I
INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
HEARINGS
BEFORE THE
TEMPOKAEY NATIONAL ECONOMIC COMMITTEE
CONGKESS OF THE UNITED STATES
SEVENTY-SIXTH CONGRESS
SECOND SESSION
PURSUANT TO
Public Resolution No. 113
(Seventy-fifth Congress)
AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO
MAIvE 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 19-21
IRON AND STEEL INDUSTRY
GENERAL PRICE POLICIES
NOVEMBER 6, 7, 9, AND 10, 1939
Printed for the use of the Temporary National Economic Committee
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHmGTON : 1940
r^ORTHEASTERN UNIVERSITY SCHOOL of LAW LIBRARY
TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Created pursuant to Public Res. 113, 75th Cong.)
JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMMERS, Representative from Te.tas, Vice Chairman
WILLIAM H. KINO, Senator from Utah
WILLIAM E. BORAH, Senator from Idaho
CLYDE WILLIAMS, Representative from Missouri
B. CARROLL REECE, Representative from Tennessee
THURMAN W. ARNOLD, Assistant Attorney General
•WENDELL BERQE, Special Assistant to the Attorney General
Representing the Department of Justice
JEROME N. FRANK, Chairman
•LEON HENDERSON, Commissioner
Representing the Securities and Exchange Commission
GARLAND S. FERGUSON, Commissioner _ ,
*EWIN L. DAVIS, Commissioner X^
Representing the Federal Trade Commission ,|-p.
ISADOR LUBIN, Commissioner of Labor Statistics CD
•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics
Representing the Department of Labor . CO
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel
Representing the Department of the Treasury — k
CO
CLARENCE C. AVILDSEN, Special Adviser to the Secretary ryjl
Representing the Department of Commerce f.C%
JAMES R. BRACKETT, Executive Secretary
'Alternates.
n
REPRINTED
BY
WILLIAM S. HEIN &. CO INC
BUFFALO. N. Y.
1968
CONTENTS
Testimony of — Pago
Adams, Avery C, vice president, United States Steel Corporation, of
Delaware, Pittsburgh, Pa 10567-10580
De Chazeau, Dr, M. G., associate professor of economics. University
of Virginia, Charlottesville, Va. . J 10456-10481
Fairless, Benjamin F., president, United States Steel Corporation,
'New York City 10482-10568, 10572-10580, 10590
Grace, Eugene C., president, Bethlehem Steel Co. and Bethlehem
Steel Corporation, Bethlehem, Pa . 10581-10641
Gregg, Robert, president, Tennessee Coal, Iron & Railroad Co., Bir-
mingham, Ala 10495-10502, 10529-10530, 10543-10553, 10556-10557
Hook, Charles R., president, American Rolling Mill Co., Middletown,
Ohio 10688-10708
Hughes, H. L., vice president, United States Steel Corporation, New
York City 10500-10502, 10554-10557
Lucas, Fred H., Chicago manager of sales, Carnegie-Illinois Steel Cor-
poration 10558
Mackall, Paul, vice president, Bethlehem Steel Co., Bethlehem, Pa._ 10581,
10599, 10622
Weir, Ernest T., chairman. National Steel Corporation, and president,
American Iron & Steel Institute, Pittsburgh, Pa 10643-10688
Iron and steel prices during World War I 10456
The present situation » 10465
Foreign and domestic demands 10471
Supply conditions 10472
Expectations of buyers and sellers 10473
Structure of United States Steel Corporation 10482
The 1936 price increases 10488
Steel prices in 1937 and first half of 1938 10505
The June 1938 price reduction 10516
"Reasonable prices" 10526
The Birmingham diflferential 10541, 10603
Pacific coast prices 10554
"Extras" 10557, 10621
Change in extras in May 1938 10565
Price changes 10586
Government bids 10594
Bethlehem's price-announcement policy 10601
Establishment of new basing points by Bethlehem 1061 1
Tin-plate prices 10625
Question of stabilization 10634
Operations of National Steel Corporation 10643
Price policy for steel industry suggested by Mr. Weir 10645
Development of the continuous rolling mill 10688
Continuous rolling mill license agreements . 10690
Schedule and summary of exhibits v
Monday, November 6, 1939 . 10455
Tuesday, November 7, 1939 . 10523
Thursday, November 9, 1939 10581
Friday, November 10, 1939 10643
Appendix , 1 0709
Supplemental data 10741
Index I
ni
SCHEDULE OF EXHIBITS
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
1379. Chart: Prices of iron and steel products and of all com-
modities, by months, 1913-18
1380. Chart: Iron and steel prices and steel ingot production,
by months, 1913-18
1381. Chart: Index of ingot production and finished steel com-
posite price, 1926-39
1382. Chart: Finished steel composite price index, by months,
1926-39 inclusive
1383. Chart: Index of semimanufactured articles and finished
steel composite, 1926-39
1384. Letter, dated November 20, 1936, from B. F. Fairless,
president, Carnegie-IUinois Steel Corporation, to
Robert Gregg, vice president, United States Steel
Corporation, recommending a revision in prices ac-
cording to an attached schedule
1385. Telegram, dated February 19, 1937, from W. A. Ross,
Columbia Steel Co., to Robert Gregg, United States
Steel Corporation, regarding an advance in the price
of foundry pig iron
1386. Telegram, dated February 20, 1937, from Robert Gregg,
United States Steel Corporation, to W. A. Ross, Co-
lumbia Steel Co., in reply to "Exhibit No. 1385"
1387. Memorandum, dated March 10, 1937, from A. H. Warren,
Jr., to J. H. McKown, on the letterhead of the Car-
negie-Illinois Steel Corporation, recommending the
revision of prices for high tensile steel
1388. Letter, dated November 12, 1936, from C. F. Blackmer,
president, American Steel & Wire Co., to H. L.
Hughes, vice president, United States Steel Corpora-
tion, recommending an increase in sales prices of steel
products .
1389. Cablegram, dated June 24, 1938, from Edward R. Stet-
tinius, chairman of the board, to Myron Taylor, di-
rector. United States Steel Corporation, advising of
an announced price reduction on steel products as
outlined
1390. Schedule of prices, submitted by United States Steel
Corporation, of various steel products for October
1926, October 1929, June and November 1933, Julv
1934, March 1935, Julv, October, and December, 1936,
May 1937, and July and September 1938
1391. Chart: Ratio of earnings to net assets. United States
Steel Corporation and subsidiaries
1392. Chart: Average vearlv base prices of principal steel
products, 1 924^39.-1 .
1393. Chart: Reported composite price and composite mill net
vield, 1926-39
1394. Letter, dated September 23, 1938, from C. M. Konkle,
auditor, Tennessee Coal, Iron & Railroad Co., to E.
M. Voorhees, chairman, finance committee. United
States Steel Corporation, with attached statement
covering major steel products and comparing prices
for July with March
10456
10458
10486
10491
10491
10492
10495
10495
10499
10500
10516
10530
10537
10540
10540
10647
10709
10709
10710
10710
10711
10711
10713
10713
10713
10714
10715
10716
10717
10718
10720
10722
VI
CONTENTS
Schedule of Exhibits — Continued
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
1395. Analysis, prepared by the staff of the Department of
Justice from answers of steel companies to question-
naires, of pricing of steel products
1396. Circular letter,, dated May 26, 1938, from the Carnegie-
Illinois Steel Corporation, to all managers of sales on
the subject of changes in extras
1397. Chart: Reported base price and mill net yield, cold
rolled sheets, 1926-38
1398-1408. Appear in Hearings, Part 20
1409-1417. Appear in Hearings, Part 26 .^...
1418. Appears in Hearings, Part 27
1419. Letter, dated May 10, 1938, from A. Katchen, secretary,
Irvington Steel & Iron Works, Irvington, N. J., to
Eugene Grace, president, Bethlehem Steel Corporation,
advocating lower steel prices to stimulate business
1420. Letter, dated May 15, 1938, from Eugene Grace, presi-
dent, Bethlehem Steel Corporation, to A. Katchen,
secretary, Irvington Steel & Iron Works, in reply to
"Exhibit No. 1419"
Address by Ernest T. Weir, chairman. National Steel
Corporation, and president, American Iron & Steel
Institute, on "Profits and Patriotism," delivered at the
annual meeting of the American Institute of Steel Con-
struction at the Waldorf Astoria Hotel, New York
City, October 1939
1421.
SUPPLEMENTAL . DATA
Unnumbered. Letter, dated January 20, 1940, from F. A. Shick,
comptroller, Bethlehem Steel Corporation, to
James R. Brackett, secretary of the Tempo-
rary National Economic Committee, enclosing
a statement of consolidated aggregate tax ac-
cruals of the Corporation and its subsidiaries,
as requested by Senator King of Eugene Grace,
president of the Corporation, when he ap-
peared before the Committee
10562
10565
10580
10597
10597
10646
10724
10729
10731
10733
10733
10734
10741
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
MONDAY, NOVEMBER 6, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 10:32 a. m., pursuant to adjournment on
Friday, November 3, 1939, in the Caucus Room, Senate Office Build-
ing, Senator William H. Kin^ presiding.
Present: Senator King (acting chairman) ; Representatives Williams
and Reece; Messrs. Q'Connell, Henderson, Avildsen, and Brackett.
Present also: Robert McConnell and John V. W. Reynders,
representing the Department of Commerce; Frank A. Fetter and
Willis Ballinger, representing the Federal Trade Commission; A. H.
Feller, special assistant to the Attorney General; M. G. de Chazeau,
John W. Porter, Irving B. Glickfeld, Hyman B. Ritchin, Monroe
Karasik, and Ward S. Bowman, Department of Justice.
Acting Chairman King. The committee will be in order. Proceed,
Mr. Feller.
Mr. Feller. Tliis morning we begin the presentation of testimony
and materials having to do with the steel industry proper. For the
3 days preceding we have had testimony and materials which had to
do with the iron ')v^ industry.
At the begini-mg of the hearings I gave a brief outline of what the
general course of the hearings comprised. I shall repeat that in just
a few words.
The question of general price policy will be among the first of the
topics taken up. We will then consider the behavior of prices with
respect to certain specific product categories. Finally, we shall
conclude with a consideration of the export situation.
Some weeks ago the Department of Justice was requested by the
staff of the committee to present at the outset of these hearings on
the steel industry itself some discussion of the war situation as
affecting the price of steel, and in compliance with that request we
present this morning a statement by Professor M. G. de Chazeau on
that subject. I now call Professor de Chazeau.
Acting Chairman King. Come forward. Hold up your right band.
Do you solemnly swear the evidence you shall give in this hearing
shall be the truth, the whole truth, and nothing but the truth, so help
you God?
Dr. DE Chazeau. I do.
10455
10456 CONCENTRATION OF ECONOMIC POWER
TESTIMONY OF DR. M. G. DE CHAZEAU, ASSOCIATE PROFESSOR
OF ECONOMICS, UNIVERSITY OF VIRGINIA, CHARLOTTESVILLE,
VA.
Mr. Feller. Will you give the reporter your lulJ name, please?
Mr. DE Chazeau. Melvin de Chazeau.
Mr, Feller. What is your present position?
Dr. DE Chazeau. Associate professor at the University of Virginia.
Mr. Feller. You are also connected, are you not, with the Depart-
ment of Justice in the present study of the iron and steel industry?
Dr. DE Chazeau. Yes, sir; as consultant.
Mr. Feller. You are an economic consultant?
Dr. DE Chazeau. Yes, sir.
Mr. Feller. You are also, are you not, coauthor of a standard
treatise on the industry entitled "Economics of the Iron and Steel
Industry"?
Dr. DE Chazeau. Yes. sir.
Mr. Feller. In that treatise you are primarily responsible for the
section dealing with the price of steel?
Dr. DE Chazeau. Yes, sir.
Mr. Feller. Professor de Chazeau, will you go ahead with your
statement, please?
Dr. DE Chazeau. I have a prepared statement and will read it to
save time. The first section deals with iron and steel prices during
the Great War merely as a basis for comparison with present conditions.
IRON and steel prices DURING WORLD WAR I
Dr. DE Chazeau. The most authoritative study of price changes
during the Great War is that made by the War Industries Board. ^
In chart I, on the easel, entitled "Prices of iron and steel products
and of all commodities," the Board's index of iron and steel prices
i«i contrasted with its All Commodity Index for the period January
1913 to December 1918.
(The chart referred to was marked "Exhibit No. 1379," and is
included in the appendix on p. 10709.)
Dr. DE Chazeau. Attention is directed to the following points with
reference to this chart.
The iron and steel industrv was in a depression at the outbreak of
the war. Kelative to the All Commodity Index, iron and steel prices
had fallen precipitously since January 1913.'
A slight fillip was given to prices of iron and steel commodities as
well as to commodity prices generally upon the declaration of war in
' Data presented herein have been derived from its History of Prices During the War unless otherwise
indicated. The basic "All Commodity Index" was constracted from 50 classes of products containing In
nil l,3fifi commodities. It is a weighted index of actual monthly prices in which the monthly average of the
aggrocates during the 12 months July 1913 through June 1914 was used as a base (that is, an index of 100).
The class "Iron and Steel and Their Products" comprised 88 series and was subdivided into two groups.
The first, "Raw Materials and Slightly Manufactured Iron and Steel Products," containing 30 series,
Includes very roughly the raw materials and finished products of the iron and steel industry— that is, ore,
coke, scrap and pig iron; billets, bars, shapes, plates, rails, skelp, wire rods, hoops, and sheets together with
"ome further finished products like railroad spikes, structural rivets, wire, tin plate, and cast-iron pipe.
The second subgroup of P** commodities included a wide variety of steel manufactures like. hardware, cut-
lery, etc., of no immediate concern to us. The former subgroup, however, so dominated the class index
that they are practically identical. Neglectine slight m.onth to month variations, the weighted annual
Index for the 3C series was identical with that for the 88 series in each of the years 1913, 1914, and 1915. In
lOlfi the former exceeded the latter by 2 points (170 to 168), in 1917 by 4 points (283 to 279) and in 1918 by 1
point (219 to 218). In the highest month attained throughout the period, July 1917, the former index stood
at 377, the latter at 370— a maximum ditYerence of 7 points. Throughout the remainder of this discussion,
therefore, the index of the subgroup, "Raw Materials and.Slightly Manufactured Iron and Steel Products"
Is used as the index for iron and steel commodities.
CONCENTRATION OF ECONOMIC POWER 10457
August 1914. This speculative rise was premised on expected in-
creases in demand from foreign sources, especially neutrals. But
lack of ships and derangements of world finances rendered it abortive
and iron and steel prices continued to sag throughout the final quarter
of 1914 and the first 2 months of 1915 to a low for the entire period.
Although iron and steel prices began to rise in March 1915 it was
not until Juty that they exceeded the average for the depression year
1914, and only in November of 1915 was the annual average index
for 1913 eclipsed.
To the demand for steel from belligerents was added a demand Irom
the iron and steel industry itself to provide additional capacity. By
1915, many rail mills had been converted to the production of shrapnel
bars.' Begmning in the second half of 1915 iron and steel prices began
a precipitous rise which, after temporary weakness during the summer
of 1916, reached unprecedented heights in 1917.
Acting Chairman King. Are you attempting to give the prices
throughout the world or just the steel prices in the United States?
Dr. DE Chazeau. Just steel prices in the United States.
Acting Chairman King. They would be affected, of course, by the
world conditions.
Dr. DE Chazeau. That is right.
Acting Chairman King. By the demands which were made very
promptly after the war in 1914, '15, and '16, because France and Great
Britain prior to that time, not anticipating war, had not utilized
perhaps all of their resources for the purpose of building up a steel
industry.
Dr. DE Chazeau. That is right.
Acting Chairman King. Would a picture of the world condition
then, the economic conditions and the condition of all prices, throw
any Ught upon conditions now? , . , • i
Dr. DE Chazeau. I believe so, the reason bemg that smce the
declaration of war in the present conflict, there has been, as you know,
a very great demand for steel. Much of that demand, it seems to me,
is promised on a speculation which in part has its roots in our experi-
ence during the World War. It is with relation to a comparison of
the two situations that one can reach, I think, some judgment as to
how well founded such an expectation is, and it is only from that pomt
of view that I am discussing this at all.
Acting Chairman King. It seems l^o me that is scarcely relevant.
I recall that in 1914 and '15 and '16, wheat prices were down and
when the demand for flour and for food supphes in Europe increased
by reason of the destruction of the economies of Europe, pnces went
up so that the farmers got two and a half and three and a half doUars
a bushel for their wheat.
Dr. DE Chazeau. Quite right. • • .i w *
Actmg Chauroan King. And I know that little ponies m the West
that you could hardly give away before the war, after the war was
in progress and the Alhes needed horse power and mule power, we
sold them for two and three hundred dollars apiece. You can call
it a speculative rise, but the exigencies of the situation and the prices
in Europe caused a tremendous increase in the price of all commodities
iii the United States, not only steel but all food supphes, particularly.
Dr. DE Chazeau. Quite; but I believe yon are referrmg to the change
m prices which took place particularly after 1916 and m 1917 when
10458 CONCENTRATION OF ECONOMIC POWER
the war was on. Perhaps the most significant thing in this chart
which I hope to bring out is that for over a year after the declaration
of war, prices continued to fall in this country. That is of some sig-
nificance, it seems to me, with relation to the present situation.
Now I should admit, of course, that in any situation in which you
have an absolute scarcity, prices will rise at a precipitous rate and
you have that situation in the latter years of the war.
For our purposes, the most significant thing in this discussion is
what happened to prices during the first year or year and a half
following the declaration of war.
Acting Chairman King. Keep in mmd the fact that war has been
in progress in China for several years, that the Spanish war was in
progress for some time, the Ethiopian war, the war preparations in
Europe have been going on for several years, so it would be very
difficult, it seems to me, to deduce from conditions in 1914, '15, '16,
and '17, and '18, any conclusions that would be entirely warranted
by reason of conditions now.
Dr. DE Chazeau. If you mean that one can't, by analyzing that
situation, reach an authoritative judgment as to what should be the
trend of prices in the next few months, I should be in complete agree-
ment with you. But in view of the speculative trend of demand, it
would seem of some value to have before us a picture of what did
happen in the first war.
Acting Chairman King. Obviously, the Department of Justice
believes this testimony is relevant, so proceed, although some of us
may doubt its materiality.
Dr. DE Chazeau. All right, sir.
The flotation of allied loans in this country together with uncer-
tainty on the part of producers as to the duration of the war and the
period within which they could recoup the cost of expanded facilities
contributed to the rise. During 1917 the United States Government
was buying steel below the published price but the prospect that Gov-
ernment purchases would create a shortage of steel in turn skyrocketed
the published price.
The combined effect of inelastic foreign demands and speculative
buying is graphically shown in Chart II, the second chart you have
before you.
Acting Chairman King. Do you want those charts placed in the
record?
Dr. DE Chazeau. Yes, Senator. The chart is entitled "Iron and
Steel Prices and Steel Ingot Production."
Acting Chairman King. No objection.
(The chart referred to was marked "Exhibit No. 1380," and is
included in the appendix on p. 10709.)
Dr. DE Chazeau. This chart compares ingot production with the
prices for iron and steel, the price index of iron and steel.
Acting Chairman King. The index of ingot production?
Dr. DE Chazeatt. Of ingot production.
Acting Chairman King. That is the one you are referring to now?
Dr. DE Chazeau. That is right.
Acting Chairman King. Proceed.
Dr. DE Chazeau. Steel ingot production, a rough indication of steel
output, is expressed as an index with the same base period and con-
trasted with the Iron and Steel Price Index. Through the third
CONCENTRATION OF ECONOMIC POWER 10459
quarter of 1916, the movement of the two curves is roughly com-
parable but after September of that year they diverge at a cumulative
rate.' Steel output reached its maximum in May 1917, an increase
of 84 percent over the monthly average during the base year but
prices climbed to their maximum 2 months later, when the index stood
at 377— over 3% times the average in the base period.
The break in iron and steel prices after July 1917 is attributable to
Government pressure and price control. In September 1917 the
first of many schedules of maximum prices was released and iron and
steel prices were stablized at a level substantially lower than that
attained when the United States entered the war. This control was
not released until after the armistice in November 1918.
The dramatic rise in iron and steel prices was exceeded by only 2 of
the 50 classes of commodities analyzed by the War Industries Board —
coal tar crudes, intermediates and dyes which soared to an index of
758, and heavy chemicals which reached 414. Only 3 other classes
attained or bettered 3 times their average base prices — natural
dyestuffs and tanning chemicals, 346; drugs and pharmaceuticals, 319;
and vegetables and truck, a seasonal industry, 314.
As would be expected, some steel products attained much dizzier
heights than others during this period. Among the more important
tonnage steel products, for example, black steel sheets — No. 28
gage — climbed from a low index of 88 in July 1915 to a high of 404
during each of the 3 months of the third quarter of 1917, that is from
an average pre-war value of $44.35 a ton sheets rose to $179.17.
Structural steel shapes reached its low — an index of 82 — at an earlier
date — December 1914 — but rose to a maximum of 424 during July
and August of 1917, $138.66 per ton as contrasted with an average
value of $32.70 per ton during the base period. Steel plates, during
the same period, soared from an index of 83 to one of 714. With an
average pre-war base value lower than either sheets or shapes —
$28.22 — it exceeded both of them in July 1917 at $201.49 per ton.
In considering these prices of iron and steel products during the
war and especially the level at which they were stabilized by price
control, it is well to bear in mind that they probably understate the
relative increase that actually took place. The actual prices employed
in the construction of the class index as well as the relatives for
individual commodities, were published base prices, and the cost of
steel to consumers was further enhanced by higher freight rates during
the period and by higher extras. Extras were not controlled by the
War Industries Board.
Representative Williams. What do you mean by extras? What
does that expression mean?
Dr. DE Chazeau. The extras are special charges which are made for
specifications of steel other than those specifications for which the
base price is quoted. Those specifications have to do with chemical
content, with gage, with size, with length, and so forth.
Representative Williams. There is an increased price on account
of those extras that is not reflected in the charge?
Dr. DE Chazeau. That is right. During the period there was no
control of extras. It is well known, for example, that many companies
charged preniium prices. It is also well known that some of the
larger companies refused to take premium prices, and as a matter of
fact sold below the price level as indicated by the index. You have
10460 CONCENTRATION OP ECONOMIC POWER
a premium price illustrated in the present situation where some smaU
companies have, without making an ofl&cial publication, raised the
price' of plate, for example, $5 a ton and the price of certain other
products $3 a ton.
Especially among the smaller producers, premium prices for reason-
able delivery dates were known to be common practice, although some
of the larger companies are reputed to have resisted the temptation.
It is probably beside our present purpose to attempt any analysis
of cost factors in the price rise during the World War. In any case,
the data available are inadequate for reliab e conclusions. It will
hardly be denied, however, that the impact of intense and inelastic
demand on lim ted production facilities caused scarcity prices which
bore no relation to costs. Thus p g-iron production attained its
annual peak in 1916 — output in 1917 was restricted by transportation
tie-ups rather than furnace capacity — a net increase of over 8,000,000
gross tons or less than 27 percent of pre-war 1913 output. Indeed,
the highest monthly output during the period — October 1916 —
exceeded the average in the base period by only 57 percent. Pig-
iron prices, however, continued to soar in 1917 to a maximum in
July of 394 percent above the average in the base period. Steel
ingot production was at a peak in 1917 — an increase of almost 14,-
000,000 gross tons or almost 44 percent above output in the calendar
year 1913 — although 1917 production exceeded that in 1916 by only
5 percent; that is, the increase in 1917 over 1916 was very small. At the
same time the total output of finished hot-rolled products reached an
aggregate greater than 1913 by over 8,000,000 gross tons, or 33 per-
cent, although only 2 percent above the 1916 levels. Prices, however,
reached levels in 1917 almost four times those in the base year and
almost twice those in the preceding year; that is, 1916. Capacity
was increased rapidly — for example, during the year 1915 alone ingot
capacity was raised almost 4}^ million tons, and_ hot-rolled finished
capacity 3.8 millions, while in 1916 further additions of 3.8 and 2
millions respectively, were installed. Because of increasing capacity
the highest annual operating ratios in blast furnaces, steel furnaces,
and in rolling mills were reached in 1916 rather than 1917 — 86.7 pe;r-
cent for pig iron, 93.4 percent for ingots, and 94.8 percent fox finished
hot-rolled products. Maximum monthly rates of operation, however,
were probably attained in 1917. For example, the peak for ingots,
98.2 percent, was achieved in May of iihat year.
Raw material costs did rise, some conservatively like iron ore which
rose 53 percent above its average base value, while others skyrocketed.
For example, coke reached an index value of 594 in July 1917 or
$12.25 per ton while heavy melting scrap reached 341 or $40.75 in
the preceding month. Wages also rose. By 1917 average hourly
earnings in selected departments, according to the Bureau of Labor
Statistics, had increased from 33 percent over the calendar year 1913
in blooming mills to 78 percent in sheet mills. However, with
probable further increases in wages in 1918 — the Bureau of Labor
Statistics had no figures for 1918 but did show in 1919 a considerable
rise — the Federal Trade Commission found that the ratio of direct
labor costs to total mill costs was lower in that year than it had been
during the period 1902-06. In only 1 out of the 9 departments
analyzed was this not true and in that department — large bUlets —
the ratios in the 2 periods were about the same, about 2.9 percent of
mill cost in the late period, and 2.8 percent in the early one.
CONCENTRATION OF ECONOMIC POWER 10461
Tliat those increases in expense were more than compensated hy
economies of fuller utilization of capacity and by price increases, is
demonstrated by the net income record of the industry during the
war years. The Federal Trade Commission, in its study of War-Time
Profits and Costs of the Steel Industry foimd that net income after
depreciation but before interest and dividends and Federal income
and excess-profits taxes rose from 7.5 percent of capital investment —
that is, stocks, bonds, and surplus — in 1915 to 21.7 percent in 1916,
28.9 percent in 1917 and, under Government price control, fell to
20.1 percent in 1918.
The outstanding feature of the war experience was the failure of
foreign demand to materialize for more than a year following the
declaration of war. Exports of iron and steel products actually
declined in 1914 both in absolute tonnage and relative to decreased
American production. Beginning in 1915, however, they rose rapidly
until in 1917 they amounted to 19 percent of our total production of
finished hot-rolled iron and steel products.
This percentage is an overstatement, because the figures are not
strictly comparable, since the exports include iron products as well
as steel products.
Net exports — that is, total exports of iron and steel products less
imports, all scrap excluded — between 1913 and 1917 increased by
3,776,000 gross tons or almost 46 percent of the net increase in pro-
duction of finished hot-rolled products during the same period. Al-
though the foreign demand for iron and steel was thus the primary
stimulus to increased output, the largest proportion of the increase
was produced for domestic consumption although of course the latter
may have been dependent directly or indirectly on the war.
Mr. Feller. The statement to this point has shown the experi-
ence of the last war. Dr. de Chazeau will now go on to discuss the
present situation. If any members of the committee have any
questions on the last war, I suggest that this might be a good time
to ask them.
Acting Chairman King. Have you any figures there showing the
exports in iron in various forms, and steel in its various forms, from
1913 to 1918?
Dr. DE Chazeau. You mean the detail of the various types of steel
products exported?
Acting Chairman King. Yes.
Dr. DE Chazeau. Those were not readily available without a con-
siderable bit of research with original documents, so I do not have
them at hand.
Acting Chairman King. Generally speaking, what was the increase
in the exports of steel in its various forms, and iron in its various
forms — I see you have differentiated between steel and iron — in 1917
and '18 and '16, if you have those available?
Dr. DE Chazeau. I do not have those. That is, I could not give
you a figure which would completely answer your question. The
exports, of course, were for war materials primarily, and therefore
one would expect, during the period a great deal of increase in the
particular war materials, which would be steel.
Acting Chairman King. There was a great increase in the expor-
tation of iron and steel in their various forms?
10462 CONCENTRATION OF ECONOMIC POWER
Dr. DE Chazeau. Yes.
Acting Chairman King. The freight rates were increased mate-
rially, were they not?
Dr. DE Chazeau. Yes; that is my understanding.
Acting Chairman King. And ocean rates, owing to submarines and
various other causes?
Dr. DE Chazeau. That is right.
Acting Chairman King. The rates for ocean commerce were
quadrupled, and more* than that, were they not — went up several
hundred percent?
Dr. DE Chazeau. Yes; the exact figure I wouldn't be able to give
you at this moment, but they certainly went up. It was a situation in
which an almost absolutely inelastic demand operated against a
limited capacity, and at the same time the flotation of loans within
this country attained inflationary proportions. Under such conditions
you would expect prices to rise very, very rapidly. That is, the situa-
tion as it existed after 1916, for example, is merely what you would
expect under those conditions, and has no immediate relevance to the
present situation, since that is something which we may or may not
experience in the future.
Acting Chairman King. There was a very great increase in prices
of all commodities, was there not?
Dr. DE Chazeatj. That's right. The all-commodity index, as you
will note, rose at a fairly rapid rate, much less so than the rise in the
iron and steel prices.
Acting Chairman King. There was an acute demand for iron and
steel, was there not, during the period of the war, in Europe as well as
in the United States?
Dr. DE Chazeau. As well as in this country? Quite right.
Acting Chairman King. There was a very large increase in ship-
building, was there not, in the United States?
Dr. DE Chazeau. That is one of the reasons for thcTise in prices of
plates for example.
Acting Chairman King. Have you any figures showing the increase
in the amount of steel and iron consumed in the United States during
those few years?
Dr. DE Chazeau. The only figures that it would be possible to give
you would be total output less exports, plus imports, and I indicated
what that amounted to in terms of a percentage. I don't beUeve
Acting Chairman King (interposing). What was the increase in per-
centage of domestic consumption of iron and steel during, or from
'13 to '18?
Dr. DE Chazeau. Well, let's see if I have that here. I am afraid
I couldn't give you that figure. It could be calculated from the
figures that we do have. We have the increase in output of finished
steel and the increased output of pig iron and ingots. We have the
exports, and we have the imports. We could compute such a figure
for you, but I do not have a figure here which I could read off to you.
Acting Chairman King. If you will just prepare the figures and
give them to Mr. Feller, we will have them in the record, showing the
consumption of steel and iron in the United States in \S^ '14, '15, '16,
'17, and '18, and also the exports during that period.
Dr. DE Chazeau. Quite. We have figures, of course, of the actual
exports, but we haven't computed the figure in that way.
CONCENTRATION OF ECONOMIC POWER 10463
Representative Williams. As I understand you, the primary cause
of that rapid rise in prices was due to the fact of a rather limited
capacity in the face of a very, very strong demand.
Dr. DE Chazeau. That is right.
Representative Williams. During that period, however, there was
considerable expansion in the steel industry.
Dr. DE Chazeau. Very considerable.
Representative Williams. At the end of the period which you have
just discussed, in 1918, what was the capacitj compared with what
it is now — the capacity to produce?
Dr. DE Chazeau. In 1918?
Representative Williams. Yes.
Dr. DE Chazeau. The capacity figures for pig iron in 1918, this is
an estimated figure on pig iron, but I can give you 1921, I have an
actual figure there. We had to interpolate within the period from
1913 to 1921, since the figure was not reported by the American Iron
and Steel Institute. The figure in 1921 was 51,741,000 gross tons of
pig iron. The capacity reported in 1938 was 50,698,000 tons. It is
sHghtly less than that reported in 1921. That is pig iron.
Mr. O'CoNNELL. Have you a figure for before the war, 1913 or '14?
Dr. DE Chazeau. Yes; the figure in 1913 was 43,257,000. There
was an increase from 1913 to 1920 of the order of about 7,000,000 tons.
Acting Chairman King. That is pig iron?
Dr. DE Chazeau. That is pig iron; yes, sir.
Now, for ingots the figure for 1913 was 39,000,000 tons. In 1918
it had increased to 52,541,000 gross tons. Today it stands — that is,
in 1938— at 71,594,000 gross tons.
For finished hot-rolled — figures of capacity for finished hot-rolled
are not quite as accurate as those for ingots and for pig iron, but in
1913 reported capacity was 29,000,000 gross tons, by 1918 it had
increased to 38,129,000, and in 1938 it was 49,100,000 gross tons.
There was, therefore, during the war period, a considerable rise in
capacity. As a matter of fact, one of the sources of the increased
demand for steel during the early years of the war was from the steel
industry itself, in expanding its facihties to take care of the demand.
Representative Williams. Well, would you say that the capacity,
th'^'^ , on the whole, is greater now than it was at the close of the war?
Dr. DE Chazeau. That it is greater today than it was at the close
of the war? Yes. That isn't true, of course, of pig iron, but there
has been a growing use of scrap, so that it is
Representative Williams (interposing). To meet the demand it
may be called upon to meet, it would be in a position now to produce
more than it was at the close of the war in 1918?
Dr. DE Chazeau. You mean relative to the demand that might be
made on it?
Representative Williams. Yes.
Dr. DE Chazeau. That, of course, gets us into
Representative Williams (interposing). No; I mean the same de-
mand that was made then — it would be in a position to meet that
demand now, and more than it was in 1918?
Dr. DE Chazeau. I should say so; that is, in terms of the capacity,
it is greater.
Representative Williams. That is what I mean; the capacity, the
output, the capacity for production, is greater now than it was then
in the steel industry.
10464 CONCENTRATION OF ECONOMIC POWER
Dr. DE Chazeau. Yes; but you see, whenever one talks about the
industry's ability to meet the demand, the demand may be for special
products, while these capacity figures are general capacity figures.
There may be bottle necks in the ability to meet an increased demand
for a special product.
Representative Williams. I am talking about the industry as a
wholcj the general view of it.
Dr. DE Chazeau. Generally speaking, I should say that would
be true. There are many steel men here who can either correct or
add to it. But it would appear from these figures that the steel
industry, as a whole, is in a better position to meet foreign demand
than it was at the opening of the World War.
Acting Chairman King. Aside from specialties — and I use that in
probably a limited sense — the steel industry could produce today as
much pig iron as it did in 1918, and as much ingots?
Dr. DE Chazeau. That is certainly true of ingots and of finished
hot-rolled. With relation to pig iron it is — yes; it is also true of pig
iron. You are quite right.
Acting Chairman King. Then the steel industry — its capacity for
producing the ordinary demands which are made upon steel and its
products — is as great now as it was in 1918, or perhaps greater in
some respects?
Dr. DE Chazeau. That would be correct; yes.
Acting Chairman King. That is all I have.
Mr. O'CoNNELL. May I ask a question?
Dr. DE Chazeau. Yes.
Mr. O'CoNNELL. Do you intend to refer to tne possible connection
between the rapid price rise in 1917 and the rapid increase in capacity?
In other words, as I take it, the capacity to produce was expanded
rapidly, but it was expanded to meet a speculative type of demand.
In other words, it was to meet a war situation. Do you intend to refer
to that factor as having its influence on price?
Dr. DE Chazeau. I have referred to it. The point I made was
that during the period of the early part of the war, when foreign
demands began to be realized, the expansion of capacity involved con-
siderable investment, and the steel industry was not certain as to
the duration of the war. Therefore, there was a natural tendency to
raise the price in order to recoup that investment over the shortest
possible period. I have no doubt but that that was a factor in the
rise of price. It was made possible, of course, by the inelasticity in
the demand and the intensity of that demand.
Acting Chairman King. Generally speaking, there was a very pre-
cipitous rise from 1914, during '15, '16, '17, and '18, in nearly all of
the output of field and farm and factory and mill in the United
States?
Dr. DE Chazeau. When you speak of all commodities. Senator,
the rise in the index for all commodities did not really begin until
about the middle of 1915, and then very slowly until 1916. When
you speak of iron and steel, the index did not begin to rise until the
middle of 1915, and it became precipitous in 1916 and 1917.
Acting Chairman King. Was that by reason of domestic demands
or foreign demands or both?
Dr. DE Chazeau. When the increased demand actually came, ac-
cording to the study of the War Industries Board, it came from the
CONCENTRATION OF ECONOMIC POWER 10465
belligerent powers rather than from the neutrals. It was expected
at that time that w^e would get an immediate increase in demand
from neutrals, because neutrals were cut off from their former sources
of supply. Wlien it actually came it came from belligerents, and it, of
course, became very intense with the floating of loans in this country.
Acting Chairman King. That is all.
THE PRESENT SITUATION
Dr. DE Chazeau. During the first 7 months of 1939, steel produc-
tion, measured by the ratio of ingot production to capacity, was
reasonably stable at slightly more than 50 percent. Actual fluctua-
tions in the monthly operating rate varied from 47 percent in May
to 55 percent in March. Beginning in August there was a marked
improvement, the weekly rate rising to 63.5 percent by the end of
that month to make an average for the month of 62 percent. With
the declaration of war, the mills were deluged with orders and with
specifications on existing contract business. Almost every consuming
industry increased its demand. The principal exception was fabri-
cated steel~construction. The weekly operating rate rose rapidly to
84 percent at the end of September, 91 percent during the final week
in October.
Mr. Feller. Just for the information of the committee, do you
happen to know what the estimated operating rate is this week?
Dr. DE Chazeau. As I recall, it was estimated at 91.3. Have you
checked that?
Mr. Feller, I believe*it is 93 percent this week.
Acting Chairman King. That is the output.
Dr. DE Chazeau. That is the operating rate on ingot capacity.
Prices of steel scrap, coke, and other materials have risen as well
as the price of pig iron, but thus far, with the exception of reenforcing
bars, published steel prices have not been advanced above the low
levels reached last May. In some products, especially cold-finished
aUoy steel bars, there have been upward revisions in extras, wliile
some of the semi- and non-integrated producers have advanced prices
on certain products; that is, platos, nails, reenforcing bars. Appar-
ently the trade expects some increases in the published prices of iron
and steel for the first quarter of 1940.
The character of existing demand for steel products cannot be
properly evaluated in the absence of a thorough-going analysis of the
extent of deferred maintenance, deferred replacements and postponed
extensions of equipment and an analysis of inventories in consuming
industries. That modernization and replacement of equipment have
been long in arrears in certain major fields such as railroads and housing
has been widely publicized in recent years. That many industries'
have been operating on depleted inventories of steel since the 1937
collapse is the common report in the trade journals. For example,
the canning industry is said to have allowed its inventories to reach
dangerously low levels. In Dun's Review for September 1939, a
study is made of the trend of inventories since January 1, 1936,
on an annual basis, with semiannual figures added in 1938 and 1939,
giving the index for retail and wholesale establishments and manufac-
turing industries.
124491- — lOr-pt. 19-^^2
10466 CONCENTRATION OF ECONOMIC POWER
Of outstanding importance for our present purpose are the data
presented for the seven industries manufacturing durable and capital
goods; that is, agricultural machinery, iron and steel products, elec-
mcal apparatus, heavy machinery, automobile accessories, automo-
biles and hardware. These industries are among the most important
consumers of iron and steel products. In the case of every one of
these industries, inventories on January 1, 1937, exceeded those on
Janu,ary 1, 1936, and continued to rise precipitously to January 1,
1938.
Acting Chairman King. You mean inventories.
Dr. DE Chazeau. Inventories, yes. At a peak, they exceeded 1936
figures by amoimts varying from 40 percent for hardware to 67 percent
for iron and steel products, or 60 percent for electrical apparatus.
Acting Chairman King. Have you any figures to indicate the
normal percentage of inventory hi the various industries of the United
States?
Dr. DE Chazeau. No. That was one of the points which was
made in this article. By taking January 1, 1936, as a basis of 100,
it was not assumed that inventories in 1936 were normal. It would
be necessary to make an extended study of inventories over good
and bad years in order to establish anything like a norm.
Acting Chairman King. In normal times, though, there is a rather
large inventory maintained, is there not?
Dr. DE Chazeau. That is my understanding. But I have no
figures on it.
Acting Chairman King. Of course, in anticipation of material
changes in business activities there would be a larger inventory,
perhaps.
Dr. DE Chazeau. Inventory changes are usually associated with
expected price changes.
Acting Chairman King. Proceed.
Dr. DE Chazeau. Since the 1st of January 1938, inventories in each
of these industries have fallen both as of January 1, 1939, and as of
July 1, 1939, compared either with the previous January or the pre-
vious July. The trend has been downward at a rather rapid rate.
The range in index numbers — taking January 1, 1936, as 100 — on
July 1, 1939, was from 80 for automobiles to 147 for iron and steel
products — or 128 for hardware.
To the extent that these factors depleted inventories or deferred
replacements, are effective, anticipation of marked improvement in
business conditions would result in an intense and temporarily exag-
gerated demand for steel. Expected war prosperity would stimu-
late but not govern an increase in such demands. Coincident with
these expectations of foreign demand for American goods (both steel.
and other manufactures and staples) there is of course currently an
actual increase in demand in conformity with this country's program
for red^rmaments and for a merchant marine. These conditions would
probably have brought an increase in the demand for steel at the
present time even though the European conflict had not begun.
But this natural increase in requirements of iron and steel has been
exaggerated by speculation, the origin of which is anticipation of
war purchases and the permanence of which is determined by the
cooirse of the war. Unfortunately, there are no statistical data
available which would indicate the present status of inventories in
CONCENTRATION OP ECONOMIC POWER 10467
the industry. But investigations by the Department of Commerce
indicate that much of present deliveries is going into inventories.
That information was derived orally from discussion with the men
who have been making the investigation.
Acting Chairman King. Would those inventories be maintained
for the purposes of meeting contracts which have not matured, or
just in anticipation of making contracts for future sales?
Dr. DE Chazeau. It might be both. Adequatley to analyze this
situation, it would be necessary to study inventories with relation to
orders now on the books. Such a study as far as I know has not been
made.
A possible exception is the automobile industry for which seasonal
demand for steel happened to coincide with the speculative war pur-
chases of steel.
Acting Chairman King. How do you account for the fact, if it is a
speculative price or there is speculation, that the automobiles which
are offered for sale for the coming year are much less in price? That
is my information.
Dr. DE Chazeau. That would be a matter of the price poUcy of the
automobile industry. The mcreased sales possibilities of automobiles
are, themselves, associated with returning prosperity engendered by
an increased industrial activity associated with both domestic and
expected foreign demands.
Acting Chairman King. You haven't any figures show^ing the change
in the price level of sales of steel to the automobile manufacturers?
Dr. DE Chazeau. Yoi^ mean in the published price? There has
been no change in the published price since May, last May.
Mt. Feller. Senator, I should like to clear this up. As I under-
stand it, the statement with respect to speculative factors deals with
the volume of purchases; that is to say, there is speculative purchas-
ing, but there has been no increase in price due to speculation, that
is no increase in published price. That is correct, is it not?
Dr. DE Chazeau. That is right.
Acting Chairman King. Have you discovered whether some of the
speculators have had their hands burned yet?
Dr. DE Chazeau. Not as yet.
In part, the existing sellers market is created by the expectation
that iron and steel prices will rise and that actual shortages will
develop. To disassociate these two aspects of demand would entail an
analysis of inventories with respect to the actual operating rate and
the orders booked by each important consuming industry. The
scope of such an investigation is clearly beyond the faciUties available
to the Department of Justice.
^ That speculation based on expected war business is likely to be
disappointed in the near future seems to be indicated by the following
considerations.
First, the United States today is relatively less important in world
production of iron and steel than it was prior to the World War.
During the 4 years immediately preceding that conflict — 1910-13 —
this country's output of pig iron averaged 39.7 percent of world
output and ranged from 37.1 percent to 41.5 percent in individual
years. In steel ingots and steel for castings, the United States aver-
aged 42.3 percent of world output — from 39.8 percent to 44 percent.
During the last 4 years — 1935-38 — on the other hand, our proportion
10468 CONCENTRATION OF ECONOMIC POWER
of pig iron production has been only 31.1 percent-^ — ranging from 23.7
percent to 36.2 percent — and that for steel ingots 35.1 percent, the
range being from 26.8 percent to 39.2 percent. In neither product
has the highest ratio attained in recent years been as high as the
lowest recorded in the earlier period.
Second, among "neutral" nations today as contrasted with neutrals
during the first years of the Great War, the relative importance of
the United States in the production of iron and steel has declined
substantially.
This result follows in part from the larger number of countries
embroiled in the last war from its very beginning; but it is also due
to the rapid advance of the industry throughout the world. For
example, in 1913, countries not separately classified in Tariff Com-
mission figures produced only 840,000 tons of pig iron and 410,000
tons of steel ingots while in 1938 these figures were 3,370,000 and
3,430,000 tons respectively. Japan produced only 240,000 tons of
iron and the same amount of ingots in the earUer year but 3,100,000
tons of pig and 5,860,000 tons of steel ingots in 1938. Russia, a
belligerent in the first war but as yet a technical neutral, increased
its output of pig iron from 4,550,000 to 14,850,000 long tons, and of
steel from 4,750,000 to 18,410,000 of tons during the same period.
Of the aggregate output of those countries which were neutral during
the first year of the World War, the United States produced roughly
92 to 94 percent of both pig iron and steel ingots during each of the
3 years 1912-14.
Acting Chairman King. May I retrace for a moment for my own
information? I am not clear as to the figures which would reveal the
production of steel or pig iron, or any form of steel, in Russia during
the past 3 or 4 years.
Dr. DE Chazeau. These figures were taken from Tariff Commission
reports and they give the production, both world production and by
important countries during that period. I have not checked their
source further than that, but they give the production of the Soviet
Union. We have figures for 1912, '13, and '14, 1937, and 1938.
Acting Chairman King. And what was the last, the figures for
1938, of the Soviet Union?
Dr. DE Chazeau. The production in 1938 of ingots and steel for
castings was 18,400,000 for the Soviet Union.
Acting Chairman King. You have nothing to indicate what part
of that production was east of the Ural Mountains in their so-called
new steel and iron mills?
Dr. DE Chazeau. No; I have no figures other than that total.
In 1937 and 1938, however, our proportion of the aggregate output
of countries now neutral had fallen to 56.7 and 42.1 percent in those,
years for pig iron, 57.9 and 44.8 percent for steel. Thus neutral
countries which during the World War were almost forced to seek
their requirements from the United States now have other alternatives.
