions, we simply state that we are obligated or obliged to buy 
in order to take care of our fluid milk requirements. We were 
obliged to have all the farmers develop more milk in the summer, 
which we must take. They do develop more milk in the summer in 
order to supply the market in November and December. That milk 
is overproduced, or is what we call surplus milk; we take it off the 
farmers' hands and make it into something, butter, cheese, or what- 
ever it may be. 

Chart 14 shows what this excess amounted to on the average of 
National Dairy fluid milk distributing companies during 1938. As 
can be seen, about 30 percent of the amount required for fluid sales 
had to be purchased and manufactured into milk products. This 
surplus was much larger than normal because of this surplus pro- 
duction. A large milk company is not only a distributor of fluid 
milk but also a manuf-acturer of milk products. The company has 
no choice in the matter. This explains a fundamental dairy problem, 
namely, why dairy farmers in milksheds surrounding metropolitan 
areas have to receive different prices for the same identical milk, 
depending on the form in which it is sold. -I submit the chart. 

(The chart referred to was marked "Exhibit No. 470" and is in- 
cluded in the appendix on p. 3273.) 

Mr. Bromley. This chart shows in November approximate amount 
of milk required for the fluid sales, the fluid requirements of our com- 
panies in that month. During the remainder of the year there are 
varying percentages of production on these farms in excess of what 
we receive from those farms in November. In other words, if it 
took 100 farms to supply this amount of milk, and this is representa- 
tive of our fluid requirements, those same hundred farms in January 
would produce 108 percent, or 8 percent more than this amount of 
milk, and so forth, going up to a peak of 64 percent over our fluid 
requirements in the high month of June. 

This excess that Mr. Innerney mentions of 30 percent— this data 
is all for the year 1938 — is considerably larger than normal. It is 
due to the increased production of milk on farms in recent years. 

Acting Chairman Reece. Increased production during the months 
of increased production; was that reflected in the price situation, 
that is, either the price paid the producer or the price for which it 
was sold to the consumers? 

Mr. Bromley. It is not reflected in the price received hj producers 
for milk sold in fluid form. It can be best explained this way, sir. 
If we were paying 5 cents a quart for milk we sell in bottles, sell 



CONCENTRATION OF ECONOMIC POWER 3057 

consumers in a bottle in this month here, and 3 cents a quart for milk 
we sold for from 2 cents a quart up in the form of dairy products, 
butter, cheese, and so forth — we will call this 125 percent to make it 
easy, instead of 126 — the farmer would receive the 2 cents for one- 
fifth of his total production, his 25 percent, and the 5 cents for the 
other four-fifths of his total shipments to us. 

Now, if you weigh those things out, you come to a price some- 
somewhat less than 5 cents — if you had a piece of paper you could 
do it. Come over to June and assume this price the farmer receives 
for milk sold in bottles is still 5 cents, that the manufacturing price 
on the average is still 3 cents, then the farmer's net price or blended 
price or average price, or whatever you wish to call it, would natu- 
rally go down because a greater proportion, a larger percentage of 
his production has to be sold into forms of these manufactured 
products, 

Mr. McInernet. If the committee will permit, I would like to 
ask Mr. Hovej, our vice president, to continue reading to give me 
a little breathing spell. 

Acting Chairman Keece. I assume that would be satisfactory, but 
what is the wish of the committee ? It is now about 12 : 30. Do we. 
want to complete the presentation of this statement before we re- 
cess ? How much longer do you think it will take ? 

Mr. McInnerney. I think it will take not more than 15 minutes. 

Acting Chairman Reece. Is it agreeable to the committee for Mr. 
Hove;^ to read? (The committee assented.) 

Acting Chairman Reece. Mr. Hove;^ should be sworn. 

Mr. Hovey, do you solemnly swear, in the testimony you are about 
to give, to tell the truth, the whole truth, and nothing but the truth, 
so help you God? 

Mr. HovET. I do. 

TESTIMONY OF V. F. HOVEY, VICE PKESIDENT, NATIONAL DAIRY 
PEODUCTS COEPOEATION, NEW YOEK CITY 

Acting Chairman Reece. If you have not done so, will you please 
state your name and title? 

Mr. HovET. My name is V. F. Hovey, and, as stated by Mr. Mc- 
Innerney, I am vice president of National Dairy Products Corpora- 
tion. 

On March 9 and 10, 1939,^ witnesses introduced by the Federal 
Trade Commission made several erroneous statements concerning 
dairy industry economics. As these witnesses were undoubtedly sin- 
cere in the statements they made, presumably their misstatements 
were caused by their lack of understanding of the economics of this 
industry. 

I have already pointed out the falseness of these charges by pre- 
senting the real facts of the case in the charts and comments in the 
preceding part of my statement. 

I have pointed out that dairy farmers' income was maintained 
at materially higher levels during the depression than the farm in- 
come from the production of other major crop and livestock commod- 

» Supra, pp. 2751-2880. 



3058 CONCENTRATION OF ECONOMIC POWER 

ities ; that there is no monopoly in the dairy industry 'since National 
Dairy, the largest unit in the industry, handles such a small propor- 
tion of the Nation's milk products and cannot control the price to 
farmers nor the price to consumers in any market ; that the operating 
efficiency of the dairy industry generally compares most favorably 
with that existing in most other branches of food manufacture and 
distribution ;. that National Dairy Products Corporation's earnings 
are certainly reasonable, and if anything are too small to afford 
our 75,000 shareholders a reasonable return for the services their 
company performs ; that bottled milk costs relatively less in the United 
States than in any other leading nation of the world; and that the 
per capita consumption of milk in this country leads most other na- 
ions of the world. Although the actual facts I have presented 
effectively refute the various charges made before this committee on 
March 9 and 10, I wdsh to comment further on some of the more 
flagrantly erroneous remarks made by these witnesses before your 
committee. 

On March 9 Prof. Frederic C. Howe inserted a table in the record 
purporting to be a measure of milk companies' spreads in various 
cities. Professor Howe merely compared the \;lass I farm price with 
the retail home-delivered price in these cities and called the differ- 
ence the milk companies' spread. I here insert <^able A, showing the 
real spread in milk distribution in those cities Professor Howe in- 
cluded where National Dairy has milk-dist1:*ibuting subsidiaries. You 
will note that our actual spread on fluid-milk distributing, including 
retail and wholesale trade, in these cities was 1 cent a quart or about 
15 percent less than the spread alleged by Professor Howe. 

I think we shouldn't take up the time of the committee, probably, 
by reading the comparisons on all cities, but we will pick out the city 
of Detroit because that was the one that received the most attention. 
The price paid to the farmers f. o. b. city- in October 1938 was 3.8 
cents per quart. The selling prices, the average selling price, retail 
and wholesale, was 9.08 cents per quart. Our average spread on all 
the spread of quarts of milk w6 delivered in the city of Detroit was 
5.28 cents per quart, whereas the testimony of Professor Howe was 
to the effect that our spread was 6.48, or an overstatement of 1.2 cents. 

The same situation is true in connection with the figures on the 
other cities and the information is contained in the printed statement 
that has been furnished to you. 

Erroneous information such as that read into the record by Pro- 
fessor Howe is detrimental to the best interest of the industry, be- 
cause the public is led to believe that milk companies' prices are 
higher than is necessary. Any effort to destroy public confidence in 
the milk industry by misstatement of fact or uninformed snap judg- 
ment is a disservice to the industry, especially to farmers, as such 
attacks reduce milk consumption. 

Another witness on March 9 stated that in reality the blended 
price milk companies paid for milk represented the real cost to them 
of the milk they sold in bottles, rather than the class 1 farm price. 
Referring back to my table, on page 7, of this statement, the false- 
ness of such an assertion readily becomes apparent. 

The statement was further made before this committee that milk 
companies were not interested in promoting the best interests of their 



CONCENTRATION OF ECONOMIC POWER 3059 

fluid-milk business ; that they are chiefly interested in furthering the 
sale of their branded-milk products, butter, cheese, evaporated milk, 
and so forth. This statement is completely inaccurate. 

Large fluid-milk distributing companies are in the manufacturing 
end of the dairy industry because they must manufacture the excess 
milk they receive from farmers if their farmers are to have a con- 
tinuous, reliable market for all of their production during all months 
of the year. 

The assertion that fluid-milk companies are not interested in pro- 
moting the sale of bottled milk is, of course, preposterous. Such 
financial success as a fluid-milk company can achieve is obtained only 
by the large volume of its operations. If its volume declines, unit 
costs become unduly high. 

The assertion, made before this committee, that National Dairy 
companies were interested only in selling bottled milk on retail routes 
is completely erroneous. As I have said before, National Dairy com- 
panies are anxious to sell as much milk as possible' and are willing 
to sell it in any way the public desires, so long as the method is 
economically sound. IS^ational Dairy sells 38 percent of its bottled 
milk wholesale to stores, restaurants, and so forth, for resale to con- 
sumers, and the percentage of this wholesale business has increased 
rapidly in the last 4 years. 

Professor Howe made the further charge that the large milk com- 
panies controlling pasteurization plants had been successful in build- 
ing up a monopoly in fluid-milk distribution in the markets in which 
they operate. This comment about pasteurization plants permitting, 
monopoly is unfounded. A small pasteurizing plant can be pur- 
chased for $2,000 or $3,000, and scores of such plants are to be found 
in, practically every city. Thousands of new milk companies, includ- 
ing farmer cooperative milk-distributing companies, have been or- 
ganized since pasteurization became the commonly accepted practice. 

DECLINE IN SALE OF FLUID MILK AND CREAM BY NATIONAL DAIRY 

Mr. HovEY. In further connection with this monopoly charge, I 
would refer the committee's attention to chart 15 which shows that 
National Dairy's share of the Nation's total fluid-milk and cream 
sales has consistently declined since 1930. 

Mr. Bromley. This chart is compiled by comparing National Dairy 
fluid-milk sales with the fluid-milk sales for the Nation as a whole in 
the cities and villages of the United States. In 1930 National Dairy 
sold 10.2 percent of the national total. Today, last year, 7.6 percent. 

(The chart referred to was marked "Exhibit No. 471" and is in- 
cluded in the appendix on p. 3274.) 

Mr. HovEY. Certainly such a downward trend is not characteristic 
in any monopoly. In addition, chart 16 shows that the number of 
milk companies competing with National Dairy in markets where our 
fluid milk distributing subsidiaries carry on their operations practi- 
cally doubled in number from. 1930 to 1935. Here again a 100-percent 
increase in competition is not characteristic of any monopoly situa- 
tion. Neither did our ownership of pasteurization plants in these 
markets prove, any deterrent to the establishment of these 2,000 new 
milk companies during these years. 



3060 CONCENTRATION OF ECONOMIC POWER 

Mr. Bromley. In 1930 National Dairy had in its principal markets 
about 2,375 fluid-milk competitors, in 1935 it had 4,516. Tlie data 
stops at 1935 instead of being carried to date as it is some cost to 
make studies of this character and we made it only during ihis 
period of time. Since that time that 4,516 has shown further in- 
creases. 

This is not an isolated sample. The mere fact that the popula- 
tion of these markets covered by this data is 24,000,000 is certainly 
representative of the fact that the situation shown here is an accurate 
reflection of what is going on in the industry. 

(The chart referred to was marked "Exhibit No. 472" and is in- 
cluded in the appendix on p. 3275.) 

Mr. HovEY. It is my understanding that monopoly can come about 
in only three ways; by control of supply, by exclusive patents on 
processing equipment, or by control of resale prices. None of these 
conditions have existed in the milk industry and they never will. 
No corporate monopoly exists in milk distribution, gentlemen, nor 
can it ever exist, because no company can successfully control, even in 
a single market, the production of milk, the law of supply and de- 
mand, which fixes wholesale prices of milk products, the prices at 
which farmers sell milk, or the prices at which milk is sold to con- 
sumers. 

For the last several years dairy farmers, cooperative associations, 
and Government bodies through orders and licenses have maintained 
class 1 prices at levels much higher than the basic value of milk used 
for manufacturing purposes as determined by supply and demand 
conditions in competitive markets. This came about because, with 
the general collapse of all commodity prices following 1929, farmer 
associations in local milksheds attempted to stave off a reduction in 
their blended prices by maintaining class 1 prices at high levels. 
When Government bodies commenced regulating class I farm prices, 
they acceded to farm demands and raised class 1 prices still higher 
in a vain attempt to increase the blended or net farm price. Refer- 
ence to chart 17 shows the extent to which class 1 prices (milk sold 
for bottling) have been maintained at excessively high levels above 
manufacturing prices. 

Mr. Bromley. The base in this chart is 1925-29. These lines 
express the percentage change in the price farmers receive for milk 
used for bottling, condensing, cheese manufacture, butter manufac- 
ture, since that point. The top line for every year is the trend in 
the price farmers receive for milk used for bottling. You will notice 
that it is substantially higher than the price that they receive for milk 
used for these other purposes. This chart is not too well constructed, 
as it does not show too clearly the point we are making. 

We are not comparing the excess this way [pointing to chart]. 
It is a vertical comparison and, as you can see, the excess in the farm 
price for milk used for bottling is much higher than the farm price 
for these other products compared with this average. 

(The chart referred to was marked "Exhibit 473" and is included 
in the appendix on p. 3276.) 

Mr. HovEY. The industry has been harmed by this policy. First, 
farmers in milksheds were induced to produce more milk in an 
effort to increase their income, as they were attracted by the high 
class 1 price. 



CONCENTRATION OF ECONOMIC POWER 3061 

Second, in the face of this liigher production, consumers were pur- 
chasing less fluid milk. Less consumer buying was natural because 
consumer purchasing power was at low ebb as the depression in- 
creased in severity. Furthermore, the maintenance of class 1 prices 
at high levels necessitated artificially high retail prices for bottled 
milk. The price paid farmers for class 1 milk determines retail prices 
as the cost of milk is the milk company's largest item of expense. 

There could be but one result from the head-on collision of these two 
conflicting forces. With production increasing and consumption de- 
clining, more and more excess or surplus milk was produced in milk- 
shed areas. This meant that larger and larger proportions of the 
farmers' total production had to be sold at the lower prices farmers 
were receiving for milk used for manufacturing purposes. Although 
on the average National Dairy companies had 30 percent surplus last 
year, in many National Dairy markets as much as 40 or .50 percent of 
the total milk receipts of our fluid milk companies had to be processed 
into manufactured dairy products during some months of the year. 
In other words * * * referring back to the table on page T 
again * * * instead of an 80-20 division between bottled and 
surplus sales, the ratio might have become 60-40, or even equally 
divided between fluid and manufacturing uses. 

But the cumulative effect of larger production of manufactured 
dairy products in milkshed areas, where ordinarily most of the milk 
is used to supply fluid sales requirements, put further strain on the 
Nation-wide butter, cheese, and evaporated milk markets. With this 
added production coming on the manufactured dairy product market, 
at a time of reduced consumer purchasing power, conditions of supply 
and demand forced reductions in the Nation-wide prices of these 
products. 