Similarly, belligerent purchases may be allocated over a greater num-
ber of sources.
Third, as measured by output of steel, the major belligerents are
better prepared for the present struggle than they were in 1914.
During the last 2 calendar years, aggregate production of steel ingots
exceeded that during the 2 calendar years preceding 1914 by 9,350,000
tons or over 28 percent in the case of Germany, 8,920,000 tons or over
CONCENTRATION OF ECONOMIC POWER 10469
61 percent for the United Kingdom and 4,590,000 tons or about 51
percent for France while the excess of output in the United States,
absohitely nlu<3h greater, 16,020,000 tons, was relatively less. %8.boat
25 K percent.
During the last 2 years almost 96 percent of all of our exports of
iron and steel products to Germany have been pig iron, as have 53
percent and 55 percent respectively of those to the United ICingdom
and France. During the same period our exports of scrap to Germany
have been almost 10 times the total of iron and steel products shipped
to that country while the United Kingdom purchased 1,232,563 tons
of scrap, almost 2K times the tonnage of iron and steel products im-
ported from this country.
Acting Chairman King. These figures would indicate, if I interpret
them correctly, we have been furnishing Germany a large amoimt of
steel and scrap iron.
Dr. DE Chazeau. No ; the absolute amount is relatively small com-
pared with shipments to the United Kingdom. The exports of scrap
to Germany total 319,000 tons. Since that was 10 times the total of
iron and steel products shipped to that country, it gives you an idea
of the relatively small tonnage of steel products which we exported
to Germany.
The important thing, the point which I am calling to your attention,
is that these figures suggest that the belligerents were directing their
efforts toward the manufacture of steel for war purposes .by taking the
raw materials rather than taking finished steel products.
Fourth, in addition to a greater amount of preparation for the
present conflict, the general conviction on the part of belligerents that
the war will last for many years, the strategy wliich has thus far been
employed, the limitations already imposed on credit, and those which
are likely to be imposed on shipping facilities all indicate that belliger-
ent purchases in this country, both of steel and of other commodities,
are likely to increase but slowly.
Fifth, there is no reason to believe that recent heavy steel imports
by neutrals from countries now at war will be shifted en masse to the
United States.
The American Iron and Steel Institute recently published in Steel
Facts a study of iron and steel trade data released by the British Iron
& Steel Federation. This analysis showed that over the period Janu-
ary 1936 through June 1939 annual world iron and steel exports aver-
aged 13,800,000 tons, of which the four belligerents — England, France,
Germany, and Poland — accounted for half, or about 7,000,000 tons;
the United States 1,900,000'; and other neutrals about 5,000,000 tons.
The four belligerents are said to have exported about 5 percent of their
total to each other; 12 percent to important steel-producing coun-
tries; and 83 percent or about 5,800,000 tons, to countries with inade-
jquate producing facilities. Since the belligerent countries exported
little pig iron — the primary export of countries like Russia, India,
and the Netherlands — the burden of supplying these needs of neutrals
with inadequate facilities is expected to fall on the United States, the
only other important neutral exporters being Belgium, Luxemburg,
Sweden, Hungary, and Canada.
Mr. Feller. Just a correction; Canada is not a neutral.
10470 CONCENTRATION OF ECONOMIC POWER
Dr. DE Chazeau. I know, but Canada for this purpose was included
as a neutral since its position was not within the war zone.
Acting Chairman King. Do you believe from your investigations
that Belgium, now that one of the belligerents has its troops massed
along the Belgian frontier, would be able to, or will, export any
considerable amount of iron or steel?
Dr. DE Chazeau. I should be surprised if they did.
The impUcation that our exports to neutrals may be expected to
increase by anything Uke this 5,800,000 tons, which was the amount
exported by the belhgerents to countries with inadequate facilities,
seems to me to be little more than wishful thinking. Forty-five per-
cent of the combined exports of belligerents — or over 3,000,000 tons —
was made by Germany. German export policy in recent years has
been dominated by the necessity to create foreign exchange. To this
end, exports have been subsidized and barter agreements and other
exchange control methods employed to create a market for her goods.
The United States has shared in world exports in much smaller pro-
portion than her share of world production and capacity would justify
primarily because of price considerations. To assume that, at a time
when American prices are more likely to rise than to fall, neutrals will
shift their sources of supply to this country irrespective of price and
despite potential exchange difficulties in making payment, is to assume
an inelasticity of demand which is belied by experience and, I think,
common sense.
Acting Chairman King. I suppose you have taken into account,
have you not, in your conclusions or speculations as to the exports and
imports, the fact that Germany is intensifying her assaults upon com-
merce by neutrals or by belhgerents upon the seas.
Dr. DE Chazeau. That is right.
Acting Chairman King. Which will, of course, reduce materially
exDorts and imports bv and to belligerent coim tries and neutrals.
Dr. DE Chazeau. That is right
Although an eventual increase in demand may be expected, this
country's share in the prior exports of the belligerents to neutrals is
likely to be more or less limited.
With none of the foregoing limitations on demand during the World
War, it was almost a year after the outbreak of fighting before any
substantial foreign demand developed in this country and when it
did come it came from belligerents, not from neutrals. In the light of
that experience and, of present conditions, it does not appear likely
that any substantial increase in foreign demand will be forthcoming in
the immediate future.
To the extent that present demand i - going into speculative inven-
tories against a probable rise in prices or even a shortage of steel
occasioned by war business, there is reason to believe that it will prove
short-lived and that existing pressure on mUl capacity will be relieved.
A stable backlog of business from the railroads, the Government de-
fense and merchant shipbuilding program, the automobile industry
and possibly the farm implement and canning mdustries suggests,
however, that a major set-back is not necessarily imminent.
Some of the major variables affecting the trend of steel prices in the
future may be analyzed under three broad headings: Demand condi-
tions, supply conditions, and expectations of buyers and sellers.
CONCENTRATION OF ECONOMIC POWER 10471
The probable trend in demand for American steel may be considered
in two categories: Foreign demand and domestic demand. We have
already considered the foreign demand.
FOREIGN AND DOMESTIC DEMANDS
Dr. de Chazeau. Four factors are of immediate concern in gaging
expected increases in volume of demand for steel from belligerent
countries: (1) The amount of reserves of equipment and ammunition
which has been built up in preparation for the conflict; (2) the ade-
quac}'^ of their own and alternatiye iron and steel capacity to supply
war needs; (3) uncertainty as to the length of the war which, in view of
limited cash purchasing power, may dictate a more cautious expendi-
ture allocated more carefully among potential sources of supply;
(4) the strategy followed in the conflict. A frontal assault on the
western front would require enormous amounts of steel for replacement
of ammunition and equipment. But thus far, the allied strategy has
been to husband both lives and materials. Neutrality legislation on
the part of this country, insofar as it curtails the amount of shipping
available and blocks any extension of credit, may further limit increases
in belligerent demands. The arms embargo, on the other hand, would
appear significant mainly for the direction which is given to demand
rather than for its total volume. Except in case of extreme emergency,
it is probably true that an arms embargo would curtail the total
expenditures of belligerent countries in the United States and, there-
fore, indirectly the demand for steel that might otherwise have gone
into capital equipment. Since it has now been repealed, we may
expect some increase from that point of view. The airplane industry
probabl}^ provides a case in point of an industry which may be directly
affected.
Increased foreign demand from neutrals formerly supplied by the
belligerent nations is conditioned upon the extent to which such
neutrals may be supplied from other neutral producers and the
elasticity of their demand for steel in the face of an increase in its
price and potential difficulties in providing foreign exchange.
In the expectation of increased demand for their products, either
directly from foreigners or indirectly from the greater buying power
released in the domestic market through greater investment and
employment, consuming industries may expend their requirements
for steel by increasing output of products for which steel is a raw
material and by modernizing or expanding capital equipment.
To this demand, the steel companies themselves contribute through
the installation of equipment required to take care of specialized
products. Acceleration of the Government's shipbuilding or pre-
paredness program likewise contributes to the greater volume
expected.
The very expectation of rising prices in steel is calculated to result
in a seUers' market as speculative purchases for future use clog the
rolling schedules of the steel miUs. Its duration, however, is con-
ditioned on the extent to which war demands for materials are realized,
especially relative to existing stocks and existing capacities.
10472 CONCENTRATION OF ECONOMIC POWER
SUPPLY CONDITIONS
Dr. de Chazeau. To the extent that price changes reflect variations
in cost or, in the short run, inelasticities in output relative to demand,
the impact of an increase in the volume of steel required upon its price
varies with the particular commodity or group Of commodities desired.
True, a general increase in demand for iron and steel products of proper
magnitude may create bottle necks in the supply of pig iron or of
steel ingots although flexibility in the use of scrap renders the former
possibility more remote. But an increase in demand for particular
kinds of steel products, involving largely a shift in demand, might
be taken care of beyond the limits of reported rolling capacities without
serious pressure on the ability to produce? This seeming paradox
results from the method of computing and reporting rolling capacities.
That is, the capacity actually reported for a given product is first
estimated in terms of the normal combination of specifications which
the mill may be called upon to roll. Then, these capacities are cor-
rected downward to conform to the practicable integrated capacity-^
the amount of ingot capacity which the company has available to
supply raw materials for its rolling facilities as a whole. Thus, actual
capacity for any given product or combination of products may exceed
published capacity insofar as (a) the specifications required are more
amenable to mass production than the "normal" assumed, and (b), re-
ported capacity for such products has been reduced to allow for the
simultaneous production of other products which in fact are not
required over the pertinent time period. With these qualifications,
deihand increases might bring price increases by creating bottle necks
of limited capacity at some stage in the productive process, the
probabilities varying with the direction of demand.
Increased costs because of rising raw-material prices are also possi-
ble causes of higher prices although market prices, for such materials,
must be interpreted in the light of the restricted market within which
those prices are determined. For example, during the last 3 years
from 56 percent to about 60 percent of all iron and steel scrap used by
the industry was produced in the companies' own works. Ownership
or control of ore mines, c^al mines, and limestone quarries, as well as
transportation facilities, means that for the largest integrated com-
panies most if not all raw-material costs tend to be internal, in the
sense that they are not measured by the established "market" prices
for such materials. In interdepartment or intercompany accounts,
materials may be charged at such "market" prices merely as an ac-
counting-device but such prices are not the true measure of the cost
of supplies nor of the expansibility of supplies. Since few, if any, in-
tegrated companies are dependent on the market for their raw mate-
rials^^that is, for these basic materials — changes in published prices
for such*products tend to overstate the cost of raw materials for the
industry as a whole.
Mr. Feller. Alay I remind the committee at this point in connec-
tion with Dr. de Chazeau's statement with respect to the utilization
by integrated companies of their ovrn raw material
Acting Chairman King (interposing). The integrated companies?
Mr. Feller. Yes; the iutegratod companies — to a portion of the
record on the iron-ore industry. I refer in particular to the letter
from Mr. Olds, of counsel of the United States Steel Corporation,
CONCENTRATION OF ECONOMIC POWER 10473
which pointed out the method by which the Oliver Iron Mining Co.,
subsidiary of the United States Steel Corporation, billed the operating
subsidiaries of United States Steel for the iron ore. As you recall, it
billed its subsidiaries on the basis of the market price. ^
Dr. DE CiiAZEAU. As the rate of utilization of capacity increases
and the need for increased production persists, less efficient equipment
must be brought into operation, with an indeterminate effect on costs,
and a tendency for the cost to rise slightly.
EXPECTATIONS OF BUYERS AND SELLERS
Dr. DE Chazeau. The price of steel is an administered price.
Representative Reece. What do you mean by that?
Dr. DE Chazeau. What I mean by that is something quite innoc-
uous, namely, that the price is fixed by the management and that it
reflects a price policy of management rather than being determined in
exchange, determined by the competition of supplies in the market at
any given time. An administered price may, in fact, be flexible; it
may be inflexible.
Representative Reece. But that would certainly indicate that it
was not a competitive price.
Dr. DE Chazeau. The term "competition" is perhaps the most
ambiguous term that is used in economic literature. You can
compete under all sorts of conditions. Competition may take the
form of price reduction; it may be on a concession-price base; it may
be on a published-price base; it may, in steel, take the form of con-
cessions in extras or special freight or credit allowances; it may take
the form of quality changes, you may have it expressed in terms of
investment — it can cover a wide range of economic activities, and
as the ordinary businessman uses the term he includes, I think, all
of these. As competition is used in the theory of competitive price,
what has sometimes been called pure competition, it is implied that
the individual seller is so small a factor in the market that in his pric-
ing, in the sale of his product or in the control of his output, he does
not need to and does not in fact take into consideration the effect of
his policy on his rivals. He judges his output with relation to his
own cost situation and with relation to the market price.
Representative Reece. The term "administered price" would
hardly indicate that all of those factors were taken into consideration
as distinguished from the same factors 'being taken into consideration
in the setting up of an ordinary, competitive price structure.
Dr. DE Chazeau. Within the group of prices which I call^ purely
competitive prices, you would not find many administered prices.
You might find some. But you do not get an administered price,
for example, for a product sold on an organized exchange.
Representative Reece. The term "administered price" is a new
term to me.
Mr. Feller. Congressman, may I ask the witness a few questions
\yhich mav bring out just exactly what that term means in economic
Hterature? Would this be a correct statement, Dr de Chazeau?
Let us take the situation of the automobile industrj^: An automo-
bile manufacturer produces cars, but prior to the time when he puts
his models on the market he says, "I will charge $756 for my super
1 See Hearings, Part 18, p. 10329.
10474 CONCENTRATION OF ECONOMIC POWER
de luxe model sedan." That is an administered price, as that term
is used in economic literature; is it not?
Dr. DE Chazeau. As I understand it; yes.
Mr. Feller. In other words, the automobile manufacturer does
not put his models on the market and say that the conditions of supply
and demand, the conditions of purchasing power, and so on, will
determine the price, the way a wheat producer, for example, does.
A wheat producer produces Ids wheat, but he doesn't say, "I am
going to charge a dollar a bushel." He puts his wheat on the market
and then whatever price the conditions of the market determine, is
the price that he gets. Does that make it clear?
Acting Chairman King. But after all, in the long run, prices are
leveled out according to competition; are they not?
Dr. de Chazeau. According to the conditions of competition which
exist in that market.
Acting Chairman King. A person says that be is going to sell his
sugar, as an illustration, at 5 cents a pound, and that is in excess of the
market price. He will lose his vendees, his purchasers, to those who
sell at 4 cents.
Dr. DE Chazeau. That is right. It would be beyond his power,
in most organized markets it would be beyond the power of any indi-
vidual seller, to have a price policy in that sense.
Acting Chairman King. After all, one individual may not with
respect to a commodity which is in general use or in special use, fix
a price that is out of all proportions to the price fixed by others.
Dr. DE Chazeau. That is quite right. The problem and the reason
for the ambiguity, is that the relations which exist between sellers —
and by that I do not imply collusive arranpements — the relations
which exist in the market at any given time, determine the extent
to which any individual seller miist take into account what his rivals
are going to do if he acts in a particular way.
Acting Chairman King. The man who sells bis wool or seUs his
sheep sells them on the market of his competition, the buyers are there
from Boston and from other places when they bid for the wool or for
the sheep.
Dr. DE Chazeau. Quite right.
Acting Chairman King. The same with beef cattle.
Dr. DE Chazeau. Quite right.
Acting Chairman King. The same with many commodities that
are produced. The shoeman may fix an administered price, but after
all he is met by competition in the market with perhaps two or three
hundred manufacturers who produce shoes, some better and some
not so good. There is a competition there as to which produces the
best shoe for the lowest pi ice.
Dr. DE Chazeau. Quite right, and you are bringing out, I believe,
exactly what I had in mind, that an administered price, as I have used
it here, is a neutral term and it may be consistent with a highly flexible
price or with a highly rigid price, depending on market conditions.
Representative Williams. Take the example given by Mr. Feller,
the automobile manufacturer who fixes the price at $756. What is it
that determines that administered price? Why $756 instead of, say,
$700?
Mr. Feller. Mr. Congressman, I would very much like to answer
that question in this way. Of course the witness may go on. I just
CONCENTRATION OF ECONOMIC POWER 10475
want to make this statement. That precise question that you have
put is going to be the focal point of the opening testimony by the
officials of the United States Steel Corporation. That is precisely
the point to which our testimony is going to be directed: Why are
prices changed and why are they put at the level which they have been
put by the members of the industry? Dr. de Chazeau, do you care
to answer?
Acting Chau'man King. Prices are changed, are they not, by the
shoe manufacturers, by the manufacturers of cloth or buttons or any
other commodity that enter into the consumptive needs of the people?
Dr. DE Chazeau. That is perfectly correct. The problem which
various price policies suggest for analysis is not the method by which
they are fixed but rather the characteristics of that price as they affect
the economy.
Acting Chairman King. Does not the manufacturer, the producer
of commodities which find their market in the open market, determine
in advance what their costs are going to be? For instance, on the
coat they determine the price they will have to pay for wool, the price
they witl have to pay for labor, the obsolescence of their machinery,
and take those things into account. And then after taking all those
factors that are recognized in industry, they fLx a price; they may fix
it too high or too low; they may fix it so high that they can't sell;
they may fix it so low that competition becomes so keen they will lose
money.
Dr. DE Chazeau. That is right.
Acting Chairman King. So the question of price fixing or determin-
ation of price is so flexible — or inflexible — it is impossible to lay down
a rule, is it not?
Dr. DE Chazeau. It is almost impossible to answer the question
which was asked me, namely, why is the price of an automobile fixed
at $775 instead of $700, that is, with the knowledge which I have of
the automobile industry.
Acting Chairman King. Mr. Ford might fix a price different from
others because, first, he owns his own mines or he owns his own ore,
he o^vns railroads, and he owns all of those facilities which are essential
to the production of the flnished product, so that he might by reason
of those integrated activities of his be able to sell cheaper than some
automobile manufacturers who had a limited number of resources or
organizations that went into the finisjied product.
Dr. DE Chazeau. Right.
Mr. Ballinger. Mr. Feller, in your conception of administered
price, in the illustration that you used, I just wanted to ask one
question. You used the illustration of the automobile manufacturer
in stating his price without reference to other automobile manufac-
turers, in other words no team work between them; you don't mean to
say that administered price is one that precludes teamwork or the
existence of a formula for producing an identical price.
Mr. Feller. No; there may be many factors which enter into the
make-up of the final price. The point is that the term "administered
price" is a term which in itself has no special relationship to arrange-
ments among producers themselves. The term "administered price"
is a term of recent economic literature which is intended to differentiate
between the price which is made before the sale and the price which is
10476 CONCENTRATION OF ECONOMIC POWER
the resultant of the factors occurring in the market after the sale is
made or at the time the sale is made.
Acting Chairman King. After all, the statement made by Dr.
de Chazeau is correct — it is innocuous.
Mr. Feller. That is perfectly correct.
Dr. DE Chazeau. Steel is not produced in advance of sale and
thrown on the market at what it may bring but it is sold on contract —
for most products quarterly contracts, although many take a longer
term.
Mr. Feller. That sentence in effect is really an explanation of the
term "administered price."
Dr. DE Chazeau. The selUng price, therefore, reflects the judgment
and the poHcy of managers within limits and its acceptability to
the trade depends largely on the buyer's expectations as to reason-
able prices in the light of business conditions for liis own enterprise.
Acting Chairman King. Would it be unfair to say that economic
writers, writers who claim to be economists, sometimes adopt a phrase
which sounds very well but which doesn't mean very much?
Dr. DE Chazeau. I think so.
Representative Reece. But under this interpretation of the admin-
istered price, it would seem that all prices except those arrived at
pubhc auction have an element of administered price in them..
Dr. DE Chazeau. Yes.
Representative Reece. So the term is meaningless except to
distinguish it from a price arrived at public auction.
Dr. DE Chazeau. That is right, and within the group of prices
which are called administered prices you may have everything from
a purely competitive situation to a very monopolistic situation, and
it is in the characteristics of that price, the extent to which the reaction
of rivals is a factor in fixing your own price, or the extent to which
inelasticity of demand enables you to fix that price at a high level
and maintain it at that level, that you have particular problems arising.
Given a certain optimism as to business trends, therefore, a firming
of the existing price (that is, a refusal to take business below the
published base price) together with an early announcement of a price
increase for the following quarter and of an intention to restrict
existing prices to shipments actually made during the current quarter,
may have the effect of inducing a present increase in demand and
stimulating immediate release of specifications. Thus, even though
existing costs might not require a price advance or even if an upward
trend in the rate of utilization of capacity were certain at existing
prices to transform losses into profits, management might decide to
advance prices as good sales strategy.
In the absence of a cost analysis, it cannot be said authoritatively
that an increase in price is not justified. Raw materials have in-
creased in price. Ernest T. Weir, president of the American Iron
and Steel Institute, in a recent speech before the American Institute
of Steel Construction,^ cited advances of 25 percent in the price of
ferromanganese, 17 percent in tin,. 35 percent in zinc, 18 percent in
fuel oil and 10 percent in coal. He did not indicate what effect these
price increases could be expected to have on the cost of those steel
products for which they are raw materials.
Zinc and tin are imported metals which are used primarily for
coating steel products such as galvanized sheets and tin plate respec-
' Introduced into the record infra as "Exhibit No. 1421"; appears in the appendix on p. 10734 et seq.
CONCENTRATION OF ECONOMIC POWER 10477
tively. Large steel companies, however, probably purchase tiiese
metals on long-term contracts at prices which are not reflected in the
spot market. Ignoring this factor, the net change in the spot price
of zinc from June to October 1939, as reported by the Iron Age was
$2 per 100 pounds at St. Louis. Using the zinc consumed by sheet
manufacturers in 1938 — as reported in the Minerals Year Book —
and the tonnage of galvanized sheets produced in that year — as pub-
lished in the Annual Statistical Report of the American Iron and
Steel Institute— a very rough estimate of the weight of zinc consumed
per ton of galvanized sheets is derived, namely 8.8 percent. This
would be equivalent to an increase of 17.6 cents per 100 pounds in
the base price of galvanized sheets — that is, the use of 8.8 pounds of
zinc for every hundred pounds of galvanized sheets — or about $3.50
per net ton as compared with an existing price of $70 per ton. Using
the same methods, the proportion of tin in the weight of tin plate was
found to average 2.7 percent in 1938. With a nominal increase of
$6.25 per 100 pounds of tin since June 1939, this would indicate an
increase in cost of 16.9 cents per 100 pounds of tin plate as compared
with the present price of $5 per 100-pound base box.
Acting Chairman King. In your investigation, your studies of the
question, did you ascertain whether the importation of zinc from,
Canada under the agreement which was entered into between the
United States and Canada affected the price of zinc to the consumer,
the purchaser in the United States?
Dr. DE Chazeau. No; for purposes of this presentation it seemed
only necessary to find out what the change in the price of zinc had
been, using public sources, without making any detailed analysis of
why it may have risen.
Acting Chairman King. Did you discover that there was a depar-
ture from the normal price of zinc prior to the agreement to which I
have referred and then subsequent to it after there were importations
of zinc from Canada?
Dr. DE Chazeau. No; we made no such analysis. I must empha-
size here that my presentation is not the result of a special study made
by the Department of Justice of all the factors which enter into prices.
It is made in response to a special request that something be said
about war and its relation to steel prices. We have therefore used
secondary information. We have not made special studies of all
phases of this problem.
Acting Chairman King. I am not making any criticism at all.
Dr. DE Chazeau. Advances in the cost of oil, coke, and steel scrap
are probably more important for the general run of tonnage steel
products. From May to October 19, 1939, according to ''Iron Age."
the price of pig iron advanced $2 per gross ton while furnace coke
(ConnellsviUe) increased $1.25 per net ton. Since ore prices have not
changed during the current year, it is apparent that the $2 rise in the
price of pig iron can hardly be explained by a $1.25 increase in coke
prices, for coke constitutes less than 30 percent of the raw materials
used in the production of pig iron. That is, 0.887 ton of coke out ol
every 3 tons of material were used in the production of pig iron in 1938.
The explanation must be found in preexisting unprofitable levels of
price or, more likely, in the rise of steel-scrap prices. Movements in
the price of scrap at the three major markets for which report? are
given, Pittsburgh, Chicago, and Philadelphia, arc ..idependent of one
10478 CONCENTRATION OF ECONOMIC POWER
another, varying with the amount of scrap available relative to local
demand. Under normal conditions Philadelphia scrap prices are
slightly in excess of Pittsburgh prices while Chicago prices are sub-
stantially lower. The relation of Philadelphia to Pitts])urgh prices,
however, has been disturbed by the recent activity in steel. Since
the first of July, scrap prices have increased $7.25 per ton in Pittsburgh,
which is — No. 1 heavy melting scrap — $6.75 per ton in Philadelphia
and $4.87K per ton in Chicago — about $1.50 per ton less than levels
reached during the first week in October. Between May and October
19, 1939 the heavy melting scrap composite advanced $6.83 per
gross ton.
Acting Chairman King. Is that advance in scrap due to the in-
creased demands made by Japan?
Dr. DE Chazeau. I think not, because Japanese demands have been
characteristic in recent years. It was due undoubtedly to the in-
creased activity in the steel industry following particularly the
tutbreak of the present conflict.
For any producer of steel whose supplies of scrap and pig iron must
be derived from the market, especially if he is dependent on the
existing spot market, increases of some 10 percent in coal and pig-iron
prices and almost 48 percent in average scrap prices are bound ta
have substantial effects on his costs despite improved operating rates.
Since there is a loss of about 10 percent in pig iron in the steel furnace
— a weight loss — at a 100-percent iron charge, the increased price
of pig iron would be equivalent to an increase of $2.22 per ton in the
cost of steel, if you used 100-percent pig-iron charge. The conversion
losses for scrap are substantially less but even if they be assumed to be
only 5 percent, an average increase in scrap prices of $6.83 would be
equivalent to $7.19 in the cost of steel, at 100-percent scrap. If a
50-50 charge were used the increased cost of steel would amount to
$4.70 per ton. Thus, even though actual contract prices for materials
were lower than quoted prices, higher prices quoted by semi-inte-
grated manufacturers, especially in the eastern Pennsylvania region,
for certain products probably reflect higher costs as well as the oppor-
tunity to secure premiums for early deUvery while the large mills are
booked to capacity. But to assume that these price increases
wjrduld justify similar advances in the price of finished steel produced
by integrated companies is to neglect the fact tht these companies
are themselves the producers of ore, coal, coke, and pig iron and that
they normally produce substantially more than half of the scrap
which they consume.
Prices of these materials then are either reflections of price decisions
by managers who themselves are in control of the predominant pro-
portion of the country's steel capacity or are determind by bargaining
in a very narrow market. The average differential of some 30 percent
between pig-iron and scrap prices is evidence of the dominance of
integrated steel companies in the scrap market since the use of scrap
as contrasted, say, with the use of pig iron will have the same effect
upon production of ingots. In fact the conversion loss is lilvely to be
less when scrap is used than when pig iron is used. In either case their
fluctuations, that is the fluctuations in price of these raw materials,
cannot, measure changes in cost to integrated steel companies except
on the circular assumption that the price rise was justified by increas-
ing costs, the very point at issue.
CONCENTRATION OF ECONOMIC POWER 10479
I repeat, then, that in the absence of a detailed cost analysis no
definitive answer can be given to the question: Would a rise in steel
prices be justified by increased material costs? In lieu of such infor-
mation, however, the financial results of operations during the third
quarter may prove instructive. Two factors must be borne in mind,
however, when interpreting such data. First, although no advances
have taken place in the published prices of steel products, increases in
the operating rate during the third quarter have probably meant an
increase in the actual price received for steel because of the reduction
in the proportion of sales made below the published price. As pre-
existing contracts at concession prices are fulfilled, new contracts at
published prices may be expected to improve the profit position even
without a price advance. On the other hand, beyond a certain rate
of operation it becomes necessary to brhig less efficient equipment
into operation in order to meet demand. This means that profits at
any given level of prices may not continue to rise as the rate of utiliza-
tion of capacity increases. Some producers already maintain that the
most profitable operating rate has been exceeded. To the extent that
this is true, it is possible that profits in the fourth quarter may not
exceed those in the third unless prices or extras are advanced.
At the present time, third-quarter profits are available for the fol-
lowing 10 important steel companies. United States Steel Corporation,
Bethlehem Steel Co., Republic Steel Corporation, National Steel
Corporation, Jones & Laughlin Steel Co., Youngs town Sheet & Tube
Co., American Rolling Mill Co., Wheeling Steel Corporation, Inland
Steel Co., and Otis Steel Co. With the exception of Otis and
American Rolling Mill, each of these companies reported third quarter
net income — after interest, taxes, and depreciation, but before divi-
dends— substantially in excess of that for either of the first two q^uar-
ters. United States Steel's net — $10,420,445 — was over five times
its aggregate for the first half of the year. The corporation reported
its average rate of operations as 56 percent in the third quarter.
Mr. Feller. By the way, it distributed 56.4 percent.
Dr. DE Chazeau. 56.4. Republic netted $2,815,339, more than
two and one-half times its aggregate for the first half of the year, and
Bethlehem's $5,377,470 was substantially greater than 3.8 million
dollars earned in the second quarter but not as great as the aggregate
earnings for the first half year by almost a million doUars. Jones &
Laughlin, after losses in each of the first two quarters, reported a net
of over a million doUars, an annual rate — that is multiplying the quar-
ter earnings bj four — approximating that of 1936 and 1937.
Acting Chairman King. During what year did they sustain the
losses?
Dr. DE Chazeau. These were losses in the first and second quarters
but there were profits in the third quarter which at an annual rate were
equivalent to the total earnings in '36 and '37. Jones & Laughlin, I
believe, made losses in '38. No comparisons are made with '38, be-
cause most companies did make losses in that year.
Acting Chairman King. In '38?
Dr. DE Chazeau. In '38. The average return, as reported by the
American Iron & Steel Institute for the industry in 1936, was about
one-half of 1 percent. That is the ratio of net earnings after taxes
and depreciation but before interest and dividends to capital invest-
10480 CONCENTRATION OF ECONOMIC POWER
ment — bonds, stocks, and surplus. It would be about one-half of
1 percent.
Acting Chairman King. One-half of 1 percent. And have all of
those companies whose names you have just given us sustained losses?
Dr. DE Chazeau. During '38?
Acting Chairman King. During '38, '37, '36.
Dr. DE Chazeau. Not through '36 and '37; '38 was the year of
losses. United States Steel Corporation had a loss in '38; Republic
Steel Corporation and Youngstown Sheet & Tube. Inland did not.
Inland has made profits rather consistently. American Rolling Mills
had a loss; Bethlehem did not. National did not. Wheeling did not.
They made a profit in '38. Jones & Laughlin had a heavy loss in '38.
Crucible Steel had a loss in '38, as did Otis Steel.
Representative Williams. Just in a word now, what do you
attribute this profit to during the last quarter?
Dr. DE Chazeau. To the increase in the operating rate; that is, the
rise in the operating rate from a low of around 50 at the beginning of
the quarter to a high at the end of the quarter of over 80.
Representative Williams. And thereby a decrease in the unit cost
of production?
Dr. DE Chazeau. A decrease in unit cost. There are in the steely
industry, as you know, very high overhead cost, and with an increase
in the operating rate there is a reduction in average cost. That
increase in the operating rate has more than compensated any increases
that might have taken place in raw material costs during that period.
Wheeling Steel, after losses in the first quarter and a net of approxi-
mately $315,000 for the first half year, earned over 1.6 million dollars in
the third quarter, or almost as much as it reported for the entire year
1937, which was 1.9 miUion 'dollars, or even in 1936, which was only
2.29 million dollars. Youngstown earned over $765,000 as contrasted
with $546,000 in the first half of the year. National's earnings of
$2,903,881 in the third quarter were approximately equal to the
earnings in the first half year. Inland's earnings in the third quarter
exceed those in the second quarter by more than half a million dollars.
Unlike the others, American Rolling MiU earned less in the third
quarter — $600,793 — than in the second, when it earned $875,671.
Otis reported a loss of $184,517 in the third quarter as contrasted with
a much larger loss of $431,766 in the first quarter and a profit of
$228,804 in the second.
Without an analysis of investment and of capital structure, de-
preciation and other charges, it is not possible to explain the differ-
ences in these reports or to generalize conclusively from them. It is
apparent, however, that to the extent that they are representative,
rising prices of raw materials in the third quarter were more than
compensated by a more favorable operating rate.
A few generalizations may be ventured in summary: (1) The present
demand for steel appears to be highly speculative with much of it
going into inventories. As such it is unstable and likely to bring some
future recession. (2) Although costs- of firms dependent for raw
materials on the spot market have undoubtedly increased, with few
exceptions there is no evidence that costs for the bulk of steel pro-
ducion. have been raised. Indeed, it seems probable that a more
favorable operating rate has more than compensated for rising raw
material costs. Third quarter profits available substantiate this
CONCENTRATION OF ECONOMIC POWER 10481
conclusion but are not conclusive evidence because of potential de-
pletion of stocks on hand, termination of existing favorable contracts
for materials, and resort to less efficient equipment during the fourth
quarter. (3) Reaffirmation of fourth quarter prices for the first
quarter of the coming year would probably tend to reduce the pressure
on the mills from speculative purchasing. There is some reason to
believe that this contribution toward its own stability and toward
the stability of the economy as a whole might be made by the industry
without serious restriction of profits.
Acting Chairman King. Have you any other questions?
Mr. Feller. I have none.
Acting Chairman King. Has the committee any questions?
Mr. Ballinger. Could I ask one. Senator? Pardon me; I want to
go back to this question of administered price one minute. Didn't
you state in your book ^ that you meant by an administered price
one that was arrived at noncompetitively and collusively?
Dr. DE Chazeau. Not to my knowledge.
Mr. Ballinger. But you said prices in steel were arrived at non-
competitively, didn't you, in your book?
Dr. DE Chazeau. I think I made the statement that prices of steel
were not purely competitive prices.
Mr. Ballinger. Meaning that there was price competition or not
price competition?
Dr. DE Chazeau. Meaning that there was not price competition of
the sort that economists assume when they apply the theory of price
competition, pure price competition.
Acting Chairman King. Any other questions?
Thank y^ou very much.
(The witness, Dr. de Chazeau, was excused.)
Acting Chairman King. We will take a recess to 2:15,
(Whereupon, at 12:15 p. m., a recess was taken until 2:15 p. m.
of the same day.)
afternoon session
The hearing was resumed at 2:15 p. m. upon the expiration of the
recess, Senator William King acting chairman.
Acting Chairman King. The committee will be in order. Call your
witness,
Mr. Feller. I should like to call Mr, Fairless, Mr. Hughes, and
Mr, Gregg.
Acting Chairman King. Hold up your right hands. Do you and
each of you solemnly swear that the testimony you shall give in this
proceeding shall be the truth, the whole truth, and nothing but the
truth, so help you God?
' "Economics of the Iron and Steel Industry."
124491 — 10— pt 1£
10482 CONCENTRATION OP ECONOMIC POWER
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL CORPORATION, NEW YORK, N. Y. ; ROBERT
GREGG, PRESIDENT, TENNESSEE COAL, IRON & RAILROAD CO.,
BIRMINGHAM, ALA.; AND H. L. HUGHES, VICE PRESIDENT,
UNITED STATES STEEL CORPORATION, NEW YORK, N. Y.
Mr. Gregg. I do.
Mr. Hughes, I do.
Mr. Fairless. I do.
Acting Chairman King. State your names for the record.
Mr. Gregg. Robert Gregg,
Acting Chairman King. President of the Tennessee Coal, Iron &
Railroad Co., Birmingham, Ala.?
Mr. Gregg. Yes, sir.
Mr. Fairless. Benjamin F. Fairless, president, United States Steel
Corporation.
Mr. Hughes, H. L, Hughes, vice president, United States Steel
Corporation.
Acting Chairman King. Proceed, Mr. Feller.
Mr. Feller. I should like first to make a very brief statement as
to the purport of the testimony which is to follow. We are now going
to explore the question of how and why prices are changed. I think
this is one of the matters in which the committee should be particularly
interested. Our interest is in the action of businessmen and in the
considerations which they take into account at the time their action
is taken. In other words, we are looking at this not the way econo-
mists look at price changes, not in the way an economic analyst does,
on the basis of theory. Our question is, what do businessmen do
and what considerations do they act on at the time that they do the
act, at the time that they change the price?
The questions, therefore, which will be directed to these gentle-
men will deal with their own actions, or the actions of their associates,
STRUCTURE OF UNITED STATES STEEL CORPORATION
Mr. Feller. Mr. Fairless, for the guidance of the committee it
woidd perhaps be useful if you could give just a very brief outline
of the various companies wliich make up the United States Steel Cor-
poration, and I would suggest that the members of the committee
might turn to page 5 of the httle booklet which we introduced at the
beginning,^ which gives the structure and organization of the corpora-
tion by function.
Now, Mr. Fairless, in order to make the thing rather brief, perhaps
if you permit I may guide you a bit. The parent corporation is the
United States Steel Corporation, a New Jersey corporation; is that
correct?
Mr. Fairless. That's right.
Mr. Feller. I also understand that in the corporate organization
there is the United States Steel Corporation of Delaware. Could
you tell the committee very briefly the difference between those two
corporations, the New Jersey Corporation and the Delaware Cor-
poration?
1 Chart I of "Exhibit No. 1340," included in Hearings. Part 18, appendix, facing p. 10303.
CONCENTRATION OF ECONOMIC POWER 10483
Mr. Fairless. The New Jersey Corporation, of course, is the parent
company. The Delaware Corporation is strictly an advisory company
that coordinates the efforts and policies of certain manufacturing and
raw material producing subsidiaries, in respect to manufacturing,
sales, engineering, purchasing, research and technology, legal, public
relations, and industrial relations.
Mr. Feller. Who are the officials of the United States Steel
Corporation of Delaware?
Mr. Fairless. The officials are the president of that corporation,
also the several vice presidents, who comprise his staff, and also a
board of directors which includes the presidents of the various steel
manufacturing and selling subsidiary companies.
Mr. Feller. Now, I should like to have you tell us very briefly
some of the major operating and selling subsidiaries of the corporation.
First with respect to iron ore, which subsidiary engages in the pro-
duction of iron ore?
Mr. Fairless. Oliver Iron Mining Co.
Mr. Feller. Which engages in the production of coal and coke?
Mr. Fairless. The H. C. Frick Coke Co., and several coal-mining
subsidiaries.
Mr. Feller. Then with respect to the manufacture of steel.
Mr. Fairless. We have five steel-manufacturing subsidiary com-
panies, the largest of which is the Carnegie-Illinois Steel Corporation,
followed by the National Tube Co., Tennessee Coal, Iron & Railroad
Co., American Steel & Wire Co., and the Columbia Steel Co.
Mr. Feller. The Carnegie-Illinois Co. has its main mills at
Pittsburgh?
Mr. Fairless. Pittsburgh and Chicago.
Mr. Feller. And the Tennessee Co. has its main mills at
Mr. Fairless (interposing). Birmingham, Ala.
Mr. Feller. The Columbia on the West coast?
Mr. Fairless. On the Pacific coast, Los Angeles and San Francisco.
Mr. Feller. Does the Columbia Co. also operate the blast furnaces
at Provo, Utah?
Mr. Fairless. It does.
Mr. Feller. Could you also mention the chief selling subsidiaries
of the Corporation?
Mr. Fairless. The American Bridge Co. is both a manufacturer
and a selling company; the United States Steel Export Co.; and the
Scully Steel Products Co.
Mr. Feller. The American Bridge Co. is engaged in the fabrication
of structural steel, is it not?
Mr. Fairless. In the fabrication and selling of structural material
and in erection.
Mr. Feller. And similar functions are also performed by the
Virginia Bridge Co.
Mr. Fairless. That is right.
Mr. Feller. Which operates mainly in the southern area?
Mr. Fairless. That is right.
Mr. Feli^er. Just to clarify a bit, two of the subsidiaries which you
have mentioned speciaUze somewhat in the nature of their product.
National Tube is engaged mainly in tubular products.
Mr. Fairless. Tubular products.
10484 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. And the American Steel & Wire is another that
specializes.
Mr. Fairless. In wire products.
Mr. Feller. Whereas Camegie-Illinois, Tennessee Coal & Iron and
Columbia Steel manufacture a wider variety of products.
Mr. Fairless. Right.
Mr. Feller. Mr. Fairless, I should like to inquire, again very
briefly, into the organizational set-up ia the Corporation with respect
to the making of changes- in price. I presume that at some period
when it is desired to make a price change up or down, some persons
in the Corporation make recommendations, do they not?
Mr. Fairless. Definitely.
Mr. Feller. And who would those people be?
Mr. Fairless. They would be the officials of the subsidiary com-
pany which is concerned or interested in the suggested price change.
Mr. Feller. And to whom are these recommendations trans-
mitteci?
Mr. Fairless. To whom?
Mr. Feller. Yes.
Mr. Fairless. To the Delaware Corporation.
Mr. Feller. To the Delaware Corporation. Are these recommen-
dations customarily — I don't mean in every case but customarUj —
supported with some sort of data, and with reasons as to why the
changes recommended should be made?
Mr. Fairless. Oh, very definitely.
Mr. Feller. And are further studies made in the Delaware Corpo-
ration?
Mr. Fairless. Yes.
Mr. Feller. May I ask this? Have recommendations for changes
always been made through the Delaware Corporation?
Mr. Fairless. Only since its inception as such an advisory com-
pany, January 1, 1938.
Mr. Feller. And only since that date, they go through the
Delaware Corporation.
Mr. Fairless. That is right.
Mr. Feller. Previous to that time I take it they went to the
officials of the parent corporation.
- Mr. Fairless. They went to the president of the United States
Steel Corporation (New Jersey).
Mr. Feller. May I ask whether the subsidiaries ever act inde-
pendently of the parent corporation or of United States Steel of
Delaware in making price changes?
Mr. Fairless. No.
Mr. Feller. In other words, at aU times the parent corporation,
or as is the case since January' 1, 1938, United States Steel of Dela-
ware, has the final decision as to whether or not a change in published
price shall be made.
Mr. Fairless. WeU, not exactly that. The parent company, of
course, through its board of directors, always considers and recom-
mends poUcy in respect to price changes, and by that I mean this,
that the board, of course, does not assume— by the board I mean the
board of the Jersey Corporation — to estabhsh prices as appUed to any
particular product or group of products, but it does offer suggestions
in respect to policy having to do with whether a price change should
CONCENTRATION OF ECONOMIC POWER 10485
be made, either upward or downward, giving the subsidiary com-
panies, through the Delaware Corporation, the benefit of its knowl-
edge of general business conditions.
Mr. Feller. Then I take it that the officials of a subsidiary corpo-
ration could, if they so desired, announce a different price on sheets
than the price which had been suggested to them by the officials of
the Delaware Corporation or the parent corporation.
Mr. Fairless. In practice, not unless approved by the Delaware
Corporation or the president of that corporation,
Mr. Feller. Let me see if I have that quite clear. The actual
price announcements are made by the operating subsidiaries, operat-
ing or selling subsidiaries.
Mr. Fairless. Correct.
Mr, Feller. Those announcements prior to the time when they
are issued must be approved by you or by the officials
Mr. Fairless (interposing). By me.
Mr. Feller. They must be approved by you.
Acting Chairman King. First you receive, I presume, the recom-
mendations, if recommendations are made, and the data submitted
by the subsidiaries to the Delaware Corporation.
Mr. Fairless. The subsidiary companies, Mr. Chairman, naturally
make a very exhaustive study of market conditions, competitive con-
ditions, the possibility of business or lack of business during the period
covered by the proposed price announcement, and after carefully con-
sidering these questions, together with competitive conditions as they
exist and are probably likely to continue, they come to conclusions in
respect to the recommenaation that they choose to make, and that
comes to me as president of the Delaware Corporation, and I in turn
discuss these recommendations with my staff, consisting of the various
vice presidents of the Delaware Corporation and the presidents of all
the subsidiary steel manufacturing companies, and in turn we arrive
at a schedule to be announced, and finally the subsidiary company is
permitted to proceed with the annoimcement after receiving my per-
sonal approval.
Acting Chairman King. Your personal approval as president of
the Delaware or of the New Jersey Corporation?
Mt. Fairless. The Delaware Corporation, in respect to the com-
panies who comprise, who go to make up the subsidiaries having ad-
visory contracts with the Delaware Corporation, and they are the
chief manufacturing and sales subsidiary companies.
^1t. Feller. Mr. Chairman, I offer now for the record a chart
prepared by the Department of Justice, entitled "Index of Ingot
Production and Finished Steel Composite Price, 1926-39." This
chart was compiled from standard sources.
Acting Chairman King. I presume you are referring to "Index of
Ingot Production and Finished Steel Composite Price."
Mr. Feller. Yes, sir."
Acting Chairman King. Is that chart 1 or 2 or 3? How do you
identify it for the record?
Mr. Feller. I think the reporter takes care of that.
Acting Chairman King. WTiat number will that be?
The Clerk. 1381.
Acting Chairman King. It may be admitted. Proceed.
10486 CONCENTRATION OF ECONOMIC POWER
(The chart referred to was marked "Exhibit No. 1381" and is
included in the appendix on p. 10710.)
Mr. Feller. I should like to call the committee's attention to the
fact that there aheady is in the record on page 27 of the booklet first
introduced a chart entitled "Finished Steel Composite Price Index,
by Month's 1926-39." ^ The line on that chart in effect is the same
line as the dotted line on the chart which has just been mtroduced,
namely, the Finished Steel Composite Price.
Acting Chairman King. This does not relate to any company, but
to all companies, a composite?
Mr. Feller. Yes, sir; it is a composite price, and perhaps for the
guidance of the committee I may say something about the finished
steel composite price index. This is a price which is pubhshed in the
trade journals. It is an arithmetical average of the prices of a num-
ber of steel products, a number of finished steel products. It is the
base price, it is an average of base prices; it is the price at Pittsburgh
of eight finished steel products.
Acting Chairman King. Eight?