A further evil in this situation lies in the fact that the -wide differ- 
ence between the class 1 price of 5 cents and the blended or net price 
of 3.5 cents shown above, permits irresponsible and destructive milk 
dealers, who sell nothing but fluid milk and supply no market for the 
farmers' surplus production, to buy milk from farmers for about the 
blended price of 3.5 cents per quart. Milk is available to them at these 
prices because of farmers' surplus production. These dealers then 
compete with responsible milk distributors who are paying the full 
5 cents per quart. These irresponsible dealers compete by price cut- 
ting. They can cut prices only because they do not pay farmers the 
full class 1 price. These dealers paying farmers only the blended 
price for milk and selling in competition with distributors who are 
paying the full class 1 price demoralize the entire market both for 
farmer and distributor. The advantage these dealers secure in buying 
is reflected in selling prices which eventually tear down the entire 
price structure in the market. This eventually results in lower prices 
to all farmers. This type of buying by irresponsible dealers has taken 
millions of dollars annually from producers' milk checks in the past 
4 or 5 years in various milksheds throughout the country. 

Thus the attempt to maintain class 1 farm prices at unreasonably 
high levels above the basic value of milk — the price it will bring 
farmers when used for manufacturing — has stimulated production 
and at the same time reduced consumption in fluid form to the general 
demoralization of the entire price structure in the dairy industry, 
farm price and consumer price alike. No other result could be ex- 



3062 CONCENTRATION OP ECONOMIC POWER 

pected from a price program that attempts to ignore the law of 
supply and demand. 

The industry can only remedy this situation by facing these self- 
evident facts. These facts show that the solution of industry prob- 
lems requires — 

First, an intelligent determination of class 1 farm prices in a 
reasonable relationship to prices farmers receive for milk used to 
fnake manufactured-milk products, so that production and consump- 
tion of milk for fluid use will tend to be in a more normal balance. 

Second, a recognition of the fact that the consumer is the final 
arbiter of farm income; that if prices are not sufficiently reasonable 
and more nearly competitive with the price of evaporated milk to 
induce the purchase of maximum amounts of bottled milk, the farmer 
-will lose his best market. 

I shall comment on each of these main points briefly. 

The going price paid farmers by condenseries for milk to be manu- 
factured into evaporated milk gives effect to national supply-demand 
-conditions existing in manufactured-milk products and is the best 
price to which to tie class 1 farm prices. Evaporated milk is fluid 
milk's chief competitor. Chart 18 shows graphically how far out 
of line class 1 prices are today from this basic price. In Boston 
in December, for instance, raw milk before processing, bottling, and 
delivery, cost milk-distributing companies I14 cents more per quart 
f. o. b. their city plant platform than the wholesale price grocers 
pay for a can of evaporated milk, approximately equivalent in con- 
tent to a quart of fluid milk. Under these circumstances it is un- 
avoidable that retail bottled milk prices are much higher than equiva- 
lent evaporated milk prices. 

(The chart referred to was marked "Exhibit No. 474" and is in- 
'Cluded in the appendix on p. 3277.) 

I wish to make myself clear on this point. I do not say that the 
class 1 price should be the same as the condensery price, but I do 
say that the class 1 price should have a sound economic relationship 
to the price condenseries pay farmers, which is based on the current 
market prices for butter and cheese. The class 1 price should be 
higher by an amount sufficient to reflect the added cost of production 
due to compliance with board of health regulations, extra cost of 
transportation to the fluid market, and by the premium that is neces- 
sary to maintain an adequate' quantity of milk for fluid consumption. 
It is understood that these factors may vary with each market. 

I have described in some detail how artificially high and arbitrary 
class 1 prices stimulate production in milksheds, reduce bottled milk 
•consumption, and depress the farm price of milk used for manufac- 
turing purposes through the diversion of large amounts of milk 
produced primarily for consumption in fluid form into manufacture 
as milk products. 

This vicious circle is particularly detrimental to the income of the 
farmers producing milk primarily for manufacturing purposes, and 
more than 60 percent of the dairy farmers of the Nation produce milk 
directly for manufacture into milk products. 

The consumer will not be encouraged to drink bottled milk if the 
price he pays does not seem reasonable. The comparatively high 
retail prices of the last few years, caused by payment of high class 1 
prices to farmers, has reduced consmnption of fluid milk and stimu- 



CONCENTRATION OF ECONOMIC POWER 3063 

lated the purchase, of evaporated milk. The dairy farmer is closing 
his class 1 bottled-milk market, his best market, by attempting to 
obtain an uneconomically liigh price for his product. 

Mr. Brotviley. This chart shows the trend in the per capita con- 
sumption of evaporated milk and fluid milk since 1930. The per- 
capita consumption of evaporated milk since that year has increased 
37 percent, the per capita consumption of fluid milk naturally declin- 
ing to 34, due to the economic disasters which were afflicting the 
country. It went down. Since then it has tended to go up. There 
isn't any real downward trend in the consumption, but the trouble is 
there is no decided upward trend, as there is in the case of evaporated 
milk. 

(The chart referred to was marked "Exhibit No. 475" and is in- 
cluded in the appendix on p. 3278.) 

Mr. HovEY. If the dairy farmer understood these facts, I feel cer- 
tain he would act quickly to help put the industry's house in order. 
The American farmer does not expect the consumer to pay unduly 
high prices for milk. Neither does the farmer wish to mortgage his 
future prosperity by trying to get unjustifiably high prices today at 
the expense of losing his fluid-milk market. 

Were class 1 farm prices maintained at a sound economic level" 
above condensery prices — (1) the maximum amount of bottled milk 
would bQ sold at low^er prices to consumers; (2) milk production 
would be more in line with demand; (3) the problem of growing sur- 
pluses, depressing both th^ farm-price structure on milk used for 
manufacturing purposes as* well as the blended price of farmers pro- 
ducing milk for consumption in bottles, would be relieved and eventu- 
ally eliminated; and (4) dairy farm income would be increased. 

The Federal and State Governments and producer groups — this is 
added to the printed statement — have had the power to establish class 
1 prices arbitrarily. I think it follows that the same agencies have 
the power to establish prices on a sound basis, and that they should 
have an opportunity to do so and be expected to do so. Undoubt- 
edly all desire that "prices arbitrarily established shall be established 
on a basis fair to producers, consumers, and distributors. 

If producer groups, because of pressure from membership or for 
any other reason, find it impossible in any market co establish 
prices on a sound basis, then the alternative will be to give all 
producers who desire to ship to the market and who produce milk of 
equal quality the opportunity of so doing. 

Acting Chairman Reece. It is now almost 1 o'clock. What time, 
Mr. Ballinger, would it be convenient from your standpoint to 
reassemble ? 

Mr. Ballinger. Two-thirty. 

Acting Chairman Reece. The committee will stand adjoui nod 
until 2:30. 

(Whereupon, at 12 : 52 p. m., a recess was taken until 2 : 30 of 
the same day.) 

afternoon session 

The committee resumed at 2:45 p. m. on the expiration of the 
recess. 

The CiLMRMAN. The committee will please come to order. Was 
your direct statement finished this morning, Mr. McTnnerney? 

124491— 39— pt. 7 21 



3064 CONCENTRATION OF ECONOMIC POWER 

Mr. McInnerney. I would like to call attention to the fact that 
although I have only read excerpts from the statement submitted 
to you, I would like to establish definitely that the entire statement 
we submitted will be in the record, and not only the portion of 
the statement that I read before the committee. 

The Chairman. You want your statement as made this morning 
amplified so as to contain all the material in the printed statement 
which you omitted in your original presentation? 

Mr. McInnernet. Yes. 

The Chairman. That will be understood. 

Mr. McInnerney. There is one more in addition to the state- 
ments that we submitted to you which I gave vou, and we read into 
the record, which I would like to read again. In attempting to 
offer a solution or a suggestion of a solution which we think is 
sound. In other words, we have a recommendation for this that I 
would like to definitely establish. It was read, but you were not 
present. It is very short. 

RECOMMENDATION FOR SOUND PRICING OFFERED 

Mr. McInnerney. The Federal and State <TOvernments and pro- 
ducer groups have had the power to establish class 1 prices arbitrarily. 
I think it follows that the same agencies have the power to esta})lish 
prices on a sound basis and they should have an opportunity to do so, 
and be expected to do so. Undoubtedly all desire that prices arbi- 
trarily established shall be established on a basis fair to producers, 
consumers, and distributors. If producer groups, because. of pressure 
from membership or for any other reason, find it impossible in any 
market to establish prices on a sound basis, then the alternative will 
be to give all producers who desire to ship to the market and who 
produce milk of equal quality the opportunity of so doing. 

I don't know whether that statement was understood by the com- 
mittee, and if it isn't I shall be glad to enlarge upon it and tell you 
what we have in mind. 

The Chairman. All right. Let's take the first sentence. 

I think it follows that the same agencies, being the rvfleral and State Govern- 
ments and producer groups, have the power to estabhfeL prices on a sound basi& 
and that they should have an opportunity to do so, and be expected to do so. 

Do you mean by that that the distributor should not have a part in 
fixing the price ? 

Mr. McInnerney. No, I do not; but we haven't had much part. I 
would welcome an opportunity to have a part in fixing the price. 

The Chairman. The complaint has been made from time to time 
that the distributors have really been the essential factor in fixing 
the price. 

Mr. McInnerney. To the farmer ? 

The Chairman. Yes ; to the farmer and to the consumer, and that it 
was cause of complaint with the price that producer groups were or- 
ganized. What basis is there for that ?. 

Mr. McInnerney. We have definitely the rrice fixed to the con- 
sumer. We do have the price-fixing to the consumer. 

The Chairman. You do have the power to fix the price to the 
consumer ? 



CONCENTRATION OF ECONOMIC POWER 3065 

Mr. McInnernet. We do have that, but when it comes — of course, 
for our own companies. That is understood ; we have nothing to do 
with anybody else. 

The Chairman. Mr. Grordon was just afraid I was going to lead 
you into a trap. 

Mr. McInnernet. I am not at all afraid of that. I know you 
wouldn't. 

The Chairman. I am not afraid you can be led into a trap. 

Mr. McInnernet. But what I mean is that while our separate com- 
panies do meet with producer groups and we have repeatedly called 
their attention to this situation, we have had no encouragement up to 
the present time to believe, maybe because of this last break-down of 
the Government situation, may have registered a little more, we do — 
I mean our men; I never have in any single instance, but our men 
do meet producer groups and attempt to establish a price, but the 
power to establish the price 

The Chairman (interposing). Just how do you do that when you 
meet with the producer groups to establish the price? Just what is 
done ? 

Mr. McInnernet. Well, as I never have been to one, may I ask 
Mr. Hovey, who has been sworn, to relate that situation ? 

The Chairman. All right. Will you be SAvorn ? 

Mr. HovET. I am vice president of National Dairy Products Corp. 
I was sworn this morning. 

Mr. McInnernet. I would like to also say of Mr, Hovey that he is 
president of the General Ice Cream Co. and vice president of the 
National Dairy ; he has been in the milk business all his life. 

Mr. HovET. Where arbitrarily high prices are in effect, almost in- 
variably such prices are the result of the control of supply by the 
producer, cooperative producer groups, or result from Government 
control. It is a fact, Mr. Chairman, that during the periods when 
farmers were not well organized in some markets, groups of producers 
would compete. with each other in the sale of their milk. That usually 
resulted in unsatisfactory prices to producers and did result in an 
urge for the development of cooperative producer organizations so 
that they might have control of the supply and control of the price at 
which their product would be sold. 

Today throughout practically all of the territory in which we op- 
erate we deal either with cooperative producer groups in negotiating 
a price, or the price is fixed by governmental agency. Wlien we meet 
with the representatives of producer organizations they obviously 
seek to get as high a price as possible. We urge that the price should 
be kept within reasonable limits, that the resale price shall not be too 
high. The final price is nearly always the result of a compromise. 
The distributor seeking lower prices that he may sell cheaper, the 
producer seeking higher prices. 

The Chairman. Now, who sits with you on behalf of the distribu- 
tors? 

Mr. HovET. Usually the buyers from that particular cooperative 
organization. 

The Chairman. The buyers from the cooperative ? • Do you mean 
the producers' cooperative? 



3066 CONCENTRATION OF ECONOMIC POWER 

Mr. HovEY. The producers' cooperative. The buyers who buy from 
a single producer cooperative association will meet with the represen- 
tatives of that producer cooperative association. 

The Chairman. Now, are all the distributors represented in these 
discussions ? 

Mr. HovEY. Not necessarily. Usually only the buyers from that 
particular cooperative group and many times only a small percentage 
of those buyers. 

The Chairman. Well, now whom do you mean by the buyers from 
the group? You mean representatives — — 

Mr. HovEY. The distributor who buys milk from the producers. 

The Chairman. I beg pardon. 

Mr. HovEY. The milk distributor who buys milk. 

The Chairman. Are there more than one? 

Mr. HovEY. Usually the cooperative organizations sell to as many 
distributors as possible. 

The Chairman. So that as many distributors as they can get to- 
gether will assemble in these meetings? That is the question I am 
asking. 

Mr. HovEY. Our own experience has been that the representative's of 
the cooperative associations have come to the offices of the officers of 
our individual companies and have discussed — have negotiated with 
us prices to be paid for their milk. 

The Chairman. A moment ago I thought you said that the buyer 
from the particular cooperative would assemble to negotiate the price. 

Mr. HovEY. Senator, in the territory in which I operate we deal 
under control board — under State control boards. In that territory 
when prices are being discussed they have the administrator of the 
State control board, representatives of the producer groups, repre- 
sentatives of the distributor groups. 

The Chairman. So that you 

Mr. HovEY (interposing). The price in that case is finally deter- 
mined by the State administrator. 

The Chairman. In those States, then, or in those areas where you 
have a milk law which attempts to regulate the industry and control 
the price, you have a system by which the representatives of the pro- 
ducers upon the one hand and the representatives of as many dis- 
tributors as want to assemble upon the other, will sit together and 
try to reach a price. Is that correct ? 

Mr. HovEY. That is true, and in New York State we have been 
operating until very recently under the Rogers- Allen bill, which spe- 
cifically provided for dealer or distributor bargaining agencies and 
producer bargaining agencies. 

The Chairman. Now 

Mr. HovEY. All of those groups would meet. 

The Chairman. Before these laws were established, before these 
laws were passed, what was the practice ? 

Mr. HovEY. That goes back a number of years in the particular ter- 
ritory in which I operate. 

The Chairman. You operate in N ew York ? 
Mr. McInnerney. In New York State, not New York City. 
Mr. Hovey. In that territory we have bought most of our milk 
from the Dairymen's League, cooperative association. That organi- 



CONCENTRATION OF ECONOMIC POWER 3067 

zation determines the price at which it is willing to sell milk. That 
price is usually — the price thej^ quote is usually uniform to all of their 
buyers. They come to us and at times discuss with us the price at 
which their milk will be sold to us. If we object, of course we have 
the opportunity of buying somewhere else. We buy from the Dairy- 
men's League. We have to pay the price they ask. 

The Chaibman. Well, the condition which you describe is one in 
which the producers, upon the one hand, have formed an organization 
and appointed agents to speak for that organization ? 

Mr. HovET. That is true. 

The Chairman. And when those agents speak they speak for every 
member of the group ? 

Mr. HovEY. That is true. 