Mr. Feller. Eight. It does not include the extras nor does it
include freight. In other words, it is not an index of the price which
any one particular customer may pay. It is the base price at Pitts-
burgh, as pubhshed in the trade journals.
I may say also that the price index is not a weighted one. By that
I mean that it does not take into account the varying volumes of the
different products which are in the index. In other words, it may be
that at a particular time a great many more sheets are sold than
bars. The index wiU not reflect that. The index is an arithmetical
index, a simple arithmetical average of these various prices. As such
it cannot be said to be more than, shall we say, a rough index of the
actual movement of the price. As we go on later to study some of
the particular products you wiU see how, the prices of dity^rcnt prod-
ucts vary, what different price behaviors there are amoii;^' the many,
many products of this extremely complex industry. But this finished
steel composite price is, generally speaking, the closest approximation
that you can have in the published sources to the movement of the
base price of steel.
Is that correct?
Mr. Fairless. It is, so far as the chart is concerned.
Acting Chairman King. The chart doesn't represent the price of
the finished steel price.
Mr. Feller. Yes, sir; it does.
Mr. Fairless. The theoretical price.
Mr. Feller. Calling attention to the "Finished Steel Composite
Price," Mr. Fairless, the chart indicates that in the year 1936 there
were at least two price increases and that in the early part of 1937
there was one price increase, at least one. Is that correct?
Mr. Fairless. There was one in 1937.
Mr. Feller. One in 1937 and two in 1936.
Mr. Fairless. Two in 1936.
Mr. Feller. And in 1938 about the middle of the year there was
a major price decrease.
Mr. Fairless. That is right.
J "Exhibit No. 1349," Included In Hearings, Part 18, chart appears on appendix p. 10420.
CONCENTRATION OF ECONOMIC POWER 10487
Mr. Feller. And there were other price decreases later on in that
year.
Mr. Fairless. Price reductions?
Mr. Feller. Yes.
Mr. Fairless. No.
Mr. Feller. The chart indicates so, it has a little sort of depres-
sion in it in the last month.
Mr. Fairless. There may have been some minor reductions
affecting only isolated products.
Mr. Feller. That is true. There were minor reductions.
Mr. Fairless. There was no general over-all reduction other than
that of June 24, 1938.
Mr. Feller. That is correct. The general over-all price changes,
then, are two increases in '36, one in the early part of '37, and one in
June of 1938?
Mr. Fairless. Correct.
I would like to correct a statement, Mr. Chairman, in respect to
the first price increase in 1936. It was not a general over-all increase.
It only applied to certain products, products that we felt were priced
too low at that particular time. If you will look up your records
you will find that the first increase in '36 was not comparable with
the second increase of '36 or with the one increase in '37.
Mr. Feller. Yes; I think that is correct.
Acting Chairman King. Just one moment. I think Mr. FeUer
asked you, and you answered that there was an increase in '38.
Mr. Fairless. A (decrease.
Acting Chairman King. I thought it was an increase.
Mr. Feller. Oh, no.
Acting Chairman King. Have you seen the chart which was
exhibited to the committee? '
Mr. Fairless. Yes; I have it before me.
Acting Chairman King. May I ask a question? You will notice
there the finished steel price, that irregular line from 1926 until 1938.
Does that substantially represent the variations in price, of the
composite finished steel price?
Mr. Fairless. Well, I must naturally accept this chart as reflect-
ing those composite prices, and I have every reason to think that it
does. However, as explained by Mr. Feller, this only, so far as price
is concerned, shows the composite price of these products on the basis of
base published prices at Pittsburgh. It hasn't anything to do with
the basis on which those products were sold in the open market. It
has only to do with the prices that were (juoted as applying to those
products at Pittsburgh. It hasn't anything to do with the extras or
deductions that might have been made from the base prices of the
particular products. Mr. Feller completely covered it, although I
want to emphasize that this chart, from the standpoint of actual
price realization to this industry, doesn't mean a thing.
Mr. Feller. Yes; what this chart is intended to illustrate, Senator,
is to bring before the committee graphically the somewhat simple
facts that Mr. Fairless has just stated, that in 1936 there were two
price increases, that in 1937 there was a price increase, and in 1938
there was a price reduction, and we are going to direct our attention
to those price changes.
' "Exhibit No. 1381," appendix, p. 10710.
10488 CONCENTRATION OP ECONOMIC POWER
THE 1936 PRICE INCREASES
Mr. Feller. Mr. Fairless, could you tell us in a general way the
reasons why it was decided to increase the prices of steel on these two
occasions in 1936?
Mr. Fairless. I can cover the general policy reasons.
Mr. Feller. Yes; t|iat is precisely what we are directing our
attention to.
Mr. Fairless. Not the mechanics of how the increase was arrived
at, or how it was put into effect.
Mr. Feller. Not at the moment, sir.
Mr. Fairless. The first increase in 1936, which covered only
certain steel products, was made because the selling prices of these
products had got so low and so far out of line in respect to their
proper relationship with the prices of other products that we decided
to move the prices of these products up to a point where they would
at least show some profit, some of them showing losses at the time,
and also to bring about a better price relationship between these
products and other steel products which we merchandise.
Acting Chairman King. There was no effort to bring them into
relation with products outside of the steel business — for instance,
agricultural products or oil products or manufacturing products
generally?
Mr. Fairless. Not at that particular time, Senator. I am not
prepared to discuss the particular products except in a general way,
but I do know, and have full recollection of the reasons for the move
that was made. I know, for example, that some of these products,
due to the ravages of the depression, had got down to a very low
selling price.
Acting Chairman King. You mean the steel products?
Mr. Fairless. The products that were involved in this particular
price increase; and it was the desire on our part to bring the selling
prices of these products up in proper relationship to the prices of other
products, and it was not with the idea of a general price increase.
Mr. Feller. At what date was that particular price change?
Mr. Fairless. I haven't the date — May 1936.
Mr. Feller. May 1936. Then when was the date of the' subsequent
general price increase?
Mr. Fairless. In December, I think, 1936. It was announced
in November, effective December 1st.
Mr. Feller. Weren't there certain changes which had been made
in July?
Mr. Fairless. That was the effective date of the first announcement.
Mr. Feller. Then you would say this: The increase which was
made in the early part of 1936 was not a general price increase but an
increase in the price of certain products in order to reestablish a
relationship among the various classes of products sold by you, a
relationship which had been disrupted in some way previously.
Mr. Fairless. That is right.
Mr. Feller. I believe you have already stated that that relationship
had been disrupted due to the ravages of the depression, to use your
own words. Could you expand on that just a bit and tell us what
was the proper relationship that the Corporation officials had in mind?
Mr. Fairless. Well, I can't give you the details of it.
CONCENTRATION OF ECONOMIC POWER 10489
Mr. Feller. I don't mean in detail, but is there a general policy
which is applicable?
Mr. Fairless. Well, yes. You saw in the moving picture that we
showed here on Wednesday morning of last week how steel is made.
Now, the steel industry, of course, begins with pig iron, and from pig
iron we move to ingots, and from ingots we move to semifinished
steels. We have available photographs of all these different products,
which we would be very happy to display or pass among members of
the committee. And from the semifinished products then we move on
into our various lines of finished products, and there are many of
them — bars, plates, shapes, wire and wire products, and so on, into the
highly finished lines.
Now, when it comes to merchandising these various products,
obviously we must have a proper price relationship between the
different products which we merchandise. Otherwise, for example,
if we did not have the proper relationship between the prices of plates
and strip steel — the strip steel is only a narrow-gage plate — and sheet
steel, we would have these several products in competition with each
other. So obviously, first beginning with a proper price structure,
then we must have a proper relationship between the prices of these
products. That is what I am attempting to describe as having been
the reason for the first price increase in 1936.
Mr. Henderson. May I ask a question there? Mr. Fairless, how
did plates and strip happen to get out of relationship in the depression?
Mr. Fairless. For various reasons, largely competition, I would
say, Mr. Henderson — largely competition.
Mr. Henderson. And when you reestablished the relationship in
May, what happened to competition?
Mr. Fairless. By "competition" I mean competition so far as the
application of strip to plates and vice versa.
Mr. Henderson. You just couldn't get it, is that it?
Mr. Fairless. Couldn't get what?
Mr. Henderson. You couldn't get the relationship of prices be-
tween plate and strip during the depression on account of competition.
Mr. Fairless. I would say we lost it on account of competition.
Mr. Henderson. Well, that is good enough language.
Mr. Fairless. All right.
Mr. Henderson. Now in May of 1936, had the unbalanced com-
petitive relationship disappeared?
Mr. Fairless. I don't beheve, Mr. Henderson, that the products
you refer to — I am sure they were not affected by this first increase.
Mr. Henderson. I was just using your illustration, you see.
Mr. Fairless. Yes; let us consider the products which did change
in price. I think what we should do is to have before us exactly the
products that were affected. Semifinished steel was the major item,
also plates, shapes, bars, and strip.
Acting Chairman King. Distortions aros^ from the price level by
reason of increased demands for some particular commodity which
you produce, and of course a diminishing demand for others, and
therefore that would produce a distortion or an unbalancing, to use
the expression of Mr. Henderson, and you tried to being them into
a proper relationship.
Mr. Fairless. As best we could. I don't make the statement,
because it isn't true, that we succeeded in bringing them into a
10490 CONCENTRATION OF ECONOMIC POWER
proper relationship, but that was the objective of the price announce-
ment which covered advances in these products.
Acting Chairman King. I can understand that you couldn't bring:
them into complete relationship, because there might be increased
wages in. the production of one commodity and not in aU the com-
modities, and that would bring about a distortion or an unbalancing;
or there might be an increased demand for one and a lessened demand
for the other, and that would produce a distortion.
Mr. Fairless. That is right. In this highly competitive industry,
of which we are a part, competition, of course, exists at all times, but
many times it is more prominent in one product than it is in another
product, and that might be caused by a number of circumstances, as
you well related, Senator. We have had periods during the depres-
sion when, on some particular product, business was fairly good, at
least real lively in that product, but the over-all steel business was
very bad, so therefore we are constantly faced with keener com-
petition in respect to one product or a group of products than we are
in the over-all.
Acting Chairman King. If a great demand were made for steel
rails for a new railroad, or you have the obsolescence of a railroad hav-
ing been recognized and they wanted to rehabilitate it and there was
a great demand for steel rails, in order to gratify that demand it would
produce more or less of a distortion between the prices of the steel
rails with relation to the other commodities.
Mr. Fairless. It could, very weU.
Mr. Feller. To clarify the matter just a bit, would this be correct,
Mr. Fairless, that during the period of the depression the steel
industry found that light steels, the demand for light steels, was
relatively greater than the demand for heavy steels?
Mr. Fairless. That is correct — there was a greater demand for
tiiese consumer goods.
Mr. Feller. Is it correct to say that the price for heavy products
fell more rapidly during the depression than the price for light prod-
ucts? Is that the unbalance or distortion in a very general way that
you refer to?
Mr. Fairless. No, I wouldn't say that. I would not say that.
One of the items that fell possibly further out of line than any other
was semifinished steel. The reasons for that I believe to be as
follows:
In anything approaching normal times m the steel industry, very
few producers of steel are sellers of semifinished — very few companies
are sellers of semifinished steel. In poor times in the steel industry,
every producer of steel is either actually or potentially a seller of
semifinished steel. Now, one of the big demands for semifinished
steel comes from the so-called nonintegrated units using sheet and tin
bars. Therefore there was keen, exceptionally keen, competition to
secure participation in that business, even by companies which
normally did not participate in the selling of semifinished steel, hence
we had that very bad price situation. Semifinished steel was sold
at less than cost.
Mr. Feller. Now, Mr. Fairless, passing on from the partial price
increase, shall I say, the price increase in the early part of 1936
which was designed to reestablish preexisting relationships, to the
CONCENTRATION OF ECONOMIC POWER 10491
price increase in the latter part of 1936, could you tell us in a general
way the reason for the general price increase at that time?
Acting Chairman King. That would be the December increase, I
assume.
Mr. Fairless. On November 16, 1936, the common hourly wage
rate in the steel industry was increased 5K cents, from 47 to 52.5
cents per hour in the Pittsburgh and Chicago districts, 4}^ cents,
from 33.5 to 38 cents, in the Birmingham district, and varying in-
creases were made in other positions, classifications, resulting in an
average general wage increase of 10 percent.
Also, at that time tliis industry was confronted with vacations
with pay, which was an added cost, and contrary to the opinion of
some people, at least, outside of the industry, it is a sizable cost,
although I am not at all critical of the fact that we do have vacations
with pay. I am very proud of it. But nevertheless it does create
an additional cost.
In addition to the increase in cost due to advances in wages, as
I have outlined, and these are those that apply to our own company,
we also had materially increased costs in the materials wliich we
purchased, and wliile we are many times referred to as an integrated
company, integration, of course, is only a comparative word. We
are not integrated to the extent that we are not large purchasers of
raw materials of various kinds, as well as highly finished products.
So the underlying causes, the direct causes, for the price increase to
which you refer, I believe, I have covered.
Mr. Feller. Mr. Fairless, would you mind identifying this letter?
It is written by you to Mr. Gregg and dated November 20, 1936.
It was taken from your files.
Acting Chairman King. Wliile he is doing that, Mr. Feller, you
have called attention to one or two charts. Do you desire those
incorporated in the record?
Mr. Feller. Yes.
Acting Chairman King. Identify them for the record. One of
them is called 1381.
Mr. Feller. I believe that was already admitted previously.^
Acting Chairman King. Which have not been identified?
Mr. Feller. The chart entitled "Finished steel composite price
index" and the chart entitled "Index of semimanufactured articles
and finished steel composite."
(The charts referred to were marked "Exhibits Nos. 1382 and
1383" respectively, and are included in the appendix on pp. 10710 and
10711.)
Mr. Fairless. I, of course, will reply to any questions with respect
to tliis letter. This is my letter.' But, as I understood, you were
questioning me on the over-all policy with respect to these price
changes, and in respect to the specific price changes here
Mr. Feller (interposing). No, sir; I do not intend to deal with
the two paragraphs in this letter which deal with specific price
changes. There are a number of general considerations, however, as
you will notice.
Mr. Fairless. I only wish to call attention to the fact that I
was not president of the United States Steel Corporation in November
1936, or in 1937. Mr. Gregg was then vice president of the Cor-
1 Exhibit No, 1381.
« Introduced infra as Extiibit No. 1384; appendix, p. 10711.
10492 CONCENTRATION OF ECONOMIC POWER
poration, having to do with commercial matters, and he is best
qualified to answer your questions with respect to the price changes
of '36 and '37 insofar as detail is concerned.
Mr. Feller. Yes; I intend to address questions to both of you,
due to the fact that the letter was written by you in your capacity
as president of the principal operating subsidiary, Carnegie-Illinois.
Mr. Fairless. This was my letter.
Mr. Feller, And Mr. Gregg was then vice president of the United
States Steel Corporation.
I offer this for the record.
Acting Chairman King. It may be received.
(The letter referred to was received, marked "Exhibit No. 1384"
and is included in the appendix on p. 10711.)
Mr. Feller. I should like to read a few of the paragraphs. The
letter is dated November 20, 1936. It is written by Mr. Fairless to
Mr. Gregg, who is also present here. [Reading:]
The price situation for the First Quarter of 1937 has been studied very care-
fully, because of the increased costs which face us, and it is very strongly recom-
mended that we announce immediately, effective as of December 1st, prices as
represented by the attached memorandum on business taken for shipment during
the First Quarter of 1937, which memorandum also shows the present prices for
comparison. The factors that make it imperative to take immediate action are
briefly as follows:
(1) Labor costs under the program which became effective November 16th
will add very materially to our manufacturing costs of all commodities. Exact
information concerning this increase in costs due to the new labor program has
been compiled by Mr. Vogt, and you no doubt have received a report from him.
(2) The materials we uee in our manufacturing processes, and for plant and
equipment maintenance, will show a decided increase in cost as evidenced by
preliminary reports which have already been received from sources normally
supplying these materials.
I now skip two paragraphs which refer to special products, and go
on to paragraph 5. [Reading:]
There has been no time in the history of the Steel Industry where the Trade
has been so outspoken .in regard to possible price changes, and we can say with
confidence that they are expecting at least the advances we propose. It is
imperative that this question be settled quickly in order that the Trade may
know what their raw materials cost will be, and permit them to adjust their price
programs accordingly.
(6) December 1st is recommended as the effective date for First Quarter
business, and an immediate announcement would, we believe, have a very bene-
ficial phychological effect on the consuming trade at this time. In fact, inquiries
from the trade as to our price position for the First Quarter are becoming very
numerous and our trade is pointing out to us that it is imperative we make an
immediate decision in order that they may prepare their own business programs.
I think it is unnecessary to read the rest of the letter.
Mr. Fairless, paragraphs 1 and 2 are in essence what you have just
stated, are they not, that is, the labor costs have advanced, labor
costs aU along the line, I presume in the various subsidiaries of the
corporation.
Mr. Fairless. Why not read paragraph 3? Any objection to
paragraph 3?
Mr. Feller. No. I thought you wanted me to omit reference to
specific products.
Mr. Fairless. It is all part of this letter and all tied together, and
I think the committee might well hear the entire letter.
CONCENTllATION OF ECONOMIC POWER 10493
Mr. Feller. I will read that. I omitted it because 1 didn't want
to question you about specific prices. [Reading] :
(3) Tin Plate. — No change in the selling price is proposed and it is estimated
our manufacturing costs will be increased by about $5.00 per ton. Therefore,
shipments during the year 1937 will show a $5.00 per ton reduction in profit to us.
(4) Sheet Miu Products. — A review of this product shows very clearly an
increased cost of about $4.00 per ton. At present selling prices, under favorable
operating conditions, the large tonnage items show the following losses.
And then you Hst blue annealed, hot-rolled annealed, single-pickled,
and tack plate.
Acting Chairman King. Those are commodities which you state
have shown losses?
Mr. Fairless. Yes; losses or practically no profit — and that is
actual, that is taken actually from our past performance, not projected.
Mr. Feller, Now, I should like to have you explain to the com-
mittee a Httle more fully the matters contained in paragraph 5;
that is, the expectation of the trade. This morning Dr. de Chazeau
spoke about the expectation of buyers in the steel industry, and I
think everyone will agree that the question of expectation of buyers is
a major question that must be taken into account, and I wonder, Mr.
Fairless, if you could teU us rather generally and briefly what that
problem is as it appears to the executives of a steel corporation.
Mr. Fairless. Why, it is simply this, that we are in constant touch
with our trade, and by our trade we mean the people who buy our
steel, our products. We are in touch with them daily. Naturally,
whenever there is a question of price change up for consideration, we
consult with them in respect to it. Our corporation wouldn't think
of announcing advances in prices of any of our products without a
very careful and thorough discussion with the principal consumers of
those products, and all I am telling Mr. Gregg in this letter is that
after this had been done, and very thoroughly, we were confident that
the trade, and the temper of the trade as we found it, was that the
steel industry was entitled to an advance, and they were ready and
willing to pay it.
Mr. Feller. Now, you go on in paragraph 6 to say that —
An immediate announcement would, we believe, have a very beneficial psycho-
logical effect on the consuming trade at this time.
Could you explain to the committee just what that means?
Mr. Fairless. It means just this: There isn't any mystery at all
about the buying pubHc in respect to steel. I think it is just the same
as it is in the case of any other product. If our customers and the
industries which buy our goods know or feel that a change in price is
going to take place, whether that change be upward or downward,
they are very anxious to get the information at the earhest possible
date, and not to have that information means that they just simply
will delay buying, and all I was conveying or attempting to convey
to Mr. Gregg, in this particular paragraph, was that in my opinion,
an immediate announcement of our actual prices for the first quarter
of 1937 would permit our customers to release their requirements and
place their orders.
Acting Chairman King. Even though your price were lowered some,
or increased?
Mr. Fairless. Whatever the change.
Acting Chairman King. The psychology would be the same.
10494 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Definitely.
Acting Chairman King. There is a dam in the stream of purchases
by reason of the uncertainty. By announcing the policy, whether
you increased or decreased, it would remove that dam and people
would biegin to purchase steel, and the stream would begin to flow.
Mr. Fairless. That is right.
Mr. O'CoNNELL. Your explanation seems to go to the advisability
of making an announcement of what the price would be for the first
quarter, rather than the psychological advantage in having a price
increase.
Mr. Fairless. Of course, you see, I first make my recommendations
in respect to what the prices should be, as the first step, and the second
step is when those prices should be announced.
Mr. O'CoNNELL. So the psychological factor was of importance in
having known what it was.
Mr. Fairless. I don't think it is psychological, I think it is factual.
The man who buys steel wants to know how much it is going to cost
him.
Mr. O'CoNNELL. You thought of it as psychological when you
wrote the letter. I was only usuig your word.
Mr. Fairless. That is right.
Acting Chairman King. May I ask a question? You spoke about
ascertaining from your customers the demands and condition of the
market before you reached conclusions. Would that information
which you desired originate down with the retailer, and from them
reach the wholesalers, the large buyers, so you would have not only
the view of the retailers, the wholesalers, but the entire market?
Mr. Fairless. Yes; indirectly. Of course, as you know, Senator,
our business is largely furnishing raw materials for further fabrication.
We make practically no finished products, and therefore we have no, or
very little, control over the finished markets into which our products
flow. But naturally when we talk to the can companies with respect
to the price of tin plate for the commg canning season, we in turn get
from them the benefit of the knowledge that they have of the packers'
condition, and the stocks of canned goods and inventories, and so
forth, so we do get the benefit as you have just put it. We haven't
access directly to that information ourselves.
Acting Chairman King. Was the increase in wages just the result
of demands by labor or a voluntary increase, or what?
Mr. Fairless. As we look back to '36 and '37, I think we can all
realize that it was in the air for higher wages. I assumed my hew
position as president of the Carnegie-Illinois Steel Corporation on
October 1, 1935, and one of the first jobs that I had to do was to
discuss with our employee representatives at the Gary works a de-
mand for an increase in wages which was under discussion at that
time. So certainly at least as far back as October 1 , 1935, the request^ —
it hadn't reached the point of demand, I wouldn't want to say that,
but the request — for higher wages was in the air, it was under discus-
sion and continued from then until it was actually put in effect, and
with that went vacations with pay, at about the same time or a little
previously.
Acting Chairman King. That was after discussions with the repre-
sentatives of the unions of the men who are employed by you?
CONCENTRATION OF ECONOMIC POWER 10495
Mr. Fairless. Discussions at that time with the representatives of
our employees' representation plan, which is commonly referred to as
a company union, although that is controversial.
Mr. Feller. Mr. Gregg, the letter was addressed to you and at
that time, and today, also, you are one of the officials of the Corpora-
tion who had to do with the matter of price policy, were you not?
Mr. Gregg. At that time I was vice president of the United States
Steel Corporation in charge of coordination of sales. Since January
1, 1938, I have been president of the Tennessee Coal, Iron & Railroad
Co., and not an official of the United States Steel Corporation.
Mr. Feller. That is right. That was my error.
I should like to ask you with respect to the letter which has just
been introduced, the letter refers to very careful studies, in the first
paragraph, of the price situation, and in the second paragraph it
refers to exact information concerning the increase in costs due to the
new labor program. Were those studies transmitted to you?
Mr. Gregg. Certain of them were. Certain studies to which that
letter refers, in which he names Mr. Vogt, who was at that time and
is now the comptroller of the United States Steel Corporation —
those studies were referred to me and I consulted with Mr. Vogt as
to the probable effect upon our costs of these variously increased
commodity and labor costs.
Mr. Feller. Were there any independent studies undertaken then
by you or someone under your direction, subsequent to the receipt
of information from your subsidiaries or from Mr. Vogt?
Mr. Gregg. No; they were coordinated at that time, and the full
effect of those increased costs was measured by actual figures, as a
result of which certain price increases were proposed, and may I say
that those price increases did not fully compensate for the increased
cost as shown by the figures submitted.
Mr. Feller. Your endeavor, then, was to make your price in-
creases as nearly as possible commensurate with increased costs?
Mr. Gregg. No.
Mr. Feller. But you didn't succeed in every case.
Mr. Gregg. No; on the contrary we very carefullj^ considered the
effect any change in price, any upward change in price, would have
on the then rising volume of business. We knew that we were con-
fronted with mcreased costs, labor-wise and in purchased commod-
ities that Mr. Fairless has mentioned, plus social-security taxes. We
felt it would be unmse as a matter of general over-all policy, economic
policy, to attempt to recover all of those increased costs in the new
prices, and I think the actual figures showed something quite less in
our increased prices as measured against the increased costs.
Mr. Feller. Mr. Gregg, may I ask you to identify these two tele-
grams. One is signed W. A. Ross, addressed to you, dated February
19, 1937, and the other is signed Robert Gregg, addressed to W. A.
Ross, dated February 20 1937. They were taken from the files of
the United States Steel Corporation.
Mr. Gregg. Yes; I remember these.
Mr. Feller. I offer these for the record, sir.
Acting Chairman King. They may be admitted.
(The telegrams referred to were marked "Exhibits Nos. 1385 and
1386", respectively, and are included in the appendix on p. 10713.)
10496 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. I may point out that these* telegrams deal with a
price change somewhat after this particular price change.
Acting Chairman King. What is the date?
Mr. Feller. February 19, 1937, is the date of the first telegram.
It reads as follows:
RoBT Gregg
USS NYK
Our price for foundry pig iron now effective is $18.50 base furnace Ironton,
Utah Stop We liave made careful survey and have concluded this price
should be advanced one dollar per ton and unless you instruct to contrary will
make this advance effective for 2nd quarter pis advise.
W A Rosa
COL.
COL refers to Columbia Steel.
Mr. Gregg. Columbia Steel Company.
Mr. Feller. Subsidiary of the Corporation which operates the
furnaces in Utah.
Now the next telegram is dated the succeeding day, February 20,
1937 [reading from "Exhibit No. 1387"]:
W A Ross Columbia Steel Co
Your wire Pig iron price Why not make advance two dollars instead of
one Advise
Robert Gregg.
Mr. Gregg, on the basis of these telegrams I take it that Mr. Ross,
the president of the Columbia Steel Co.
Mr. Gregg (interposing). He was then vice president in charge of
sales.
Mr. Feller. Vice president in charge of sales — had, or some official
of the Columbia Steel Co., out on the west coast had, had a careful
survey made of the situation with respect to pig iron in Utah, and
had recommended an advance of $1. May I ask on what basis you
suggested that the advance be $2 instead of $1?
Mr. Gregg. I was in possession of information he was not in pos-
session of at the moment. At that particular time, negotiations were
under way which were finally consummated 10 days later, whereby a
contract or a series of contracts were signed by our subsidiary com-
panies, and representatives of union organizations, which carried
with them an increase in labor rates something more than these
gentlemen knew about at the time this first message was sent, and it
was on the ground of a further increase in costs, which he didn't antici-
pate, but which I knew about, that I proposed that he raise that price
$2 instead of $1.
Mr. Feller. Did you inform him of these facts which he didn't
know about when he sent the telegram? On the face of the telegram
there is no such information.
Mr. Gregg. On the face of it there is no indication of it.
Mr. Feller. Did you inform him?
Mr. Gregg. I don't recall \ hat I did at that particular momeni.
It doesn't appear in the record. Unoubtedly his president knew
about it and in conferences between Ms president and vice president
they knew themselves the reason for it.
Mr. Feller. Do you know what was actually done. with the pig
iron price at Ironton, Utah?
Mr. Gregg. I do not, my recollection though is that it went up $2.
I haven't the prices in front of me.
CONCENTRATION OF ECONOMIC POWER 10497
Acting Chairman King. Do you have sufficient information to
justify you in believing that an additional $1, that is above the $1
was required in order to meet the increased costs?
Mr. Gregg. Yes, sir.
Acting Chairman King. And did subsequent developments confirm
the validity of that view?
Mr. Gregg. Yes, sir; as a matter of fact, in view of the wage increase
that took place in March 1937, just 10 days after that message was
received, our wage advance amounted to over 16, between 16 and 17
percent.
Mr. Fairless. 16,6 is the actual figure.
Mr. Henderson. I believe you said, Mr. Gregg, that after you had
received from Mr. Fairless the letter which has been placed in the
record, and after you had considered various studies which were
made, you also gave consideration as to what would be the effect of
the proposed increases on the rising volume. Was that correct?
Mr. Gregg. That is correct.
Mr. Henderson. Could you elaborate a little more on what
those considerations were?
Mr. Gregg. Merely that we simply did not want to increase prices
at that time in such a substantial way that it might prove a shock to
the gradually increasing volume of business.
Mr. Henderson. That therefore might shut it off, is that it?
Mr. Gregg. There was a possibility of that.
Mr. Henderson. That is, there was in your consideration, then,
some idea that too sharp, an advance might destroy the rising tide of
activity.
Mr. Gregg. It would bring about a reaction from our customers
unquestionably, an unfavorable reaction.
Mr. Henderson. That means it would lead to a lowered amount
of buying?
Mr. Gregg. It might perhaps do that too.
Mr. Henderson. Then you undertook in the prices you fixed to
get a price which would not dampen that activity, which you felt the
trade would stand at that time.
Mr. Gregg. And that they would accept happily rather than
resentfully.
Mr. Henderson. Is "happily" the happiest word in that con-
nection? Does the customer accept "happily" an increase?
Mr. Gregg. I think Mr. Fairless' letter would indicate that that
was the proper expression.
Mr. Henderson. You mean that your customers generally accept
happilj^ an increase in their price of the material you sell them?
Mr. Gregg. When they know it is justified, as it was under those
conditions, they do.
Actmg Chairman King. Better to have a satisfied customer than
a dissatisfied one.
Mr. Gregg. Yes, sir; always.
Acting Chairman King. That increases your sales, both current
sales and future sales, to have a satisfied customer.
Mr. Gregg. Well, it helps us to maintain those friendly relation-
ships with our customers. Senator, which we have found to be very
essential.
124491 — 40— pt. 19 4
10498 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. Mr. Gregg, I should like to call your attention to the
chart entitled "Index of Ingot Production and Finished Steel Com-
posite Price." ^ This chart indicates that the index of ingot production
reached a high point at the beginning of 1937 and then with a number
of vicissitudes began to go down, went up once or twice, but at any
rate in the latter part of 1937 it went down so sharply that you might
almost say the drop was catastrophic. Is that correct?
Mr. Gregg. Yes; it was certainly precipitous.
Mr. Feller. At that time did the officials of the Steel Corporation
consider the possibility that a reduction in the price of steel might in
some way arrest this decline?
Mr. Gregg. In answer to that I would say that for a period of a
few weeks during which this decline took place most rapidly, most of
the officers of the Corporation and of the subsidiary companies,
thought that the decline was purely of a temporary nature and that
no steps were indicated under those circumstances to necessitate a
reduction in price. I can't say that they did feel a reduction in price
might tend to stop that decline, for those reasons.
Acting Chairman King. Who sustained a loss by reason of that
precipitous decline?
Mr. Gregg. The steel manufacturers.
Mr. Henderson. They didn't sustain it on the sales in the
quarter the price was announced.
Mr. Gregg. I was referring to the losses incurred by that very
sharp drop in the volume of business.
Mr. Henderson. But I am referring to the first few weeks in which
you said no change in price was necessary to recreate demand.
Mr. Gregg. No, at that time^
Mr. Henderson (interposing). Let me put it this way. The
volume of steel you were seUing at that time would be at the contract
price for that quarter, would it not?
-Mr. Gregg. Let's go back and review just what that whole program
naeant. Refer to your chart and you wiU find that the voliune of
ingot production or the index of ingot production had turned up during
the year 1936. When we made our price announcement in November
of 1936 there was a very sharp upturn in volume of business offered
to us. In other words, the customers were trying to get their busuiess
on our books at the then existing prices and lower than the prices
which would be in effect on December 1. As a consequence, our
mills took on a very substantial tonnage of busuiess. In fact, I
think we reached almost a peak in our unfilled orders within a short
time thereafter. Now you can't produce that amount of steel over-
night, and as a consequence although business began to drop off very
sharply near June, as I recall it now, of '37 — It may have been earlier,
I am not entirely clear on that poiat — the fact remains that the tre-
mendous backlog which had been built up just preceding carried the
volunie of our production and shipments on into the face of this very
rapidly declining order book, so that you don't begin to feel the loss
in your earning reports immediately a drop in orders takes place.
I have gone a little bit far afield, perhaps, but I was trying to answer
^ the Commissioner's question specifically.
Mr. Feller. The published price then remaiaed at a constant
level for a period of some six or eight months, did it not, Until June
1938?
1 "Exhibit No. 1381," appendix, p. 10710.
CONCENTRATION OF ECONOMIC POWfcR 10499
Mr. Gregg. The published price level remained unchanged. That
of course does not indicate the mill return price, however.
Mr. Feller. I understand that. I would like to have vou explain
that later. I am going to revert to this period a little later, but I
should like now to interpolate a few questions with respect to a number
of specific products and I shall ask you some questions with respect
to that, if I may.
We have been inquiring, up to this point, with respect to your price
poHcy on the general level of prices. I should hke to look just very
briefly at some of the details of that general policy. I have here a
memorandum dated March 10, 1937, which has on top, at the outset,
two names, J. H. McKown and A. H. Warren, Jr. The memorandum
does not indicate who wrote it. I presume Mr. Warren, the latter
name. Would you look at that, Mr. Gregg?
Mr. Gregg. I am not a member of the Camegie-IUinois Corpora-
tion family and frankly I don't know the form they use; it may be
from McKown to Warren or it may be the reverse.
Mr. Feller. Do you know, Mr, Fairless?
Mr. Fairless. It is the reverse.
Mr. Gregg. Mr. Fairless indicates it is from Mr. Warren to Mr.
McKown.
Mr. Feller. Will you identify that, Mr. Fairless, as being taiien
from your files? I don't assume that you yourself have seen this,
Mr. Fairless, when you were with the Camegie-Illinois- Will you
identify it?
Mr. Fairless. Yes.
(The memorandum referred to was marked "Exhibit No. 1387,"
and is included in the appendix on p. 10713.)
Mr. Gregg. May I have that?
(A copy was handed to Mr. Gregg.)
Mr. Feller. I should like to read this one paragraph. It relates
to Cor-Ten. Cor-Ten is one of your special alloy products?
Mr. Fairless. That is right.
Mr, Feller. The paragraph reads as foUows:
It is evident that our cost of production of plates is $4 to $5 per ton over the
price of standard shapes. Unquestionably when the new 100" semi-continuous
mill at Homestead gets on a more regular basis, the cost of plates will be brought
down, possibly a differential of $2 per ton. If no revision is made in the price of
COR-TEN and the prices on other commodities advance, it will in a sense be an
admission on our part that the price of COR-TEN is already too high and does
not warrant an advance. We think that we should offset any possible criticisms
of this character and, therefore recommend modest advances to the bases as above
indicated.
I hasten to say at this point that our understanding is that the
prices were not in fact advanced. My question to you, Mr. Fairless,
is this
Mr. Fairless. As a matter of fact they were reduced, if not at that
time, very shortly afterward.
Mr. Feller. Reduced subsequently. My question to you is this:
Do you consider that the basis of the recommendation made here is
a proper basis for an increased price and the basis as stated here is
that if no revision is made in the price of this particular product and
the prices on other commodities advance, "It will in a sense be an
admission on our part that the price of Cor-Ten is already too high,"
10500 CONCENTRATION OF ECONOMIC POWER
and, therefore, we think that criticism should be offset by making
sDme advance?
Mr. Fairless. After all, that is just an opinion in a recommenda-
tion of one of our product managers, not an official of this subsidiary.
The fact that the recommendation was not considered to any great
extent is shown by the fact that it was not followed. Now the facts
are, so that you will get the background and the committee will get
the background, that Cor-Ten is a special alloy steel, it is a patented
product, and we are a Ucensee, we pay a royalty for the use of this
particular process to manufacture this product. It is high- tensile steel.
It permits the building of railroad equipment, and likewise other equip-
ment, with much Ughter sections. It is a step in the right direction
for lighter-weight rolling stock, railroad rolling equipment. Naturally
we had a lot of difficulty, as anyone does who pioneers a new product.
It is difficult to overcome the prejudices of the railroad engineers,
metallurgists, and so forth. In order to get this material absolutely
accepted and on the market, we arrived at prices which we felt would
no more than break even ; that is all we were attempting to do.
Acting Chairman King. Sort of break down the resistance.
Mr. Fairless. Certainly. At the same time, however, we were
building at Homestead, the largest Pittsburgh plant of the Carnegie-
Illinois Steel Corporation, a new continuous plate mill. One of the
difficulties of this new product is getting these hght gages in the old-
fashioned mills. Therefore, as referred to in this letter, when this
mill came into production, we felt that we would be able to decrease
substantially the cost of this particular product and at the same time
we had at that time built up some business, some markets, for the
product. So this simply, as far as I am concerned, doesn't reflect
the thinking of the officials of the Carnegie-Illinois Steel Corporation
at all and certainly not the United States Steel Corporation.
Mr. Feller. I takfe it you would disagree that that would be a
proper basis for making a price change.
Mr. Fairless. Not only would but did.
Acting Chairman King. What was the name of that product?
Mr. Fairless. Cor-Ten. It is a special alloy and it is used largely
for the manufacture of cars and roUmg stock where lightness with a
high tensile product is required.
Acting Chairman King. What is the basis outside of steel?
Mr. Fairless. It has chrome and silicon; it is an alloy steel.
I haven't the formula.
Mr. Feller. Mr. Hughes, still looking at another specific recom-
mendation with respect to price change, I hand you a letter on the
letter head of the Ainerican Steel & Wire Co., one of the subsidiaries
of the Corporation, dated November 12, 1936, addressed to you, and.
signed by Mr. Blackmer, president of the American Steel & Wire Co.
Will y!ou identify it, please?
Mr.' Hughes. Yes, sir.
Mr. Feller. I offer this as an exhibit.
(The letter referred to was marked "Exhibit No. 1388" and is
included in the appendix on p. 10714). ^^
Mr. Feller. I should like to read just one paragraph from this,
letter, toward the bottom, Mr. Hughes [reading]; --
I have only recommended $2.00 —
CONCENTRATION OP ECONOMIC POWER 10501
That would be an increase of $2 —
for Basic and Bessemer Wires because of the desire to lessen, as much as possible,
the spread between Rods and Drawn Wire. There is a tendency for Wire users
to install machinery and draw their own wire. I think a lessening of the spread
between Rods and Wire will discourage them to some extent from putting in
their own drawing equipment.
As I understand it, Mr. Hughes, wire is manufactured from a
product known as wire rods.
Mr. Hughes. That is correct.
Mr. Fellee. And the Corporation sells both wire rods, a semi-
finished material, and also wire, which is drawn wire.
Mr. Hughes. That is correct.
Mr. Feller. Am I correct in imderstanding that the recommenda-
tion made by Mr. Blackmer was that the price for wire rods be in-
creased more than the price for wire in order to narrow the spread
between wire rods and the product made from wire rods?
Mr. Hughes. That was his recommendation.
Mr. Feller. And the basis for his recommendation was the desire
to discourage the users of wire rods from making their own wire?
Mr. Hughes. It was to discourage, I should assume, having other
people buy our semifinished material and compete with us in the
finished product.
Mr. Feller. Correct. Was this recommendation accepted?
Mr. Hughes. I do not — this letter was addressed to me because
Mr. Gregg was absent for a day or two then. I think he is better
qualified than I to answer that particular question.
Mr. Feller. Do you remember, Mr. Gregg?
Mr. Gregg. I do not recall, Mr. Feller; $3 per ton is the advance
that took place on wire rods.
Mr. Feller. $2 on bright basic and Bessemer wire?
Mr. Gregg. On bright basic drawn wire, $2 per ton at that time;
ves. ,
Mr. Feller. In other words the recommendation was accepted.
Mr. Gregg. To that extent; yes.
Mr. Feller. The spread was narrowed.
Mr. Feller. Why was that done? Was it on the basis of this
recommendation? , ,.,
Mr. Gregg. The reason Mr. Hughes has mdicated, that we dm
not care to encourage the further development of our then wire
customers going mto the business and buying wire rods and drawing
their own wire. It was a protection of a business that we had built
up over a period of many years. , «. , £..
Mr. Feller. Would this not also seriously affect the profat niar^
of independent wire producers who drew wire from wire rods which
they purchased from you?
Mr. Gregg. To the extent it would affect us; yes.
Mr. Feller. To the extent that ifwould affect you?
Mr. Gregg. Yes; because it affected us likewise. Our costs had
gone up and we did not increase the price of bright wire sulfacientiy
to cover those costs. . xi, i. t
Mr Feller. Yes; but you did not sufficiently mcrease that cost,
not primarily because of a cost situation but because you desired to
discourage the production of wire by your own customers.
10502 CONCENTRATION OF ECONOMIC, POWER
Mr. Gregg. Because we were trying to discourage our customers
of bright wire from going into the business of buying wire rods and
drawing their own wire.
Mr. Feller. My question was whether the eflfect on those small
concerns — well, I will strike out the word "small," the effect on
those concerns — which made wire from purchased wire rods for sale
in the market, their spread was also cut down.
Mr. Gregg. Their spread was decreased $1 per ton if they were
paying the market price for rods and got the market price for bright
wire ; yes, sir.
Mr, F'eller, Now may I ask you whether, in making price changes,
it is customary for your corporation to consider whether or not it is
advisable to increase or decrease the spread on particular products?
Mr. Fairless. It seems to me that comes under the heading of
price policy of tlie Corporation, doesn't it, Mr. Feller?
Mr. Feller. Yes.
Mr. Fairless. That is my question, then, isn't it?
Mr. Feller. Yes, sir.
Mr. Fairless. Price policy with reference to the sale of semi-
finished steels in any form by the United States Steel Corporation,
since Its existence, has always been to provide a satisfactory rrargin
between the selling price of those semifinished steels and the. sellmg
prices of the finished products resulting from them, insofar as we
could exercise control. Now, just because at some particular interval
in your pricing of steel products, some particular period, you might,
as indicated by Mr Feller, narrow the spread as between the semi-
finished and the finished product, that doesn't mean exactly what it
says, because you assume, when you make that statement, that the
spread is a satisfactory one to begin with, and therefore you are taking
something away. There is a possibility that that spread is too gi'eat,
and it oftentimes becomes too great because of severe competition to
sell rods, if you please, to the purchasers of rods. So we occasionally
will permit, and apparently the Wire Company decided that this was
the proper time to move in that direction, that it was advisable and
so recommended, to narrow that spread as it then existed — as it then
existed— but not necessarily to take profits away from the user of
semifinished steel. And I might add here, and wish to have it as a
part of the record, that semifinished st^el users generally, and they
are served more largely and to a greater extent by the United States
Steel Corporation than by any other steel company, and have been
since its inception, will testify to -this Committee that they have
always been fairly dealt with in respect to prices of their raw materials,
and I believe from a policy standpoint that covers what I have to say.
Mr. Henderson. May I have a question there, Mr. Feller? Your
statement, Mr. Fairless, on the policy of the Corporation I think did
n;^t cover, however, the Corporation's general policy, of which this
might be an instance, of what you do in relation to semifinished
and finished if it looks as if you might lose the sale of the finished
commodity by reason of the differences in cost. Do you want to
comment on that?
Mr. Fairless. Yes. It has no influence at all. Of ,course we
cannot, Mr. Henderson — the United States Steel Corporation cannot —
assunri^i aJl of the burciens of teclmological developments in this steel
induijtry, ajid if the advance and development of equipment is such
CONCENTRATION OF ECONOMIC POWER 10503
that some purchaser or purchasers of semifinished steel can no longer
compete, of course we cannot assume the complete burden oi keepmg
him in business. , , , , . , . x *
Mr. Henderson. How about your burden of keepmg him out of
Mr. Fairless. Just a moment, please.
But assuming that his finishing eqmpment is as good or reasonably
as o-ood as any in the industry, and assummg that his product, which
he Droduces, quality-wise is the equal or reasonably the equal ot any,
it is always our policy, has been and stUl is, to keep that man m busi-
ness and sell him semifinished steel at a proper price, at a price that
wUl 'enable him, under the existing conditions, to make a reasonable
^^Mr" Henderson. Then it means that since, as you stated, you are
such large seUers, it really lays within your power whether you
exercise it or not, to deterniine whether or not one of these finished-
steel producers stays in business. .. ^u ^ ^ + * *^ ««f
Mr Fairless. Oh, no; I would not permit that statement to get
into the record at all. „
Mr Henderson. Isn't that true on the answer you g^ve me.''
Mr* Fairless. Not at all. I said we happen to be and we are the
largest seller of semifinished steel in normal times m the steel busmess ;
but you also recall earlier in my testimony I made the statement that
in poor times in the steel business every producer of steel was a seUer,
actuaUy or potentially, of semifinished steel. , ., . , _„_,,
Mr. Henderson. Particularly for the automobile trade; wasn t
^^Mr! Fairless. I am not talking about automobiles; I am talking
about semifinished steel. That is our subject, isn t it? It doesn t
make any difference whether it is for the automobile trade or we or
sheets for any purpose, or strip steel; there are many forms of semi-
finished steel, all of which we make.
Mr. Henderson. Now assume that you have a certam percentage
of the market. ^ a -n ■ u a9
Acting Chairman King. Semifimshedr
Mr Henderson. For the finished product.
Mr Fairless. Do you mean capadity now, or ac,tual busmess.^
Mr' Henderson. Actual business; and you see the prospect that
other'equipment might be buHt and you might lose the market for
your fofished steel. Do you not take steps to mamtarn that busmes^^^
and would they not include some squeezmg of the relationship between
the semifinished product and the finished?
Mr Fairless. I don't understand the way you put that. You
say "losing the market of our finished steel." How would we lose the
market of our finished steel? , . r £«:„v«^
Mr Henderson. Well, couldn't you lose a market for fimshed
^ Mr Fairless. There are many ways you can lose a market, but I
am trying to connect it up with this particular route, the semifimshed
route How can we lose it? ^, i- *. j
Mr. Henderson. Let me put it this way: If .you are confronted
with the prospect of losing a market, or a certam percentage of the
market sales, and the like, don't you take steps so far as prices are
concerned to try to retain that peroentage of the market !
10504 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. You mean losing a customer, for example, because
of price, or losing a participation in an industry because of price, do
we take steps to protect ourselves? Certainly. Certainly we do.
But where does that connect up with sales of semifinished steel? I
am trying to connect the two together.
Acting Chairman King. If the person is furnishing oranges from
Florida, and grapefruit for the market in New York, and competition
threatens from oranges in California, I assume that the orange pro-
ducer in Florida tries to protect himself.
Mr. Fairless. Certainly.
Acting Chairman King. That is true in any business. Any person,
whether he has a big business or a little business, has developed a
market for his product. He is jealous to guard it and if people threaten
it by underselling, he adjusts his price in order to keep the market.
Mr. Fairless. Certainly.
Acting Chairman King. To keep his customers.
Mr. Feller. May I say that this matter of the relationship be-
tween semifinished sales and the sale of finished steel products is one
that we intend to go into in some more detail later on. I think it im-
portant to remind the committee, however, at this point, that the
brief Indication which has been brought out here of the problem was
one which was not in any way related to the question of fairness or
propriety, but it indicates an important economic problem based on
the fact that certain producers of steel are sellers of a raw material to
other producers of steel, and that these two groups compete in the
market against each other. In other words, the United States Steel
Corporation produces wire rods and it produces wire. It sells wire
rods to some other people who make wire which they sell in the market
in competition with the United States Steel Corporation, and that is
an economic question which the committee should have placed before
it, and tomorrow we intend to go into that question in somewhat more
detail.
Mr. Fairless. Except, if I may, Mr. Chairman
Mr. Feller (interposing). Please.
Mr. Fairless. That that isn't all that is involved in that letter, in
that recommendation. You haven't told the entire story. We are
also, this industry is,, confronted with not only people who buy rods
and draw wire and sell it in the open market, but also people who use
wire, who use wire in large quantities, or in quantities sufficient that
they feel that they can put in equipment to draw wire. Now, wouldn't
it be very inconsistent for a wire company, a steel company that manu-
factures wire, that has its big investment in raw materials, blast fur-
naces, open hearths, blooming mills, rod mills, and wire-drawing equip-
ment, to sell those rods to its own wire customers at a price which
would permit the destruction of its own finished wire business to this
same customer?
Mr. Henderson. That is the answer I was trying to elicit, Mr.
Fairless.
Mr. Fairless. Assuming, which is certainly correct, that we are
selling the finished product at a fair price.
Mr. Feller. That, in effect, is a statement of the problem, and it
is that problem we iniend to go into. I am very glad to have you add
the fact that there are two facets to the problem, the customer who is
also a seller, and the customer who is only a user.
Mr. Fairless. That's right.
CONCENTRATION OF ECONOMIC POWER 10505
STEEL PRICES IN 1937 AND FIRST HALF OF 1938
Mr. Feller. May I revert again, now, to the development of the
course of events in 1937 and 1938? If I may recall the attention of
the committee to the point which we were discussing a few moments
ago, it will be recalled that the price of steel, the published base
price of steel, remained more or less stationarv from the early part
of 1937 through the first half of 1938, and I had asked Mr. Gregg
the question as to whether the officials of the Corporation had con-
sidered reducing the price in order to arrest the declining demand
which he had characterized as precipitous.
I should like at this point to read two letters which were taken
from the files of the Carnegie Illinois Steel Corporation. There are
three letters here; they are dated respectively November 29, 1937,
December 3, 1937, and December 3, 1937. I do not know whether
these letters came to the attention of any of these gentlemen. I think
they will interest the committee very much. May I ask if any of you
gentlemen saw these letters? The letter of November 29 is written
by the general purchasing agent of the Willys-Overland Motors, Inc.,
to the Carnegie Illinois Steel Corporation. There is then a letter of
December 3, 1937, written by the manager of sales of the Carnegie
Illinois Corporation to Mr. McKaig, vice president and general
manager of sales, and finally another letter of December 3, signed by
the manager of sales of Carnegie Illinois and written to the Willys-
Overland Motors, Inc. I don't know if you have ever seen them.
Mr. FAiRLr.ss. I have seen them.
Mr. Hughes. I haven't.
Mr. Fuller. I offer these, Mr. Chairman, and I should like to
read them.
Acting Chairman King. The first referred to is written by someone
not a member of the company?
Mr. Feller. They were taken from the files of the company.
Mr. Fairless. They were written to a member of the company.
Mr. Henderson. Mr. Fairless says he has seen them.
Mr. Fairless. Written by a purchasing agent of Willys-Overland
Motors.
Acting Chairman King. Not your agents? Then they would not be
binding upon you?
Mr. Feller. It is not a question of , binding anybody at all. It is
one of these matters that I think should be brought before the com-
mittee, and it is only for the information of the committee.
Acting Chairman King. Read it, and we will ascertain whether it
is relevant or so remote as to not go into the record.
Mr. Feller. The question which has been addressed is. Did the
officials of the Corporation consider at the beginning or during the
course of thi"- precipitant decline in steel demand — did they consider —
the lowering of the price, the reduction of the steel price, in order
to arrest this demand, and the answer war made, I believe, that some
consideration was given to it, but it was decided not to reduce the
price.
Mr. Fairless. I can't let that go into the record that way.
Mr. Feller. Mr. Gregg, I believe, so testified.
Mr. Fairless. Now you are talking about two tilings here, as we
usually do when we talk about steel prices, and in order to get this
10506 CONCENTRATION OF ECONOMIC POWER
picture before this Committee I think we should have our chart showing
realized prices versus published prices.
Mr. Feller. We are talking only about published prices.
Mr. Fairless. But we can't talk only about published prices. We
have to run our business on the basis of the amount of cash we get for
our goods. We don't get that through the newspapers.
Mr. Feller. Are y^ou objecting to my repetition of Mr. Gregg's
answer to my question?
Mr. Fairless. I am objecting to this only, that the United States
Steel Corporation subsidiary companies did not just stand adamant
when business was going bad, as it did in the latter half of 1937, and
say, "This is our price; take it or leave it. We are not going to do
anything about it."
I want this Committee to have the benefit of my knowledge of just
what did happen in the last half of 1937.
Mr. Feller. I take it that the point you want to bring out is this,
that in that period there were very substantial concessions
Mr. Fairless (interposing). Reductions in price.
Mr. Feller. That is to say, concessions which do not appear in
the published price, but were given to individual users on the basis
of the market.
Mr. Fairless. Certainly. And also I want to call attention to this
letter, which I don't see any point — that is my opinion, of course —
in making a matter of record. This is the case of a purchasing agent
writing a letter to our district office in Detroit asking us to reduce
the price of material which had already been placed on our books by
him. Now, the decision not to do that was not because of the amount
of money involved, but was because of the principle involved. As a
matter of fact, the amount of business on our books that caused the
exchange of this correspondence was a ridiculously few hundred tons,
but it would have involved the principle of going back over all of our
business and writing down our orders, so this can't be confused with
the principle of not reducing prices in the latter half of 1937. Prices
were, as you have admitted, materially reduced.
Mr. Feller. Oh, yes, sir.
Mr. Fairless. Isn't it more effective — at least I think it is —
actually to reduce prices of steel to those who buy it, than it is to put
it in the newspaper?
Mr. Feller. May I point out, Mr. Fairless, that the questioning
is being done from this side of the table? We are developing this in
an orderly fashion. We are first dealing vdth the base price, the pub-
lished base price, and then going on to the situation, the actual
business situation, which occurred there, and there is certainly no
intention whatever of omitting that fact which, as I say, I have ad-
mitted and I admit very readily. There is no question whatever.
This letter, which I desire to read, is inserted here in order to express
the view of a customer of steel products during that period, during
that very critical period for the industry. Now, if I may go ahead.
Acting Chairman King. As I imderstand you, this customer — you
had had deahngs with this customer, and the order was upon your
books, and he was writing now asking you to reduce tliu price at
which the order, prior to that time, had been placed upon the books.
Mr. Fairless. He is writing on Noveniber 29, and the business
was placed with us on August 25.
CONCENTRATION OF ECONOMIC POWER 10507
Acting Chairman King. And he wanted you to go back and revise
your rates.
Mr. Fairless. That is right.
Acting Chairman King. You declined to do that.
Mr. Fairless. And the material had been roUed to his specifica-
tions and was in stock ready to be shipped to him.
Acting Chauman King; Proceed, Mr. Feller.
Mr. Feller. I offer this now as a view taken by one of the custo-
mers of the Steel Corporation, and also the consideration which was
given to it in the Corporation to make clear what the problem was.
Acting Chairman King. Do you contend there was an obhgation
resting on the company after the contract was made?
Mr. Feller. No, sir; I make no contention whatever. I want to
make it clear that I make no contention at any point with respect to
any matters that go in, and I certainly make no contention specifically
with respect to these matters.
Acting Chairman King. Proceed.
Mr. Feller (reading):
Since we placed with you our orders on or about August 25th for sheet steel, a
rg,dical change in business has taken place. We are in an entirely changed
economic situation.
In the interest of reducing, as far as possible, the period of readjustment now
taking place which if not checked now may have a more far reaching and drastic
effect, we ask that you consider with us the problem and the proper corrective
measures, as it pertains to the relationship of your company with ours.
Generally higher priced inventories and commitments moving into the trade
at a reduced rate places a restriction on the resumption of normal business.
We feel there should be joint mutual action on the part of those in the industry
to work out of the present situation as soon as possible. Unless prompt action is
taken, there may be later greater loss in operations and inventories than might
now be necessary.
We ask that you imnaediately have your representative call on us in con-
nection with the above orders with the view of discussing the problem of taking
planned measures of a precautionary nature which are to be advanced and
which will undoubtedly compel you, from a broad and hberal vfewpoint, to re-
examine your entire price structure. We will attempt to further review why
you and others in your class of manufacturing should acquiesce and consider
the thought of accepting lower price, lower profits, increased volume and quicker
turnover at this time which would" obviously prove less costly than to continue
slow and interrupted operations over the necessary time to adjust inventories
and commitments at present rates of production.
The next letter, which is dated December 3, 1937, is addressed by
the manager of sales of Carnegie-IUinois Steel Corporation in Detroit,
to Mr. McKaig, the vice president and general manager of sales of
the same corporation. [Reading:]
Attached is copy of a letter dated November 29 from Mr. G. H. Bancroft,
General Purchasing Agent of Willys-Overland Motors, Inc., together with copy
of our acknowledgment of today.
Acting Chairman King. Whom was the first letter from?
Mr. Feller. The first letter is from the general purchasing agent
of Willys-Overland.
Acting Chairman King. And the second is from the same.
Mr. Feller. No, sir; the second letter is from the manager of sales
in Detroit, of the recipient company, the Carnegie-Illinois Steel Cor-
poration, to another official of the Carnegie-Illinois Steel Corporation.
10508 CONCENTRATION OF ECONOMIC POWER
I shall read just part of this. [Reading:]
Mr. Bancroft —
the writer of the original letter, connected with Willys-Overland
Motors —
States that they have reached the very definite conclusion that they will have to
reduce the price of their cars to stimulate the market. They believe that other
manufacturers will have to do likewise. Accordingly, he feels that it will be
necessary for their suppliers to grant them reduced prices and went so far as to
say that he was convinced that it would not be long before labor would be accepting
reduced rates.
Mr. Bancroft also brought out the point that in previous instances of drastically
reduced demand steel prices had become demoralized. He believes that this
situation can be avoided in the present instance if steel makers will voluntarily
reduce their prices.
Our representatives made very clear to Mr. Bancroft that we were glad to
have a statement from him as to his views on the present situation. They told
him that the steel market had shown an excellent account of itself at the present
time and that we had experienced no appreciable pressure for lower prices.
Mention was made of the fact that many concerns are saddled with very heavy
inventories which had been built up earlier this year when mill deliveries were
quite extended. The point was made that the reduction in prices would work
a hardship on such concerns.
The letter goes on to say:
We do not expect to be called upon for a direct answer to Mr. Bancroft's
question with respect to the price on the two open orders which he has with us.
We would be very interested, however, in any comments you care to make on
his letter.
The reply, which was sent to IMr. Bancroft, reads
Acting Chairman King (interposing). By whom?
Mr. Feller. By manager of sales, Carnegie-Illinois Steel Corpora-
tion, in Detroit.
Mr. Fairless. That is the - district sales manager in Detroit,
who handled that particular territory.
Mr. Feller. I don't know whether it is really necessary to read it.
It saj^s that the lett.er will have ver}' careful consideration.
Now, what I am concerned with here, Mr. Fairless, is this: Irre-
spective of the particular ranking of the people who handled this
transaction in your corporation or the Willys-Overland Corporation,
you do recognize at that time that the ideas which Mr. Bancroft was
setting forward here presented a real problem. The problem which
Mr. Bancroft put forward is this: The general economic condition of
the country was declining very rapidly. He suggests that there should
be a general lowering of prices in the industry, and he makes that
point, I take it, for two reasons. He says, first, that you should
consider the thought of accepting lower prices, lower profits, increased
volume, and quicker turn-over at this time, which he thinks in the end
will prove less costly. And he also makes the suggestions, apparently
orally, as it appears from their covering memorandum, that a decrease
at this time would avoid demoraUzation, such as had in the past
resulted when business became bad.
Now, may I ask, were these considerations discussed by the officials
of your corporation, and what decision was made with respect to such
considerations? That is the problem to which I have addressed myself.
Mr. Fairless. Of course, it was discussed. That is why the letter
is so familiar to me.
CONCENTRATION OF ECONOMIC POWER 10509
Mr. Feller. Yes, sir. Now, won't you tell us what the consider-
ations at that time were as far as the officials of the Corporation were
concerned, and what they decided to do? I don't mean about these
two particular orders, but about the general problem.
Mr. Fairless. I have tried to make it clear just what happened in
1937. We had a tremendous order book in the latter part of 1936
and for the first quarter of 1937. I believe the peak was reached
sometime in March or April in respect to incoming business. All
shipments and production did not fall off immediately, but just as
soon as incoming business began dropping off, why very severe com-
petition— not that competition didn't exist before — but very severe
competition began immediately in this industry of which we are a part
and had Mr. Bancroft, this particular day that he was writing this
letter, had any steel to buy, he would have been able to have proven
to himself that what he was actually advancing as something that
should be done by the industry was already under way.
Mr. Feller. In other words, the price was actually being cut.
Steel was actually being offered at lower prices.
Mr. Fairless. That is right.
Mr. Feller. I should like to ask you this, and I think this is a very
important question for this committee to have before it: Why was
the published price not reduced?
Mr. Fairless. There are many reasons why the published price is
not reduced to meet day-by-day sales. You take in a period such as
happened in the latter half of 1937, and, generally speaking, through-
out 1938, you come to periods there where there really isn't any
market, and it would be impossible to reflect through the route of
trade-paper quotations actual prices. The actual price — what would
it be? Would it be the lowest price that you made a sale at? Would
it be the highest price that you made a sale, or would it be some
intermediate price?
And what we did — that is, our company — we followed our competi-
tion, met our competition as best we could, attempted to keep our
position in this industry, and, finally, when we felt that this price level
had reached somewhere near a so-called bottom — which later events
proved had not been reached, but at that time we thought it had —
then we announced officially lower prices, and announced those prices
on Jime 24, 1938.
Mr. Feller. I am coming to that, of course.
Mr. Fairless. But it is all a part of this picture.
Mr. Feller. Oh, yes.
Mr. Fairless. It is all definitely tied into what happed in '36
and '37, the latter half of '37 and on through '38. It is all part of
the same picture.
Mr. Feller, I think that is true, and what we are considering
here now were the matters that went on during that 6- or 8-months
period when the base prices stayed the same before you finally reached
the decision to reduce them in June 1938.
As I take it, your statement was that you felt you couldn't reduce
the base price because you wouldn't know where to put it, because
of the fluctuations in the market.
Mr. Fairless. I said there were many reasons. I offered that as
one.
10510 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. Would you mind telling us some of the others, some
which you ranked as of equal importance or near equal importance?
Acting Chairman King. Do you assume that he could fix the base
price?
Mr. Feller. Yes, sir; they have done that so far.
Mr. Fairless. We set our own base prices.
Acting Chairman King. The base price for the whole industry?
Mr. Feller. I am talking now about their own base prices.
Mr. Fairless. Another reason why reduced prices aren't announced
immediately is because of the uncertainty of the continuance of the
decline. We have gone through periods, experience has taught us —
in my 25 years, almost 26 years, in the steel business — we have had
dips that were of very short duration, and then we start back up again,
and certainly with the big backlog of tonnage that we had on our
books and the high inventories which our customers had at higher
prices than the then going prices, although not the actual pubUshed
prices, we were really faced with a real problem so far as decision is
concerned. Many times we are confronted with very strong requests
on the part of our customers not to reduce prices precipitously because
of their inventory problems.
Acting Chairman King. If you had made precipitous or material
reductions in your prices, your customers who had loaded themselves*
up with your commodities would have suffered, would they not?
You would have broken some of them.
Mr. Fairless. That is right. Some of them had borrowed money,
of course, to buy the inventory that they had, and of course with us,
the steel industry, we are in the raw material end of the business, and
it seems to me if business is to be stopped in a decline by reduced
prices, that that reduction — and I am not an economist, I apologize —
but it seems to me as just a layman that the beginning should be in
reducing the price of the finished articles that come from the steel,
because that inventory could be replaced then or next week or next
month, at certainly reduced prices, and we can't deal with an inven-
tory already delivered to the customer.
Mr. Feller. May I ask you this, Mr. Fairless: As regards this
inventory problem, what difference does it make to the customer
whether there is an announcement of a reduction in the base price
when, as a matter of fact, you have told us the prices which everyone
was getting were less than the base p;ice? Doesn't that depreciate
the value of the inventory?
Mr. Fairless. I can answer that very easily. Just because 'the
going prices are reduced doesn't mean that all customers are in the
market or in a position to buy. People don't buy steel because it is
cheaper. You don't go out and sell a customer an order of steel
today that he doesn't need because you offer it for $5 a ton or X
dollars a ton below the price. People only buy steel when they can
use steel.
Mr. Feller. Perhaps I haven't made myself clear. As I under-
stand your answer previously, it was^ this: Many customers would
have on hand large inventories of steel which they had bought at a
certain price. If the published base price were reduced, the value of
those inventories would be depreciated by the amount of the reduction
in the' published base price. That is correct, is it not? Now you
have told us previously that as a matter of fact the price for steel
CONCENTRATION OF ECONOMIC POWER 10511
was below the published base price. Why did that not depreciate
the value of the inventories?
Mr. Fairless. I can't answer that.
Mr. Feller. Didn't it in fact, on the basis of your answer?
Mr. Fairless. It did in fact. The only thing that I am attempting
to bring out before this committee is this — that in periods of decline
iu steel prices which may be considered temporary or otherwise, we,
our corporation and its subsidiary companies, get requests from
many customers: "Please don't reduce the price of steel."
Mr. Felleb. I understand that.
Mr. Fairless. Why that is, I can't go into that. There may be
many reasons why.
Acting Chairman King. Would this be a fair illustration of the
situation? Suppose there is a very large manufacturer of clothing
in New York who furnishes a very large percent of the clothes which
are sold in Washington, Chicago, and various other parts of the
United States, and his customers have loaded up with millions of
dollars worth of clothing, suits, and so on, and the manufacturer stUl
has a considerable part on hand, and there is a decline in business.
Would it be fair to assume that he then should immediately reduce the
price of his commodity when, if he did so, it would break perhaps
hundreds of persons who had purchased his commodities and hadn't
sold them?
Mr. Fairless. It night very well.
Acting Chairman King. If he should immediately announce a
reduction of 10 or 15 or 20 percent in the price of his suits and the
commodities when he had sold millions, and tens of millions, of dollars
worth of goods, and the vendees had not disposed of them, would it
not immediately precipitate a serious situation with his customers?
Mr. Fairless. Yes; I tliink I can answer Mr. Feller's question
possibly more clearly by the simple statement that the time in-
volved in this business of ours, this industry, with its many ramifica-
tions and its multiplicity of products, between when orders are placed
and deliveries are made, is a very much involved business, and I think
it probably accounts for the confusion in your mind, if you have con-
fusion, I don't know, as to why just as soon as market conditions
begin to appear other than those surrounding the published price,
it doesn't immediately go down. There are many ramifications of it.
Mr. Feller. The question to which I am addressing myself now
is this: What is the significance of keeping the base price at the same
level? In other words, what is the significance of the base price at all
in a situation of this kind? You have told us that a reduction in the
base price, the announced published price, would have seriously
affected people who were holding inventories. At the same time
you have told us that the actual price was below the base price, per-
haps well below; I don't know whether you have said that. Now,
I am trying to find out just what the published base price means in a
situation of this kind, and in other words what difference does it make
where it is or whether you reduce it to meet some level of the going
price as it appears in the market.
Mr. Fairless. Well, our published base prices do not mean one
thing today and something else tomorrow. They mean one thing
at afl times. They are the prices that we feel are fair for the products
that they represent for the period which the announcement covers
10512 CONCENTRATION OF ECONOMIC POWER
and they are the prices that we want to get, just those prices, and the
prices- that we feel we are entitled to. When we don't succeed in
getting those prices for sales made in that period, it is because compe-
tition won't permit it, so therefore we take orders, if you please, at
prices below. Now, I wouldn't know how to run this business on the
basis of daily, if you please, it could easily be daily in times of stress,
announcing new base prices of steel products. I wouldn't know how
you could operate our business on that basis. This is a big industry,
as you know.
Mr. Feller. I think that is a very important point that you have
made, that the characteristic of the industry is such that daily fluctua-
tions in your opinion would make it impossible to run the business.
I want to call your attention to this fact, that the price remained at
the same level from about March of 1937 to June of 1938, your
published price. Could you tell us why in this period of stress it was
not thought advisable to reduce the base price to something like the
level of the going price during the third and fourth quarters of 1937
or during the first quarter of 1938?
Mr. Fairless. I have been attempting to answer that right along.
All myanswers have been directed to just that question.
Mr. Feller. I am sorry, then, I haven't fully understood that.
Mr. Fairless. Have I made myself clear to the committee?
Mr. O'Connell. Not to me.
Representative Williams. Not to me.
Mr. Fairless. Well, we will start over again.
What is the question?
Mr. Feller. Let me restate the elements of the question. The
published base price remained at the same level from March 1937
to June 1938. You have told us that during that period the actual
price received by your corporation was not at that level, it was below
that level, due to concessions which were being given by the steel
producers, including yourself. The question is, why was the pub-
lished base price not reduced during the third quarter of 1937, the
fourth quarter of 1937, and the first quarter of 1938, to meet the
actual realization which your corporation was getting?
Mr. Fairless. Well, one of the reasons, I repeat, is that we didn't
have any basis for an annoimcement of a new base price in some
products. Another reason
Mr. Henderson (interposing). May I have a little elaboration on
that? Do you mean your volume was keeping up?
Mr. Fairless. No; I mean only that prices were all over the map,
to use the common expression. They weren't consistent at all.
Mr. Henderson. And you felt you might as well keep the base
price as change?
Mr. Fairless. That price was about as good as any in an unknown
market. Also, another important point was the fact that on many
products we didn't have the wild fluctuations of prices, even during the
third and fourth quarters of '37 and the first quarter of '38, as we had
in the products that are commonly referred to as flat rolled products.
Therefore, to have made an announcement of a reduction in price in
those products during a period when uncertainty existed, we in our
studies weren't convinced that we were headed into another depres-
sion— certainly we didn't come to that conclusion, although we studied
CONCENTRATION OF ECONOMIC POWER 10513
the problems and had been advised by our own economists and so
forth.
Mr. Henderson. You were advised by your own economists that
you weren't headed for another depression.
Mr. Fairless. That is right.
Mr. Henderson. When was that advice given, do you recall?
Mr. Fairless. The latter half of '37.
Mr. Henderson. The latter half of '37.
Mr. Fairless. Yes. So we didn't feel that it was good business.
We came to the conclusion that it wasn't good business oflBcially to
reduce our prices until we did reduce them, and that was on June 24,
1938, and we reduced them very substantially, as you know.
Mr. Feller. I want to come to that right now.
Acting Chairman King. If purchasers should desire to purchase
steel, they weren't bound or you weren't bound by what was called
the base price. You would make your negotiations.
Mr. Fairless. That is right. You sell steel across the desk with
the man who buys it.
Mr. Henderson. Maybe there are some of these business reasons
that have escaped us. It is well known as far as almost any_ product
is concerned, and also certainly as to steel, that there are difficulties
in getting a raise in price. Was it one of your considerations that if
this was a short-term decline you would have a great deal of difficulty
in getting what you thought was the proper price for your product at
some later time? It was better as a matter of good business to keep
that nominal base price in the hope that the demand would come back
for it.
Mr. Fairless. Yes, I think that is stated as a reason, yes, as I put
it we didn't think we were headed for another depression, we thought
it was temporary and business was coming back.
Mr. Henderson. The reason I stated, which I don't believe you
mentioned, was the difficulty of getting the price back to what you
would consider a satisfactory price. Take the course of steel prices
after the decline of 1929. Recovery set in sometime in '33. A part
of the way back on price was regained in '34 and it wasn't until some-
time late in 1936 that you could get an additional price, and then of
course you went beyond the 1929 level. What I am suggesting is
that perhaps the length of time it takes to reestablish the basis of
price was one of the considerations that kept you posting the same
price at each price posting period.
Mr. Fairless. Well, we know from long experience that it is very
easy to put prices down and very difficult to put them back, to bring
them back. We know that a price reduction is effective the day it is
announced. We also know through our years of experience in this
business that a price increase is not effective to any great extent until
about 6 months after it is announced, if you take the fuU line of steel
products of this industry.
Mr. Henderson. After you had announced your '36 ^ and '37
jrice increases, when do you estimate you were getting realization of
those, just generally?
Mr. Fairless. We didn't get them at all. We never did realize
the 1937 price schedule. We were just coming into the period when it
probably would have happened or come very near it when business
124491 — 40— pt. 19 5
10514 CONCENTRATION OF ECONOMIC POWER
slid off and the published price schedules of 1937 were never reaUzed
by the United States Steel Corporation subsidiaries. We have a chart
that shows that which we will be very glad to submit.
Mr. Henderson. We are going to get to realization, I think, some-
time later, but I think we want to examine into the considerations in
the minds of the policy makers as to this price during this period, not
the realization, but of this base price, because it does exercise a certain
importance in the industry. One other factor you didn't mention that
you might want to discuss is what its effect on stabilization is, what the
mdustry or what you people think is the effect of a stable base price.
Do you regard that as having any high value?
Mr. Fairless. I don't understand your question. Do you mean
in the particular period?
Mr. Henderson. Yes.
Mr. Fairless. Why, no ; of course not. The maintenance of the
base prices of steel products in the latter half of '37 and throughout '38
ertamly had no stabilizing influence on the price of steel.
Mr. Henderson. In the past would that have been the feeling,
that there was some purpose to be served in stability by not being too
quick to alter the base price?
Mr. Fairless. Well, I think it is only the part of good business,
isn't it? We are running a business here that is owned by our stock-
holders, and I think that we should very carefully consider any move
that destroys the return on our goods.
Mr. Henderson. I would like you to get the chip off your shoulder,
Mr. Fairless.
Mr. Fairless. I don't have any chip.
Mr. Henderson. And not think there is a Senegambian hidden in
the woodpile with every question. What we are interested in is what
are the considerations that move you most strongly. You h^ve a
choice if you do or if you don't. In this case you didn't and you were
wrong, as far as what the prospect of business was. I am just trying
to get what the weight was and where it fell.
Mr. Fairless. I don't admit we were wrong, that is just a state-
ment. I don't admit that we were wrong in not reducing our base
prices before we did.
Mr. Henderson. No ; I said as to the forecast.
Mr. Fairless. Oh, yes.
Mr. Henderson. You did guess wrong.
Mr. Fairless. That is right.
Mr. Henderson. Whether business would come back quickly, and
that is part of your explanation as to why you continued posting this
high price for so many periods.
Mr. Fairless. That is right.
Mr. Henderson. In that one set of "questions Mr. Feller addressed
to yoii, I didn't get a complete answer. Did you in that period,
along the lines of the Willys letter, consider whether or not you
could get a larger volume of future business by modifying the base
price?
Mr. Fair;.ess. That is always a part of our studies and those
studies are going on constantly in our corporation.
Mr. Henderson. What were thp things pro and what were the
things con in that connectibfi? What are the things that favor that
kind of a change?
CONCENTRATION OF ECONOMIC POWER 10515
Mr. Fairless. I am not an economist and I am not going to
attempt
Mr. Henderson. You have made the only sincere flattery to an
economist I have heard before this committee — you apologize for
not being one. That is one of the reasons I have gone in and pitched
on your side a little bit.
'bAr. Fairless. I didn't apologize for not being one.
Mr. Henderson. I think the record shows that you did.
Mr. Fairless. I apologized for getting over in their field and
answering questions. I am not an economist and I am not com-
petent and don't care to get into that phase.
Mr. Henderson. I would like not to leave it with the statement
that Mr. Fairless is not an economist, because he certainly has been
stating economic reasons why they did not do it. What I asked was,
what are some of the reasons pro for making that change.
Mr. Fairless. I have given all the reasons that I can give.
Mr. Henderson. You haven't given any on the side of making the
change, whereas there was an adjustment going on in other prices,
beginning in the early part of 1937. A number of other industries
faced with the same choice you had chose to make a change in the
price at which they were publicly quoting, and you did not.
Mr. Fairless. May I ask
Acting Chairman King (interposing). What do you refer to?
Mr. Henderson. I refer now to the "Index of Semi-Manufactured
Articles and Finished Steel Comparison."
Mr. Feller. May I say that did not get in the record. May I
oflfer it? "Index of Seml-Manufactured Articles and Finished Steel
Composite, 1926-1939," prepared by the Department of Justice.
(The clerk indicated that the exhibit referred to had been received
as "Exhibit No. 1383.")
Mr. Henderson. I am glad as an economist that he is interested
in putting in a long Ust of commodities that did e-ijust their posted
prices in that period at the time when the steel composite price was
standing above the 1929 level. I am interested in whether or not
you did consider whether or not you could stimulate demand. Did
you consider whether or not the amount of demand you could stimu-
late would compensate for the reduction in price?
Mr. Fairless. Oh, I answered you at least three or four times.
I will repeat it.
Mr. Henderson. I have made a suggestion of what has been
offered many times as the reason for not readjusting. Then it
has something to do with the kind of demand that you people have?
Mr. Fairless. We don't beheve that the price of steel, beginning
now with a reasonable price of steel — of course if we begin with an
unreasonable price of steel that carries an exorbitant profit a reduction
in the price of steel would stimulate business because it would open
up fields that have been taken over bj competitive products, alumi-
num, copper, et cetera, but if we begm with a fair price for steel in
any given period and all the basis factors that contribute to that cost
of our steel, that particular product, remain imchanged, we do not
beheve — and we have an article which has been prepared by our
people and which is ready for submission to this committee — that
a reduction in the price of steel wiU have any material effect on stimu-
lating business in such periods as you refer to in the latter part of
10516 CONCENTRATION OF ECONOMIC POWER
1937. Now that is our candid opinion, not just pulled out of the aii>
but based on a very exhaustive study in which we have not only
employed bur own abihty, our own organization, but have brought in
outside help, Dr. Yntema from the University of Chicago.^
Mr. Henderson. I imderstand you to say this was another reason,
that I suggested to you might be in your minds — that you consid-
ered whether or not a reduction in posted price would biing about
a demand.
Mr. Fairless. Certainly.
Mr. Henderson. And you take it from your experience that that
demand would not be sufficient to compensate for the difference in
price?
Mr. Fairless. We don't beUeve it would affect the demand at
all at that time.
Mr. Henderson. You don't beheve it would affect it at all?
Mr. Feller. At that time.
Mr. Fairless. At that time. There might be periods, and we
came to such a period in June, when we felt that our prices were so
far below the pubUshed prices that we didn't want to be in the posi-
tion of telling the pubhc that our price of steel w.&s one thing when
we knew our reaUzed price was doUars per ton under that. That
was the reason.
Mr. Henderson. But you didn't come to that until a year or more
later.
Mr. Fairless. Oh, no; not a year. We had a pick-up here in
September 1937, as shown by your own chart that you have sub-
mitted.
Mr. Feller. It was really the period between September and Jime.
Mr. Fairless. That would more accurately cover it; it wasn't
1 year.
the JUNE 1938 PRICE REDUCTION
Mr. Feller. I should like to come now to the point of the reduc-
tion which took place, and for the record may I ask you to identify
this cablegram which gives in effect your reduction, Mr. Fairless.
It is addressed to Mr. Myron Taylor at the Morgan Bank m Paris,
signed "Steelstet." I take it that is Mr. Stettinius, is it not? It is
dated June 24, 1938. May I ask Mr. Fairless to identify that?
Mr. Fairless. I assume that is correct.
Mr. Feller. I offer this in evidence.
(The cablegram referred to was marked "Exhibit No. 1389" and
is included in the appendix on p. 10715.)
Mr. Feller. "Steelstet," is that Mr. Stettinius? ^
Mr. Fairless. That is right.
Mr. Feller. It is signed by Mr. Stettinius.
Acting Chairman King. That was released lq 1938?
Mr. Feller. Yes, sir; June 24, 1938. The telegram reads:
The following releases made this afternoon "Carnegie Illinois Steel Corporation
announces reduced prices effective immediately delivered FOB cars Pittsburgh
and Chicago in carload lots as follows:" —
» Dr. Yntema's testimony before the committee appears in Hearings, Part 26.
* Edward R. Stettinius, chairman of the board, U. S. Steel Corp.
CONCENTRATION OF ECONOMIC POWER 10517
And then it gives a list of the prices.
"Prices on other products will be announced later Stop The new prices are
approximately on the same level as those in effect prior to 1928 Stop The
price reductions are made to meet competitive conditions and with the hope
that such reductions will stimulate a demand for steel products Stop Mil]
prices of these products are identical at the mills in both Pittsburgh and Chicago
a revision which has been made because of increased production facilities and
greater diversification of products in the Chicago district" Stop "Tennessee
Coal Iron and Railroad Company announces reduced prices effective immediately
delivered FOB cars Birmingham in carload lots as follows:" —
And then there is a list of prices.
"Prices on other products will be announced later Stop The new prices
are lower than those in effect prior to 1928 Stop The price reductions are made
to meet competitive conditions and with the hope that such reductions will
stimulate a demand for steel products Stop Prices of these products at the
Birmingham mills are now identical with mill prices of Carnegie Illinois Steel
Corporation for like products at Pittsburgh and Chicago."
There are a number of matters in this price announcement, Mr.
Fairless, which you have already elucidated and tomorrow after we
have taken a recess there are other matters which we should like to
have you elucidate further. I take it the chief points which are
made in the price announcements after the all-important point that
prices have been reduced and that they have been reduced to the
same level as those in effect prior to 1928, are these: First, that the
price reductions are made to meet competitive conditions, and,
second, that they are made with the hope that such reductions will
stimulate a demand for steel products. Now I think perhaps you
have already told us sufficiently about the competitive conditions.
Do you care to elaborate at all, or do you think you have already
covered that?
Mr. Fairless. The only elaboration would be that the price reduc-
tions made on June 24, 1938, reflected, as nearly as we could ascertain,
actual selling prices of- most of those products involved in the price
announcement, but in order to keep our schedule of prices properly
related some products were reduced pricewise beyond the actual con-
ditions within the industry at that time.
Mr. Feller. May I ask this. This is a very important point.
Was the total level of realization on the basis of the new lowered prices
less than the realization just immediately preceding?
Mr. Fairless. Yes; I have just explained that. In other words,
we got down as near as we could to the bottom in the case of the prod-
ucts where price concessions had been most severe and most numerous,
pegged it there, attempted to make a price there, then we brought
down in proper relation to those products other products where price
concessions had not been that severe,
Mr, Feller, You stated here, your company stated in its price
announcement, that the reduction was made with>the hope that the
reduction would stimulate a demand for steel products. Do you feel
that that, hope became a reahty? Did the hope really come about?
Mr. Fairless. Well, if it did it was a long time coming. I don't
know. Again I am not an economist.
Mr. Feller. Immediately after the cut did the demand for steel
actually go up?
Mr. Fairless. Oh, slightly; nothing to speak of.
10518 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. Did it go up during the next month?
Mr. Fairless. I can't answer. You have the chart showing it.
I don't know.
Mr. Henderson. The chart seems to show that ingot production
went up from a level of between 40 and 45 to above 90 for the end of
the year.
Mr. Fairless. Ninety in '38?
Mr. Feller. No, sir; this is an index basis; oh, no.
Mr. Fairless. I wish it had.
Mr. Feller. But did not the utilization of ingot capacity increase
materially?
Mr. Fairless. I am not going to argue that point at all. Let the
records speak for themselves. If the ingot operations went up that
month, they did, and the records so show.
Mr. AviLDSEN. I understand this was not a real reduction in the
price, that it was really publicly stating what they were actually
selling steel at except for a few isolated cases. Mr. Fairless said thtjy
didn't make an adjustment, so it was not reaUy a reduction in the
price of steel.
Mr. Fairless. That is right.
Mr. Feller. How do you anticipate that a reduction that is not
really a reduction would stimulate the demand for steel?
Mr. Fairless. We didn't anticipate that at ai. There had been
so much talk in the newspapers and various other places as to the
effect of a reduction that a price of steel might have, we thought we
would be perfectly willing to go along with the idea of trying it out
too.
Mr. Feller. Trying what out, merely the words or the reduction?
Mr. Fairless. We were actually making a reduction, and we said
we had hopes that it would stimulate the use of steel. We did.
Whether they were reaUzed or not is a matter of record. I can say
it was very slow and certainly not important.
Mr. Avildsen. Here is another thing, Mr. Feller. They could
express a hope that a change in the published price would stimulate
demand but they knew there was no real change in the actual price.
Mr. Feller. They weren't making a reduction? I am not quite
clear now. I am not clear whether he means a reduction in the base
price or also a reduction in the actual price.
Mr. Fairless. What is the question?
Mr. Feller. The. question, I take it, is this, then, Mr. Fairless.
Did you hope a reduction in the published price would stimulate
demand, or an actual reduction?
Mr. Fai;rless. We hoped exactly what we said; we meant exactly
what we said. I don't think there is any mystery about that announce-
ment. We came out, the Carnegie Illinois Steel Corporation came
out, with a new schedule of prices. They reduced base prices mate-
rially; they brought the prices of some products down to the level
then going in the industry and they brought other prices down lower
in order to maintain a related position, and with that announcement
they said they were taking this action to meet competitive conditions
and also in the hope that they might create a greater demand for steel.
It seems to me that speaks for itself.
Mr. Henderson. I understood you also to say you didn't have
much faith in that abiUty to stimulate demand.
CONCENTRATION OF ECONOMIC POWER 10519
Mr. Fairless. Only to this extent. I am not opposed to price
reductions. I think that price reductions in some industries and some
products definitely are a stimulus for business, but I do say that our
business because of its peculiar nature is not affected to the same
extent by the price reduction route that other businesses are affected,
and I cite you any number of examples. Could we sell the railroads
rails or car material or anything that they buy at any price if they
didn't have any use for the material? People don't buy rails and put
them into inventory. Our business is peculiar in that respect. You
take the automotive industry.
Mr. Henderson. Pardon me. You say they don't buy rails and
put them in inventory.
Mr. Fairless, Not for inventory purposes.
Mr. Henderson. Some rails were bought, were they not, in the
fall of 1932 that are stUl on flat cars outside of Pittsburgh?
Mr. Fairless. That is right.
Mr. Henderson. Are they inventory?
Mr. Fairless. Certainly.
Mr. Henderson. And they did put them into inventory then. As
I understood it, they were bought in the hope of accelerating some
prosperity about that time.
Mr. Fairless. But it didn't, though, did it?
Mr. Henderson. I didn't see it. I was speaking to the question
of whether or not' they bought them and put them into inventory.
Mr. Fairless. You will admit, I think, that it isn't customary for
railroads to buy rails and put them into inventory. That was a
peculiar circumstance, and that was done in the hope
Mr. Henderson (interposing). That was the Presidential year.
That was the peculiar circumstancQ.
Mr. Feller. May I attempt to narrow the issue which was pre-
sented at this point? The issue is really this: Did your company
hope ^t that time that a reduction in the price of steel would stimulate
demand? And the answer is, "The telegram, the announcement,
speaks for itself on that."
Now the second question is this: Did the demand, in fact, increase
during the 4 or 5 months following the announcement of these re-
duced prices? And I take it that Mr. Fairless said that the record
speaks for itself there. Isn't that correct?
Mr. Fairless. Certainly. There isn't any mystery about how
many tons of ingots are produced by the steel industry in any given
month of a year, or any given year. There is nothing for us to argue
about it. Whatever it is, that is what it is.
Mr. Feller. In fact, the demand for steel did go up, to your
knowledge.
Mr. Fairless. I am looking at the figures now. It isn't anythiug
I am trying to evade.
Mr. Feller. I wasn't suggesting that you were.
Mr. Fairless. We produced in June 587,000 tons of ingots; 612,000
in July ; 764,000 in August; 838,000 in September; 1,047,000 in October;
1,224,000 m November; and 1,092,000 in December. Those are the
actual figures.
Mr. Feller. Now, Mr. Fairless, I am going to ask you this question.
Do you think, as a steel executive, that your price reduction was a
factor in the increase in the demand that you have just indicated?
10520 CONCENTRATION OF ECONOMIC POWER
Now bear in mind the limitations of my question. I am not asking
you was it the total factor; I am not asking you was it the major
factor. I am only asking you, was it a factor?
Mr. Fairless. I should like to answer that question two ways.
First, as just an ordinary steel man.
Mr. Feller. Yes, sir.
Mr. Fairless. That is all I am.
Mr, Feller. Yes, sir. I am asking you that question, as I stated,
as a steel man.
Mr. Fairless. I am not an economist.
Mr. Henderson. Not just an "ordinary" steel man, INIr. Fairless.
Mr. Fairless. Thank you.
I don't believe that that price reduction was a factor to any great
extent. That is my candid opinion.
Mr. Feller. Do you think it was a factor to some extent?
Mr. Fairless. I said "to any great extent." To some extent,
possibly, but my second answer I think will clear it up. There again
the United States Steel Corporation has spent a lot of money and a
lot of time in making a very complete study with our answer to that
very question, and at the proper time, if this is the proper time, we
would like to submit our findings.
Mr. Henderson. I believe, Mr. Fairless, that already has been
submitted and will get before the committee very quickly. Isn't that
right, Mr. Olds?
Mr. Olds.^ It has been sent to the chairman, Mr. Henderson.
Mr. Fairless. That takes it out of my realm, because this is a
study that has been made and is under the supervision of Dr. Yntema,
at the University of Chicago, as well as our own people, and represents
our opinion in respect to this particular question.
Acting Chairman King. Has it been submitted to the chairman?
Do you desire that it shall be adverted to now and put into the
record?
Mr. Feller. We have not had adequate opportunity to study it.
Following precedent, I should like adequate opportunity for our
economist to study it.
Mr. Fairless, I revert again to this point. May I summarize
now — and the hour is getting very late — just what it is that I have
in mind. We have two facts now before us, or let me say three facts.
In June 1938 the prices for steel were reduced; the published base
prices for steel were reduced by the United States Steel Corporation.
Faci, No. 2, The United States Steel Corporation stated that it
hoped that this reduction would stimulate the demand.
Fact No. 3. Almost immediately following that reduction the
demand for steel did, in fact, go up.
Now, I take it that your answer as a steel man to my question as to
whether there was any causal connection between the reduction in
price and an increase in demand which followed it was that there was
some connection, but not a very significant one. Is that correct?
Mr. Fairless. If any, very small, in my opinion. To what extent
I can't tell.
Mr. Avildsen. Is it a fact that the large buyers of steel following
that announcement paid the same price for steel that they had been
paying immediately prior thereto for it?
Mx. Fairless. In many cases, yes; in most cases.
> Irving S. Olds, counsel.
CONCENTRATION OF ECONOMIC POWER 10521
Mr. AviLDSEN. Substantially in all cases. It was not a real reduc-
tion in the cost of steel to the users of steel.
Mr. Fairless. As a matter of fact, almost immediately followmg
that prices contmued to recede to even a lower level in some products.
Acting Chairman King. I would like to ask one question, and then
the Commissioner will ask one and we will take a recess until tomorrow
morning. As I understood you, you gave the reasons for price
increases in 1936, but I wasn't quite clear as to the reasons you assigned
for the raising of prices in 1937.
Mr. Fairless. We gave that. Senator. We had a wage increase
in '37 that was even more substantial than the one of '36. In other
words, here is actually what happened. On March 16, 1937, the
common labor hourly wage rate was increased 10 cents from 52]^ to
Q2% cents. That was one of the factors, and also the increased cost
of the materials that we buy.
Acting Chairman King. You stated as I recall it, 16 percent plus.
Mr. Fairless. 16.6 percent increase in labor costs.
Mr. Henderson. Mr. Fairless, I think you testified that you had
been in the steel business something like a quarter of a century, 25 or
26 years.
Mr. Fairless. That is right.
Mr. Henderson. In how many of those years have you been m a
position of helping to determine policy about the making of prices?
Mr. Fairless. Since 1924, however many years that is.
Mr. Henderson. I would lii<:e to ask you, as a steel man, whether or
not this point of view that you present in the first part of your
answer— that you didn't feci it had increased demand— has been the
prevailing opinion of steel men for quite a long time?
Mr. Fairless. I think so. Of course, beginning with a fair price.
You can't cut this loss at one end. I admit that if we have a ficti-
tious and abnormally high price for steel in any line, a reduction is
very apt to show immediate new business, but if we have a fair price,
it is my contention, and I beheve the contention of practical steel
men, that a reduction in price does not stimulate business.