The Chairman. Now they sit down with the representatives of the 
distributors. When those representatives on the part of the dis- 
tributor speak, they also speak for all of the distributors, do they not ? 

Mr. HovEY. Where there is a bargaining agency under the Rogers- 
Allen bill that is true, Senator. 

The Chairman. Now, before these bargaining agencies were estab- 
lished, what was the price ? 

Mr. Ho\'EY. Senator, do I understand that you mean specifically 
what was the price? Of course, the price varied. What was the 
practice ? 

The Chairman. The practice; yes. 

Mr. HovEY. Well, when not dealing with a producer organization 
each individual buyer went out and usually had field men who he 
sent into the country to contact individual producers, telling them 
that he wanted to buy their milk and telling the producers the basis 
upon which they were willing to buy. That was usually bought only 
by negotiation between the distributor and the individual producer. 

The Chairman. And in those circumstances? 

Mr. HoA^EY. And the individual producers. 

The Chairman. And in those circumstances, dealing with the indi- 
vidual j)roducer, could you get a better price than you have been able 
to get from agents of the cooperatives? A better price from your 
point of view ? 

Mr. HovEY. I think that prices were not so satisfactory to producers 
during that period. 

The Chairman. So that the producers' organization has actually 
resulted in raising the price which the producer gets. 

Mr. HovEY. That is undoubtedly true. 

The Chairman. Well, now, what has been the effect upon the 
consumer ? 

Mr. HovEY. It has resulted in higher pirices to the consumer. 

The Chairman. When you were able to buy your milk by these 
individual contracts, was the price to the consumer lower than it has 
been since ? 

Mr. HovEY. I think so; but. Senator, in .most territories that goes 
back so many years that it is hard to establish a comparison. I think 
the Dairymen's League"^ was formed at least as far back as 1916, and 
it would be difficult to make a comparison of much value with a period 
prior to 1916. 

^ Producers' cooperative in New York State. 



3068 CONCENTRATION OF ECONOMIC POWER 

The Chairman, Do the distributors, when they a^ree upon the 
pricei which is to be paid to the producers, find it difficult at all to 
stand by the price so agreed upon ? 

Mr. HovET. The price to be paid to the producer ? 

The Chairman. Yes. 

Mr. HovEY. So far as I know they all pay what they agree to pay. 

The Chairman. So that you have a definite price fixed by the 
bargaining agents of the producers, and that same price definitely 
accepted by the bargaining agencies for the distributors ? 

Mr. HovET. That is true, if it works. Of course, the Nunan- 
Allen bill ^ is not working at the present time, so that that sort of 
thing has been discontinued, Senator, The law was held unconsti- 
tutional, temporarily. 

The Chairman. Oh. Then what happens now? 

Mr. HoYET. Each buyer is buying milk from his own group of pro- 
ducers. In the case of the larger companies I think they have con- 
tinued to purchase milk from the producers whom they have served 
for many years, and they have negotiated prices independently with 
that group of producers. 

The Chairman. Is there any difference in the price paid by differ- 
ent distributors to producers? 

Mr. HovET. Oh, yes. 

The Chairman. That varies now ? 

Mr. HovET. That price varies. 

The Chairman. What is the variation, approximately? I don't 
expect you to have the exact figures. 

Mr. HovET. May I say. Senator, that with a high class 1 price 
the distributor who buys milk and pays the high class 1 price and 
at the same time handles considerable surplus will of course return 
to his producers a blended price much lower than the class 1 price. 
There are in nearly every market today those distributors who do 
not care to handle surplus, do not care to assume that obligation, 
and who will go out and buy their approximate needs for their 
fluid milk requirements at about the blended price paid by the com- 
panv who handles this surplus, and that can very easily result in 
a difference of 50 or 60 cents per hundred pounds, and may be in some 
cases much more than that. 

The Chairman. Then there is no standard ]3rice now paid by the 
distributors since the suspension of the operation of this law? 

Mr. HovEY. In the New York City market, no, there is not. 

The Chairman. What is your opinion of the effect upon the milk 
market of this suspension of that law? 

Mr. HovEY. Tlie market is in chaotic condition today and the price 
to producers is unfortunately low. 

The Chairman. And yoii think that something should be done 
about it. 

Mr. HovEY. We do. 

The Chairman. What do you think should be done about it? 



'The Ntinan-Allpr. bill sought to^ correct the d<\fects cited by the New York State court 
declaring uncons 
Bet up a producers' 



In declaring unconstitutional the Rogers-Allen bill which among other things, purposed to 
a producers' board and a distributors' board to ox the price of milk in New York 



CONCENTRATIOIS OF ECONOMIC POWEh 3069 

DESIRABILITT OF G0M3RNMENT CONTROL IN FIXING SOUND PRICE BASia 

Mr. HovEY. We believe that there are conditions under which Gov- 
ernment control is desirable. 

Senator King. State or National. 

Mr. HovEY. Probably State and National, where interstate milk 
and intrastate milk both are involved. 

The Chairman. Mr. Mclnnerney, do you agree with that state- 
ment ? 

Mr. McInnerney. As an emergency I would agree with it, but not 
as a permanent thing; no. 

The Chairman. How are you going to define the termination of 
the emergency and the appearance of the regular order? Let Mr, 
Mclnnerney answer that question. You see what I have in mind is 
this. I will give you just a little more time. This morning in our 
colloquy you spoke very definitely against any form, degree, or man- 
ner of Government intervention in this or any other industry. Now, 
your vice president, whom you have called upon to answer a ques- 
tion in your name, has expressly stated that it is his opinion that 
it would be desirable to have some form of Government intervention, 
both State and National What is your opinion about the two ? 

Mr. McInnerney. He did not finish. He was going to qualify, 
i assume. 

The Chairman. Let him make his qualification, certainly. Let's 
get the whole story. 

Mr. HovEY. If I may be permitted to do so. 

We believe that Federal and State control is desirable under certain 
conditions. We believe that governmental control is probably justi- 
fied as an emergency measure, we doubt that it is justified as a perma- 
nent thing. But when, as in the case of New York City, we have 
had control of producer prices either through the cooperative organi- 
zations or through the government 

Senator King (interposing). That was State government, wasn't 
it, in New York Cit3' ? 

Mr. Ho\'EY. State government; and they have recently tried Fed- 
eral control as well. Senator. 

Senator King. You mean the Agriculture Department has tried 
to impose authority upon the prices there? 

Mr. HovEY, There has been a Federal order, Senator. 

Senator King. What ? 

Mr. McInnerney. The Federal order was declared unconstitu- 
tional in the State of New York by Judge Cooper. The same Fed- 
eral order under the same conditions in Massachusetts was declared 
constitutional by a Federal judge. We had two questions answered 
entirely in opposite direction, and that is now up before the Supreme 
Court. 1 

Mr. HovEY. Where we have had arbitrarily high class 1 prices as a 
result of control either by producer groups or governmental agency, 
it is obvious producers have been encouraged to increase production, 
and we are today faced with great surpluses as a result partly of arti- 
ficial control, certainly, whereas producer prices, if they cannot be 

1 See footnote 15, appendix, p. 315S. 



3070 CONCENTRATION OF ECONOMIC POWER 

conuolled by producer groups, Government control is necessary if a 
reasonable and necessary class 1 premium is to be maintained. 

We know the farmers are entitled to a premium for such milk as 
is used in fluid sales ; we know they need it, and we are in sympathy 
with some program which will help them to get the premium to which, 
they are entitled and which they do need. However, control will be 
justifiec^ jnly with the sound pricing of milk, and if control can he 
made effective, . meaning by that enforcement — something we have 
never yet had — fair enforcement, so that all will be required to comply 
with the order. 

The Chairman. Of course, that answer embodies two phases. 
First, that you are for Government control. 

Mr. HovEY. In emergencies. 