Mr. Henderson. In other words, what you are confronted with as
makers of price policy is a set of conditions which are quite different
from what is expected to govern the price of steel. Isn't that it—
you have an unusual condition in steel due to a lot of factors which
aren't present in other industries? . • i .
Mr. Fairless. Yes. I say this— if we had a price for tm plate
that permitted inroads by other forms of containers— glass, or paper
and so forth, obviously to reduce the price of tin plate to meet or get
below that competition would create business. But I begin with a
fair price, and by fair price I mean with all those factors taken into
consideration. Now, this steel mdustry isn't ever going to sit, and
never has, as far as I know, and permit inroads of competmg products
to take its business away from it because of holding fast to some rigid
price, either in the form of an announced price or an actual selling
price. .
Mr. Henderson. You turn a lot of your managerial attention to
that kind of competition. *
Mr. Fairless. Certainljr, we are thmking about that every day,
and we have our laboratories and our technologists working on those
problems.
10522 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. The reason I asked it is to bring out
Mr. Fairless (interposing). I just cite you an example, and there
are many, but to reduce tin plate $5 a ton means a reduction of one
mill in the cost of tin plate for a No. 2 can, which is the popular size
can that we see in our kitchens and so forth. Now, I cite that as an
example of what a terrific reduction in price of tin plate you would have
to make to have it become a factor in selling cans.
Mr. AviLDSEN. How much profit do you make on tin plate? Is
that a fair question?
What is the average profit of the industry? Is that known on tin
plate?
Mr. Fairless. It is a fluctuating profit. Normally it is a fair
profit, but we have run into bad years.
Mr. AviLDSEN. I just wonder how $5 a ton compared with the
profit.
Mr. Fairless. It would take a nice part of our profit away from
us, based on today's costs.
Acting Chairman King. If there is no objection, the committee
will stand adjourned until 10:30 tomorrow morning.
(Whereupon, at 5 p. m., a recess was taken until the following
day, Tuesday, November 7, 1939, at 10:30 a. m.)
INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER
TUESDAY, NOVEMBER 7, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 10:30 a. m., pursuant to adjournment on
Monday, November 6, 1939, in the Caucus Room, Senate Office
Building, Senator William H. King presiding.
Present: Senator King (acting chairman); Representatives Reece
and Williams; Messrs. Henderson, O'Connell, Avildsen, and Brackett.
Present also: Frank A. Fetter and Hugh White, representing the
Federal Trade Commission; John V. W. Reynders, , representing the
Department of Commerce; A. H. Feller, special assistant to the
Attorney General; John W. Porter, Irving B. Glickfeld, Hyman B.
Ritchin, Monroe Karasik, and Ward S. Bowman, Department of
Justice.
Acting Chairman King. The committee wiU be in order.
Mr. Feller. I should like to recall Messrs. Fairless, Hughes, and
Gregg.
Acting Chairman King. Gentlemen, come forward, please.
Proceed.
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL CORPORATION, NEW YORK, N. Y. ; ROBERT
GREGG, PRESIDENT, TENNESSEE COAL, IRON & RAILROAD CO.,
BIRMINGHAM, ALA.; AND H. L. HUGHES, VICE PRESIDENT,
UNITED STATES STEEL CORPORATION, NEW YORK, N. Y.—
Resumed
Mr. Feller. Mr. Fairless, I should like at the outset to clear up,
or rather elaborate a bit on one small point. Yesterday you stated
as foUows [reading]:
We know that a price reduction is efifective the day it is announced. We also
know through our years of experience in this business that a price increase is not
efifective to any great extent until about six months after it is announced, if you
take the full line of steel products of this industry.
Could you tell us the reason why that lag occurs after a price
increase?
Mr. Fairless. Because of forward buying at the old prices, and
extended deliveries.
Mr. Feller. You mean that at the old price, various consumers
have purchased large stocks to be delivered later on, and those de-
liveries are then made on the basis of the old price.
10523
10524 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. That coupled with the phase of our business known
as "identified structures." For example, if the American Bridge Co.
quotes on a bridge today, it quotes on the basis of current prices,
although the structural steel for that bridge may actually be delivered
6 months or a year from now, and then erected. Therefore, if it
affects the price
Mr. Feller (interposing). On structural steel?
Mr. Fairless. And fabricated structures. Take for example car
material. You have been reading that considerable car material has
been purchased in the last several weeks. That material has been
purchased at the current prices in effect, I assume, certainly not
liigher. That material will be delivered through possibly the first
half of next year, so to that extent
Mr. Feller (interposing). Yes; I understand that.
Acting Chairman King. The date-of-delivery prices might be quite
different from current prices?
Mr. Fairless. Also on ship material. Obviously when a ship-
builder quotes the Maritime Commission or the Navy, he must loiow
the price of his steel at the time he makes his quotation, and his bid
can't be subject to any fluctuations in the price of steel during the
time in wliich the steel may be delivered. He made a purchase of
his steel.
Acting Chairman King. If the prices went up in the meantime,
before delivery, the Government, for instance, on the ship steel which
it purchases, would be relieved from those lugher prices.
Mr. Fairless. Oh, certainly, and so would any other buyer. Now,
buyers under current purchases not covered by contracts or not in
the category of identified structures, may pay the new prices or may
pay less, depending on conditions.
Acting Chairman King. So oh the date of delivery it might be
lower or higher, but the price at which it was negotiated would
prevail.
Mr. Fairless. Well, it would prevail. Senator
Acting Chairman King (interposing). In respect of that trans-
action.
Mr. Fairless. Unless in the meantime we should have a general
decline in prices, and many times our company wiU adjust existing
contracts and existing commitments to meet the new lower level of
prices. That has occurred many times. That isn't so prominent in
identified structures such as buildings and so forth. Those contnicts
usually remain because there are factors in structures of that kind
that are greater than the price of steel.
Mr. Feller. Mr. Fairless, yesterday you also stated as follows
[reading]:
I admit that if we have a fictitious and abnormally high price for steel in any
line, a reduction is very apt to show immediate new business, but if we have a
fair price, it is my contention, and I believe the contention of practical steel men,
that a reduction in price does not stimulate business.
Would you say, Mr. Fairless, that the base price which existed
between March of 1937 and June of 1939 was a fair price?
Mr. Fairless. At that time, yes.
Mr. Feller. You also told us that as a matter of fact that price
was not being observed, that the customers were paying below that
price, that you were not able to make sales at that price.
CONCENTRATION OF ECONOMIC POWER 10525
Mr. Fairless. I didn't make that statement in just that way. I
have made the statement that advances in prices are not reahzed for
as much as 6 months after announcement.
Mr. Feller. I am not talking about that.
Mr. Fairless. I am trying, if I may, to answer the question that
you have asked. Now, the prices that were announced effective in
early '37 were, as we made our studies, and by "we" I mean the
subsidiary companies of the United States Steel Corporation, per-
fectly fair, normal prices. The fact that they were not realized com-
pletely, although they were to some extent, is because of the reasons
that I have already given — prior sales, identified structures, customers
buying for future deliveries. And at about the time when we were
reaching the period that those prices would be to a greater extent
realized, why then business began falling off, and therefore they were
not thereafter realized to any appreciable degree.
Mr. Feller. I understood you to say yesterday that concessions
were being regularly granted from the base price during that period.
Mr. Fairless. During the last half of '37, yes. It became pro-
gressively greater.
Mr. Feller. Do you think that a price which your customers are
not willing to pay is a fair price?
Mr. Fairless. Not willing to pay? I don't think that that is the
point at issue. It isn't a question of the customer's being willing to
pay or his considering it as a fair price. It is competitive conditions
that bring us that actual price.
Mr. Feller. Just what do you mean by that?
Mr. Fairless. I mean exactly this: Competition is very keen in the
steel industry, and it is terrifically keen in times of falling off of orders.
Now people in the steel industry do not cut prices or reduce prices in a
competitive situation because the price is unfair. Prices are reduced
to secure business by the individual company which makes the reduc-
tion. It isn't because the steel company has analyzed all the factors
of its cost and the return to the company and has come to the conclu-
sion that the price is too high That isn't the theory at all. It is to
get a specific order or contract. That is why prices are reduced.
Mr. Feller. That's right, and you couldn't get those specific
contracts or orders at the published price. You could only get them
at a price which was lower than the published price.
Mr. Fairless. The only reason we couldn't get them at the pub-
lished price was because others were willing to sell at less than that
price.
Mr. Reynders. Is it possible that those prices which you did quote
below the published price mVy have been unreasonably low?
Mr. Fairless. That is definitely so. That is proven by the fact
that our corporation lost between seven and eight million dollars in
1938 at a rate of operation that should have at least reflected a break-
even point.
Mr. Reynders. In that event that was not a reasonable price,
was it?
Mr. Fairless. No; and in meeting some of these prices our various
companies don't meet those prices because they are sound prices,
because they are in our opinion fair prices; but after all, we are in this
industry and we must maintain our position and we must be com-
10526 CONCENTRATION OF ECONOMIC POWER
petitive at all times, even though meeting competition many times
results in our selling our goods at less than cost.
Mr. Feller. Well, I think perhaps you can see just what it is that
[ am inquiring into, and that is the question as to how you determine
whether a price is reasonable. Now, as I see it, there are two different
prices we are talking about here. One is the published base price
which your company sets after consideration of the various factors
relating to its own business. The other is the price actually secured
on specific orders, which was a price determined by competitive con-
ditions. Now, do you consider that the fact that trade conditions
determine a price, or competitive conditions determine a price, is a
factor in considering whether or not it is a reasonable price?
Mr. Fairless. It may be a factor, but not the entire factor.
"reasonable" prices
Mr. Feller. How, then, do you know whether a price is reasonable?
Mr. Fairless. We know that a price is reasonable if it nets a
reasonable return to our company; if it permits us to pay good wages
to our employees, to keep our facilities in excellent condition, to keep
our equipment abreast of the developments within this industry, and
also if possible to paj^ a fair return to the owners of this business, our*
stockholders. That is a fair price.
Mr. Feller. And what would an unfair price be?
Mr. Fairless. An unfair price would be a price that doesn't
permit those things that I have just enumerated to happen.
Mr. Feller. No, pardon me; strike out the word "unfair."
What would an unreasonable price be? You told us if the price were
unreasonably high, it would have certain consequences.
Mr. Fairless. An unreasonably high price would be a price that
would net too great a return to our companies, or a price that was so
high that it permitted competitive products with steel to take business
away from steel, that is, to take the business away from us.
Mr. Feller. Then you think the limits of unreasonableness of price
are determined by two factors, possibly by two factors; one, the size
of the returns to your company, or to a seller of steel; and secondly,
the limit of substitutabUity between steel and other products?
Mr. Fairless. I will let my statement stand in the record.
Mr. Henderson. I have some questions. As I understand it,
you take the position that the prices which you established in early
1937 were prices that were necessary for you to discharge your
obligation to your stockholders?
Mr. Fairless. They were. You appreciate, of course, that we
had to develop the price based on many changed conditions in our
industry, such as our wage rate. We had quite an increase in labor
costs, 16.6 percent, and then we had our overtime factors for work
more than 40 hours a week, or more than 8 hours a day; those were
new experiences in the steel industry and we had to project our
costs rather than deal with actualities, and to the best of our judgment,
as our studies showed, and as they were presented by the various
subsidiary companies, we were of the opinion that the price schedule
of 193.7 was only a fair schedule of prices to do the things that I have
enumerated that are necessary and should be necessary properly to
run our business.
CONCENTRATION OF ECONOMIC POWER 10527
Mr. Henderson. In other words, you felt that the changed condi-
tions were such that you had to get, or you ought to get, a price
considerably higher than that of 1929?
"Mr. Fairless. Oh, my, yes. For example, in 1929 the basic labor
rate in the steel industry was 44 cents per hour and in 1937 it was
Q2]i cents per hour.
Mr. Henderson. Well, in the intervening period, what had been
the advance in technology?
Mr. Fairless. Of course that was all considered; that was all con-
sidered.
Mr. Henderson. Had there been a substantial advance in the
technology?
Mr. Fairless. Oh, yes; definitely, and particularly so in some
products.
Mr. Henderson. Did you have any studies which would show
whether or not it would compensate for the additional labor rates?
Mr. Fairless. Well, you have to take — really to answer that
Question intelligently — you must analyze the , steel industry by
products. For example, there was no particular development in the
science, technological development, of the manufacture of rails or
plates, to any great extent, or of structural material, but on the other
hand there had been tremendous developments in respect to the
so-called flat rolled products, light materials, specifically sheets,
strip, and tinplate. As to bars, other than the perfectly natural
developments of better quality and better control, scientific control
for heat treating purposes, and so forth, I don't believe there has
been any great development technologically in the manufacture of
bars. We did have the continuous bar mills in 1929, but we didn't
have the continuous strip mills, at least to any great extent, so you
really would, I believe, have to analyze each product properly to
answer your question.
And I might add, as I recall, the price of full-finished automobile
sheets back in 1929 a little less than $5, about $4.80 or thereabouts.
I don't want this to be definite in the record, because it must be
checked, while today and in 1937 our announced price of such auto-
mobile sheets was considerably less than $4.
Mr. Henderson. Here is the designation which the Bureau of
Labor Statistics uses: Steel plates, tank, quarter-inch thick, 6 to 100
inches, Pittsburgh; that was 16.6 pjercent above the 1929 price.
Mr. Fairless. Is that a base price?
Mr. Henderson. Yes. Structural shapes, 3-inch and larger, base
price 100 mill Pittsburgh, 17 percent above. Cold rolled steel strips,
Pittsburgh, 14.3 percent above 1929. Do you feel it was necessary on
account of changed conditions to get so high a price, that that was a
reasonable price?
Mr. Fairless. We felt so; yes. Our studies so indicated. We
would be very glad — I don't have that comparison of 1929 available,
but there is no reason why we shouldn't submit to this committee a
detail of cost comparisons, wages, and materials of 1929 to 1937, if
you so desire. We would be very glad to present it.
Mr. Henderson. Well, I have examined steel prices in the Bureau
of Labor Statistics' record pretty completely and I find that they run
anywhere from 5 percent above 1929 to 28 and 29 percent above 1929,
and that at a time when the price level was about 15 percent below
10528 CONCENTRATION OP ECONOMIC POWER
1929. In other words, we had gotten back in 1937 as far as the prices
of all other materials are concerned to within 15 percent of 1929 and
many of these steel products, some of which are affected by the increase
in teclmology, were anywhere from 5 to 29 or 30 percent above that.
Do you want the committee to understand that these labor changes
and the various costs you had in connection with labor required you
to get that additional amount in order to obtain a reasonable price?
Mr, Fairless. Yes, sir.
Mr. AviLDSEN. Mr. Fairless, did you say the wage rate in 1929
was 44 and in 1937, 62?
Mr. Fairless. Sixty-two and a half.
Mr. Henderson. What was it as reflected in the labor cost per
ton of steel?
Mr. Fairless. Well, labor runs pretty close to 50 percent; isn't
that the figure? Somewhere between 40 and 50 percent of the total
cost of steel products is represented by labor costs. I am not making
the point or attempting to make the point that the increase in labor
costs is alone responsible. There were many other increases in cost;
take the item of taxes, which is obviously a large item; if you compare
the cost of raw materials which we purchase, their cost in 1929 as
compared with 1937; it is a factor also. I am not taking the position,
and haven't at any time, what the price advance of 1937 was entirely
due to the increases in labor costs. I am, however, maldng the point
that the higher labor cost was a very important factor.
Mr. Henderson. Let me get at it this way. The price level for
all commodities in 1929 was about 95 compared to 100 base for
around 1926. The price level for all commodities never got back
further than about 87 or 88 percent in 1937 and during some months
we attained a volume of physical production equal to 1929. The
price level at the present time is in the neighborhood of 80 and the
Federal Reserve Board reports that we are probably making as large
a volume of products as we did in 1929. In other words, from your
testimony it would seem that as far as the national economy is con-
cerned your company is faced with the prospect of having a price
level which would run 30, 40, 50 percent above the prices for all other
commodities, in order for you to get reasonable prices, for your com-
pany to live and meet the exceedingly increased fair treatment to
labor, vacations and the like. Isn't that the natural conclusion we
have to come to?
Mr. Fairless. You are getting out of my field now.
Mr. Henderson. Don't be afraid to say what you think.
Mr. Fairless. I am not afraid.
Mr. Henderson. I know you are not, that is your reputation.
Mr. Fairless. I made the statement yesterday that I am not an
economist; therefore, you are getting me into that field.
Mr. Henderson. No; but you make price policy, Mr. Fairless, the
price which people pay.
Mr. Fairless. Yes, sir; and I make that policy based on facts, not
on theories of any kind at all.
Mr. Henderson. This isn't theory that I am asking you. You
have stated what you think is a reasonable price.
Mr. Fairless. That is right.
Mr. Henderson. You state that the 1937 prices represented in your
best judgment and those associated with you a fair and reasonable
price necessary for your company to live?
CONCENTRATION OF ECONOMIC POWER 10529
Mr. Fairless. That is right.
Mr. Henderson. I am saying that the rest of the companies repre-
sented by the average of all prices had not found that so. Your indus-
try has had a glorious advance in technology, as we saw frorn the
picture submitted, and what I am asking is whether this committee
has to accept as a fact that for the future the prices of steel, which are
tremendously important since it is a raw material, are going to_ be
anywhere from 30 to 50 percent higher than the general level of prices
at the retail line.
Mr. Fairless. I want to make a definite statement to this com-
mittee and have it a part of this record. The pricing policy of the
United States Steel Corporation is as follows, and will continue to be:
At no time do we want to charge more than a fair price for our prod-
ucts— at no time — and as stated before, we want that price to be
sufficient only to permit us to pay fair wages to our employees, to
permit the best working conditions possible for our employees, to
Jveep our properties in excellent operating condition in order that they
msij be ready at any time to meet the demands of this country for the
products which we manufacture and which are so important to this
country ; to permit sufficient income that we can keep our equipnient
modernized and up-to-date in every respect; to permit sufficient
mcome that we can be constantly studying new processes and new
developments for the manufacture and the uses of steel and at the
end of the line to hav.e enough left to pay a reasonable return to the
owners of this business, our stockholders. That is our policy and we
try at all times to cling tp it religiously.
Mr. Henderson. You understand, Mr. Fairless, I wasn't raising
the question of whether you had been profiteering in the price. What
I was asking you was what the contemplation of this country was
about the prospect of steel prices. I simply recited what you call a
reasonable price in terms of the explanation of your price policy as
you have just given it, and said that as far as the rest of the economy
IS concerned it is on a decidedly lower price level, and that there was
an enormous spread there which seemed to me had not been able to
be cut down by the advance in technology or by the volume of business
you are able to get from month to month.
Mr. Avildsen. Mr. Henderson, isn't this a fact, that Mr. Fairless
has testified that there has been practically no advance in technology
in the case of plates, structural shapes, and so forth, but in the case
of tin plate, sheets, there has been a great advance?^ Isn't it also a
fact that there has been a very substantial reduction in price of sheets
in 1937 compared with 1929?
Mr. Fairless. Yes.
Mr. Avildsen. Reflecting that technological advance. Let's see
what the percentage of that reduction was.
Mr. Henderson. In October 1937 tin plate, coke, domestic 14 by
20-inch 100 base box Pittsburgh was 8 percent above the 1929 level.
Mr. Fairless. Oh, no; I don't think you are right there, if our
figures are right.
Mr. Henderson. I am taking this from the Bureau of Labor
Statistics.
Mr. Fairless. This is our actual schedule. Mr. Gregg will read it.
Mr. Gregg. Our actual figures show, Mr. Commissioner, that in
October of 1929 coke tin plate was $5.35 per base box, and in May of
124491 — 40— pt. 19 6
10530 CONCENTRATION OF ECONOMIC POWER
1937, which was the new schedule we were discussing, it was quoted
at $4.85 per base box.
Mr. Henderson. In May of 1937?
Mr. Gregg. Yes, sir.
Mr. Henderson. Then the Bureau of Labor Statistics on this
particular item was probably wrong. Is that it?
Mr. Gregg. I assume this sheet is correct. It is taken from our
own records.
Mr. Henderson. That is the base price?
Mr. Gregg. Yes; that is the price of a base box of tin plate, which
is the basis. May I point out further that you selected 3 products
which did show, each of them, a matter of 16 or 17 percent increase
in sales price. That was only 3 out of the schedule. There are others
which show a reduction just as tin plate does. Steel raUs, for instance,
show a reduction in price in May of 1937 as opposed to October 1929.
Mr. Henderson. I would like to leave that subject to challenge,
Mr. Feller.
Mr. Feller. I should just like to get this point clear in the record.
First, it is a fact, is it not, that the general level of prices, taking all
commodities, was higher iu 1937 than it was in 1929.
Mr. Fairless. I see every reason why it should have been.
Mr. Feller. Were they? I am not inquiring as to the reason.
I am trying to establish the fact.
Mr. Fairless. Here are the figures.
Acting Chairman King. Do you mean in all industry, agriculture,
and so on?
Mr. Feller. No, sir; steel commodities, whether the price of steel,
including all steel products, was higher in 1937 than in 1929, or lower.
That is the only fact I am asking.
Mr. Fairless. Well, we have here a statement showing pig iron,
blooms, billets, sheet bars, wire rods, skelp, standard rails, tie plates,
spikes, plates, shapes, bars, pipe, strip, sheets of various kinds, tin
plate, bars, wire products, and we show the base prices of those
products in 1926, 1929, 1933 and various months, including May 1937,
so here is the record that we submit for the record.
Mr. Feller. I offer this statement which Mr. Fairless has sub-
mitted.
Acting Chairman King. This comes from yoiu* organization?
Mr. Fairless. Yes.
Acting Chairman King. It may be received.
(The chart referred to was marked "Exhibit No. 1390," and is
included in the appendix on p. 10716.)
Mr. Feller. I was going to ask this further question: Is it or is it
not a fact that on the whole the technology of the industry, the steel
industry, was further advanced in 1937 than it was in 1929?
Mr. Fairless. In certain products, definitely.
Mr. Feller. Is it not true that those products which constituted
the bulk of the tonnage sold in 1937 — by that I mean light flat-rolled
products — did constitute the bulk of the tonnage in 1937?
Mr. Fairless. No; not the bulk of the tonnage.
Mr. Feller. Were they relatively more important to your com-
pany in 1937 than they were in 1929?
Mr. Fairless. Right.
CONCENTRATION OF ECONOMIC POWER 10531
Mr. Feller. In those products which had become relatively more
important to your business the advance in technology was quite
large.
Mr. Fairless. Yes, sir; and also the reduction in prices.
Mr. Hendeeson. I should like, Mr. Chairman, to read from this
study which I made myself comparing the Bureau of Labor Statistics
wholesale prices at their peak in 1937 with then- 1929 levels. In the
general category of iron and steel products, these are the percentages
above 1929 prices shown by the B. L. S. statistics:
Angle bars (track equipment) per 100 lbs., mill 1. 8
Bar iron, common, per lb., Chicago '.'I'.' 18. 2
Bar iron, common, base, per lb., f. o. b. Pittsburgh --IIII""I~I i. 7
Bars, reinforcing, billet steel, mill lengths, base price, per 100 lbs. c. I., f. o^ b".
Pittsburgh mills . 23. 3
Bars, steel, merchant, per 100 lbs., Pittsburgh l."""""l 27. 3
Bars, sheet, per gross ton, Pittsburgh J __" 5] 7
Bars, steel, cold finished, base size, per lb., Pittsburgh mill ' 27* 7
Billets, steel, rerolling, per ton, 2240 lbs., Pittsburgh 6. 8
Pig iron, basic, gross ton, Mahoning and Shenanago Valley furnace- 29. 2
Pig iron, Bessemer Valley, gross ton, delivered Pittsburgh . " 22.8
Pig iron, foundry No. 2, Northern, per gross ton, Pittsburgh 29. 6
Pig iron, foundry No. 2, Southern, per gross ton, Birmingham 32. 2
Pig iron, malleable. Valley, per gross ton 28. 1
Pipe, cast iron, 6", Class B and heavier, per net ton c. 1., delivered New York' 44." 5
Rivets, large, K" and larger, base, per 100 lbs., Pittsburgh or Cleveland- . 17. 4
Rivets, small, /le" and smaller, per lb., f. o. b. Pittsburgh 23. 0
Rods, wire, per gross ton, Pittsburgh 13 2
Sheets, steel, No. 27 box, annealed, U. S. Standard, hot Vo'lie'd,"c.T."oVmor"e^
per lb., Pittsburgh district mills _ _ 104
Sheets, steel, galvanized. No.. 24, base, per lb., mill", Pittsburgh 6 2
Skelp, steel, grooved, per 100 lbs., Pittsburgh _ _ 13 0
Spikes (track equipment), Yz" and smaller, per 100 lbs., mill 12 5
Strips, steel, cold rolled, per lb., to large buyers, Pittsburgh 14. 3
^ There are a number of others, Mr. Chairman. I am reading these
into the record only to show what I said before, that prices of some
iron and steel products were higher in 1937 than in 1929. On your
own statement,. Mr. Fau-less, you feel that these were reasonable
prices, necessary for the successful administration of business and to
meet its labor commitments and its duty to investors. And the only
pomt I was asking you to comment on was whether or not, so far as
the future is concerned— and I believe you will agree with me that is
the most unportant thing— we must face a condition in this coimtry
m which the posted price for steel products will be substantially in
excess of the general average of prices. 3? .
What do you think about the future of steel prices?
Mr. Fairless. Well, I don't know how you are going to compare
steel prices. What are you gomg to compare it with?
Mr. Henderson. With all other prices. That was the comparison
which I made.
Mr. Fairless. It seems to me we get pretty far afield, don't we?
Mr. Henderson. No.
Mr. Fairless. The steel busmess is a busmess with its own pecu-
ianties. I would just like to give you an example about steel prices.
Ihis committee saw the moving picture here on Wednesday morn-
ing. It showed how ore is mined and how steel is made, and I just
like to cite an example of what this industry does and is dome, and
use rails as the example.
10532 CONCENTRATION OF ECONOMIC POWER
- Does this committee appreciate and realize that with all of the
diflferent operations that you saw on the screen, that we must perform
in order to manufacture a rail — do you appreciate that we sell that
rail for less than 2 cents a pound? That is the selling price of that rail.
It is subject to the very closest inspection. It must be a perfect piece
of steel. The lives of millions are entrusted to it. We feel a great
responsibiUty in that product and we are constantly improving its
quaUty, and, as the records show here, not increasing its price.
Now costs can be increased through the development of better
quality, as you appreciate, and that is a part of our picture, too We
can't compare the requirements of a rail today with those of even 10
years ago, because of the advent of the high-speed trains, and neces-
sarily the pressure for better quaUty of rails is on this mdustry, and
we are meeting it.
Mr. Henderson. Doesn't that follow for other industries, too?
There has been a substantial increase in technology in other industries,
as well as improvement in quality in this same period.
Mr. Fairless. Well, there is no use for you and me to argue about
it at all. I am trying to bring out the facts, and I know you are. I
can't accept — not that I question the figures that you give in respect
to other industries; I must tell this committee that I am not familiar.
I am a steel man.
Mr. Henderson. I asked you only one simple question and that
was whether, so far as the future is concerned, you feel that the price
you must get for your steel products must be above the 1929 price.
Mr. Fairless. With today's costs? Wh^^ certainly.
Mr. Henderson. You feel, then, that since 1929 your cost jjer
imit has gone up to such an extent that you must get a higher price
than in 1929?
Mr. Fairless. Yes, sir.
Mr. Henderson. In order for your company to Uve.
Mr. AviLDSEN. Mr. Henderson, we do know wages have gone up
40 percent at least.
Mr. Fairless. Definitely.
Mr. Henderson. I know wages have gone up in other industries,
too, Mr. Avildsen.
Mr. Avildsen. Prices have gone up in other industries too.
Mr. Hendersen. The general level of prices at this time is 80 as
against 95 in 1929.
Mr. Avildsen. Have you commodities in that — wheat, corn, and
so forth?
Mr. Henderson. Oh, yes; there are 687 commodities.
Mr. Avildsen. Was the price on manufactued goods compared,
leaving out farm products and so forth?
Acting Chairman King. The general relations between prices of
all coinmodities, it seems to me, unless there are some commodities
that in their production are identical, would require differentiation
and a different classification.
Let me ask whether on steel products, the cost of producing — for
instance you mentioned rails — has increased.
Mr. Fairless. Oh, definitely.
Acting Chairman King. And with the various steel products
manufactured by your companies do you say that, the intrinsic merit
and value of each of those products is superior to what it was in 1929?
CONCENTRATION OF ECONOMIC POWER 10533
Mr. Fairless. Oh, yes; definitely.
Acting Chairman King. And has that resulted in greater costs in
manufacturing and finisliing?
Mr. Fairless. In some instances, not all. In technological devel-
opment, particularly in the flat rolled product, the result has been the
lowering of costs with a tremendous increase in quality.
Acting Chairman King. There is more specialization developed?
Mr. Fairless. That is right.
Acting Chairman King. Like pig iron — perhaps the cost would
not be much greater, the cost of production, than in 1929.
Mr. Fairless. Oh, yes; because labor— —
Acting Chairman King (interposing). Aside from the question of
wages.
Mr. Fairless. Labor increases, taxes, of course, affect the cost of
pig iron, affect ore, affect every operation we have.
Acting Chairman King. What I meant was that there wasn't the
technological development in the production of pig iron that you
would find in the finished product.
Mr, Fairless. No; because we are an old industry; we are not
new, and we have been under technological development for a great
number of years, and while I am not making the statement that we
have reached any stage of perfection, obviously we can't hope to
make the strides that some of the newer industries that haven't
been at this job as long as we have might make. That is a fair
comparison, isn't it?
Acting Chairman King. I have forgotten for the moment — what
were the returns on the investment in 1937?
Mr. Fairless. In 1937?
Acting Chairman King. You stated it, but I have forgotten it.
Mr, Fairless. We have a chart here that wiU show returns on
investment.^
Mr. Henderson. While we are waiting for that, Mr. Avildsen, in
June of 1939 the index of semimanufactured articles, as shown by the
Bureau of Labor Statistics, stood at 74; the finished steel composite,
as shown by Iron Age, stood at 93.
Mr. Avildsen. That doesn't answer my question, Mr. Henderson,
because you are talking about semifinished articles, I am talking about
finished articles. I would like to compare finished steel with finished
manufactured goods in general, not semifinished.
Mr, Henderson. I will get that comparison, and whUel can't
speak now with exactness, it will show almost the same disparity.
I will get that and introduce it into this record.
One other line of questioning while we are at it: The purport of
your testimony yesterday was that in the period of the decline which
began in 1937 you met competition and the realization was con-
siderably lower than the base price. Now, in meeting that competi-
tion, was the price actually charged to all customers uniformly the
same?
Mr, Fairless. As best we could do it, particularly in competitive
fields.
> "Exhibit No. 1391," appendix, p. 10717.
10534 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. Well, may I ask you this: Were any of your
buyers paying the base price plus the standard extras?
Mr. Fairless. In what period, now?
Mr. Henderson. WeU, let's take the period running from the
fourth quarter of *37 to the first quarter and part of the second
quarter of '38.
Mr. Fairless. Yes; there would be some.
Mr. Henderson. There would be some?
Mr. Fairless. Yes.
Mr. Henderson. But there would be other buyers who were
getting substantial concessions on price in order for you to meet
competition?
Mr. Fairless. That is correct..
Mr. Henderson. Would they follow any general commodity
lines? That is, would the i)rice reductions which you conceded go to
any particular consuming industry, and would you charge the full
base price to other consuming industries?
Mr. Fairless. When you get into a situation in this industry
where prices are not being maintained^ you can't have any policy
except the policy of meeting competition as you find it. That is
the only policy you can have.
Mr. Henderson. That means that you have to charge whatever
it takes to get that business if you want that business.
Mr. Fairless. To meet competition. Naturally no one will pay
me more for steel than they can buy it for from someone else. There
is no reason why they should, and they don't.
Mr. Reynders. I believe, Mr. Fairless, you said yesterday that
the range of competition, the prices, varied from day to day prac-
tically during this period.
Mr. Fairless. Yes; take this picture, if you please: The sub-
sidiary companies of the United States Steel Corporation, in a normal
period of business, should book about 50,000 tons of steel per day.
Mr. Henderson. Repeat that; I missed it.
Mr. Fairless. I am painting the picture of our business and how
we must transact it in a normal steel year, not abnormal. The
various subsidiary steel companies that go to make up the United
States Steel Corporation should book about 50,000 tons of steel per
day. That is over this entire country, and in foreign countries, and
it is made up of orders that might range from 5 tons to any number
of tons. Now we, of. course, must have a very definite merchandising
policy, but once that policy cannot be adhered to, and once the con-
ditions in the industry from a competitive standpoint are such that
you can't have any policy, why you have to do just what your com-
petition forces you to do.
Mr. Reynders. From day to day.
Mr. Fairless. And from day to day.
Mr. Henderson. I can recall the superintendent of one of your
works telling me as I went through the plant of how he went on a
tour for 2 or 3 days to try to get a certain order, and then ran it through
the mill in less than half a day. I can see your point. What I am
getting at is that when you get into this declining period, you have to
make day-to-day prices and customer-to-Cjustomer prices. You
have a choice as to whether or not you will take the business.
Mr. Fairless. That is fight.
CONCENTRATION OF ECONOMIC POWER 10535
Mr. Henderson. One other question following from that. I think
maybe you indicated the key to the answer. What are some of the
determinations so far as price concessions are concerned as to how far
you will go in getting a substantial order? Do you have any standards
on that?
Mr. Fairless. Competition standards?
Mr. Henderson. Yes; any fixed reduction below the base price.
Mr. Fairless. No, sir; no, sir; we haven't. We might go below
cost. Many times, particularly in the last 9 years, we have taken
business knowing that it is a definite loss to our subsidiary companies,
in order to furnish more employment for our employees. We have
placed orders on our books with plants that were not as efficient as
other plants in order that the employees of those plants might share
in what business we had.
Mr. Henderson, Did it also have some relationship to your costs
at different levels of operation?
Mr. Fairless. Well, it might have, Mr. Henderson, if we had con-
trol over it, but it is very difficult to build a formula, a basis on which
you are going to take business, when you don't know what your com-
petition is. You have to develop your competition, and many times
your decision to take an order or not to take an order must be made
right on the spot, and many times you say "No" to an order today,
which if offered as a similar order next week you would take, because
conditions have changed that rapidly in this industry.
Mr. Henderson. I think that is a very important point — what is
the general idea about what the fixed price of steel is? The question
I was addressing, however, had to do with this: Suppose, as was the
case in '37 and early '38, you get down below your break-even point.
Does the question of keeping up the level somewhere near that bulk
vary largelj^ as to whether you will make a greater price concession than
you would if it were above the break-even point?
Mr. Fairless. No, no; I wouldn't say that.
Mr. Henderson. You might take it to give employment, but you
wouldn't consider it in connection with how much of the overhead
burden it would carry?
Mr. Fairless. Yes; of course, you consider aU your factors of cost;
but the main thing you would do is to maintain your position, if
possible, in this industry.
Mr. Henderson. You mentioned that position. If I gather cor-
rectly, you mean you might share other business that is passing at
that particular time?
Mr. Fairless. Based on our capacity in the industry.
Mr. Henderson. That is if you have 35 percenl. of the capacity
you feel that that is a sort of yardstick and ^ou ought to be getting
about 35 percent of the business?
Mr. Fairless. Unless there are some unusual conditions within
the industry that make it difficult, as there have been at times, for
us to expect that participation.
Mr. Henderson. Then if you happen to fall below that assumed
level, you exercise your managerial decisions toward getting back up
to that percentage of the current volume of business?
Mr. Fairless. Not exactly, as you put it. That is one of the
guides that we watch in the daily transaction and monthly transaction
of our business. We feel that it is up to us to know what is going
10536 CONCENTRATION OF ECONOMIC POWER
on in this industry, but it doesn't just follow that if next month or
next quarter we find we are 1 percent below the average in the in-
dustry that we promptly then go out and do something price-wise to
bring us up. If I understood your question correctly. Not neces-
sarily; it is a factor, that is all. It is a guide.
Mr. Henderson. It is a guide.
Mr. O'CoNNELL. Mr. Fairless, several times you have referred to
the break-even point in the steel industry. Do you have in mind
in a general way what the break-even point is in your company at the
present cost levels?
Mr. Fairless. With present prices and present costs?
Mr. O'CoNNELL. Present costs. I take it that is the main factor.
Mr. Fairless. We must have prices, too, if we have costs. I
would say around 50 percent.
Mr. O'CoNNELL. What was it in 1937 at the time of the last
increase in prices? You have that in mind?
Mr. Fairless. No; really, I don't.
Mr. O'CoNNELL. I understand it varies?
Mr. Fairless. It fluctuates, and at different times of the year,
too. It isn't constant; it fluctuates with your mix of products. In
other words, we can operate one of our subsidiary companies; I will
take for example Carnegie Illinois, and with a certain mix of products
we could break even at 40 percent; we could produce the same tonnage
and ship the same tonnage over all with a different mix of products
and lose money at 40 percent. All our products don't show the
same return, the same percentage of return. We are constantly, due
to competitive conditions, having some products that show no return.
Now if in some particular month or quarter or period the tonnage of
that particular product or products constitutes a high percentage of
our business, why, our profits are aft'ected accordingly, of course.
But, Mr. Chairman, I have
Acting Chairman King. Mr. O'Connell wasn't finished.
Mr. O'Connell. As I understand it at the present time your
break-even point is approximately 50 percent?
Mr. Fairless. Approximately, with a normal mix in respect to
products.
Mr. O'Connell. Now, in 1937 at the time of your last price
increase, the price level was substantially higher than it is at the
present time. That is correct, is it not?
Mr. Fairless. After the increase; yes.
Mr. O'Connell. After the increase?
Mr. Fairless. Yes; of course.
Mr. O'Connell. And at the time of the increase and inimediately
after the increase your level of operations was as high as it is at the
present time?
Mr. Fairless. No, no, no. You see, we projected our cost, based
on 70 percent of capacity; that was our anticipated rate of operation
when our prices were announced. Now the actual rate got much
higher than that, higher than we had anticipated, but not as high as
today. This industry today, as you know, is operating at 92 or 93
percent of capacity.
Mr. O'Connell. What I was trying to develop, if possible, was in
a general way what the break-even point was at the time of the price
increase in '37.
CONCENTRATION OF ECONOMIC POWER 10537
Mr. Fairless. I really don't remember. If we can develop it for
you we would be very happy to do so.
Mr. O'CoNNELL. It occurred to me that it might be possible to
ascertain in general that if the prices were substantially higher and
that costs were — and your carrying charges were substantially the
same, and the rate of operation was substantially the same, that the
break-even point in '37 would have been substantially lower than at
the present time.
Mr. Fairless. Well, it would be if those prices had been realized.
You see, we announced those prices in March; we didn't hope to
realize those prices, based on our experience in this industry, until the
very latter part of '37 and when we reached that period, why, business
had gone and we never did. Mr. Chairman, pardon me. In respect
to our earnings, the ratio of earnings to net assets; we have prepared
a chart, and I would like to submit it for the record.
Acting Chairman King, Submit it to Mr. Feller.
Mr. Feller. I understand you to say this shows the ratio of
eaffiings to net assets? That is not the ratio of earnings to invested
capital?
Mr. Fairless. It is invested capital.
Mr. Feller. You make no differentiation between the net assets
and invested capital? That is, you consider that your net assets are
the same as your invested capital?
Mr. Fairless (nods head, yes). That is what the chart is based on.
Mr. Olds. You see, Mr. Feller, total assets less current liabilitips.
Mr, Fairless.. And I believe we have an enlargement of the chart
if you would care to have it displayed on the easel, Mr. Chairman.
Acting Chairman King. I think you had better put it up and then
if it is material we can determine whether it should be inserted in the
record later. Have you any objection, Mr. Feller?
Mr. Feller. No, sir; not at this point. I should merely like to
say that the Department w^ould like to reserve the right to examine
this and to make any comments on it it feels necessary.
Acting Chairman King. That reservation, of course, is granted,
and it will be received, subject to the reservation just indicated.
(The chart referred to was marked "Exhibit No. 1391" and is
included in the appendix on p. 10717.)
Acting Chairman King. Aiiy other question, Mr. Feller?
Mr. Feller. No, sir; not at this podnt.
Acting Chairman King. Do you have any other question?
Mr. O'Connell. No, sir.
Mr. Fairless. The answer to your question directly, the ratio of
earnings to net assets in 1937, was 5.56 percent.
Mr. Feller. Now, Mr, Chairman, in answer to your question, I
meant I had no further questions along this line. I would like to
go on to another line of questioning.
Acting Chairman King. Any more on this point?
Mr. Henderson. On this point, the Bureau of Labor Statistics
has supplied me with the figures for September 1939, which are on
the basis of 1926 equaling 100. The all-commodity index stood at
79.1 All commodities other than farm products, 81.3; finished
products, which is what Mr, Avildsen was asking about, stood at SI. 9.
Iron and steel stood at 95.5. The difference between finished products
and the iron and steel index is between 16 and 17 percent.
10538 CONCENTRATION OF ECONOMIC POWER
Mr. AviLDSEN. Mr. Henderson, was this all finished products? I
don't think it is fair to compare steel prices with other finished prod-
ucts in general as against comparing them with finished products into
which the percentage of labor and other things going into which are
substantially equivalent to steel. You might call Quaker Oats a
finished product. I don't know. There is very little labor in making
up a package of Quaker Oats. I think the comparison which would
be really helpful to this committee' and really mean something ought
to be with finished products which are substantially the same as steel
insofar as the percentage of direct labor, and so forth.
Mr. Henderson. Mr. Avildsen, in this index are products that run
anywhere from, I would say, 5 percent of labor up to much higher
than the iron and steel, and my feeling would be that the average
would tend to reflect a pretty good average, based on my knowledge
of labor statistics. Now I can have prepared also comparisons
between steel and any others you would like to suggest.
Mr. Avildsen. I know out in^my business in' Chicago ' that we are
paying more than 1929 prices for a lot of other things besides steei.
I mean steel isn't the only thing that is above 1929. Lots of other
manufactured products are above.
Mr. Henderson. My point is that all commodities, regardless of
what are above or below the average, are considerably below what the
steel index is.
Mr, Avildsen. That may be true, but I don't think it means any-
thing unless the conditions surrounding the manufacturer of those
products are substantially the same as the steel industry.
Mr. Reynders. Is that figure of 95 percent in the steel industry
based upon published base prices, or how is that arrived at?
Mr. Henderson. It is based on the base price; yes; base price, and
in some cases the mill return to the extent that base price isn't realized.
That would affect that figure, would it not?
You will agree in September 1939, with the level of operations being
what it was, that the realization comes pretty close to the published
price.
Mr. Fairless. In September '39? Oh, my; no.
Mr. Henderson. Close to it?
Mr. Fairless. Oh, no. It isn't too close to it now.
Mr. Henderson. Despite all elimination of concessions and the
like?
Mr. Fairless. That is right. Steel shipped now was purchased 3,
i, 6 months ago.
Mr. Henderson. I am willing to take a substantial discount on the
95 and still hold to niy point, and I gathered from the witness' testi-
mony that as far as he can see his industry is likely to maintain the
concept of what is necessary for a reasonable price. Wasn't that the
nature of yom* answer?
Mr. Fairless. I would have to have that question repeated.
Mr. Henderson. I will put it this way: I asked you whether or
not — I will make it a direct question looking toward the immediate
future — Does your estimate of what is a reasonable price necessary to
be attained for your corporation, tend to approach the 1937 prices?
Mr. Fairless. I am not making any statement in respect to what
our prices — you are talking about the next quarter?
Mr. Avildsen 's Ann manufactures tools.
CONCENTRATION OF ECONOMIC POWER 10539
Mr. Henderson. Not next quarter.
Mr. Fairless. What period? We only announce our prices for a
quarter, as you know.
Mr. Henderson. I am talking about what your estimate of a
reasonable price level would be for you — would it be something above
the existing level of base prices?
Mr. Fairless. It would depend entirely on many factors.
Mr. Henderson. Let me ask you this: Have many factors changed
since 1937 which would alter your concept of what a reasonable price is?
Mr. Fairless. Well, the volume of business has changed. I tried
to make it clear that when our 1937 price schedule was announced, it
was based on a 70-percent rate of operation. That was our estimate
of what we saw ahead of us for 1937. Now we were wrong. We were
wrong for part of that year. The operations got up in the high
eighties somewhere and of course then we had to drop. Now we are
faced with announcing a price schedule for the first quarter of 1940
with this industry opera^ting at 92 percent. We are very busy right
now, all of our people who are engaged in doing that particular job,
anticipating what we can expect volume-wise, what we can expect
in respect to distribution of products, and after we get all of our
factors together, why then we will be in a position to analyze and
announce our prices. I am in no position today to tell you that our
schedule of prices for 1940 will be what we expected and wanted them
to be in 1937.
Acting Chairman King. I have had a number of inquiries as to
what the prices of wool will be this quarter and next quarter and for
the next year. Obviously it is impossible to determme. You can't
tell the competition from the fleeces from Australia, New Zealand,
and South Africa, you can't tell because of the condition of the
weather in the United States whether it will be favorable to the sheep
industry, or unfavorable, and I presume the situation would be true
with respect to the manufacture of goods, suits, and blankets, and
woolen goods. A corporation would be rather uncertaiu as to the
fixing of prices in the future; it wouldn't Imow what the cost of fleeces
would be, what the cost of labor would be, what the demands by the
Government would be for soldiers and sailors, and what the demands
of private industry will be, and whether or not there is a market
abroad. Are all those factors incident to the determiaation of the
prices which your company faces?
Mr. Fairless. Yes; but our over-all policy, which I announced
and which is part of the record, will still prevail.
Mr. Chairman, I should like to introduce for the record the exhibit
showing the average yearly base prices of principal steel products as
reported by Iron Age.
Acting Chairman King. What year?
Mr. Fairless. 1924 to date.
Acting Chairman King. Mr. Feller, have you any objection?
Mr, Fairless. Also reported composite price and composite mill
net yield, 1926 to date.
Mr. Henderson. Is that for your own corporation?
Mr. Avildsen. What does that last one mean, Det yield?
Mr. Fairless. It is the reported composite price and the composite
mill net yield.
Mr. Avildsen. Will you tell us what that means, net yield?
10540 CONCENTIJATION OF KCJONOIMIC POWER
Mr. Fairless. That is our realized price.
Mr. AviLDSEN. Is it the weighted average, weighted on tonnage?
Mr. Fairless. It is the actual; it is the actual return.
Mr. AviLDSEN. Actual realized price per ton?
Mr. Fairless. Yes.
Mr. O'Connell. That means contract price less your bid?
Acting Chairman King. It is the base.
Mr. O'Connell. I assume that the realized price meant, in general,
the composite of the contract prices less your bid.
Mr. Fairless. Realized price means just what it says it means,
what we get for our goods, what we actually get for them.
Acting Chairman King. Whether there is a loss or whether there
is a gain?
Mr. Fairless. That hasn't an5^thing to do with profits or losses.
Mr. Feller. May I point out, Mr. Chairman, on the table which
has just been handed me, entitled "Average Yearly Base Prices of
Principal Steel Products", ^ the table is composed, as I see it, of three
elements; the first element on the first page reports the average yearly
base prices of principal steel products as reported by the Iron Age.
On the second page there occur two different things. First, a number
of charts which are headed "Average yearly base prices of principal
steel products," reported by Iron Age, 1924 equaling 100. At the
bottom of that page occurs the following statement [reading] :
Considerable flexibility exists in steel prices. Not only do steel prices fluctuate
widely but, also, prices of diff"erent steel products fluctuate in varying degree and
direction. As compared with 1924, prices of steel today are generally lower,
whereas wage rates are roughly 30 percent higher.
I take it the statement at the bottom of the page is a conclusion of
what the person who drew up this chart thinks the chart means.
Mr. Fairless. The man who drew up the chart is present. We
will be glad to have him explain it.
Acting Chairman King. Let me see it. The committee will de-
termine what relevancy and what mxater-iality attaches to it.
(The chart referred to was marked "Exhibit No. 1392" and appears
in the appendix on p. 10718.)
Mr. Feller. The next chart, "Reported composite price and com-
posite mill net yield," I want to point out the fact that the composite
mill net yield, United States Steel Corporation's subsidiaries, is based
on figures taken from, I presume, the records of the Corporation. These
figures we do not have before us and it would be necessary for the
Department, in order to determine the correctness of that, to have
access to such figures. I do not, however, question that those
figures are accurately reported, as they appear on the books of the
Corporation. I merely wanted to point out that they are facts which
we have not had access to.
Mr. Fairless. Mr. Chairman, I should also
Acting Chairman King. One moment. It will be received, sub-
ject to the qualifications indicated.
(The chart referred to was marked "Exhibit No. 1393" and is
included in the appendix on p. 10720.)
> "Exhibit No. 1392", appendix, p. 10718.
CONCENTRATION OF ECONOMIC POWER 10541
THE BIRMINGHAM DIFFERENTIAL
Mr. Feller. I should now like to call l:o your attention one of the
other matters wliicli was dealt with in your price announcement in
June 1938. In June 1938 you announced a reduction in base prices.
You also announced elimination of differentials among various points
of manufacture, or rather points of delivery. There existed previously,
I take it, a differential in price between Chicago and Pittsburgh and
between Birmingham and Pittsburgh. That is correct, is it not?
Mr. Fairless. That is right; on some products, not all products.
Mr. Feller. Yes; on some products. Could j'^ou tell us what
those differentials were? Let us take first the differential between
Chicago and Pittsburgh.
Mr. Fairless. On the products affected it was $1 a. ton on some
and on others $2 a ton.
Air. Feller. And at Birmingham as compared with Pittsburgh?
Mr. Fairless. On products affected it was $3 a ton.
Mj. Feller. Now is this correct, this statement, that a purchaser
desiring delivery of steel at Birmingham would on certain products
have paid $3 more per ton than the purchaser desiring delivery at
Pittsburgh?
Mr. Fairless. Theoretically, yes; actually, practically, no.
Mr. Feller. I don't understand.
Mr. Fairless. "Well, I will explain it. The big reason that the
differentials were eliminated
Mr. Feller. I haven't come to that; I am just asking you to explain
differentials, that is all; just define them.
•Mr. Fairless. WeU, I can't explain it unless I tell you the story.
I don't know how I could explain it.
Mr. Feller. My question was, why, prior to June 1938, the differ-
ential was theoretical, not actual.
Acting Chairman King. Was it theoretical or actual?
Mr. Fairless. Theoretical.
Mr. Feller. Wby was it not actual?
Mr. Fairless. It was not actual because it was not practical and
hadn't been for a great number of years, and the subsidiary companies
of the United States Steel Corporation operating in those districts,
Chicago and Birmingham, reahzed that it wasnt practical to charge
these differentials, although possibly at the time that they were orig-
inally put into effect they were justified.
Mr. Feller. When were they originally put into effect?
Mr. Fairless. I can't answer that; it was before my time.
Mr. Feller. Mr. Gregg, can you tell us?
Mr. Gregg. I do not know; t have been with the Steel Corpora-
tion and the subsidiaries only for the past 7 years.
Mr. Feller. Mr. Hughes?
Mr. Hughes. I can't tell you definitely, but I imagine it was — I
imagine in the earV twenties.
Mr. Feller. In che early twenties, somewhere in the early twenties,
the Corporation quoted a differential on prices at Birmingham as com-
pared with prices at Pittsburgh?
Mr. Hughes. That is right.
Mr. Feller. Mr. Hughes, could you teU us why that policy was
instituted?
10542 CONCENTRATION OF ECONOMIC POWER
Mr. Hughes. Well, at that time the facilities that we had for the
production of steel in Birmingham were not sufficient to supply the
demands of those districts and it is only natural, I would think, that
there would be a differential.
Mr. Feller. You mean that because you didn't have enough steel
producing facilities at Birmingham that you charged the purchasers
in Birmingham $3 a ton more?
Mr. Hughes. Not all of them.
Mr. Feller. On those products?
Mr. Hughes. Not all of them on those products.
Mr. Feller. You mean that you differentiate between pur-
chasers?
Mr. Hughes. We had contracts which provided that the prices
charged would be those at Pittsburgh.
Mr. Feller. Why did you make that differentiation? Why did
some purchasers have to pay a differential and some none? What was
the basis of that differentiation?
Mr. Hughes. Well, some large manufacturers said they would start
operations in Birmingham if we would supply them with steel at
Pittsbiirgh prices.
Mr. Feller. Was it a fact that during the period when these basing-
point differentials were being quoted by the corporation that the costs
of producing steel at Birmingham were, generally speaking, less than
the cost of producing steel at Pittsburgh?
Mr. Hughes. I can't answer that.
Mr. Feller. Can you answer that, Mr. Gregg?
Mr. Gregg. In general I would say this, that the cost of production
at a given rate of operation might be less and probably is less than at
Pittsburgh, but that isn't the whole story of cost. It is the cost of
doing business that you want to bear in mind; the cost of production is
probably lower than at Pittsburgh.
Mr. Feller. What do you mean by the cost of doing business?
Mr. Gregg. The cost of doing business brings into account the
selling and distribution of your products. You must bear in mind
that the Tennessee Co., which is the southern subsidiary, covers a very
large area of the Southern States where you do not have the con-
centrated buying power that you have in those areas served by
Carnegie-Illinois, at Pittsburgh, and Chicago, and as a consequence
of traveling expenoe, of selling expense, our general expense of doing
business is substantially higher than is true in the Pittsburgh and
Chicago areas.
Mr. Feller. And during that period, however, if a consumer of
steel wanted to locate a plant at Bumingham he would be apt to say,
would he not, it would cost me $3 more a ton to buy this steel at
Birmingham than it would at Pittsburgh and consequently that would
be a factor which would keep me away from that area?
^ Mr. Gregg. It would all depend on where he proposed to distribute
his product. If he proposed to distribute his manufactured products
in the Pittsburgh area, of course he would be at a very distinct dis-
advantage to locate that factory in Birmingham.
Mr. Feller. Supposing he proposed to distribute those products
in the. intermediate area, let us say in Kentucky, Tennessee, southern
Ohio.
CONCENTRATION OF ECONOMIC POWER 10543
Mr. Gregg. There again the freight rate would determine the point
beyond which he probably would not go.
Mr. Feller. The freight rate on the one hand, but also woidd it
not
Mr. Gregg. Plus the differential, if it existed at the time; yes.
Mr. Feller. I take it then that because the South was poor, be-
cause it was hard to get business from the South, that you compen-
sated for that by charging southern manufacturers who bought these
products more?
Mr. Gregg. That is not a proper statement to make at all. The
fact remains that it cost us a great deal more money to do business
per ton of steel secured than it did in other areas, and we had a right
to compensate ourselves for that.
Mr. Feller. Would you make a calculation of the amount which
you saved in cost of production as compared with the amount which
you had to pay out in cost of securing business?
Mr. Gregg. I can't say that that has been done, no, except in a
very general way, and sufficiently to indicate the statements that I
have made to you.
Mr. Feller. Would you say now that the $3 a ton differential
represented, roughly speaking, the excess cost of getting business as
compared with the savings made in production?
Mr. Gregg. I won't answer that directly because I can't. I don't
know. My best judgment is that it did.
Mr. Feller. What would you say to that, Mr. Hughes?
Mr. Gregg. This is the early 1920's we are talking about.
Mr. Hughes. I would like to say that in those days the capacity
and the products produced in Birmingham that carried the differen-
tial were very small, the rail production was there.
Mr. Gregg. The rail production was the major item.
Mr. Hughes. Shapes and bars were very small.
Mr. Feller. Let us take the period of 1937 as an example, the good
year, the good parts of 1936 and 1937. What about the situation
there at that time, when the differential was still in effect?
Mr. Gregg. I would answer that this way, that in 1936 and '37 and
in 1933 and '34 and '35, we weren't getting the differential. As a
matter of fact our net mill return clearly reflects the fact that we were
not getting the differential.
Mr. Feller. What do you mean by "you were not getting it"?
Mr. Gregg. I mean our base price was not being realized to a very
substantial degree. It means we were getting a mill net return of less
than the base price, which base price reflected a $3 differential over
Pittsburgh, that base price was not our mill return.
Mr. Feller. Could you tell us why you weren't getting it?
Mr. Gregg. Yes; because competition wouldn't permit us to gei it.
Mr. Feller. Because other producers were sellmg below the base
price?
Mr. Gregg. They were selling at less than our pubHshed price;
yes.
Mr. Feller. And m order to meet that you came down below.
Mr. Gregg. We had to come down; yes.
Mr. Feller. And was that true in that quarter of *36 when opera-
tions were at a relatively high level?
10544 CONCENTRATION OF ECONOMIC POWER
Mr. Gregg. Yes.
Mr. Feller. Was the mill return per ton of steel sold by Tennessee
Coal & Iron, which is located at Birmingham, greater than the return
of Carnegie-IlUnois?
Mr. Gregg. That I don't know,
Mr. Feller. Would you happen to know that, Mr. Fairless?
Mr. Fairless. On similar products?
Mr. Feller. Yes; on similar products.
Mr, Fairless. I can't answer specifically, of course. Items like
rails, no; of course not; there, never was a differential on rails at
Birmingham.
Mr. Feller. I am not talking about those items on which there
was no differential.
Mr. Fairless. As I say, this is just my judgment. I haven't the
figures, but I would say on sheets that the net return, realized price,
on sheets to the Tennessee Co. was less than to the Carnegie-Illinois
Steel Corporation in the Pittsburgh and Chicago districts ; that is my
opinion.
Mr. Feller. Does that mean, then, that the $3 differential was
more than wiped out?
Mr. Fairless. Yes.
Mr. Feller. By virtue of the concession?
Mr. Fairless. Definitely more.
Mr. Feller. Mr. Gregg, how long was that fact operative over this
period when the differential was in effect?
Mr. Gregg. I can only speak from 1932, Mr. Feller, and I would
say that it has not been materially in effect during that entire period.
Mr. Feller. Since 1932?
Mr. Gregg. Yes.
Mr. Feller. Now, Mr, Fairless, you testified earlier yesterday
that the price reduction which took place in June 1938 more or less
brought your base prices down to the prices that you were actually
getting?
Mr. Fairless. On some products, I said in my testimony. You
can refer to it,
Mr. Feller. On some products?
Mr. Fairless. You say more or less; yes, I agree to that; yes.
Mr. Feller. In other words, the resulting level was approximately
the same, perhaps slightly below, as you told us, by virtue of the fact
tJiat you hadn't anticipated certain conditions and there had to be
certain corrections made?
Mr. Fairless. The record speaks for itself.
Mr. Feller. Yes. Now what about the prices at Birmingham?
At Birmingham, I take it, there was a sharper reduction in the base
price, was there not, in published price?
Mr. Fairless, In published price it was a reduction, plus the
differential,
Mr. Feller, Plus $3?
Mr. Fairless. Wherever it applied; yes,
Mr. Feller. Now, would you tell us what the comparison was
between the final published base price at Birmingham after the reduc-
tion in 1938, plus elimination, with the return that you were actually
getting at that time in Birmingham? Perhaps Mr. Gregg
Mr. Fairless (interposing). On the products affected I think Mr.
Gregg could answer that.
CONCENTRATION OF ECONOMIC POWER 10545
Mr. Gregg. I can't because we do not have a break-down showing
the comparisons of mill net returns at Pittsburgh, at Chicago, and at
Birmingham; and the comparison was what you wanted, was it not?
Mr. Feller. No; I was thinking in terms only of the T. C. & I. —
Tennessee Coal & Iron, at this moment.
Mr. Gregg. Ask the question again. I misunderstood it.
Mr. Feller. In June 1938, after you had reduced the base price
and eliminated the $3 differential, was the final announced base price
at Birmingham approximately the same as the realization that you
were actually getting at Birmingham prior, just prior, to the reduction?
Mr. Gregg. It more nearly approached it than at any time pre-
viously ; yes.
Mr. Feller. Would you say that you were getting less money for
your product after the reduction and elimination of the differential
than you were just before?
Mr. Gregg. To a slight degree; yes.
Acting Chairman King. If steel had been purchased at Birming-
ham or in that district from Pittsburgh or from your mills in Penn-
sylvania, wherever they are, would it have cost more to the purchaser
than steel purchased in Birmingham? Was not the freight rate be-
tween the steel companies and
Mr. Gregg (interposing). Oh, I understand you to ask the ques-
tion this way, that if a purchaser in Birmingham ordered steel from
Pittsburgh
Acting Chairman King (interposing). Or from the mills in the
North.
Mr. Gregg. Would I pay more for it than if I ordered it from the
Birmingham mill?
Acting Chairman King. Yes.
Mr. Gregg. No; the price would be the same, approximately.
Acting Chairman King. Of course the freight from the Birmingham
mill to the section in which it delivered its commodities — that would
be probably from Alabama, Mississippi, and Tennessee
Mr. Gregg (interposing). Yes, sir.
Acting Chairman King. The freight there to the distributing point
would be less than the freight from the northern mills.
Mr. Gregg. Yes.
Mr. Reynders. I would like to ask Mr. Fairless a question. Is it
possible to get more favorable rolhng schedules in the Birmingham
market than you get up North?
Mr. Fairless. Not as favorable. Steel orders for similar products
are smaller in the Birmingham district than they would be in Chicago
and Pittsburgh, and it is a factor in the cost. It is quite a factor in
the cost.
Mr. AviLDSEN. It tends to offset the lower labor cost down' there.
Mr. Fairless. Yes. Mr. G^egg can give you a very clear com-
parison of size of orders for bars- and other products.
Mr. Gregg. They average substantially less than our orders in the
Pittsburgh and Chicago areas, requiring more frequent roll changes
on the mills producing those particular orders.
Mr. Reynders. Do you have a continuous sheet mill down there?
Mr. Gregg. No; we have a continuous strip mill that has been in
operation about a year or a year and a half. It was put in at the
124491 — 40— pt. 19 7
10546 CONCENTRATION OF ECONOMIC POWER
time facilities were provided for the reduction of full reduced tin
plate.
Mr. Reyndees. In a continuous miU the character of the rolling
schedule has a definite effect upon the cost.
Mr. Gregg. A very definite effect.
Mr. O'Connell. May I ask one question in connection with the
size of orders in Birmingham as compared with Pittsburgh? Is that
factor as important as it was a few years ago?
Mr. Gregg. It is always important. The less frequent roU changes
you can have the better costs you have.
Mr. O'Connell. I take it that that was a factor in the establish-
ment of the $3 differential.
Mr. Gregg. It was a factor; yes. So I understood from Mr.
Hughes.
Mr. O'Connell. And I imderstand the $3 differential has been,
in fact, eliminated?
Mr. Gregg. Yes, sir. It doesn't foUow from your question,
though. It follows largely from the competitive conditions that have
existed in the South for some time past, where with the increased
cajpacity — put it this way: Where the competing miUs have looked
further afield for an outlet for their steel, they have come more and
more into the South and in order to maintain a position there and to
sell certain parts of their steel, certain tonnages, we have found that
prices have not at aU approached the differential of $3 a ton ; that is,
the published price. It would have been somewhat less than that.
So, that at no time in my knowledge over the past 7 years has the
Birmingham area been able to secure its fuU published price for its
material, except in rare instances.
Mr. O'Connell. Would you know whether it has been able to come
as close to securing the posted price as your Pittsburgh plants in
northern areas?
Mr. Gregg. I think that since June 1938 we probably have been
able to come fairly close.
Mr. O'Connell. I mean prior to 1938, prior to the change in the
posting of the differential.
Mr. Gregg. That would be purely a guess on my part.
Mr. O'Connell. You suggested that they had in the past 7 years
been unable to get the posted price, but I als6 imderstood that that
was the situation that existed not only in Birmingham but in the
industry generally.
Mr. Gregg. I think it has been general.
Mr. O'Connell. So we really can't sa^ that the situation in Bir-
mingham was a sitii^tion that did not exist in other areas.
Mr. Gregg. It generally existed throughout the steel industry, ,
I think. \
Mr. Feller. I should like to revert to a question which I asked,
earlier. The question Was whether, after the reduction in price,
after the elimination of tl^e differential in June 1938, the price that
vou were actually getting was much lower than the price that you
had been receiving just before, or was approximately the same. If I
cecall your answer — perhaps I am wrong about that — you said it
vvas somewhat lower, but not very much.
Mr. Gregg. Yes.
CONCENTRATION OF ECONOMIC POWER 10547
Mr. Feller. I should like to have you identify the chart you have
before you there, Mr. Gregg.
Mr. Chairman, this is a table which is headed "Approximate effect
of elimination of base differential and reduction Ln base sales prices,
effective June 24, 1938, on sales values of principal products sold by
T. C. I. and R. R. Co. sales responsibihties basis of net sales [prices
for March 1938 (prior to reduction) and July 1938."
This was taken from the files of the United States Steel Corpora-
tion.
Acting Chairman King. You offer it for the record?
Mr. Feller. I offer it.
Acting Chairman King. Any objection?
It wtU be received.
Mr. Gregg. Yes; that is all right.
(The table referred to was marked "Exhibit No. ; 1394" and is
included in the appendix on p. 10722.)
Mr. Feller. Mr. Gregg, this chart, which was prepared by an
employee of your company, shows in its second column the following.
It is headed "Actual net sales prices," and one column is for March
and the other column for July. Now March was a month in which,
theoretically, the base price, the published base price, including the
differential, was in effect. That is correct?
Mr. Gregg. Yes.
Mr. Feller. In July the pubUshed base price had been reduced
and the differential had been eliminated. Now I see on this table
that your total actual net sales price for the products here Usted
was, in March, $67.91, and in July $61.36, a difference of over $6.
Is that correct?
Mr. Gregg. Yes; that is what the statement shows.
Mr. Feller. Then is it not true that after the elimination of the
differential and the reduction in base price, the prices at Binningham
were substantially lower than they had been before — 10 percent
lower?
Mr. Gregg. Yes. At that particular time it was true; yes.
Mr. Feller. That was true in July. Would you anticipate that
it would not be true later on?
Mr. Gregg. Prices fluctuate and vary to such an extent that you
can't lay down a firm rule and state that they were reduced $9 or
$6 a ton in July, and that was current throughout the remainder of
the year. I don't know.
Mr. Feller. The base price always remained the same, didn't it?
Mr. Gregg. For instance, you can take one item shown on this
sheet. Here is an item of cotton ties that never did have any differ-
ential, yet the drop in price between March and July was $14.87 a
ton. That differential never affected that at all. Foreign compe-
tition largely determined that.
Mr. Feller. But taking the over-all picture, would you say that
at any time subsequent to July you got, on your whole range of prod-
ucts, a higher price than you did in that month of July?
Mr. Gregg. I should hope we did.
Mr. Feller. You mean by that that in July, immediately after
the announcement of the new base prices, substantial concessions
were being offered?
Mr. Gregg. Yes.
10548 CONCENTRATION OF ECONOMIC POWER
t
Mr. Feller. Below the new base prices?
Mr, Gregg. Why, yes ; and you must bear in mind further the
fact that your July shipments may have been made up of sales made
I before that, but rolled and billed in July. A July mvoice doesn't
mean at all it was a sale made in July or prices in effect in July.
Mr. Feller. Yes; but the price immediately preceding it was a
higher price.
Mr. Gregg. The published price was.
Mr. Feller. Wasn't your return higher; the actual net sales prices
on the whole were higher previously than before, and wouldn't that
mean that your return in July might be overstated, might actually
be higher than it would have been if you hadn't taken these previous
orders into account?
Mr. Gregg. You mean, would our July price be higher if we
hadn't taken these previous orders into account?
Mr. Feller. I mean it the other way around. You have stated
that the price in July was affected by virtue of the fact that you were
making deliveries on contracts or orders secured previously at the
other price level.
Mr Gregg. At price levels in effect at the time they secured the
orders. That didn't mean, necessarily, the published price.
Mr. Feller. But it was a higher price level.
Mr. Gregg. According to this statement; yes. All you need to add
further to that is that in July and August we were up against about as
severe a competitive price as we have known, and we were getting sub-
stantially less, and I hope that since that time we have been getting a
higher price.
Mr. Feller. WeU, may I see just where this brings us to. At the
present time, is the piiae^ level at Birmingham higher or lower than it
was prior to June 1938?
Mr. Gregg. I haven't the figures in front of me. I don't know.
Mr. Feller. I think we will let it stand on the record that way.
Mr. Gregg. I do want it to stand in the record that way. I don't
carry figures in my head to that extent. What you mean to ask me is
whether or not our mill net returns today, November the 6th, or
whatever it is, are higher than they were in July of 1938. Frankly,
I don't know.
Mr. Feller. Let me ask you this question: Let's look at it not from
the standpoint of the mill net, but from the standpoint of what the
purchaser is paying.
Mr. Gregg. What the purchasers pay constitutes our mill net,
excepting actual transportation charges.
Mr. Feller. Yes; now supposing I ask you to select one of your
large purchasers. Could you mention a large purchaser of the,
Tennessee Coal & Iron?
Mri Gregg. Yes; the railroad group is a large purchaser.
Mr. Feller. I won't take the railroad group, because there was no
differential on that. Will you give me a customer who purchases steel
products on which there was a differential prior to June 1398?
Mr. Gregg. Yes; any hardware company would be.
Mr. Feller. Yes; let us take any hardware company in Birming-
ham Does that hardware company, assuming that it purchases the
same specifications, the same products, from you today that it did in
CONCENTRATION OF ECONOMIC POWER 10549
June 1938, pay you less or more, or substantially the same as it did
in June 1938?
Mr. Gregg. You are asking me again to remember a series of figures
that I don't recall. I simply don't carry them in my head. The
general level of prices is about the same.
Mr. Feller. But they were not about the same in July.
Mr. Gregg. By "general level of prices" I mean there have been
practically no changes in the published prices, and we have been able
to secure a better return due to improved demand in recent weeks
than we were in July of 1938, meaning the mill return to the Ten-
nessee Co.
Mr. Feller. Was that true in July of '39, this year?
Mr. Gregg. In July of '39?
Mr. Feller. That was a period when presumably competitive con-
ditions were forcing you to give concessions.
Mr. Gregg. We are still giving corcessions. In July '39 we were
giving concessions. I would say July concessions would be less than
they are today; that is, our mill net return would be less than it is
today.
Mr. Feller. I am looking now from the standpoint of your pur-
chaser. Was he paying less for steel in July of 1939 than he was in
March or May of 1938?
Mr. Gregg. Would he be paying less in July of '39 than be was in
March of '38? I should say about the same, or maybe a little
different.
Mr. Feller. Then you would say that your return at that time was
higher than jour return in July of '38?
Mr. Gregg. My best .guess would be "yes." I don't want that to
stand as a specific statement. It is a guess.
Mr. Feller. I understand you, then, to say this, if I may summar-
ize: That prior to June 1938, and for some period prior thereto, at
least as far back as 1932 your company was giving concessions, forced
to do so by competitive conditions, we will assume — that the prices at
which your company was selling steel were not only below the Birming-
ham price but were actually below the Pittsburgh price. In other
words the prices that you were giving had eliminated the $3 differential
and had gone below the point at which steel was selling a^ Pittsburgh.
Mr. Gregg. As to certain commodities; yes.
Mr. Feller. The general level of prices of those commodities on
which differentials had been quoted.
Mr. Gregg. As to certain commodities, very definitely we were
selUng below even the Pittsburgh price. You must bear in niind this
in your summary, Mr. FeUer. The Tennessee Co.'s price differential,
so-called, or the Birmingham price differential, so-called, was appli-
cable in a limited territory. The Tennessee Co. likewise sold its ma-
terial in areas where the Birmingham price did not govern at all, but
the Pittsburgh price governed. In other cases the Chicago price would
govern; in other cases even an arbitrary price would govern. We sold
on the Gulf coast points, we sell on the Pacific coast, we deliver on the
Pacific coast to the Columbia Steel Co. We sell into Texas, we sell
into Other States where the Birmingham base price, which included at
that time a differential, did not prevail and did not govern the sales,
SO that when you begin talking averages, or net returns, or things of
10550 CONCENTRATION OF ECONOMIC POWER
that kind, comparing one month with another, you involve a great
many variables, and any comparison is hardly fair unless you take
into account, duly weighted, all of those variables.
Mr. Feller. Yes; but generally speaking, are we to take it that
the $3 differential which was in force at Birmingham from the early
1920's until June 1938 was a fiction?
Mr. Gregg. No; I wouldn't say that.
Mr. Feller. What did it mean?
Mr. Gregg. I would say very specifically that by virtue of that
differential the Tennessee Co. secured a higher price than they would
have secured if they hadn't had that differential.
Mr. Feller. I am very glad to get that statement.
Mr. Gregg. I am very glad to give it to you.
Acting Chairman King. You are both happy, so proceed.
Mr. Feller. Will you tell us, Mr. Fairless, again, why these dif-
ferentials were eliminated? You said they were lipt practical. Could
you elaborate on that a bit?
Mr, Fairless. It doesn't need much elaboration — I don't think it
does. We had reached the point where the Chicago district, for
example, was able to take care of itself in respect te the supply of
steel for industries in that district, therefore it was not necessaiy to
ship steel from the Pittsburgh district, manufactured by our sister
companies, in order to take care of that district.
On the other hand we had over a i)eriod of years developed that
competitive conditions did not permit charging a higher price in
Chicago than in Pittsburgh, and on many products, of course, that
differential had never been charged; I cite you, for example, the car
building industry. If a railroad had to pay a dollar or two dollars
more per ton for car material in Chicago than in Pittsburgh, the
result of that would be it wouldn't build its raUroad cars in Chicago;
it would build them on the other end of the line, and of course we
couldn't permit that. We were interested, as we are, in the develop-
ment, industrial-wise of every district in which we operate our prop-
erties, and whether or not we operate properties we are interested in
the general overall industrial development of America.
Furthermore, a careful study of our actual performance in respect
to return showed us, proved to us, that the verv meager return we
were getting in respect to the differential certainly did not pay us to
carry it and — I am using Chicago and Pittsburgh — that same com-
parison is true, maybe to a Httle lesser degree, in respect to Birming-
ham and Pittsburgh, because Birmingham is not able to take care of
the full requirements of the district that it serves, and that is proven
by the great tonnage of steel that is shipped into that territory by
competitors as well as by other subsidiary companies of the United
States Steel Corporation.
Mr. Feller. Would you tell us why it took you some 14 or 15
years to decide that the differential was not practical?
Mr. Fairless. I have only been with the United States Steel
Corporation since 1935,
Mr. Feller. Mr. Gregg, you have been with it somewhat longer.
You testified with respect to your experience since 1932 and you said,
I believe, that since 1932 the differentials were not being observed in
actual practice. Can you tell us why differentials were not eliminated
e«dier?
CONCENTRATION OF ECONOMIC POWER 10551
Mr. Gregg. The full di£Ferential has not been reflected in our mill
return since 1932. I can speak from knowledge on that point. Now,
there are several very good reasons why the differential should have
been eliminated at the time it was. I do not for a moment question,
the Avisdom of having inaugurated that differential; viewed in one
respect it reflected a saving to the customers in the South.
Mr. Feller. Would you mind repeating that again?
Mr. Gregg. In one respect it reflected a saving to the customers in
the South.
Mr. Feller. Will you explain
Mr. Gregg (interposing). I will explain; wait a miniute. In this
respect we were spending, the companies, the United States Steel Cor-
poration had spent, a very substantial sum of money developing the
properties of the Tennessee Coal, Iron & Railroad Co. In the absence
of that expenditure our people in the South, and I am a southerner
so I say our people in the South, would have had to pay a Pittsburgh
or a Chicago or a Philadelphia or some other producing center price
plus the full freight to Birmingham or to other parts of the South.
The Steel Corporation, however, developed that property and spent
a very substantial sum of money. That development has been going
on over a period of years, and immediately they reflected a part of
the saving to the people, the purchasers of steel in the South,
brought about by the installation of these facilities — not all; perhaps
not all of the freight rate. They did set a price, however, which
tended to encourage the development of industry in the South and
at the same time tended to encourage the development of the Ten-
nessee Co. properties by returning an adequate, fair return on its
investment.
Those developments, as I say , have gone on over a period of years.
The Fairfield Steel Works were started in 1919 or 1920. Since that
time other mills have been added. The sheet mills, for instance,
there, were built in 1926 and 1927; universal 'plate mill, I think, was
built in 1931, The continuous strip mill that one of the gentlemen
asked about was completed in 1937 or 1938. The cold-reduced tin-
plate mills were finished at or about that time. And so, having
reached the stage where we were rounding out our facihties, and where
we were in a better position r'lequately to serve the customers whom
we had built up in the South, we recognized that with the Competi-
tion we had been facing during those years of development the time
had about arrived when we could face the pubhc and say, "Let's
eliminate the differential. The price of steel is the same as it is in
Pittsburgh. Go ahead and plan your program accordingly," and it
was done.
Mr. Feller. Now, I understand that you made this point. The
United States Steel Corporation began to develop properties at Bir-
mingham and built the mill there. It decided that in order to give
that particular mill a return it was necessary to charge a higher price
at that mill than ^t the mills in Pittsburgh.
Mr. Gregg. Well, now, let's don't confuse that again. What
would the customer in the South have done without the construction
of that mill? Where would he have got his steel?
Mr. Feller. He would have had to buy it, I presume, from Pitts-
burgh.
10552 CONCENTRATION OF ECONOMIC POWER
Mr. Gregg. What would he have paid for it? He would have paid
the Pittsburgh price plus freight from Pittsburgh to his delivery
point, and that as a rule ran between $10 and $12 per ton.
Mr. Feller. That is correct.
Mr. Gregg. The differential that ha^ been publicized at Birming-
ham amounted to $3 a ton, so that confirms the statement that I
attempted to make to you that there was a saving in that case of
about $9 a ton to the southern customers.
Mr. Feller. Well, what I fail to understand is this. This customer
did not have to- buy from Pittsburgh because you had a plant at
Birmingham.
Mr. Gregg. Correct.
Mr. Feller. And you say that because you had put a plant there
at Birmingham you felt that you were entitled to charge the pur-
chaser at Birmingham $3 more, because if there weren't a plant there
he might have to buy it from some other place.
Mr. Gregg. We might make this further statement, that we were
entitled to charge him a reasonable price which would return to us a
return on the investment that had been made there in providing the
facilities for him. Bear in mind, and I recall your attention to this,
that I have stated explicitly that our cost of doing business in the
South consistently has been higher than our cost of doing business in
the Pittsburgh and Chicago areas which have the more highly concen-
trated buying communities than in the South. Again you have to
look at the over-all picture.
Mr. Feller. Now may I ask you this. Doesn't that lead us to this
conclusion, that the price at each mill of the United States Steel Cor-
poration should be sufficient to recover the cost plus reasonable profit
of that mill?
Mr. Gregg. Are you speaking of one mill or of a subsidiary com-
pany? For instance, the Tennessee Coal, Iron & Railroad Co. has
three plants. They are all within easy hailing distance one of another,
and each of those plants has several mills in it. Just what are you
referring to? Are you taking the Tennessee Coal, Iron & Railroad
Co. as such?
Mr. Feller. I am talking about the mills at Birmingham.
Mr. Gregg. Are you talking about the Bessemer Rolling Mill?
We operate it.
Mr. Feller. I am taking all your mills at Birmingham in a group.
You say you felt they were entitled to receive a higher price than the
mills as a group of the Corporation in Pittsburgh, because you told
us
Mr. Gregg (interposing). Wait a minute, I didn't say that. You
say we were entitled to a higher return on our investment in Birming-
ham than the mills at Pittsburgh.
Mr. Feller. Higher price.
Mr. Gregg. I thought you said higher return.
Mr. Feller. I am sorry. You said the mills at Birminghani as a
group were entitled to a higher price at that time than the mills at
Pittsburgh as a group. That is correct, is it not?
Mr. Gregg. Yes, sir.
Mr. Feller. Because of the fact that the cost of doing business
from the mills at Birmingham was higher, because it was new prop-
OTty, because it wes necessary to develop it.
CONCENTRATION OF T2C0N0MIC POWER 10553
Mr. Gregg. And also to take care of the competitive conditions
that affected us at the time. Yes ; all of those factors enter into it.
Mr. Feller. Doesn't it follow on the same lino of reasoning, the
price at each group of mUls operated by the Corporation should be
different because certainly the conditions at Chicago were different
from the conditions at Pittsburgh?
Mr. Gregg. That doesn't follow at all. As a matter of fact we
have reached the conclusion, as evidenced by the fact that the differ-
entials are eliminated, that the conditions more nearly approach
equality, one with another, right now, and as a consequence we have
the same price at Chicago, at Pittsburgh, and at Birmingham, as
regards the base price of our steel.
Acting Chairman King. Assume that Mr. Feller and myself have
large steel mills at Pittsburgh and Chicago and we have expended
large sums for the development of the industry there. We are ap-
pealed to by the people of Bumingham and vicinity to build a steel
mm there. Mr. Feller and I at very large expense explore the re-
sources and the opportunities and finally we spend a large amount,
fifteen, twenty, thirty millions of dollars, whatever is pecessary for
the establishment of a steel mill there. It would seem to me, as
merely a suggestion, that we would be entitled to a higher price for
the product in view of the enormous development there than we would
get for our product up in Pittsburgh where we had had it established
for years and had a large clientele and were making large reserves,
untn we got a reasonable return on the investment which we made
in Birmingham.
Mr. Gregg. If I may be permitted to say so, I think the chairman
has made a very concise statement of the facts. May I add this
further thought, though, that when you think in terms of the Ten-
nessee Co.'s properties the experiences of the stockholders of that
institution weren't so pleasant over the years 1852 to 1907. I happen
to know about these. The Steel Corporation bought those properties
in 1907 and they undertook to develop them just as the distinguished
chairman has pointed out, and they have spent large sums of money
there, and it has made possible a development of a steel industry in
the South that no other industry, no other steel group in the South
has been able to approach, and as a result of that today the southern
consumer of steel is getting the finest quality that can be produced, —
the best service that can be produced<-r-at a price no higher than he
would pay for it if he were located in Pittsburgh or in Chicago.
Mr. Feller. That is correct today. We were addressing our
questions, however, to the situation before June 1938. I should like
to ask you this. Was this differential as against Birmingham estab-
lished when the Tennessee Coal & Iron properties were acquired by
United States Steel?
Mr. Gregg. When the properties were acquired by the United
States Steel Corporation (I was not with them at the time and I
can't answer specifically) my best recollection is that all they produced
at the Tennessee Co.'s plants were pig iron and steel rails, with perhaps
a small tonnage of bars, although I am not sure of that. Rails have
never had a differential. Pig iron has alwa^^s had a lower differential;
that is, its price has been less than at Pittsburgh because of certain
chemical specifications, so that 1 can't say that they had any differ-
ential in 1907, '08 or '09, I don't know.
10554 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. You testified that the differential was established
early in 1920.
Mr. Gregg. Mr. Hughes testified as to that, I didn't.
Mr. Feller. You testified that the differential was established
early in 1920?
Mr. Hughes. That is my recollection.
Mr. Feller. Was that differential established because of develop-
ments which were then undertaken in the Tennessee Coal properties?
Mr. Hughes. That is my recollection. Before that time we were
charging, I think, Pittsburgh price plus the freight, or approaching
that.
Mr. Feller. Before that time, you charged at Birmingham the
price at Pittsburgh, plus freight.
Mr. Hughes. Approximating that.
Mr. Feller. Before that, you were also charging the Pittsburgh
price, plus freight, at Chicago, too, were you not?
Mr. Hughes. I think so. I am not sure.
Mr. Feller. Do you remember the occasion of the change?
Mr. Hughes. Why it was made?
Mr. Feller. Yes. Why did you abandon the system of quoting
prices at Pittsburgh plus freight, and go into this system of quoting
separate prices based on differentials from Pittsburgh?
Mr. Hughes. That is so long ago I can't answer.
Acting Chairman King. May we take a recess now? If not, wUl
you continue.
Mr. Feller. I am through.
Acting Chairman King. We will take a recess until 2:30.
(At 12:30 the committee recessed until 2:30 p. m. of the same day.)
AFTERNOON SESSION
The hearing was resumed at 2:35 p. m., upon the expiration of the
recess, Senator King, acting chairman.
Acting Chairman King. The committee will be in order. Are you
ready, Mr. Feller?
Mr. Feller. Yes, sir.
Acting Chairman King. Proceed.
Mr. Feller. I should like to recall the three gentlemen to the stand,
if you please.
Acting Chairman King. Proceed, Mr. Feller.
Mr. Feller. Mr. Chairman, just before the recess we were discus-
sing the differential which existed prior to June 1938, at Birrningham
a,nd at Chicago. As was stated, in June 1938, those differentials were
abolished. Mr. Fairless, there still are some differentials left, are
there not?
Mr. Fairless. Yes; some very moderate ones — at Worcester, Mass.,
and Duluth.
PACIFC COAST prices
Mr. Feller. And there is also a differential with respect to the
Pacific- coast?"
Mr. Fairless. Well, no. The Pacific coast is buUt up on a delivered
price which reflects a combination of rail delivery and water delivery
and is also based on foreign competition which exists on the Pacific
coast.
CONCENTRATION OF ECONOMIC POWER 10555
Mr. Feller. If a purchaser of steel in San Francisco orders steel
from the Columbia Steel Co. works near San Francisco
Acting Chairman King (interposing). No; in Utah.
Mr. Feller. In Utah, I believe they make pig iron.
Acting Chairman King. All right; we have a Columbia Steel
works in Utah.
Mr. Henderson. You probably were instrumental in getting them
there, too.
Acting Chairman King. It took a long time to get them.
Mr. Feller. The customer in San Francisco who wanted to buy
steel to be delivered by the Columbia Steel Co. works would pay more,
would he not, than a purchaser at Pittsburgh?
Mr. Fairless. Yes.
Mr. Feller. And that is due to the fact that he received a delivered
price at the port. He is quoted a delivered price at San Francisco
for that steel.
Mr. Fairless. Well, that isn't the reason he pays a higher price.
That is the basis of the price, but not the reason for the higher price.
Mr. Feller. Could the purchaser at San Francisco give the
Carnegie-Illinois Steel Corporation an order at Pittsburgh at the
Pittsburgh price and say, "I will take it in my trucks across to San
Francisco"?
Mr. Fairless. No, sir.
Mr. Feller. Could you explain the reason for the difference
between the price to a purchaser at Pittsburgh and to a purchaser at
San Francisco?
Mr. Fairless. Well, the reasons are obvious. The costs for making
steel in San Francisco are higher than they are in Pittsburgh. The
raw materials, for example, in the form of pig iron, are transported
from Utah to San Francisco
Acting Chairman King (interposing). By rail.
Mr. Fairless. By rail. The freight rate, as I recall it, is in the
neighborhood of between $5 and $6 a ton. The quantities of steel —
first, the steel plants of the Columbia Steel Co. do not make a full
range of products on the Pacific coast, for the reason that the demand
is not sufficient to cause the investment in the equipment necessary
to make a full line of products.
Also, the nature of the business on the Pacific coast, generally speak-
ing, in the products manufactured by the Columbia Steel Co., the size
of orders is relatively small as compared with Pittsburgh and Chicago
districts. The real reason that we do not charge the full freight rate
from basing points such as Chicago is because we want to give our
customers on the Pacific coast the cheapest delivered price that we can
make for them or to them,, and at the same time reflect a fair profit.
Now, we have had periods where due to extensive competition,
prices of certain commodities on the Pacific coast fell below prices of
those same commodities back east, but that in no way was affected bj
the principle of selling on the Pacific coast but simply due to competi-
tion, not only from within our industry in this country but also foreign
competition. I just returned from the Pacific coast shortly before the
first of September and I found to exist there at that time a very serious
p-oblem in respect to the price of bars, because of importation, and of
course many things have happened since my return, which occurred
about the time war was declared abroad; and the condition isn't as
10556 CONCENTRATION OF ECONOMIC POWER
acute as it was, but it was serious at the time I was there. So our
prices on the Pacific coast are at all times subject to changes due to
importation of steel.
Mr. Feller. You mean the actual prices you receive as distin-
guished from your announced published prices?
Mr. Fairless. That is right.
Mr. Feller. It was testified to eariier this morning that the
differential at Birmingham, generally speaking, was not very signifi-
cant in the actual sales performance.
Mr. Fairless. That is right.
Mr. Feller. And that it was a bad one because it was impractical.
Do you feel that the different price on the Pacific coast as compared
with the eastern prices has practical significance, and that it is practical
to maintain?
Mr. Fairless. Yes; I do. I don't feel that the Pacific coast and
the Birmingham district are at all comparable.
In the Birmingham district we have raw materials available for the
manufacture of steel. On the Pacific coast those same raw materials
are not available, and the most important cost in the manufacture of
steel is the assembly cost of raw materials, and the only reason that we
do not manufacture pig iron, for example, on the Pacific coast is that
due to the supply of raw material in the Senator's good State we can
make pig iron cheaper in Utah and transport it to the Pacific coast as
against transporting the raw materials there and manufacturing the
iron. Also, scrap is an important item in the manufacture of steel on
the Pacific coast. The supply is limited and any greater demand,
I believe, with conditions as they are now, would cause a price of scrap
that would be prohibitive in order for our coast mills to compete in
that market.
Mr. Feller. Would you say that, generally speaking, the prices
at the Pacific coast ports are about the equivalent of the base prices
in the East, plus freight, or are they somewhat below that?
Mr. Fairless. Oh, much below that.
Mr. Feller. Is that true of aU products?
Mr. Fairless. WeU, I wouldn't want to make the statement that
it is true of all products, if you got into some specialties such as
stainless steel.
Mr. Feller. How about plates?
Mr. Fairless. Oh, plates, of course. Plates reflect a delivered
price which is lower. Am I correct, Mr. Gregg?
Mr. Gregg. I think you are. Of course, the Pacific coast plants
do not roll plates.
Mr. Feller. That is precisely the reason I asked the question.
That is, is there any differentiation between those products roUed on
the Pacific coast and those which are not?
Mr. Fairless. Well, I couldn't answer that. Mr. Hughes?
Mr. Hughes. According to Iron Age, I think they are lower than
the ocean freight.
Mr. Fairless. My impression was lower than the all-rail freight.
Mr. Feller. Well, let us put it by the usual means of transporta-
tion which I presume is the ocean.
Mr. Fairless. The prices are somewhere between, from a trans-
portation-cost standpoint, th'e actual rail freight and the water freight.
Now, some of our business on the Pacific coast is of such a nature that
CONCENTRATION OF ECONOMIC POWER 10557
we have to ship by rail, if the customer requires that type of shipment.
That, however, does not affect his delivered price. We quote and
do our business on a delivered-price basis. I do know — well, we will
check this so we give you the correct information — that it is a fair
statement to make that by and large users of plates on the Pacific
coast are not penalized in respect to price in comparison with the users
of plates in the East.
Acting Chairman King. May I ask one question there? Do not
water rates from Birmingham through the Gulf and through the
Canal and up the Pacific have some influence on freight rates in
CaHfomia generally?
Mr. Fairless. Oh, yes; and from other points, too.
Acting Chairman King. Not only steel but commodities generally?
Mr. Fairless. Yes.
Acting Chairman King. You get a better rate on some commodi-
ties from the Gulf and from Birmingham through the Gulf and
through the Canal and up to San Francisco, or to Los Angeles, San
Pedro Harbor there, better rates than you could by rail?
Mr. Fairless. Yes; that is right.
Mr. Feller. Mr. Chairman, I am now about to proceed to a some-
what different topic with respect to these witnesses. I wonder if
there are any questions?
Acting Chairman King. Any questions from you, brethren?
Mr. Reynders. I don't think of any, Mr. Chairman.