The Chairman. -But then you go further and say this Government 
control is proper enough, provided it results in fixing a sound basis of 
price. That, of course, goes to the manner in which the authority is 
exercised. Nationally authority is not always properly exercised. It 
is not properly exercised by government, it is not always properly 
exercised even by business executives. So what we are trying to get 
at now is the principle upon which to base a judgment as to whether 
or not there should be any control, and by whom it should be exercised 
if it is exercised. 

Mr. HovEY. We have attempted to answer that. Senator. We have 
stated that in emergency situations, such as exist in New York City 
at the present time, control is justified. 

The Chairman. How are j^ou going to determine when the erher- 
gency exists? A little while ago you testified that before the State 
undertook to exercise control, and the distributors were buying their 
milk in the field, the producers were getting considerably less for their 
product than they are getting now. 

Mr. Ho\'EY. And that is exactly the situation in which we find 
oui'selves once again. 

The Chairman. Yes; because the Government intervention has been 
lifted. 

Mr. HovEY. Yes; but. Senator, in' the meantime we have had arti- 
ficial prices as a result of control, either by producer groups or by 
governmental agencies. As a result of their control, class 1 prices 
have been established at very artificially high levels, which have re- 
sulted in a great increase in production and a great increase in surplus. 
It is our contention that control would b,e justified, provided conti'ol 
is of a nature which will undo the things, the .Unfortunate things, that 
control itself was responsible for. By that I mean that we assume that 
sound pricing would result in bringing production more nearly in 
balance with fluid-milk consumption. 

We take the position that during such period of adjustment gov- 
ernmental control would be justified. We don't believe the farmers 
should be encouraged to greatly increase production and then all of a 
sudden have control taken away. It leaves them in a helpless state. 
We know that they a^e entitled to a premium, and we want to do our 
parts to see that.they get tliat premium. 

The Chairman. How will you determine what this sound pric- 
ing is? 

Mr. Hovey. We are quite certain that everyone in the' industry 
knows that a class 1 price of $3 is not a sound price when the value 



CONCENTRATION OF ECONOMIC POWER 3071 

of manufactured milk is $1. "We are taking the position that a sound 
price is the value of milk used in the production of evaporated milk, 
and that is about 130 percent of the value of milk going into butter 
and cheese- so that that is already a premium price. We believe that 
in addition to that there should be another premium to cover all 
additional costs that are necessary to produce and deliver milk of 
high quality under fine sanitary control. There are additional costs, 
and we believe that the farmer is entitled to a premium to cover all 
the additional costs, made necessary in the production and delivery 
of milk for the fluid-milk market. 

We think that that could fairly well be left to fair-minded pro- 
ducers, because we think that they can't possibly, on a cost basis, 
justify ridiculous premiums. We think they couldn't justify any 
more than a premium that would appear " to be reasonable to all 
factors in the industry. 

The Chairman. Do you advocate the abolition of cooperatives? 

Mr. HovEY.. Not at all. 

The Chairman. You are willing to concede that the producers 
should be organized ? 

Mr. HovEY. We believe that producer organizations are necessary 
to the producers. 

The Chairman. Then your statement amounts to a declaration that 
in your opinion the price of grade 1 or class 1 milk is too high. 

Mr. Hovt:y. That is true. 

Mr. McInnerney. That i^ the basis of our whole contention. You 
see, the A. A. A. law does not set up an economic basis for price 
fixing. They go back to a parity-price basis, which we don't think is 
sound. 

The Chairman. Then your recommendation is that the Govern- 
ment should continue to try to adjust the price, but should do it on 
a different formula from that which is now followed. 

Mr. McInnerney. We think the emergency is so serious, the price 
of milk is so unfairly low, that the farmer isn't getting really a square 
deal, so to speak, and unless the Government or some Federal or State 
agency — when the government of the State of New York had a con- 
trol law we were not objecting to the law. We didn't particularly 
like it, but we demanded the enforcement of the law. There was no 
enforcement. It broke down purely and entirely because of lack of 
enforcement. The two companies who have a regard for law were 
penalized, whereas what M^e call in the market the chiseler bought 
below the control price and we had to meet that unfairly, and as a 
result of it we lost from 3 ^ to 30 percent of our business. 

The Chairman. When the emergency is terminated and the con- 
trol, the social control or whatever you call it, is suspended, as it has 
been suspended now in the State of New York, what ground have yoji 
to believe that the chaotic condition described by your associate would 
not be immediately returned to ? 

Mr. McInnerney. We think that if the control were removed, by 
that time the farmer would have become educated to the actual situa-i 
tion, and we believe that he would understand that there should be a 
parity of some basis between the condensery price and* the fluid price. 
Now, you get 2, 3, or 4 cents, as we established in our charts this 
morning. When you get a situation like that, every farmer does 
not belong to a cooperative. Many farmers are independent. This 



3072 CONCENTRATION OF ECONOMIC POWER 

farmer, by virtue of his independence, has maybe a relatively small 
amount of business. With us, we couldn't make a contract with that 
man. We are now buying a lot of that milk, but we have such a 
requirement to protect seven and a half million people in the city 
of New York that we have to buy the milk from the man who con- 
trols it, such as the various producers' organizations. One man, as 
indicated here, Mr. Johnson, who said he had 5 percent of the busi- 
ness in Detroit, if he had the combined business of the larger distribu- 
tors in Detroit, he couldn't get any milk, because it isn't there. 

He gets, as we understand it, a price, while he may pay a little 
more. We don't agree he does, but it is conceivable he could ask a 
blended price; he could put the blended price of milk into a bottle. 
We cannot. We can put only class 1 milk in a bottle. Class 1 milk, 
then, costs us a cent more. He has that edge. If he had to buy as 
much milk as we do, he wouldn't be able to get his supply. 

Our obligation to the public in a city of 1,000,000 people is to have 
milk when they need it. I don't know enough about the market, but 
the individual may have to go farther afield. He may be getting 
milk within 50 miles. Let's say he does get it yvithin 50 miles. If 
he had to go 150 miles, the added cost of transferring that milk, the 
cost of carrying it for that other 100 miles, he couldn't possibly main- 
tain his price. At least we don't think he can. 

The Chairman. In other words, under present conditions, it is 
necessary for distributors, particularly the larger they get, to buy 
from organizations of producers. 

Mr. McInnerney. I have always maintained — of course, I have 
never been a milk buyer — that the basis of buying milk is unsound, 
because we are penalized. In other w^ords, let's assume we had no 
manufactured milk, and all the milk we bought in a city like New 
York was under class 1 price. That price to the farmer would be very 
high. The price, the blended price, is diluted in proportion to the 
amount we take that goes in the manufactured products. I have 
always contended when the largest buyer of milk paid more for milk 
than anybody else, the farmer is better off in dealing with us, because 
we have a larger proportion of fluid-milk business to our total sales 
than most of the others, unless it is all fluid business. 

The Chairman. Your contention is that while you acknowledge it 
is good for the farmer to organize, because thereby he is more able 
to protect the price that he gets, it is also better for the distributors 
to be organized on a large scale. 

Mr. McInnerney. No; I don't know of any instance where the 
distributors are organized. 

national dairy products corporation composed of 109 CORPORATIONS 

The Chairman. Is not the National Dairy Products Corporation 
an organization of distributors? 

Mr. McInnerney. Yes. 

The Chairman. How many subsidiaries do you have ? 

Mr. McInnerney. I think at the present time it is 109, of which 
16 are in Europe, so we have net in America 93 subsidiaries, not all 
fluid-milk comptanies, but they are operating companies. 

The Chairman. Some engaged in distributing fluid milk, some 
evaporated milk, some cheese, and likewise? 