Mr. Henderson. Just one statement in connection with our inter-
change this morning. I referred to the 1937 price levels of certain
commodities, steel commodities, as compared with the level for
all prices and the 1929 level, and I indicated the range of some of the
individual commodities, and said that some of these were 30, 40, to
50 percent higher than the general average. I didn't mean to imply
by that that the whole level of iron and steel prices as a group was
that far above. I have consulted my record here and find that as a
group it is about 105; it was exceeded by coke, which was at 125;
drugs and pharmaceuticals, which were about 108; by bituminous coal
which was about 108; and was followed by cement, about the same
level as iron and steel; paper and pulp, hides and skins, so I wanted to
make it dear as to the general averages.
Acting Chairman King. Proceed, Mr. FeUer.
"extras"
Mr. Feller. We have been discussing until this point the base
price and we have also been discussing very lately the differentials
which exist among the various points of dehvery. Now I should like
to address a few questions with respect to the matter of extras which
have been adverted to here from time to time, and may I ask that Mr.
Lucas be called to join the gentlemen here?
Acting Chairman King. Come forward, Mr. Lucas. Do you
solemnly swear the evidence you shaU give in this hearing shall be
the truth, the whole truth, and nothing but the truth, so help you
God?
Mr. Lucas. I do.
10558 CONCENTRATION OF ECONOMIC POWEK
TESTIMONY OF FRED H. LUCAS, CHICAGO MANAGER OF SALES,
STRUCTURAL AND PLATE DIVISION, CARNEGIE-ILLINOIS
STEEL CORPORATION
Acting Chairman King (interposing). Will you give your name to
the reporter?
Mr. Lucas. Fred H. Lucas, Chicago. I am manager of sales,
structural and plate division, Chicago district of Carnegie-Illinois
Steel Corporation.
Mr. Feller. Mr. Fairless, would you recall to the committee just
briefly what "extras" are, the definition as that term is used in the
industry?
Mr. Fairless. Mr. Chairman, in the steel industry we have a
method of merchandising our various products by beginning with the
base price. That base price is usually arrived at by the selection of
a popular size, if you please, or grade of some particular product, and
from that we make charges and deductions, dependent upon the
requirements of the particular inquiry involved. Personally, I have
always, felt that the naming of this particular charge for service
rendered, naming it "extra," leaves a very bad inference with the
public; it doesn't with those who buy steel because they are very
familiar with it and know its meaning, but it does leave an inference
that there is some mystery about it. I want, if I can, to take the
time to explain that there is absolutely no mystery in connection
with the book of extras on which the subsidiary companies of the
United States Steel Corporation do their business.
Mr. Feller. Mr. Fairless, I should just like the committee
Acting Chairman King (interposing). A sort of misnomer?
Mr. Fairless. I am coming to it.
Mr. Feller. I would just like the committee to look at what a
book of extras looks like. This is a book of extras of the Carnegie-
Illinois Steel Corporation.
Mr. Fairless. Extras and deductions, if I may correct the title,
please.
Acting Chairman King. I suppose you are not asking to have this
introduced.
Mr. Feller. No, sir; that is merely for the committee to look at.
Mr. Fairless. I have a definition here but I would like to talk
about it in my own language, if I may. We begin in sheets, for
example, with a popular size of sheet in respect to gage, finish, and
so forth, and we name at our various basing points, the price that is
to apply on that particular product, and from those basing points of
course we develop, through the various transportation routes, a
delivered price at the customer's plant. Now if the customer orders
that particular specification that is covered in that base price an-
nouncement, he pays just that, but if he says, "I don't want that
particular gage, I want some lighter gage," or, "I want some heavier
gage, 1 don't want that particular width, I want some wider, width,
or some narrower width," if you please, then we show him through
this so-called book of extras and deductions just what we charge for
the extra service rendered. He might say, "I don't want this hot-
rolled -fijaish," which means the finish as it comes from the mill, "I
want a finer surface because I am going to apply paint, varnish, or
lacquer," if you please, "I am going to build refrigerators, so I can't
CONCENTRATION OF ECONOMIC POWER 10559
use a hot rolled sheet, I have to have a higher grade of sheet." Then
we tell him, through tliis book, exactly what that particular product
is going to cost him and in order that it might be uniform, in order
that it might be readily understood by both the buyer and the
seller — and I cited for example here this morning that if we are to
deal in terms of 50,000 tons of orders per day, there can't be very
much mystery in tlie method in which we tranact our business, so
this is the salesman's Bible, if you please; this is the basis on which
he goes to the customer and tells the customer what bis particular
inquiry is going to cost him.
Now, if the base size or gage, if what ttie customer wants is some-
thing less expensive than that which is covered in the base price, then
deductions are made, and the entire book of extras and deductions is
built up to the best of our ability to build it, based on. costs. There
isn't any desire of the United States Steel Corporation to establish
extras for services rendered other than to cover our costs. We expect
and hope to make our profit on the base steel price, and a very simple
example — it goes on in every industry — is, the automobile manufac-
turer who tells us what the price of a certain model is, and he also tells
us that we can have four, maybe five, tires as a part of that price. But
if I as a purchaser say I want six tires, if I say I am not happy with
the particular make of tire that he furnishes, he will furnish it — of
course he will — but he will charge for the extra service rendered. ^
Now, we conduct our steel business in exactly that way. It isn't
quite that simple because of the many ramifications of the steel
business, because it isn't only size, it isn't only surface, it isn't only
width or length, it is analysis, it is chemistry, it is physical require-
ments. Sometimes a customer will want his bars heat treated or
annealed for machineability. So this book of extras and deductions
is built up in the manner that I have told you and for the purposes
that I have indicated.
Acting Chairman King. I suppose there are many forms of steel
products.
Mr. Fairless. Oh, many — a great multiplicity.
Acting Chairman King. Hundreds of them.
Mr. Fairless. Thousands.
Acting Chairman King. And in some instances the purchaser will
desire a superior quality of steel which will cost more than the ordinary
base price steel. Is that true?
Mr. Fairless. That's right.
Acting Chairman King. Desire it as you have indicated, for refriger-
ation or for some very important and finely finished product, and those
would come under the head of extras in your nomenclature, and the
price would be fi^ed according to the services rendered in making that
finished product.
Mr. Fairless. That's right; it is a charge for services rendered, it is
published and it is in the hands — I will venture to say that every steel
buyer of any importance in this great country of ours has either our
book of extras or someone's.
Mr. Feller. Mr. Fairless, I understand that the basis for these
extras is cost.
Mr. Fairless. That's right. I would like, if I may, to enlarge upon
that a little bit. It may be answering your question; I don't know.
10560 CONCENTRATION OF ECONOMIC POWER
We arrive at these extras by anticipating in some instances our
costs. Now the extra might be some special section and I cite you,
for example, in the early days of the agricultural implement business,
where special sections were very common. I wasn't making or selling
steel in those days, but I can very readily see the picture, that in
those days, those special sections were designed by engineers, they
were submitted to some steel company, and price quotations were
asked. I can conceive that those prices were substantially higher,
quotations were substantially higher, than some common, ordinarily
the popular, section.
But the agricultural implement business developed into such great
quantities that many of those so-called special sections of that day
now are standard, and the extras for the section have disappeared.
They have disappeared because the extra cost of making them has
disappeared, because the quantities ordered are suflScient now that
the manufacturer can afford to prepare rolls, keep rolls, set up his
mill and make a run where he will ^et costs that permit him to sell
on the same basis as the regular section.
Mr. Feller. I'm sorry; I just want to elucidate this pomt. The
extras that you set up are on the basis of your cost or your anticipated
cost.
Mr. Fairless. Not only our cost, but a cross section of the costs
of the industry.
Mr. Feller. How do you know that?
Mr. Fairless. We make it our business to find out. We talk
costs of extras with our competitors.
Mr. Feller. Oh, you and youi competitors consult with each other
with respect to the extras.
Mr. Fairless. Yes, and I am advised by my general counsel that
that is perfectly within our rights to do so.
Mr. Henderson. Is that done through the Institute?
Mr. Fairless. No, sir.
I may have answered that too quickly, Mr. Henderson. We have
technical committees, manuf^a-Cturing committees, in our Institute
that make studies of various phases, but they don't fix the price.
They don't fix the price charged for these special services rendered,
but they do make analyses of the costs and studies of the costs,
and since our motive is only to charge cost for services rendered,
then obviously it is our duty to develop the best cost that exists,
not only within our own company but within this industry.
Mr. Henderson. How long have you been having these cost
consultations?
Mr. Fairless. Oh, for probably as long as the steel industry has
existed, so far, as I know. It has been going on during the 25 years
that I have been in it.
Mr. Henderson. Is there any general organisation through which
you get together for discussion of costs?
Mr. Fairless. No, no. In other words, I might — when I say
"I" I am speaking of my company; we might very well — all extras
aren't established in the same manner. We might very well be
presented with a special section to roll for some customer, We might
very \veU there and then establish the extra, tell him what we will
charge for it, and so we go on. Some competititor of ours, however,
CONCENTRATION OF ECONOMIC POWER 10561
might come to the conclusion, and many times does or has, that
his cost to roll that particular section isn't that great.
Mr. Reynders. In that event you would have to adopt the lowest
charge for that service?
Mr. Fairt-ess. That's right.
Therefore, extras are competitive whenever they get out of line in
respect to costs, and it doesn't mean because an extra is out of line
in respect to cost today that it has always been out of Hne, because
technical developments in the industry, are constantly lowering our
costs, and sometimes they catch up with us before the extras actually
are reduced; but leave it to this industry, if there are any extras in
respect to widths or quality or whatever it might be that show any
profit, its competitive spirit will take care of that very readily.
Mr. Henderson. I understood you to say that you had been advised
by counsel that that is perfectly all right.
Mr. Fairless. Yes, and I cite you this. Out of these so-called
extras comes standardization. We couldn't operate this industry of
ours unless we had standardization. If some Government building
or private building were erected from steel made by the United States
Steel Corporation and they had their special section and no one else
made that section, that would mean that any addition to that building
would have to be bought from the United States Steel Corporation
or the owner would absorb great costs in hooking up some new section,
so we have standard sections. There isn't anything unusual about it.
Why is it that you go into a bathroom and turn on a faucet and that
faucet may be made by 10 or 15 different manufacturers, but they are
standard. How could they have ever become standard if those manu-
facturers didn't get together and standardize? Standardization is
going on all over this country, and, I tliink, must go on. Why are
your automobile tires interchangeable in respect to size?
Mr. Henderson. That is a standardization, Mr. Fairless, having
to do with products — it is a product standardization. Of course, it
got a great impetus after the World War. The initial drive came
-during the World War and then the simplification movement was
encouraged by the Department of Commerce and the engineering
societies later. This has to do with about 10 percent of the price,
does it not?
Mr. Feller. With respect to the question of how much the extras
count in delivered price, we have prepared an analysis on the basis of
returns furnished to questionnaires by various companies in the
industry, 52 companies, I think, somewhere in the neighborhood of
50 companies.
Acting Chairman King. 50 companies?
Mr. Feller. Yes. The analysis which we have made is on thp
basis of a selected number of products shipped during February 1939,
to the various consuming districts in the United States. It does not
include exports, f. o. b. mill sales, shipments to plants or warehouses
of the same or aflSliated companies, or shipments to jobbers' ware-
houses. It includes all other shipments in the industry. On the
basis of our calculation — and I shall include this very shortly — the
percentage of extras which appears on the invoice as a percentage of
delivered value varies from product to product. In the case of tin
plate the deductions are of particular significance and the result is
that the deductions reduce the price by 3.9 percent.
124491 — iO— pt. 19 8
10562 CONCENTRATION OF ECONOMIC POWER
In the case of other products the extras figure something like this.
Only seven-tenths of 1 percent of the delivered value in the case of
cold-rolled sheets, and then going up, 4 percent in the case of heavy
structural shapes, 5.7 percent in the case of wire rods, and the highest
on the products that we calculated was 29.7 percent in the case of
cold-rolled strip. On the 10 products which we had the total appeared
as follows: The extras were 9.9 percent of the total delivered value
Mr. F AIRLESS (interposing). May I ask the names of the 10
products?
Mr. Feller. Sheet and tin plate bars, wire rods, plates, heavy
structural shapes, hot-rolled and hot-rolled annealed, hot-rolled strip,
cold-rolled sheets, cold-rolled strip, tin plate, and plain drawn wire.
Mr. Fairless. Plain drawn wire?
Mr. Feller. Yes, sir.
Mr. Feller. I should Uke to state at this point that there are other
matters in this exhibit I offer this for the record, Mr. Chairman,
and I shall refer to it.
Mr. Henderson. I would like to ask a few more questions.
Mr. Fairless. I should like to inject here, if I may — I think it is
perfectly obvious, without injecting it. You can imagine what the
extra costs of piano wire, for example, might be as compared with
ordinary fence wire.
Mr. Henderson. Well, getting back to this question I was about
to ask you when Mr. Feller introduced this exhibit, in period
such as you had in 1937 and early 1938, which was a period of com-
petition and expressed itself in price concessions, is it the practice of
your corporation to vary the extras at all, or do you vary the base?
Mr. Fairless. We prefer — our poHcy would be, if we were per-
mitted so to operate, and not be forced to change our pohcy because of
competition, not to change our price through the extra or deduction
route, imtil stTch time as we did it in an orderly way. In other words,
we have built a new machine, we have installed a new mill, we have
developed a new process, and the extra charge or the deduction made
for the product by the old process is now out of date; we would prefer
right then to make a new extra, charge a new extra or establish a new
deduction, but for the purpose of getting an order, if you please, re-
ducing the price; we much prefer, and om" policy is, if we can carry
it through, to go the base-price route.
Mr. Feller. May I interrupt, Mr. Chairman? Was this docu-
ment received?
Acting Chairman King. Yes.
(The document referred to was marked "Exhibit No. 1395" and is
included in the appendix on p. 10724.)
Mr. Henderson. Well, in this period we were referring to, was
there much variation or concession on the extra hst by your com-
petitors that came to your attention?
Mr. Fairless. There has been from time to time; there has been,
but if you take the size of the book there, the changes in extras, while
there are many because the changes in manufacturing methods in our
industry are many, and rapid
Mr.. Henderson. I am not getting at the number of changes in
the extra book, but I am talking about individual orders. Do you
CONCENTRATION OF ECONOMIC POWER 10563
get many reports in a period of competition that vour coAipetitors have
made their concessions on the basis of a reduced extra?
Mr. Fairless. Yes; we do, but I know, or feel, that percentage-
wise that is a very small percentage of the cases in which prices are
reduced.
' Mr. Henderson. What does your group do when that happens?
Mr. Fairless. Group?
Mr. Henderson. Do you say anything to the
Mr. Fairless. Group?
Mr. Henderson (continuing). Anything to the offender?
Mr. Fairless. Many times you don't know who the offender is
immediately, but ^ou do know you have to be competitive, and you
meet that competition maybe by not touching the extra involved
at all. You might do it through the base-price route, and maintain
your position in respect to the extra.
Mr. Henderson. What I am getting at, if you hear that for the
purpose of getting an order there has been either an elimination of or
reduction in the extra price, does your group working toward stand-
ardization take any action at all?
Mr. Fairless. No, sir; as a group— no, sir.
Mr. Henderson. Do you as individuals?
Mr. Fairless. Yes; I have just explained it.
Mr. Henderson. I mean do you call up the competitor and say
what you think about it?
Mr. Fairless. No; if the reduction of that extra becomes per-
sistent, why it automatically establishes a new basis for the charge
for that extra, even though that new charge does not represent cost,
and we have had that happen many times.
Mr. Henderson. It might happen when you are quoting on, say,
some consuming industry that was a pretty large buyer, might it not?
Mr. Fairless. No; I don't think we want to confuse the thing. I
am trying to present this subject to you very straightforwardly.
Mr. Henderson. I might say I never heard a more straightforward
presentation, Mr. Fauiess, than you have made.
Mr. Fairless. There is no camouflage and we haven't anything
hidden at all; we start on the basis that we render additional service
to what we offer in our base price, and we have arrived at charges for
that. We have arrived at charges for that on the basis of costs for
the operation required to furnish that additional service. Now
when that particular extra or deduction gets out of control, we don't
call a meeting of the steel industry or any of the principals of the
steel industry. It then is on the basis of a competitive situation
which we have to meet; as we do the base-price situation.
Mr. Henderson. But the next time your cost people got together
they would take those deviations into account as to whether or not
a new extra would be established?
Mr. Fairless. We have no group ; we have no set-up, no mechanics
to do this thing. Once the extra is established then it is taken care
of in the regular routine of the industry's day-by-day business.
Mr. Henderson. Does your company establish the extra?
Mr. Fairless. You mean us alone? Oh, mj, no.
Mr. Henderson. I mean do you announce it?
Mr. Fairless. We may.
10564 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. Is it the general custom in the industry for your
group to announce it?
Mr. Fairless. Changes in extras? We may or others may; it all
depends on the extra involved. The extra involved might concern
some product of which we are not the largest producer, or in which
we are not very much interested.
Mr. Henderson. Pretty much like price posting announcements?
Mr. Fairless. Yes; that is right, although we don't have any
quarterly basis for announcing extras or changes in extras. A
change m an extra might occur at any time during a quarter or at
any time.
Mr. Henderson. Then you get out a new loose leaf sheet?
Mr. Fairless. Notify our district offices of the change in the extra
and when we publish our new book, then we would publish the change
in the book, or as you say in this instance.
Acting Chairman King. Are those so-called extras in part based
upon new discoveries, new inventions, new processes, new technological
developments in the industry or in the activities of your organization?
Or are they more standard and those extras are utilized by all of the
entire industry, and the form of the extra, the physical form and its
intrinsic merit and value is exactly the same?
Mr. Fairless. Yes; for example, Senator, it is only within the last
few years that this industry has ever heard of a heat-treated rail. I
don't mean that this industry didn't know that rails could be heat-
treated, but the requirements of the railroads was not such that heat-
treated raOs were required, and now we heat treat rails. By heat
treatment I mean give them the real heat-treating method or process,
putting them through heat-treating furnaces and cooling and straight-
ening and all the extra work that goes with it.
Acting Chairman King. You would call that an extra?
Mr, Fairless. We charge an extra for that service, and we hoped
when we established it that it would cover the costs of the service
rendered, but unfortunately for us it hasn't but still it is the extra
that is in vogue.
Acting Chairman King. Have you so analyzed and appraised the
costs of these extras as to determine just what relation those costs
are to the entire business?
Mr. Fairless. Oh, yes; we are constantly — our technical people
and our practical people are constantly working on that very problem,
constantly.
Acting Chairman King. If you could segregate the cost of your
extras from the cost of your general business would you be able to
determine whether you had made money or lost money, whether you
had profits in the manufacture of extras?
Mr. Fairless. I would say yes, and I would say if you took the
entire' extras charged, and the cost of the services so rendered, it would
show W deficit, so far as the steel industry is concerned. I am sure
it would, so far as the U. S. Steel Corporation is concerned. I am
not going to make the statement that you can't pick out a product
or products where certain extras might reflect as of today a profit, so
to speak, or a return greater than the cost of the service rendered, but
I also wish to add that corrections are being made constantly and we
find that through the route of competition any extra involving a profit
will soOn find its level.
CONCENTRATION OF ECONOMIC POWER 10565
Acting Chairman King. You have the same competition in extras
as you do in business generally?
Mr. Fairless. No ; not so keen, because many of these extras have
been established for years and they haven't changed because processes
haven't changed.
Acting Chaii-man King. Sort of standards?
Mr. Fairless. Extras aren't changed to the extent that base prices
are.
<^HANGE IN EXTRAS IN MAY 1938
Mr. Feller. Mr. Fairless, in May 1938 there was a rather sub-
stantial change made with respect to extras. That is about the most
extensive change that has been made in the last 2 years?
Mr. Fair'less. That is the most extensive change that has been
made, I beUeve, during mj connection with the steel business.
Mr. Feller. I should hke to offer for the record the circular letter
of the Carnegie-Illinois Steel Corporation to its managers of sales
which explains this change. It is dated May 26, 1938.
(The letter referred to was marked "Exhibit No.1396" and appears
in the appendix on p. 10729.)
Acting Chairman King. Are you familiar with it, Mr. Witness?
Mr. Fairless. I am famiUar with it and also, Mr. Chairman, the
man who developed these changes is here and if you would desire it,
we would be very happy to have him present the chart showing the
changes that were made and the reasons why they were made, because
right at this time the making of this new schedule was brought
about by the advent of the continuous mill process of manufacturing
sheets and other flat-rolled products. We had had extras and deduc-
tions for the old hand mills that had stood, with changes, of course,
from time to time, over a long period of time, and this industry came
in with a new process of manufacturing sheets. Obviously, some of
the extras and deductions in the old process were out of date and the
relationship of one flat-rolled product to another became unjointed,
so Mr. Adams of the Carnegie-Illinois Steel Corporation at that time
in conjunction with others, within and without the U. S. Steel Cor-
poration subsidiary companies, made a very exhaustive study on this
particular problem and developed the changes that Mr. Feller has
referred to, and he is here, available, and is much more famihar with
it than I am.
Acting Chairman King. The document will be received, and later
on it may be important for you to go over it if you care to.
Mr. Feller. I don't know that it mil be necessary, but if we need
to we can call Mr. Adams.
Acting Chairman King. If it is necessary to elucidate the question
Mr. Adams may be called.
Mr. Feller. I should just like to ask you this question: At that
time when these extra changes were made as an overall matter, was
the result to increase the extras?
Mr. Fairless. It may have been — oh no, of course not; you mean
the dehvered price.
Mr. Feller. Oh no, no, the extra charges in and of themselves.
Mr. Fairless. It was properly to relate and to establish proper
extras for the varioiis commodities and specifications.
10566 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. Well, I would just like to read you one of the para-
graphs.
Mr. Fairless. I don't mean to say by that that there weren't
some increases, there may very well have been some, and justified ones.
Mr. Feller. Oh, yes; I am not concerned now with justification,
but as a general overall matter, was the result an increase above the
then existing base price?
Mr. Fairless. Base price?
Mr. Feller. Yes.
I vdll read this paragraph from the bottom of page 2 of "Exhibit
No. 1396." [Reading:]
We applied our new lists of extras and deductions to our last year's business and
found that by using a constant base price there was an increase in the net of
approxinaately $1,20 per ton for cold rolled products and $1.04 per ton for hot
rolled products; therefore, in order that we would not have to announce an
increase in our average prices, we made a reduction of $2 per ton in the baee price
for the third quarter.
Mr. Fairless. That is a pretty good example, gentlemen, of the
way the steel business is operated. In order not to gain $1.04 we
reduced the price $2. That is a little facetious.
Mr. Henderson. The Senator and I were talking. I didn't want
to miss that. Will you state it again?
Acting Chairman King. For the information of Mr. Henderson
and myself.
Mr. Henderson. You said it was an example of how the steel
business was conducted.
Mr. Feller. The point was that apparently when the calculations
were made of these extra changes the result was that if applied to the
preceding year's business, it resulted in an increase of $1.20 a ton for
certain products and $1.04 a ton for some other products and the
corporation in order to avoid that result reduced the base price on
those particular products $2 a ton.
Mr. Fairless. That was the cause of my remark. I justified it
for this reason. It was so necessary for this industry, our company,
to have the proper relationship in these various products that we were
willing to make a sacrifice to that extent and we did.
Acting Chairman King. To get the prober relationship, taking all
factors into consideration, you have sometimes to lower the price on
some commodities so that you lose on that but by that relationship
it is evened up by the sale of other commodities.
Mr. Fairless,. Yes; for example, we had reached the point in
having these various cards of extras applying, one for sheets and one
for strip and One for plates, that the customer, in buying one of those
commodities didn't know what the price was because he could arrive
at one price using the plate card, another price using the_ sheet card,
and another price using the strip card. That is an outside example
but stUl a true one in certain specific instances. We put Mr. Adams
to work and said, "We want this job done properly, we don't want to
make profits through the extra route, but we do want the proper
relationship. You go to work and do a job."
He worked on that job for months with the results that Mr. Feller
refers to.
Mr. Feller. Mr. Fairless, prior to this announcement of these
rather extensive extra changes, was there consultation with other
members of the industry?
CONCENTRATION OF ECONOMIC POWER 10567
Mr. Fairless. Mr. Adams worked with various members of the
industry, as I told you. This was such a radical change and covered
so many problems that were within this mdustry, there were many
discussions in respect to it, many discussions.
Acting Chairman King. They were with reference to the factors
that would enter into the cost?
Mr. Fairless. Oh, yes.
Acting Chairman King. And the changes wliich would result if
those extras were made or not made in the general plan of production?
Mr. Fairless. Entirely, entirely based on related costs.
Acting Chairman King. I assume some of the extras necessitate the
abandonment of some other form of production?
Mr. Fairless. That is right, that is right.
Acting Chairman King. You would have to treat some machinery
as obsolete and abandon the same.
Mr. Feller. Do you recall the representatives of which companies
Mr. Adams consulted?
Mr. Fairless. No, that is the reason I suggested that you have
liim here. Is Mr. Adams here, please?
Acting Chairman King. Hold up your right hand, Mr. Adams.
Do you solemnly swear that the testimony you wiYL give in this hearing
will be the truth, the whole truth, and nothing but the truth, so help
you God?
TESTIMONY OF AVERY C. ADAMS, VICE PRESIDENT, UNITED
STATES STEEL CORPORATION OF DELAWARE, PITTSBURGH,
PA.
Mr. Adams. I do.
Acting Chairman King. State your full name for the reporter.
Mr. Adams. Avery C. Adams.
Mr. Feller. Could you tell us, Mr. Adams, which companies were
represented in this consultation prior to the
Mr. Adams (interposing). 1 can't remember that specifically at
this time. Suffice it to say that most of the companies in the steel
industry were represented.
Mr. Feller. By most of the companies do you mean something
in the neighborhood of 50 or 60, a large number, or a relatively small
number?
Mr. Adams. I don't think the number would run up that high.
Mr. Feller. Did it include representatives of the nonintegrated
companies, too?
Mr. Adams. Yes, sir.
Mr. Feller. Did it include most of the large integrated producers?
Mr. Adams. Yes, sir.
Of course, the representatives that were present at those meetings
were product managers, the managers of sales covering those specific
products, and also some operating people from time to time.
Mr. Feller. Mr. Fairless, I should like to ask you what the process
of final adoption was. I take it that the product managers and other
technical people who consulted with respect to this hst made a recom-
mendation to you or to other officers in the Corporation. Isn't that
true?
Mr. Fairless. Mr. Adams made the recommendation.
10568 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. He made the recommendation to 5^ou?
Mr. Fairless. But he, of course, before arriving at that recom-
mendation, had consulted with many people within our company —
technical people and operating people and the product managers of
each of the products involved in these changes, and finally he had a
prepared proposal to recommend.
Mr. Feller. Did you have, yourself, any consultation with other
chief executive officers of steel companies, before arriving at a final
decision, or was that done on your own initiative?
Mr. Fairless. That was just done as you talked to people in the
steel industry. I find steel men, Mr. Feller, are very much like pro-
fessional men and men in other lines of business. Whenever they
meet they talk about the steel business. I always find myself talking
about the steel business when I meet a steel man.
Mr Henderson. Of course, Adam Smith suggested that when
businessmen met they talked about prices. Do you talk about prices
when you get together?
Mr. Fairless. Certainly; certainly. Usually we are bewailing the
fact that they are too low.
Mr. Henderson. I would like to ask Mr. Adams some questions,
if 1 may.
In the final analysis, what do you believe were the main considera-
tions that were determinative of what exactly the extra should be?
Mr. Adams. Well, unquestionably cost was given a great deal of
consideration.
Mr. Henderson. Whose costs?
Mr. Adams. Our own costs.
There are one or two points, Mr. Commissioner, that I think we
are overlooking here, and that is that this study was completed in the
interest of simplification and improvement in trade practice. By
that I mean this, that in the range of sizes from three-eighths inch
wide to 86 inches wide and from 8 gage to 30 gage there were eight
products defined by name; that is, cold-rolled strip, cold-rolled com-
modity strip, cold-rolled sheets, cold-rolled tin-mill black plate, hot-
rolled strip, hot-rolled sheets, hot-rolled annealed sheets, and hot-
rolled tin-mill black plate. No one of those eight products covered
this entire range of sizes, but the group collectively did cover the
entire range of sizes, so there was an overlapping by name.
The object of this study was to eliminate that overlapping by name,
to realign the products by size, and to simpHfy our processes. The"
net result, as has already been brought out, insofar as extras are con-
cerned, was very minor, an increase in the net of $1.20 on cold rolled
aijd $1.04 on hot rolled, which was offset on our own initiative, by
reducing the base price $2 a ton. This was an attempt to improve
our trade practices and to simpHfy our procedure.
Mr. Henderson. That is what I am getting at. W^hen you were
talking with the other cost men, the product managers, you call
them — —
Mr. Adams (interposing). Yes, sir; product managers,
Mr. Henderson. Suppose they had a cost different from yours.
Suppose they had a higher cost than you did. Would your cost
then be controlling?
Mr. Adams. I wouldn't say that our cost would be controlHng.
You must realize that in this picture our own individual costs varied
CONCENTRATION OF ECONOMIC POWER 10569
from time to time. We try to relate our extras to cost, but it is
impossible to do more than relate them to cost. You cannot predicate
them exactly on costs, because our costs are changing constantly.
In addition to that the demands for specific products are changing
constantly. In other words, we might have a large order placed,
or a group of orders placed, for a certain size, which would reduce
the cost for that specific size, and throw that extra out of line; and
by the same token the orders might be small, which would increase
the cost on that specific size, so that there is a constant change in the
cost of extras going on all the time.
Mr. Henderson. Suppose one of your competitors had a sub-
stantial volume of business in that particular classification and you
had a smaller volume, and therefore your costs were higher. Did
you have many cases in which the competitor would press for a reduc-
tion in the extra?
Mr. Adams. I wouldn't say that our competitors would press for
a reduction in extras, no. The trend of extras — I'm sorry we haven't
got the figures here showing the average extra over a period of tune
so that we could project a trend, but from my own experience in the
steel business I can say confidently that the average extra has
declined over a period of time.
Mr. Henderson. There was some time when it was probably more
than 9.9 percent?
Mr. Adams. Unquestionably at some time, because we have seen
the elimination of a great many extras, some brought about by corn-
petition, others brought about by improvement in our manufacturing
processes.
Mr. Henderson. Now, I state the obverse case, where a competitor
had a small volume and therefore a high cost for a particular service,
and you had a low cost. Did you have many cases where the com-
petitor pressed for the acceptance of his particular cost?
Mr. Adams. No, sir. We would decide, as a company, what we
thought our extras should be as related to our own individual costs.
We would announce that. Now, if a competitor of ours, at a lower
cost, wanted a lower extra, he would announce a lower extra, which
we in effect would be forced to meet by competition at some later
date in the market.
Mr. Henderson. And if you had the lower cost and announced
that, then your competitor had to absorb a part of his extra cost and
take it out of his realization.
Mr. Adams. Unquestionably.
Mr. Henderson. Well nov/, in these meetings was there much
occasion for protests on account of what a change might mean to some
of the competitors?
Mr. Adams. I wouldn't say that there was, Mr. Henderson, no;
because this was a study with the thought in mind of improving trade
practices. Take again that range of sizes that I cited j three-eighths
inch to 86 inches in width and from 8 gage to 30 gage. There were
eight products in that range of sizes, four hot rolled and four cold
rolled. As I said before, no one covered that entire range, so we found
a certain number of sizes where we had four products by name covering
the same size and identically the same piece of steel so far as its
physical characteristics were concerned.
10570 CONCENTRATION OF ECONOMIC POWER
Now, in that range of sizes,- those 8 products were priced by using
10 different base prices and 7 different extra prices, so a state of con-
fusion existed and the real object of this study was to eliminate that
state of confusion.
Mr. Henderson. Did your competitors look on it from that stand-
point also? Were they as anxious as you were to eliminate the
confusion?
Mr. Adams. Very definitely.
Mr. Henderson. So what you are saying is there was more em-
phasis on that than on what any change might mean to the individual
company? '
Mr. Adams. That is correct.
Mr. Henderson. And they understood pretty generally that your
own costs would be the ones in final analysis that would be used as a
basis for what you adopted?
Mr. Adams. There was no understanding reached at any of these
discussions. There was a discussion that pointed primarily toward
simplification and improvement in trade practices. Now, this was
the practical situation that existed. A man would enter the market
for one of these flat-rolled products. He would have to go through
four separate base-price considerations — I am talking about the buyer
now — and four different extra charges. He would figure up his net
price on these four products that fell in that range that I have just
described. He would arrive at his lowest net price.
By the same token the salesman calling upon that buyer would go
through the same procedure, attempting to determine what was the low-
est price he had that had been published which he could quote to that
buyer in connection with that particular piece of business, so there
was a state of confusion from a pricing standpoint.
Therefore, we eliminated some of the extras, and the net result,
as you gentlemen can see, was a very minor change as far as the price
factor is cpncerned, but we did make some progress as far as improve-
ment in our trade practices is concerned.
Mr, Reynders. Whatever answer you finally found was something
that might be correct with one company one month and the next month
it might be correct with some other company, but you struck a general
average in your judgment resulting from your study. It is not an
exact science.
Mr. Adams. You would have to do that because some of the cost
factors insofar as extras are concerned are beyond your control.
That is the market demand from month to month, and the change in
demand for certain specifications.
Mr. Reynders. If you had a lot of volume in one month the cost
of the extr¥ would necessarily go down with the main cost of the
pioduct. .
Mr. Adams. Your cost would go down in connection with the
process to which the extra applies.
Mr. Reynders. The extra would vary from month to month
depending upon the quantity that happened to be produced in that
month, but you struck a general average of what it might be over a
long period of time.
Mr. Adams. Well, we tried to the best of our ability to relate those
ejctra-s to costs.
CONCENTRATION OF ECONOMIC POWER 10571
Mr. Reynders. In other words, you couldn't arrive at a math-
ematically accurate figure.
Mr. Adams. We couldn't arrive at a mathematically exact figure.
As near as it was humanly possible to do so we related those extras to
cost.
Mr. Feller. That was an average cost.
Mr. Adams. What do you mean by "an average cost?"
Mr. Feller. Since an attempt was made to relate the extras of the
industry generally it couldn't be the cost of any one particular com-
pany, could it?
Mr. Adams. I can only speak from the standpoint of our own costs.
We made a study of our own costs, and when we finally announced
these extras the announcement we made covered extras that were
related as closely as possible to our own company's costs.
Mr. Feller. What about the other companies? Were their costs
more or less the same as yours?
Mr. Adams. I can only testify for my own company.
Mr. Henderson. Let me ask you this, Mr. Adams: Did you get
the impression from the discussion with these other companies that
they had as accurate information on costs as your own?
Mr. Adams. I would say that they had as accurate information.
I don't know that they had carried the study quite as far as we had.
You must remember, Mr. Henderson, that our competitors have
identically the same type of rolling equipment that we have; they are
not all located in the same localities that we are, but, generally
speaking, their labor rates are about the same, their physical equip-
ment is about the same, and the resultant product is about the same,
so that you wouldn't expect a wide variation — a wide variation in
costs.
Mr. Henderson. That wasn't my point. Maybe I didn't express
it.
Mr. Feller. I would Uke to clear something up. There are certain
variations in labor rates.
Mr. Adams. Yes; oh certainly. I am speaking very generally,
Mr. Feller.
Mr. Henderson. What I was getting at, Mr. Adams, was whether
or not they kept their costs. I am not asking what the range might
have been, but did you get the impression that they had as accurate
information compiled about costs as ypu did?
Acting Chairman King. On extras?
Mr. Henderson. Yes; on extras.
Mr. Adams. Of course, I never had access to our competitors' costs.
Mr. Henderson. That again was not the question. I am asking
you whether you got the impression that you had more complete
and accurate costs than they had.
Mr. Adams. Naturally, as a representative of Carnegie-Illinois, I .
felt that we knew our costs as well as anyone in the industry.
Mr. Henderson. Let me ask you this: As far as some of these
people are concerned, did you get an impression that they didn't
compute their extra costs except perhaps in certain circumstances?
Mr. Adams. I don't think that occurred to -me at the time as to
whether or not they actually computed their costs to the extent that
we did.
10572 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. But there was some debate going back and forth.
Mr. Adams. I wouldn't say there was a debate. I think we are
still far afield from the object of this study, because it was again
primarily in the interest of simplification.
Mr. Henderson. Unless you are fixing a certain part of a charge
that is going to be reflected in your income statement. What you
were really determining in the final analysis was something which
would be actually assessed against the customers of all of you that
were there.
Mr. Adams. Repeat that, please. I don't quite understand it.
Mr. Henderson. Once you had arrived at this simplification and
it had been adopted by your company, it would be the charge which
would be made as against the customers of not only your own com-
pany but of all the other companies there.
Mr. Adams. Providing our competitors, decided to meet those
extras or adopt similar ones. Now, as a matter of fact, after we made
our announcement there were a number of cases where those extras
were not followed by our competitors.
Mr. Feller. Did you publish a list?
Mr. Fairless. At this point, Mr. Chairman, I offered Mr. Adams'
services to explain any questions that might be asked as to what was
done and how it was done. Now, if we are going back into policy
discussion of this or any other feature I prefer to answer those questions
myself.
Mr. Henderson. As for what I asked, I would be glad to have
you answer them. Let me ask this: You stated that from time to
time
Acting Chairman King (interposing). Are you directing this to
Mr. Fairless?
Mr. Henderson. I am directing it to whoever feels competent to
answer it. You stated that from time to time in your meetings with
others in the business you have had these discussions. Did you en-
counter much protest against the proposal of adoption of this par-
ticular set of new extras?
Mr. Fairless. It just seems that our frankness here in presenting
this has created an entirely different aspect of what really happened.
We have told the story completely. It was not a case of this industry
getting together and agreeing that this plan was going to be adopted
and put into effect and agreeing to observe it if it was adopted. It
was as a new method and a method of simplification, a method that
would help both the producer and the consumer of steel in the flow of
business.
If what we are trymg to arrive at here was: W^as this a price-fixing
thing? It wasn't in any respect a price-fixing thing. I can't say that
every producer of flat-rolled products was 100 percent satisfied with
the results that were finally arrived at through cost studies which
were made; I can't say that. My judgment is that there were
possibly some anything but satisfied.
Mr. Henderson. That is the question I asked, Mr. Fairless.
Mr. Fairless. So we are right back, then, in respect to these extras
and this plan where we were before we ever started, or where we are
at any time in respect to base prices. If company A doesn't Uke extras
Y or Z, he can do anything about it he chooses ; he is under no obliga-
tions to me or to the United States Steel Corporation.
CONCENTRATION OP ECONOMIC POWER 10573
Mr. Henderson. I know he has no contractual obligations.
Mr. Fairless. Or no moral obligations.
Mr. Henderson. He has no moral obligations?
Mr. Fairless. No ; neither.
Mr. Henderson. Then what I am getting at is, when these were
adopted, the other companies did adopt them also, did they not?
Mr. Fairless. They followed them when they saw fit; and Mr.
Adams, who has been very close to the details of this business since
the adoption, has just testified that there have been cases where this
list was not followed — transactions not made on that basis.
Mr. Feller. May I just get that clear? Were there any published
extra lists which did not follow the extra list issued by you in May?
Mr. Adams. Not to my knowledge, Mr. Feller. In my previous
testimony my reference was specifically to cases where the previous
set of extras or the previous price including extras was extended to
the balance of 1938 in connection with a few competitive situations.
, That is what I meant when I said that these extras were not followed
in every case.
Mr. Feller. As far as you know at the present time, the extra
books published by the various companies in the industry are iden-
tical on those products which the companies manufacture?
Mr. Adams. By that, do you mean the extras that are in use in the
various extra
Mr. Feller (interposing). Extras that are published.
Mr. Adams. In this study I can't take my mind away from the
real object set forth. You make a realignment of sizes, you have a
group of companies involved that make different products. For in-
stance, hot-rolled sheets were generally produced in 16-gage and
heavier and in 24 inches to 86 inches wide; hot-rolled strip was pro-
duced in gages 16 and heavier, except in some of the narrower widths,
where they were produced in 23-gage and in 24 inches and narrower.
In this study that we made we extended the range of sizes that was
covered by sheets down to 12 inches. There still are a number of
strip mills in the country that make strip up to 24 inches wide, and
they undoubtedly published an extra hst and classified that range of
product which falls between 12 and 24 inches as strip, so in that
respect their extra book would not coincide with our extra book, be-
cause we classify everything down to 12 inches as a sheet. Some of
our competitors might call it a strip.
Mr. Feller. Generally speaking, the extras are the same through-
out the various companies which pubhsh extra books.
Mr.fAoAMS. As far as my knowledge is concerned, except when
competition enters into the picture.
Mr. Feller. I am talking about publication, pubHshed extra
rather than the extra explainable on the invoice as the result of trying
to make a sale.
Mr. Adams. Yes.
Mr. Henderson. Mr. Fairless, I gathered you felt there was some-
thing unfair in pursuing this line of inquiry.
Mr. Fairless. No; I didn't.
Mr. Henderson. You are not imder the impression that what was
finally arrived at by the adoption of these extras is not a part of the
price to the buyer?
10574 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Of course, we don't expect to perform extra opera-
tions and not charge the customer for it, and, incidentally, he doesn't
expect us to; and I might add, if it means anything in the way of
clarification, that this new system has been received with open arms
by the buying public of steel products — flat-rolled products. Not
one but many of them have said to me personally, "That is the finest
thing that this steel industry has done in many years. We know now
what we are buying and the basis on which we are buying it. It has
simplified our problems."
Mr. AviLDSEN. As I understand from your explanation, the whole
object of this was to remove confusion that existed in the minds of
the buyer and the seller and go save everybody a lot of trouble.
Mr. Fairless. Yes, sir.
Mr. AviLDSEN. A lot of unnecessary work, so a man didn't have
to say, "Shall I call this a sheet? Shall I call this a strip?"
Mr. Fairless. And to match a merchandising policy with a new
process of manufacturing the products involved.
Mr. AviLDSEN. It is very clear to me.
Mr. Fairless. How could we be expected to go on and merchandise
sheets today by the same methods as we used to merchandise sheets
manufactured by the old hand-mill method?
Mr. Henderson. The answer is obvious, but the point I was driving
toward, is that alPthe others who adopt 'this [identical basis are
committed to what you adopt.
Mr. Fairless. No, sir. I know what you have been driving at
and I have been trying to disabuse your mind on just that. You are
entirely mistaken and have misunderstood me from the beginning of
my presentation. There isn't a steel man in this country today that
hasn't the opportunity and the recourse to do anything he chooses in
respect to any extra that exists in this steel business, and that has to
do with this new classification.
Mr. Henderson. My question on that is, and I think you have
answered it before. Are there many changes made?
Mr. Fairless. Yes.
Mr. Henderson. In relation to the total number of extras that
are published? ,
Mr. Fairless. There are constant clianges in extras, Mr. Hen-
derson.
Mr. Henderson. Are they many in volume?
Mr. Fairless. Sir?
Mr. Henderson. Are they many in volume in relation to the total
number?
Mr. Fairless. I answered that question, I thought, completely.
I told you that there were many changes in respect to extras; they
weren't as numerous as in base prices. I made that statement, it is
part of the record here in the early part of this discussion. In other
words, extras are more constant, if that is the point we are trying to
come to, the charging of extras is more constant than base price.
Mr. Feller. Mr. Fairless, with reference to the attitude of the
trade, that is to say the consumers, in the letter which Mr. Adarns
wrote to all managers of sales, which is in the record, there occurs this
paragraph [reading from "Exhibit No. 1396"]:
With a reduction in the base price of $2.00 per ton for cold rolled sheets, this of
course, means that our third quarter prices for this product, 20 gage, 24" to 48"
CONCENTRATION OP ECONOMIC POWER 10575
wide, represent a net increase of $1.00 per ton; and we will undoubtedly receive
numerous complaints concerning this adjustment from our trade, although the
average price, when the narrow and wide widths are taken into consideration, is
an adjustment downward.
Did you receive numerous complaints from the trade?
Mr, Fairless. Mr. Adams can answer that.
Mr. Adams. I wouldn't say that we did. The picture is really
this. The costs generally speaking on our type of equipment increase
as you go down in width and as you go up in width. In other words,
if we had a curve reflecting our costs and by the same token our extras,
it would start with the narrow widths arid go down for the medium
widths and go up for the wider widths. We increased the extra in
this intermediate range or in the middle of this theoretically wide
sheet, $3 a ton, the extra. The base price was reduced $2 a ton.
The difference was an increase in our own net price of $1 a ton. But
out here on the wider widths of sheets we reduced the extra consider-
ably there and we reduced the extra considerably on the narrow
width sheets. It is natural in selling that you would expect any cus-
tomer, any man who is paid to do a job of buying, to complain about
an increase in the price. An increase in this particular width of
sheet was only $1 a ton. We have some customers who only buy
that particular width of sheet. We have other customers who buy
sheets ranging from the very narrow to the very wide. We antici-
pated that simply from the standpoint of our own sales department,
there might be some questions raised about ^n increase in a specific
size, but by the same token we received thousands of favorable
comments because we had simplified this program, improved our
trade practices, and we had also reduced the price considerably on
the wider wddth sheets and on the narrow width sheets.
Acting Chairman King. Would you be willing to give your opinion
as to whether advantages to the consumer resulted from the adjust-
ments that were made m these prices upon the
Mr. Adams (interposing). Oh, very definitely. I would say that it
was a distinct advantage to the consumer.
Mr. AviLDSEN. On the over-all picture you got less for your product.