CONCENTRATION OF ECONOMIC POWER 3073 

Mr. McInnernet. We can buy in New York our automobiles or 
our tires through a buying organization, but we ^,ouldn't buy in New 
York for all the distributing companies we have. The local condi- 
titons in each market are different. 

The Chairman. But you have an organization of 109 separate 
corporations. 

Mr. McInnerney. Ninety-three in this country, please. 

The Chairman. Are they all engaged in national business? 

Mr. McInnerney. No ; many of them are local. 

The Chairman. Most of them are local, are they not ? 

Mr. McInnerney. Most of them are local. 

The Chairman. Is the collection and distribution of milk a na- 
tional or a local business? 

Mr. McInnerney. Local. 

The Chairman. So that the part which the National Dairy Prod- 
ucts Corporation plays in this organization of your 93 companies is 
one of managing 93 separate local enterprises. 

Mr. McInnerney. No ; National Dairy does not manage these com- 
panies at all. 

The Chairman. Oh. 

Mr. McInnerney. Each company is a unit by itself. It has its 
president and officers and directors, and they operate theii^ own busi- 
ness, independently, 99 percent. I said this morning that I assumed 
if I wanted to go into Cleveland and sent for the president and said 
I didn't like something, I assume he would listen to me, because after 
all. National Dairy owns tlfe stock in that company. I never have 
done it, but I am not telling you that I wouldn't have that within 
my province if I wished to. 

The Chairman. What would happen if he didn't do what you 
suggested to him? 

Mr. McInnerney. Well, Senator, they hold an election every year, 
and the proxies for that election, through stockholders, is generally 
given to the officer to vote himself. 

The Chairman. Who holds the election? 

Mr. McInnerney. It is held wherever they are. They call the 
election, just the same as we do of National Dairy. 

The Chairman. That is, the stockholders. 

Mr. McInnerney. National Dairy. 

The Chairman. It is a holding company ? 

Mr. McInnerney. Yes. 

The Chairman. And it holds the controlling interest in all of these 
subsidiaries ? 

Mr. McInnerney. Absolutely. 

The Chairman. I suppose it holds all but the necessary voting 
stock to qualify directors. 

Mr. McInnerney. Yes. 

The Chairman. But it so manages these affairs that the officers 
who are chosen by the proxies are free from control from the head- 
quarters of National Dairy Products ? 

Mr. McInnerney. Well, we never have exercised control. For in- 
stance, we don't designate the directors in these local, companies. I 
am not evading the issue that we couldn't, but I say we never have; 
in 15 years I never have voted a single share of the National Dairy 
stock at a corporate meeting. 



3074 CONCENTRATION OF ECONOMIC POWER 

The Chairman. That may be the reason why in the city of Wash- 
ington there is no differential between the price of delivered milk and 
the price of milk at a store, whereas in New York City tliere is a 
differential. Is that correct ? 

Mr. McInnerney. I guess that is correct; but, Senator, there is a 
moot question. I don't hesitate to say, as a matter of economics, that 
during the early days of the administration here, in which Mr, Peak 
represented the industry, I advocated a differential of 1 cent. We 
don't find that all our men agree with us or with me on that. 

The Chairman. But in Washington the Chevy Chase Dairy, who- 
ever is exercising the proxy there, didn't choose to put into effect a 
differential. 

Mr. McInnerney. I don't know the local condition here in Wash- 
ington. I don't know whether anyone here does, if any of our group 
does know ; I don't think Mr. Brawner, who is head of that — I assume 
he dominates the policy. In Pennsylvania, for instance, there is a 
law that does not permit — the milk commission in Pennsylvania does 
not permit — in the cities a differential between the wagon price and 
the store price, except in Philadelphia. 

The Chairman. But the point of this question is merely that you, 
as the head of National Dairy Products, don't attempt to tell the 
gentleman in control in Washington whether he should or should not 
have a differential. 

Mr. McInnerney. No, sir. 

The Chairman. And you don't exercise any control over any other 
policy ? 

Mr. McInnerney. Well, I would say as to policy we generally allow 
policies in existence to continue. I think any existing policy would be 
discussed with me and our board before there would be any change. 
It is sort of understood that they will go along with the existing 
policy; and if they want to change that policy, we have other interests 
with which it might conflict or overlap, and it would be discussed. 

The Chairman. Then they do not have complete local autonomy. 

Mr. McInnerney. They have always had. We never had an in- 
stance in which that question has been up. 

The Chairman. You can't think of any instance now in which the 
central board of directors of the National Dairy Products Corp. 
has intervened in any matter of local policy by any one of these 93 
subsidiaries ? 

Mr. McInnerney. No, sir. 

Senator, a point was just brought up here. Our board is made up 
about 95 percent of our heads of our operating companies. We have, 
I think, 2 or 3 so-called outside directors of the 30 directors. All, 
with the exception of 1 or 2, are heads of comj)anies in the field. 

The Chairman. But when they assemble as a board of directors 
they do not, if I understand your testimony correctly, undertake to 
lay down any program of intervention with the local management of 
the 93 local companies. 

Mr. McInnerney. There has been no occasion for it. 

The Chairman. Inasmuch as there is complete local autonomy 
then in the local management of these local subsidiaries, what does 
National Dairy Products, Inc., contribute to the local company? 

Mr._ McInnerney. Well, one point particularly. We take care of 
them in their financial needs, and there has been much occasion for it 



CONCENTRATION OF ECONOMIC POWER 3075 

in the past few years. A local company does not borrow from a local 
bank. If the situation in Cleveland, for instance, requires more cash, 
or whatever they might need, we would loan it to them. We believe 
tli^it one of the reasons for the formation of National Dairy, was 
that a diffuse or widely spread interest would help carry over those 
spots in which there was distress. That has been the case. 

The Chairman. Do you think that they couldn't get financial aid 
if vou weren't in the picture? 

Sir. McInnerxey. I know of instances when, I am sure, as a bank- 
ing proposition they would have had difficulty. I doubt if they 
could — I have written up here a statement. I thought this question 
would be asked, and if you don't mind I am sort of anxious to get 
it the way I would say it. 

The milk business requires a substantial capital inA^festment for 
necessary plant and equipment. The affiliation of dairy products, 
businesses into one organization has resulted in a distribution of the; 
risk, stabilization of employment, development of the research 
products, betterment of manufacturing and processing operations, 
saving in costs of financing and improving of plant and h-ousekeeping 
with quality control of work. 

In other words, we have something over 100 laboratories, but we 
have two very extensive, or three, laboratories, one in N,ewtonville, 
Mass., one in Chicago, 111., and one in Baltimore. The cost of oper- 
ating or running those research laboratories and whatever work we 
have is maintained by the National Dairy and is not chai^ged to the 
individual units. The cost is such that the individual units would 
have difficulty in doing that. 

Senator King. My recollection, Mr. Mclnnerney, is that when the 
investigation of the milk situation in the District of Columbia was 
being conducted,^ among the benefits claimed by the National Dairy 
Corp. by reason of its existence and the connection between the 'local 
company and that, was the furnishing to the local organization what- 
ever benefits i-esulted from the extensive researches which were being 
conducted by the national organization. 
Mr. McInnerney. We think that is so. 

Senator King. And my recollection is that you also contended you 
furnished capital to extend business and to replace obsolete machinery 
and to introduce more modern methods and more modern machinery 
in order to make the business more effective and to better serve the 
public. Is that general with respect to other local companies? 

Mr. McInnerney. Absolutely. The central buying organization, 
central advertising organization, can produce or effect many econo- 
mies through quantities, oftentimes, and distribution. We can't al- 
ways get up, for instance, an advertising campaign that will fit all 
markets, window trims, and all that sort of thing. Gf some things 
we buy 10,000, of others 100,000. 

The Chairman. I have before me chart 16,^ which shows the num- 
ber of milk distributors for the years 1930 to 1935, inclusive. 

To what do you attribute this growth of the number of distributors ? 
Mr. McInnerney. Well, my own feeling is that in many of these 
instances they are able to buy to better advantage than we have been 
able to. 



1 See footnate 2, supra, p. 2817. 
•"Exhibit No. 472," appendix, p. 



3076 CONCENTRATION OF ECONOMIC POWER 

The Chairman. They have been able to do what ? 

Mr. McInnernet. To buy at better advantage. For instance, Mr. 
Beach here the other day said they had 85 percent of the milk in the 
Detroit area. That means there must be 15 percent of the milk free. 

The Chairman. Is there any possibility that by reason of the fact 
that you just described a few moments ago that the milk business is 
essentially a local business, that the local companies can operate mora 
efficiently than a large national corporation like yours ? 

Mr. McInnernet. I don't subscribe to that at all. As a matter of 
fact I don't agree to it. 

The Chairman. Then let us turn to chart No. 1.^ 

Mr. McInnernet: You said operate, efficiently? 

The Chairman. That is right. Chart No. 1, lower part. You 
say that for the National Dairy Products Corporation and its sub- 
sidiaries in 1935 it was necessary for you to sell 157 quarts for a 
dollar of profit, before you could make a dollar of profit it was neces- 
sary for you in 1930 to sell 157 quarts. In 1938 before you could 
make a dollar it was necessary for you to sell 396 quarts. Would it 
be possible for all these local corporations, local distributors, to get 
into the business and to take a share of the national business if they 
weren't able to make a better showing than that? 

Mr. McInnernet. WjbII, there would.be two factors there. One 
would be whether they were buying to better advantage. The other 
would be whether their labor cost would be equal to ours. 

The Chairman. Would it be possible for a small local distributor 
to stay in business if it was necessary for him to sell 398 quarts before 
he could make a dollar profit? 

Mr. McInnernet. Depends a good deal on his quartage. If a man 
had one route and he was selling 600 quarts, and so forth, he would 
make $2" a day. Of course we are at a little disadvantage against the 
small company in the matter of wage, labor. Most of our unions 
don't have any 7-day week — but a man in business for himself could 
have. There are many factors that would help him. Then a man 
can start a route with very little or i)o money and he can make a 
living — he may not have a job at all; he may not make over $20 
or $25 a week, and we might have to pay him $40 if he worked for 
us, so he can go into business and do fairly well. It takes a little 
capital for him, so that he has that edge, but I don't think — we don't 
think there is anybody can handle a quart of milk any more economi- 
callv than we can. 

The Chairman. Do you think there is any possibility that by 
reason of the fact that the National Corporation is operating on a 
national scale they are confronted with these conditions which you 
have described, constitute the very reason why it is necessary for 
distributors to organize and workers to organize and Government 
to intervene? 

Mr. McInnernet. Well, of course 

The Chairman (interposing). In other words, didn't you by 
organizing these 93 different local companies under one central head 
create the condition which has precipitated the demand for Gov- 
ernment intervention? 



"Hihlblt No. 456," appendix, p. 3l2t50 



C;ONCENTRATION OF ECONOMIC POWER 3077 

Mr. McInnernet. "No ; not at all. I couldn't see that, Senator, 
because I get back again to the fact that we are a local concern. The 
conditions applying to Cleveland might not apply to Detroit at all; 
tjie conditions that apply to Pittsburgh don't apply to Cleveland. 
We have found for instance that there is — they are about 200 miles 
apart ; we found that we were buying milk within 60 miles of Cleve- 
land, being delivered in Pittsburgh and vice versa. It didn't seem 
sound, but that was the condition we had. 

METHOD OF ORGANIZATION AND FINANCING OF NATIONAL DAIRY 

The Chairman. Now all these local companies which you have 
acquired were in existence before National Dairy Products? 

Mr. McInnernet. Yes, sir. 

The CHAHiMAN. And you purchased them? 

Mr. McInnernet. Yes, sir. 

The Chairman. And organized them? 

Mr. McInnernet. Yes. 

The Chairman. Now, how did you purchase them, on the average? 

Mr. McInnernet. Well, when we started in 1923 the company 
was made up of two companies, one of which I owned in Chicago, 
and the other owned by Mr. Rieck. We were both individuals own- 
ing the busines:^ largely. I owned 90 percent, although it was a cor- 
porate company, and Mr.^Rieck owned pretty close to that himself. 
Mr Hieck felt that he wanted to retire from business — he had a very 
large business ; I felt it was an opportunity to consolidate companies, 
and so his company and mine went together and we issued stock, 
based on an earning basis, and from that grew other companies. 

The Chairman. When you say you issued stock, based on an earn- 
ing basis, what do you mean? Wliose earning basis? 

Mr. McInnernet. Well, the combined earning basis of both com- 
panies. 

The Chairman. Your company and 

Mr. McInnernet. Mr. Rieck 's. Mr. Rieck elected to sell some of 
his stock — somebody had to sell some stock ; I didn't elect to sell any ; 
I took only stock. 

The Chairman. When you say earning basis again you mean 
earning capacity of ^the two companies ? 

Mr. McInnernet. Of the two companies. 

The Chairman. Was that greater than the invested capital of the 
two companies? 

Mr. McInnernet. Well, what do you mean? 

The Chairman. I mean when you capitalized the earning capacity 
of the two companies, did you get a larger sum than the actual amount 
of capital invested in the two companies ? 

Mr. McInnernet. Well, of course, we capitalized to the extent of 
the earning power of the business. 

The Chairman. And your earning power was pretty good, I assume, 
and actually when you were organized you had a capital stock which 
was larger than the actual investment in the two original companies, 
did you not? 

Mr. McInnernet. Well, I didn't; Mr. Rieck did, because my earn- 
ings weren't in proportion to his and I had to take less stock. 



3078 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Well, did the stocks 

Mr. MoInnernet. I had a market for my stock the minute the 
dairy was organized, where I didn't have any market for the stock 
that I owned in Chicago. There was no available market, so that 
meant I could say I had a very substantial something that the public 
would buy, Avhereas before I never attempted to sell stock. It would 
have been a very limited market because it wasn't a real big business. 

The Chairman. You didn't sell it ? 

Mr. McInnerney. I didn't sell mine; I still have the stock. 

The Chairman. Now, how did the capital — the face value, par 
value — of tha,t stock compare with the actual investment which you 
had made in your corporation? 

Mr. McInnerney. I think you would have to — the stock was put 
out on the market, 125,000 shares, as I recall, 16 years ago. I am not 
quite sure, but I will submit to you a statement to make your records 
complete or correct, if you wish. 

The Chairman. I am just 

Mr. McInnerney. The stock was sold in the market, as I recall 
it, at $33 a share, and there were 125,000 shares offered to the public, 
but this stock was underwritten by the banking group, and the lowest 
it ever got, as I recall it, at that time was a little above 30, but we 
acquired companies pretty fast and the. public absorbed the stock 
and kept it going up. 

The Chairman. Was it no-par stock ? 

Mr. McInnerney. No-par stock. 

The Chairman. Was it voting or nonvoting stock ? 

Mr. McInnerney. Voting stock. 

The Chairman. The public got voting stock? 

Mr. McInnerney. Yes. 

The Chairman. Now when you purchased these-^ — 

Mr. McInnerney. Right there, Senator, I was the largest indi- 
vidual stockholder, of course, by virtue of — I had more stock than 
any individual at that time. 

The Chairman. Did the stock which you received personally repre- 
sent the investment which you actually had made in the business? 

Mr. McInnerney. Well, t think because of capitalizing the earning 
it represented more than my inve