Mr. Adams. The average price was reduced which in itself is an
advantage to the consumer, speaking now only from the price stand-
point, and in addition to that we simplified the procedure incidental
to the buying and selling of this product. For instance, here is just
one little thin^ that we did. For years there had been an extra for gage,
that is the thickness of the sheet, in other words, 20 gage is 0.035, or
approximately a thirty-second of an inch thick. There was an extra
for gage, an extra for width. Every buyer that is trying to arrive at
this net price would take his base price, select the extra for gage,
select the extra for width, and add them together. The seller would
do the same thing, and those computations would extend through the
various departments of each group, and one thing that we did in this
program was to add them together, not necessarily change them, but
add the gage and width extras together, because whenever you buy a
sheet you have to huj a sheet and in that buying there is involved a
gage and a width; so it just eliminated one mathematical operation in
the interest again of simplification. I can say without fear of chal-
lenge that the buying public received this announcement with favor.
Mr. Feller. Mr. Adams, after the change took place in May 1938,
if I understand you correctly, on some specifications the then price
10576 CONCENTRATION OF ECONOMIC POWER
taking into account the base price plus the extra, on some specifications
the price would be higher, on some it would be lower, and the over-all
picture would be generally lower.
Mr. Adams. That is right.
Mr. Feller. Now, have you made a similar calculation with
respect to the net effect after June 1938, taking into account the
reduction in the base price plus the extra changes which had been
made in the preceding month?
Mr. Adams. Well, of course, we pointed out here that the new base
price plus the new extras resulted in a lower net price.
Mr. Feller. Yes. Were there some specifications still left on which
after June 1938, the bas^ price plus extra would be higher than it had
been prior to May 1938?
Mr. Adams. Yes.
Mr. Fairless. It might help you in what you are trying to arrive
at here if I quote this. Here are actual results. On mill net, cold
rolled sheets, June, $3.32; July, $3.12; August, $3.08; September,
$2.97; October, $2.78; November, $2.67; December, $2.69. So the
price went constantly down there, in spite of the fact that operations
generally were on the improving side in the last quarter of '38.
Mr. Feller. Mr. Chairman, in the exhibit "Pricing of Steel Prod-,
ucts, Uniform Extras and Deductions," which was received into the
record a while bacTi, we have attempted to make an analysis of these
extra changes. We have also attempted to calculate the net effect on
specifications in various products of a combination of the base price
reduction in June and the extra changes which had been made in May.
The number of changes in the various specifications and the net effect
of these changes in extras after the reduction of base price, are given
in table I. It appears from our calculations which were made for hot
rolled sheets and cold rolled sheets, that taking into account the
changes in extras and the reduction in base price, in the case of certain
specifications an actual i' crease in the extra diminished the amount
of the base price reduction. In a smaller number of cases the actual
increase in extra resulted in a net increase in price, despite the base
price reduction.
Mr. Fairless. I challenge that statement very severely. That
just couldn't be.
Mr. Feller. You don't — Mr. Adams, I believe, has previously
said that that result follows in the case of a number of specifications.
Mr. Adams. I have testified that it did follow in a few instances.
Now, Mr. Feller
Mr. Feller (interposing). That is what we have here. We have
21 instances.
Mr. Adams. Just a minute, please. We are talking about numbers
in this. My figures were predicated upon volume.
Mr. Feller. I am about to make a statement about volume, if you
will permit me to finish. We are now talking merely on the basis of
number of specifications. In 61 cases in the case of hot rolled sheets,
an actual decrease in the extra increased the amount of base price
reduction. In other words in 61 specifications the price to the cus-
tomer would be lower than would have been indicated. by the base
price reduction alone because of the fact that the extra changes had
further reduced the price which he would pay. Lastly, in the case of
hot rolled sheets in 204 specifications, which seem to be the largest
CONCENTRATION OF IX'ONOMIC POWER 10577
number, there would be no net effect, no net cnange. That is to say
the change in the extra left the base price reduction unaffected. Now
the statement which I was going to refer, Mr, Fair^less, was tais. We
have no way of knowing what the general over-all effect of this
calculation is.
The specifications wliich appear among those 21 are to my recollec-
tion generally in very narrow sizes or in sizes which vary rather
greatly from the base specification. Now we should be very glad if
your company could do the following: Fust, check with respect to the
accuracy of these changes in specifications; and secondly, give us
some idea of the over-all effect of these extra changes combined with
the reduction in the base price, in terms of volume.
!slr. Fairless. Well, the thing that I can't get straight in my mind
is why the application of this new set of extras to any base price
would have any effect. It is constant; base price fluctuates. In
other words, we made up a new set-up of extras, did we noi ?
Mr. F'eller. Yes.
Mr. Fairless. Now it doesn't make any difference what base
price 5^ou apply that set of extras to, whether it is higher than the base
prices in effect June 24 or lower. What difference would it make, in
respect to the net results, except from the standpoint of variables in
specifications? Now to get just what you are attempting to get, it
would mean a check of every — correct me if I am wrong — it would
mean a check of every single invoice of a particular month's business,
if you please, in respect to the products involved here.
Mr. Adams. Absolutely.
Mr. Feller. You are able to give us the general over-all picture as
applied to the change in May before you made a price reduction?
Mr. Fairless. We did.
Mr. Feller. Your estimate was then it would result in $1.04 in one
case and one-dollar-something in something else?
Mr. Fairless. It was no guess or estimate; it was actual perform-
ance as applied to that month.
Mr. Feller. To the preceding?
Mr. Fairless. Preceding month ; yes.
Mr. Feller. Would it be possible to offer a similar calculation
made with respect to a selected period?
Mr. Fairless. Of course it is possible.
Mr. Feller. Now with respect to your question as to significance,
on the basis of our analj^^sis, we will take a simple case; take one case.
In the case of cold rolled sheets, taking gage 9 width 12 and 16 inches.
Mr. Fairless, Gage 9 cold-rolled sheets?
Mr. Feller. Yes.
Mr. Fairless. Who buys them?
Mr. Feller. Well, it is in your list; we don't know.
Mr. Fairless. Never heard pf it.
Mr. Feller. But they are in your list.
Mr. Fairless. Why talk about something that isn't used? Why
don't we take the usual cold-rolled sheets?
Mr. Feller. We don't know. That is precisely the point on which
we are seeking information.
Mr. Fairless. We advertise many things; possibly they are not
bought; they are there; they are available and there is a price for
them, but if you want to talk cold-rolled sheets, let's talk cold-rolled
124491— 40— pt. 19 9
10578 CONCENTRATION OF ECONOMIC POWER
sheets in the gages and sizes that cokl-roUed sheets move in ; tlie auto-
motive industry and the refrigerating industry are the hirgest user? of
cold-rolled sheets, so therefore let's discuss that.
Mr. Feller, What we are interested in is this: We are interested
in two general facts. First, in the case of some specifications is it
a fact that a customer who was paying the base price — I am not talking
about concessions now — a customer who was paying the base price.
Would you say he would, after June 1938, be paying more, taking
into account the change in base price and the change in extra, than
he would have been paying before? Now, our calculation is to the
effect that, for example, lq 9-gage sheets, that would have been the
result. Your statement is nobody buys it. You never sell it,
Mr. Fairless, That is right,
Mr. Feller. Now, we have a table prepared here which I don't
think need go into the record, but we are perfectly ready to submit it
to you.
Mr. Fairless. How about 20 gage? Do you have it in 20 gage?
Mr, Feller. We have it in all gages,
Mr. Adams. You have selected a specification, Mr. Feller, which is
not really involved in the business. It is a gage that nobody buys.
If I came in with an order for that gage, our operating department
would tell me they weren't interested. Now, the cost of making that
particular gage is very high, so that in that adjustment of extras, in
attempting to relate our extras for that gage to cost we increased the
extra, but it doesn't mean anything in our over-all picture because
nobody buys that particular gage in any quantities. I don't believe
Carnegie-IUinois has had an order for 9 gage in the last — since 1935,
when they started to make cold reduced sheets.
Mr. Fairless. What does your study show in respect to 20 gage
or 22?
Mr. Feller. I am about to come to that,
Mr, Fairless, Yes, Now may I teU you our results in connection
with 20 gage?
Acting Chairman King. Twenty or twenty-two, which was it?
Mr. Feller. Twenty gage was the one Mr, Fairless suggested. I
may call the attention of the committee to this point, the reduction in
pubhshed price, the published base price, was 25 cents. That is
correct, is it not, in June 1938?
Mr. Adams. Published base price of what?
Mr. Feller. Of cold-rolled sheets?
Mr. Adams. As I recall it, it was $3.35, base.
Mr, Fairless, What month?
Mr. Feller, June 1938,
Mr. Fairless. $3.35, reduced from $3.50 to $3,35,
Mr. Feller. What was the amount of the reduction?
Mr. Fairless. Fifteen cents.
Mr. Feller. Twenty-five cents.
Mr. Fairless. No.
Mr. Feller. What was the price prior to May?
Mr. Fairless. $3.50; so I have it on my Hst.
Mr. Feller. And the price subsequent to June 24, 1938, was what?
Mr! Fairless. Well, the price in May is $3.50 and in June it was
$3.35. Now, I assume the June price is the new published price.; yes.
That is a reduction of 15 cents, $3 a ton.
CONCENTRATION OF ECONOMIC POWER 10579
(At tills point there was a conference between interrogating counsel.)
Acting Chairman King. I think we had better take a recess for 10
minutes and let you gentlemen confer.
(Whereupon, at 4:20 p. m., a short recess vvas taken.)
(The hearing was resumed at 4:25 p. m.)
Acting Chairman King. To facilitate matters we will recess at a
quarter of 5.
Mr. Feller. Mr. Chairman, it appears that both Mr. Fairless and I
were right on that point, that there were two separate reductions of
the price which was made, one in May and the other in June. Combin-
ing both, the result was a reduction of 25 cents in the base price.
Mr. Fairless. Instead of my statement of 15 cents.
Mr. Adams. There was another about February 1938.
Mr. Feller. Yes; in February there was a reduction of $4, but our
calculations were with respect to what the result was right after the
June 1938 change. In other words, what we did was to take into
account the May extra change and the June base price change, the
May and June base price change.
On this 20-gage, Mr. Fairless, our calculations were to this effect:
That though the base price reduction, taking both price changes into
account, was 25 cents, a customer paying the base price and the new
extra who bought 20-gage sheet in widths from 12 to 16 inches and all
the various specifications up to 40-gage would have received a net
price reduction of 10 cents rather than 25 cents.
Mr. Fairless. Mr. Adams, could that sort of a specification
develop?
Mr. Adams. As I picture the specification that Mr. FeUer has out-
lined, that w^as one place in the chart where the extra was increased $3
a ton and the base price was reduced $2 a ton
Mr. Feller (interposing). That is precisely the reason for that
effect.
Mr. Adams. So the net result was $1 a ton.
Mr. Fairless. I don't believe that we are concerned here in picking
out just
Mr. Feller (interposing). No, sir; it seems to me that is a little
far afield.
Mr. Fairless. If we are not, and I assume we are not, I would just
like to give results.
Mr. Feller. That is not what my question was directed to.
Mr. Fairless. In the month of January 1938 — this is the mill net
return to us for cold roUed sheets — it was $3.54. Our net return
in December of the same year was $2.69. You can pick out, of
course, combinations of sizes and gages and get variables; while you
are picking out some we could be picking out some that would show
just the opposite. I think we are together on that, aren't we?
Mr. Feller. Yes; as a matter of fact, if we looked at that table
we would see we would pick them all out.
Mr. Fairless. I am sure you would. The net result is that there is
$3.54 in the month of January 1938 in this particular commodity,
taking the overall picture, as against $2.69 in December and as
against $3.32 in June, and the trend has been down constantly..
I will give each month: $3.54, January; $3.36, February; $3.35,
March; $3.24, April; $3.38, May; $3.32, June; $3.12, July; $3.08,
10580 CONCENTRATION OF ECONOMIC POWER
August; $2.97, September; $2.78, October; $2.67, November; and
$2.69, December.
By the way, I offer this, Mr. Chairman. It is a chart of the actual
performance, and I offer it.
Acting Chaiman King. It may be received.
(Tlie chart referred to was marked "Exhibit No. 1397" and is
included in the appendix on p. 10731.)
Mr. AviLDSEN. That represents the net yield to your company?
Mr. Fairless. It shows the prices, the changes in base prices,
and the mill net yield by months.
Mr. Adams. Our mill net yield on cold rolled sheets has declined
42 percent froin 1926 to November, 1938.
Mr. Feller. With respect to this chart, I should like to point
out that it contains both the information to which Mr. Fairless refers,
that is the reported base price and mill net yield, and also contains
certain comments of an interpretive nature which, from a casual
survey, appear to contain certain conclusions which I cannot go into
at this time. I have no objection.
Acting Chairman King. It has been received; the committee will
take into account the conclusions.
Mr. Feller. May I say that I have no further questions along the
topic of extras.
Mr. Henderson. Who buys this particular product?
Mr. Fairless. Cold rolled sheets? The automotive industry is the
largest single purchaser, but we have other industries — refrigerators
and the stove industry.
Mr. Henderson. On the matter of that reduction, was that
realization due to competition for that par^^icular trade?
Mr. Fairless. Well, well, we have gone all over that, Mr. Hender-
son, that on June 24 we made a radical reduction in the price.
Mr. Henderson. But the realization was different in different
months.
Mr. Fairless. That is due to the composite of the product in-
volved. You can have identically the same price, identically the
same extras, and you will arrive at a different net price in a month's
business.
Mr. Henderson. That is what I am getting at.
Mr. Fairless. That is because of our product mix.
Mr. Henderson. Is it because of the volume of business you have
done in those months?
Mr. Fairless. It is because of the variance in the volume of
business in different sizes and gages.
Mr. Henderson. That is what I am getting at.
Mr. Fairless. Surely. We refer to that as the mix of products.
It is just a short term.
Mi. Henderson. Mix of what?
Mi^. Fairless. Mix of products — product mix.
Acting Chairman King. If there is no objection we will stand in
recess until 10:15 tomorrow morning.
(Whereupon, at 4:35 p. m., a recess was taken until the following
jpatswiing, November 8, 1939, at 10:15 a. mi.)
(Further testimony of officials of the United States Steel Corp. on
November 8, 1939 appears in Hearings, Part 20.)
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
THURSDAY, NOVEMBER 9, 1939
United States Senate,
Temporary National Economic CommitteTe,
Washington, D. C.
The committee met at 10:25 a. m., pursuant to adjourimient on
Wednesday. November 8, 1939, in the Caucus Room, Senate
Office Building, Representative Clyde Williams presiding. .
Present: Representatives Williams (acting chairman); Senator
King; Messrs. Henderson, Avildsen, Lubin, O'Connell, and Brackett.
Present also: Frank A. Fetter and Hugh White, representing the
Federal Trade Comnussion; John V. W. Reynders, representing the
Department of Commerce; A. H. Feller, Special Assistant to the
Attorney General; John W. Porter, Irving B. Glickfeld, Hyman B.
Ritchin, Monroe Karasik, and Ward S. Bowman, Department of
Justice.
Actmg Chairman Williams. The committee will be in order, please.
Mr. Feller, are you ready to proceed?
Mr. Feller. I should like to caU first Mr. Grace and Mr. MackaU.
Acting Chairman Williams. WUl you gentlemen be sworn? Do
you solemnly swear that the testimony you are about to give in this
proceeding shall be the truth, the whole truth, and nothing but the
truth, so help you God?
Mr. Grace. I do.
Mr. Mackall. I do.
TESTIMONY OF EUGENE G. GRACE, PRESIDENT, BETHLEHEM STEEL
CO. AND BETHLEHEM STEEL CORPORATION, BETHLEHEM, PA.,
AND PAUL MACKALL, VICE PRESIDENT, BETHLEHEM STEEL
CO., BETHLEHEM, PA.
Mr. Feller. Mr. Grace, will you give the reporter your full name,
pleasQ?
Mr. Grace. E. G. Grace, president of the Bethlehem Steel Co. and of
the Bethlehem Steel Corporation.
Mr. Feller. Mr. Mackall?
Mr. Mackall. Paul Mackall, vice president, Bethlehem Steel Co.
Mr. Fuller. Mr. Grace, you just stated that you were connected
with Bethlehem Steel Corporation and Bethlehem Steel Co. Could
you teU the committee the difference between those two organizations?
Mr. Grace. Bethlehem Steel Corporation is what is commonly
known as our holding company, holding the securities and investments
of our subsidiary companies. Bethlehem Steel Co. is our operat-
ing, manufacturing, selling subsidiary of the BetlJehem Steel Cor-
poration, in which we conduct substantially all of our business.
105 S:
10582 CONCENTRATION OF ECONOMIC POWEIl
CORPORATE STRUCTURE OF llETHLEIIEM STEEL COliPOKATlON
Mr. Feller. You will recall that at tho outset of Mr. Fairless'
testimony he described the corporate structure of the United States
Steel Corporation and mentioned various subsidiaries. Could you
tell us, Mr. Grace, in a very brief way, how the corporate structure of
Bethlehem Steel differs from that of the United States Steei? Perhaps
I can help you. Would you prefer that?
Mr. Grace. Yes; if you would.
Mr. Feller. As I understood Mr. Fairless' testimony, the United
States Steel Corporation, a Now Jersey corporation, is a holding com-
pany which holds the stock of a rather large number of companies
engaged in various types of operation; for example, the Oliver Iron
Mining Co. engages in the mining of iron ore, the H. C. Frick Coke Co.
engages in the mining of coal, the Carnegie-Illinois Steel Corporation
and various other companies engaged in the manufacture of steel, and
there is a company called the United States Steel Export Co., which is
engaged in the export of steel.
Now, is it correct to say that in your company most of these various
operations are carried on by divisions of the Bethlehem Steel Co.,
rather than separate legal entities?
Mr. Grace. Yes, I think possibly that is the essential difierence
to start with; the essential difference would be that our business is
conducted substantially in the one subsidiary, under the head, as
you have properly and appropriately characterized it, and as a division
of it.
Mr. Henderson. That means McClin tic-Marshall no longer exists.
Mr. Grace. No longer exists. Pacific Steel Co., our steel opera-
tions on the Pacific coast no longer exists. Our shipbuilding com-
pany no longer exists as a company. They are all a part of the
Bethlehem Steel Co.
Mr. Henderson. Did that change take place all at once?
Mr. Grace. No; not all at once.
Mr. Henderson. When did the change take place?
Mr. Grace. There was one time in our general process toward the
end of our consoUdating our various interests that what you call
maybe a major effort in that direction took place, and that was at
the time of the reorganization, at which time we then consoHdated a
number of them, and a number of others have come along as we have
been able to accomplish it. I couldn't give any date, specifically, as
to when any one particular situation took place. I think, as a matter
of fact, you spoke of McCUntic-Marshall ; if my memory serves me
right, I would say that the McClintic-Marshall interest, when we
acquired it, was acquired originally as a part of the Bethlehem Steel
Co. and started operating that way, although we maintained the
name of McClintic operation simply as a designation of its type of
business, and a division in your classification.
Mr. Feller. Mr. Chairman, tliis is a little outside of the line of
our usual line of questioning, but it is a matter in wliich Chairman
O'Mahoney particularly has evinced considerable interest in other
parts of the hearing, and I think it might be helpful if we had just a
little something ia the record on this.
Could you teU us why the Bethlehem Steel Corporation found it
advisable to change its various subsidiaries from separate legal entities
to divisions of one operating company?
CONOENTllATION OF ECONOMIC POWER 10583
Mr. Grace. We thought in its consolidation into one company that
it would tend for simplification, easier management, more efficient
management, and accomplish a proper consolidation of our operations
from, let's say, an earning standpoint. There was one time, I think,
as I recall, that the consolidated returns in the tax structure was
eliminated, and to the end of having all of our businesses operated as
a miit, the simplicity again I repeat for organization purposes and
managment, we felt that was a wise way to proceed in the final con-
struction of our business.
(Senator King assumed the Chair.)
Mr. Feller. Now Mr. Grace, Bethlehem Steel Co., which is
your operating company, engages, then, in various stages of operations
m the making and selUng of steel, does it not?
Mr. Grace. Correct.
Mr. Feller. Supposing we start from the beginning. Let us take
iron ore. Bethlehem Steel Co. does not itself mine any ore, or
perhaps it does, I am not sure.
Mr. Grace. For all intents and purposes, we do. Yes; we mine ore
ourselves and we have representatives mining ore for us, but in the
category maybe that you are thinking of it, we own substantially or
control our own ore supplies.
Mr. Feller. Where does most of the ore which the Bethlehem
Steel Co. consumes come from?
Mr. Grace. We have three major sources of supply: That is, our
northwestern ores in the United States, central Pennsylvania ores,
local ores in and around central Pennsylvania — we have quite a
sizeable mining operation there ; and then the foreign ores. We have
our own foreign ore operations in Cuba and in Chile, and are also in the
market purchasing our ores. They are for our eastern plant.
Mr. Feller. The operations in Cuba and in Chile, are they con-
ducted by the Bethlehem Steel Co.?
Mr. Grace. They are conducted by the Bethlehem Steel and our
Pennsylvania miaing operations are conducted by the Bethlehem
Steel.
Mr. Feller. Is it correct to say that in recent years your consump-
tion of imported ores has been about 2,000,000 tons?
Mr. Grace. That would depend on the ups and downs of business,
of course, but I should think that approximately the importations of
our own ores, mined in our two foreign countries, that 2,000,000 tons
would be a good round figure for it; yes.
Mr. Feller. Now the Bethlehem Steel Co. also.manufactures steel.
Could you teU us where your main plants are located?
Mr. Grace. TJie steel-manufacturing plants are located in Beth-
lehem Pa. ; Lackawanna, which is just adjacent to New York on the
Lakes. " /
Mr. Feller. TJhat is adjacent to Buffalo?
Mr. Grace. That is adjacent to Buffalo, I mean. Cambria plant
at JohnstoNvn, Pa.; Steelton, Pa., in the center part of Pennsylvania,
adjacent to Harrisburg, Pa.; Sparrows Point plant on the Chesapeake,
about 12 miles south of Baltimore; three plants producing steel on the
Pacific coast, Seattle, San Francisco, and Los Angeles. I think those,
as I roughly run through them, represent our steel producing plants.
Mr. Feller. Is the Sparrow's Point plant near Baltimore the
largest of your plants in terms of capacity, tons of ingot capacity?
10584 CONCENTRATION OF ECONOMIC POWER
Mr. Grace. Possibly a little larger than the Lackawanna plant
not much. The four largest of our steel producing plants, in order
named from a steel-producing standpoint would be Sparrow's Point,
Lackawanna, Bethlehem and Cambria, at Johnstown.
Mr. Feller. Now Bethlehem Steel Co. is also engaged, as was
pointed out earlier, in the fabrication and erection of various structures.
Mr. Grace. That is right, and in the field of steel fabrication,
both in what we call structural work and plate fabrication, structural
steel, buildings, bridges, plate work, tanks, barges, and that class of
work. Originally that was part of the McClintic-Marshall situation.
Mr. Feller. And Bethlehem Steel Co. also has a number of ship-
building plants, does it not?
Mr. Grace. A number of shipbuilding and ship-repair plants.
Mr. Feller. Is it correct to say that Bethlehem Shipbuilding di-
vision is the largest single unit in the construction of vessels in this
country?
Mr. Grace. I think I might modestly subscribe to that; yes.
Mr. Feller. If the committee will look on page 6 of the little
booklet which was first introduced, ^ it will see a chart indicating the
structure and organization by function of the Bethlehem Steel Cor-
poration, the data being taken from the registration statement of
Bethlehem Steel Corporation filed with the Securities and Exchange
Commission, merely for the guidance of the committee. Mr. Grace,
could you tell us at the present time what the approximate total
assets are of Bethlehem Steel Corporation?
Mr. Grace. You will find it on this chart, $715,800,000 in round
figures.
Mr. Feller. Would you be able to tell us how your ingot capacity
compares with the capacity of the entire industry in terms of percent-
age?
Mr. Grace. 1938, 13.7 percent; 1937, 14 percent; and I assume
that is about the basis today.
Mr. Feller. Then in terms of ingot capacity you are the second
largest producer in the country.
Mr. Grace. That is right.
Mr. Feller. After the United States Steel Corporation.
Mr. Grace. Yes.
Acting Chairman King. Does ingots include "and castings"?
Mr. Grace. That is right.
Acting Chairman King. The reason I ask that is because the chart
in that bracket includes steel ingots and castings.
Mr. Grace. That is right, Mr. Chairman, the steel being made in
the same capacity, in the same furnaces, for both ingots and castings,
and the capacity is based upon the capacity of the steel-producing
furnaces.
Mr. Feller. Mr. Grace, as you have no doubt seen, of major
concern through these hearings has been the question of price.
Mr. Henderson. May I ask a question there? Senator O'Mahoney
can't be here, which he greatly regrets, on account of a slight illness.
He hasn't a^ked me to do this, but I would like to go a little further
than Mr. Feller did. Do you do business in practically all States?
Mr. Grace. Yes; we undertake to. It is our thought to do so.
Our business is national and international.
'Chart II of "Exhibit No. 1349", included in Hearings, Part 18, appendix, facing p. 10393.
CONCENTRATION OF ECONOAIKJ i'OWKU 10585
Mr. Henderson. Do you find it necessary to take out corporate
charters in all of these States or any of these States?
Mr. Grace. Yes; in the process of doing business.
Mr. Henderson. For jout sales organizations particularly?
Mr. Grace. That is right, that is right exactly.
Mr. Henderson. And in that connection do you have reports to
make to the State authorities requiring reports?
Mr. Grace. I assume that is the case. That is right.
Acting Chairman King. Are you actually stating that you have
to take out a charter?
Mr. Grace. We have to take out a license.
Acting Chairman King. Not a charter. Most of the States require
domestic as well as corporations outside of the States to obtain a
license to do business.
Mr. Grace. I was speaking in general terms — take out something
for the right of doing business in those States, whatever that may be.
I assume probably license may be a little better word.
Mr. Henderson. Are there some charters and some licenses? In
Massachusetts, for example, it might be more advisable, as an instance,
to get a charter.
Mr. Grace. May I ask general counsel or some of my associates?
Mr. HoYT A. Moore. ^ In some States separate corporations, but as
a rule business is done by companies qualified in the States; or as the
chairman has stated, licensed for operation in those States.
Acting Chairman King. That is to say, the parent company has
subsidiaries and some of the subsidiaries are organized in various
States and they take out charters in those States?
Mr. Moore. Well, the subsidiaries are organized and chartered
in different States; those subsidiaries will be qualified and licensed
to do business in various States as they find it necessary to go into
those States to do business.
Mr. Henderson. But regardless of these requirements, questions
of policy as far as those corporations are concerned are determined
by the top corporation?
Mr. Grace. That is right. In our organization, Mr. Henderson,
I gave the key to it when I said that I was president of Bethlehem
Steel Corporation, of Bethlehem Steel Co., and the other active
officers of the management group have similar offices in whatever
may be necessary of the companies to do business in our respective
States.
Mr. Feller. As I said before, Mr. Grace, you realize that our
primary concern has been the question of price, and so I should like
to ask you at the outset a few questions with respect to the manner in
which price changes are determined within your organization. It is
customary in j'our organization to have the officials or employees of
your various divisions prepare recommendations with respect to
price changes?
Mr. Grace. May I construe your purpose, Mr. Feller, to have me
first in a general way state how we proceed in the conduct of our
business and the concepts of what responsibilities in management
I have with respect to—
Mr. Feller (interposing). I think perhaps that will come out better
at a later point, Mr. Grace, and I will be very glad to have you say
' Of Cravath, de Gersdorfl, Swaine & Wood, general counsel (or Bethlehom Steel Corporation.
10586 CONCENTUATION OF ECONOMIC POWER
that. 1 think first it would bo interesting to the coramittoe to have
the, shiill we call it, mechanics.
Mr. Grace. All right, that is what I was alluding to. That is
exactly what I wanted to lead to in that manner. I think you will
be satisfied. I am not going into a dissertation as to management or
anything of that sort.
Mr. Feller. Go ahead
Mr. Grace. We have, as we have already testified, the management
of our business concentrated in this one group. We have an executive
staff, headed by myself, a small group mainly made up of a presi
dent and vice presidents, who have control and responsibility for the
various activities such as selling, manufacturing, marketing, purchas-
ing, etc. That group I look upon as the management executive group
of our institution. They all have oflices centered in Bethlehem, Pa.
We live in Bethlehem, Pa. We meet daily together as a group when
we are at home. That is w^here we start the process of the managing
of our institution. That is where we start giving consideration to
all phases of the business. That is where we start considering pro-
duction and the sales end. That is where we start giving consider-
ation to the conditions of business throughout the country, to guide
us in establishing our specific, let us say, prices that govern the sales
of our j)roducts. We keep in touch, or try to, tliroughout the country
with the steel markets. As and when it comes time for the issuing
of instructions for the general guidance of our sales people we do that
after we have traced to the best of our ability what the markets for
steel are throughout the various sections of the country, the conditions
prevailing which make those markets, and one of the principal factors
which we have in that process of reaching decisions as to what we will
do sales-wise as a rule has been the announcement of the Steel
Corporation from time to time periodically as to what their prices
are to be. It is a good guide for us as to what we expect to find
competitivewise and then after we have reached these conclusions
with those studies and the information of that nature, then we issue
instructions to guide us in our sales forces, instructions in the form of
definite prices which we expect them to obtain if possible for the
various products which they sell.
Mr. Feller. I take it that the process of deciding upon a price is
concentrated very largely in a rather small group of men, including
yourself and Mr. Mackall and some others.
Mr. Grace. This chief executive staff that I speak of all have a
part in any kind of studies with respect to any part of the business
of our corporation. Just because a man happens to be a manufac-
turing man, an accounting man, a purchasing man, we all feel that
the conduct of the business is so closely related that we slop over
into each other's baliwick, if I may use that word.
PRICE changes
Mr. Feller. Now there are a number of matters that you have
touched on, Mr. Grace, that perhaps we can look at in somewhat
more specific fashion by considering some particular instances of
price changes. As the committee has seen, in 1936 there were two
increases in the price of steel; in 1937 there was one increase in the
early part of the year, wliich apparently was rather substantial.
CONCENTR4TION OF E( 'GNOMIC I'OWIOR 10587
In 1938 there was a reduction in the price of steel, and when I speak
of price I am referring to the base price.
Now, Mr. Grace, these three price increases and the one price
reduction that I have been referring to were first announced by the
United States Steel Corporation.
Mr. Grace. My recollection would be that that was tlie case in
the main, the fundamental base prices.
Mr. Feller. Yes; that is what I am referring to.
Mr. Grace. That would be the way I would remember it.
Mr. Feller. As I understood Mr. Fairless' testimony, the reason
for the price increases — welt, let me put it this way: The reason for
the price increase, according to Mr. Fairless, the price increase early
in 1936 was to bring about, to restore, a relationship among various
products which had been disrupted by the depression. He then went
on to say that the price increase in the latter part of 1936 and the
price increase in the early part of 1937 were due to increased costs,
the increased costs, I take it, of the United States Steel Corporation.
Mr. Grace, could you tell us the reason why your companj^ decided
on the three occasions of the price increase to announce prices which
were the same as those announced by the United States Steel Corpo-
ration?
Mr. Grace. Our policy and purpose is to do our business com-
petitively. The return which we were getting for our steel sold in
1935 and the early part of 1936, leading up to the time when the first
adjustment of prices started to take effect, was not on a basis that
gave sufficient spread between the cost of producing our products
and the amount realized on the sale of them to give a profit to the
business. We welcomed the opportunity to obtain a larger return
through the increase of selling prices, and we found that the market,
competitive-wise, would permit us to obtain higher prices. We
needed it and we followed it, just the same as you have to go the other
wax, but fundamentally in our processes there is that of meeting the
competitive situation.
Since you spoke of Mr. Fairless' testimony, I am sure he would have
no objection to my using his name in this manner, and on costs — we
had naturally the same experiences as the subsidiaries of United States
Steel Corporation had in gradually increasing costs due, in one main
instance, as Mr. Fairless clearly put before the committee, to increase
of labor rates, increasing of materials ; hut the big one, largest outstand-
ing factor in the increasing of costs was naturally the increasing of
labor rates beginning at that period.
I looked over our statement last night, and as between 1929 and the
present time our labor rates have increased about 32 to 33 percent.
Mr. Feller. Your cost increases
Mr. Henderson (interposing). May I ask a question there? Your
rates in Bethlehem are not as high as the rates that Mr. Fairless recited,
are they?
Mr. Grace. Our labor rates? Yes; just as high as the Steel Cor-
poration rates. Our base rates range from 5Q% cents an hour to 62}^
cents an hour, depending upon the location of our mill, and specifically
on your question, the average earnings, since you have put the ques-
tion to me, again I will quote the Steel Corporation because it is pub-
lished property as appearing in their annual reports and ours, the aver-
age earnings per hour of our employees comparable with the Steel
10588 CONCENTRATION OF ECONOMIC POWER
Corporation employees, I believe on an exactly comparable basis, in
1936 the average per hour of Bethlehem employees was 73.6 cents,
United States Steel, 73.7 cents: 1937, Bethlehem Steel, 87.7; United
States Steel, 86.4; 1938, Bethlehem Steel 89.5; United States Steel,
90.2. You will notice they are substantially the same.
Mr. Henderson. They are the average earnings for your wage-earn-
ing force.
Mr. Grace. That is the complete earning for all wages paid in the
two corporations.
Mr. Feller. Now, Mr. Grace, your common labor rate in your
plants at Sparrows Point, Cambria — I will leave out Cambria, I am
not sure but your common labor rate in the plants at Johnstown,
Bethlehem, and Sparrows Point, that is what?
Mr. Grace. The common labor rate at Sparrows Point is 56)^
cents; at Cambria, 58)^ cents; at Pittsburgh, 62K cents; and Chicago,
62)^ cents; Bethlehem, 56}^ cents. At Buffalo — at our Lackawanna
plant, 59 )i
Acting Chairman King. For what year was that, Mr. Grace?
Mr. Grace. They are the rates in effect now. I understood that is
what Mr. Feller was asking, Mr. Chairman.
Mr. Feller. Now, am I correct in saying that United States Steel
Corporation pays 62% cents at all of its plants with the exception of
the plants on the west coast, where the rate may be somewhat higher
or lower?
Mr. Grace. You are asking me about the Steel Corporation — no;
that is not the case. The Steel Corporation's rate, as an example, in
a small plant
Mr. Feller (interposing). I am wrong, of course, because the Cor-
poration has a plant at Birmingham where the rate is lower.
Mr. Grace. That is right, and they have varying rates on the
Pacific coast the same as we have. The Pacific coast rates, if you like
them, I have them here, and I think these are alike, possibly, with the
Steel Corporation. .In San Francisco the rate is 60 cents an hour, Los
Angeles, it is 58 cents. We have a plant in Seattle producing steel,
which is 60 cents. I don't want to be held to the fact that that is
the Steel Corporation rate.
Mr. Feller. Now I should like the record to be clear on this point.
The largest plants of the Steel Corporation are at Pittsburgh and
Chicago, are they not?
Mr. Grace. And Birmingham.
Mr. Feller. The Birmingham plant is somewhat smaller.
Mr. Grace. It is smaller than those centers, yes, certainly.
Mr. Feller. At the two largest plants of the Corporation the com-
mon-labor rate is 62 K cents. Which are your two largest plants?
Mr. Grace. Our two largest plants would be Sparrows Point and
Lackawanna.
Air. Feller. Your rate at Sparrows Point is 56%, and what is your
rate at Lackawanna?
Mr. Grace. At Lackawanna it is 59K- In that particular direc-
tion, Mr. Chairman, our base labor rates as established at our various
plants and centers, are as high, if not the highest, of rates for similar
work in our respective territories.
This question of rates is historical throughout the United States.
I Imow of no industry but what has fluctuating district wage rates,
CONCENTKATION OF KCONuMIC I'OVVEll 10589
depending on the rates prevailing in tiieir respective locations. I can
say for our rates that they are as high as or higher than and the
resulting of all of our rates is as high as those of the Steel Corporation.
Now this isn't any matter of competition between the .Steel Cor-
poration and Bethlehem, and 1 am sure they would have no objection
to my citmg this instance, purely in the theory of this historical rela-
tionship that has existed in all industry throughout the country at all
times.
Air. Feller. Now Mr. Grace, just a few mmutes more on this
matter of comparative costs. The Steel Corporation derives the bulk
of its iron ore from properties in the Lake Superior district, Mixmesota,
and Michigan. And I understand that during the period of 1936 and
1937, there were mcreases in wage rates, and there were also certain
added obligations of Government, such as Social Security taxes. Did
your costs of operation in your Chilean and Cuban ore properties rise
similarly during that period?
Mr. Grace. They did.
Mr. Feller. There were wage increases there?
Mr. Grace. Wage increases, tax increases.
Mr. Feller. Did they rise as much?
Mr. Grace. That I couldn't tell you, but I assume they did. I
don't think they would miss that opportunity.
Mr. Feller. By "they" j^ou mean?
Mr. Grace. By "they" I mean the Governments of Cuba and Chile.
They had a good example set.
Mr. Feller. Are the wage levels in Cuba and Cliile generally lower
in the iron-ore mines in wage levels than the Lake Superior district?
Mr. Grace. Yes.
Mr. Feller. Mr. Grace, passing to the period between the early
part of 1937 and the first half of 1938, did your corporation find during
that period that it was difficult to secure the published base price?
Mr. Grace. Yes.
Mr. Feller. And you were selling then below the published base
price for much of that period?
Mr. Grace. We sold at quite varying prices during that period,
fluctuating from base price downward to whatever competition might
have required. I am sorry I haven't a statement that I could show
you our realization prices against our base price, as the Steel Corpora-
tion has. We don't have that statement.
Mr. Henderson. You don't make that kind of a computation for
yourself?
Mr. Grace. Yes; I think we have that information but we just
didn't have it in chart form.
Mr, Henderson. Have you any idea — you have looked at what
has been put in the record, comparing for United States Steel base
price as against realization, have you not?
Mr. Grace. Yes.
Mr. Henderson. Have you compared that with your own?
Mr. Grace. No; I haven't had the opportunity. Our experience
would be, I am sure, of a similar character. As to detail, I wasn't
clear whether the Steel Corporation had interpreted in what they call
their realization prices against the base price, whether that included
only the item of selling below base prices, or some other items, let's
say shipping against the basing points as an example.
10590 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. I think it did.
Mr. Grace. That wasn't brought out.
Mr. Henderson. I think there was one part of the testimony that
indicated that. Would it be proper, Mr. Chairman, to ask Mr.
Fairless, who is in the room, to answer that?
Acting Chairman King. No objection.
Mr. Henderson. Mr. Fairless, will you just come forward to
answer this question.
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL CORPORATION, NEW YORK, N. Y.— Resumed
Mr. Henderson. You are on the right side of the table this morn-
ing.* [Laughter].
The question is, in that table which you put into the record the other
day on your realizations as against the base price, that included all
your business, did it not?
Mr. Fairless. Yes.
Mr. Henderson. And it also included the item of freight absorp-
tion, did it not?
Mr. Fairless. Yes, it did.
Mr. Henderson. And that would run, oh, as high in some of those'
periods as what, three or four dollars a ton?
Mr. Fairless. I really don't know. Not that much, I don't
think. Not as an average. I really don't know the figure, but
answering your question, it did include any freight absorptions that
we might have had in the transaction of our business.
Mr. Henderson. Mr. Chairman, since we are not going to take
this up until January 1, this is an incident that I am proud of; I
know that figure better than Mr. Fairless.
Mr. Fairless. You probably do. I admit I don't know.
Mr. Henderson. I will let it rest, not on of the amount, but as to
the fact that it did include freight absorption.
Mr. Grace. Obviously, we did not net during that period our
selling prices, our published selling prices. Now to what extent we
didn't net them, I haven't got it in the form that I can present it to
you, but we did not net our published base prices, and I would
expect
Mr. Henderson (interposing). But over the period of years, does
your realization as against the price Steel generally follow about the
same contour as the Corporation's?
Mr. Grace. That I couldn't say, Mr. Henderson, I really couldn't
because we are operating in distinctly different territory. We operate
very largely in the eastern territory. We are not important producers,
say, nothing like as important producers in the central western
territory, as the Corporation. Now that would change due to our
transportation charges and points of delivery of our steel.
Mr. Henderson. That answers my question. I wanted to know,
Mr. Chairman, whether they have any comparison of their realization.
Thank you.
Acting Chairman King. Mr. Fairless, when you return in January,
for my own information and not for the rest of the committee, I
should be glad if you would furnish a statement showing the taxes,
» Mr. Fairless had been sitting ynth the staff of the Department of Justice.
CONCENTUATION OF ECONOMK^ I'OWER 10691
Federal,. State, local, including social security, and all taxes, all
obligations, all charges
Mr. Henderson (interposing). That has been done. That is
available in this information.^ It is part of your confidential copy.
Acting Chairman King. Is it confidential?
Mr. Henderson. It is confidential until January 2, but I suggest
that you do what I did, have a good index made of it.
Acting Chairman King. And I would ask Mr. Grace also to furnish,
if you have not done so
Mr. Grace (interposing). No; we haven't.
Acting Chairman King. A full and complete statement of your
taxes for each year during the last 10 or 12 years, local, Federal, State,
Social Security.
Mr. Grace. We will prepare it and submit it to the committee.^
Mr. Feller. I wonder if you could also include in that the taxes
which you pay on your Chilean and Cuban properties. That might
be of some interest.
Mr. Grace. I will see if we can.
Mr. Feller. Mr. Grace, during this, and I think it would be per-
fectly proper to say, difficult period, the latter part of 1937 and the
early part of 1938, when the rate of steel operations and the demand
for steel was dechning so precipitously, did your company consider at
any time the advisability of reducing the base price on its own
initiative?
Mr. Grace. We were in effect reducing the base price in our daily
activities.
Mr. Feller. You mean, you were in effect selling at a price below
the base price.
Mr. Grace. As to the question of going out and making public, or
attempting to establish a public new base price, no; I can't say that
we did. We possibly thought of it, we undoubtedly discussed it, but
we didn't see it as a feasible thing to do.
Mr. Feller. Why didn't you think it was feasible.
Mr. Grace. The drop was so rapid and so uncertain that it would
have been difficult at that time to put out any price hst that would
have been regarded as representative of the situation. It was rather
a matter of waiting to see what might take place. You recall that
we built up to a substantial operation through the increased demand
in the early part of '37, and you recall there was then a dip. That
caught itself, and the demand again reappeared. That was very
encouraging, naturally, and then for no better expression, almost over
a very short period, the bottom just fell right out and the market
goes like this, according to the charts that we were looking at here
the other day. Where to catch ourselves, we started, as I recall it
now, I know, we built up a v^ery large order-book the early part of '37,
running close to capacity, and by the end of the year that order book
had shrunk, just from memory I should say certainly 75 percent of
the backlog. That is a good pictiire of the radical, erratic perform-
ance of business at that time.
' "Exhibit No. 1416" included in Hearings, Part 26.
' In response to Senator King's request Mr. F. A. Shicli, comptroller of Bethlehem Steel Corporation sub-
mitted a consolidated aggregate tax accrual statement for that corporation and its subsidiary companies in
a letter dated January 20, 1940. The letter and statement are included in the appendix on p. 10741-10742.
10592 (^ONCIOXTKAiMON OK ECONOMIC POWER
Mr. FioLLER. Mr. Grace, do I understand from what you have just
said that the reason why you thought it not feasible to reduce the
base price was because you didn't know where to put it?
Mr. Grace. I certainty wouldn't have known where to put it.
Mr. Feller. If you had seen in that period some indications of
stabilit}^ of the pj-ice, or stability of operation, would you have thought
it advisable to lower the price at that point?
Mr. Grace. Tliat is eventually what did take place in the early
])art, or around the middle part of '38. That is exactly what took
place. It became so dofinitely established and so apparent that we
were not obtaining anything like our published prices, base prices for
steel, they weren't representative, business had reached another point
where it looked as if it might stay for a while, I was very glad then
of the opportunit}' to follow the Corporation's lead in the publishing
of new base prices, which they did. I was glad to see that take
place. I thought then it was constructive and a good thing to do.
Acting Chairman King. Fi'om a realistic standpoint, can you have,
wliere the market changes with such variations as occurred during the
period referred to, a stabilization of base price and have a base price?
Mr, Grace. Not a stable base price. You can have a base price
but
Acting Chairman King (interposing). It is meaningless.
Mr. Grace. It is a mark, that is all, purely a mark.
Acting Chairman King. I recall a few years ago, if I may institute
a comparison, when the so-called base price for wool, established by
the Boston buyers, was, say, 18 cents per poimd, and the fluctuations
were so great that it went down to 4 or 5 or 6 or 7 cents per pound and
finally you couldn't sell it at all. That fluctuation is the same with
some of the mining products — lead, copper. Copper when it was up
to 23 cents a pound fluctuated and got down to 5 or 6 cents a pound
and we finally had to put a tariff of 4 cents a pound on it in order
to find a market at all and keep out the competition.
Mr. Grace. Mr. Chairman, I am a bit old-fashioned but I think
I see still operating in industry that old law of supply and demand.
Mr. Henderson. You said, right along that line, that you were
glad to follow the lead of the Corporation in June of 1938. You
thought it was an excellent thing. Did you mean you thought it
would stimulate business?
Mr. Grace. No; I thought it would create more of a definite
imderstanding and a picture of the actual condition which existed in
the industry. Our published prices had become so fictitious, not
representative of all the markets, that when the time arrived where
they could be reasonably established or could be established on a
basis that would reasonably represent then what was going on, I
frankly was glad to see it come. I thought it was a good, constructive
thing to do.
Mr. Henderson. So you might say there was no misunderstanding
from the standpoint of your leading customers about the departure
from the base?
Mr. Grace. No.
Mr. Henderson. But you thought it was healthy, perhaps, for the
public, to understand that also.
Mr. Grace. Understand it and get away from the erratic situation
which was in the industry that the public didn't, it seemed to me,
have a proper realization of.
CONCENTRATION OF ECONOMIC POWER 10593
Mr. Henderson. During this period, did^you get the base price
for any part of your deliveries?
Mr. Grace. Yes; we would be getting some.
Mr. Henderson. Where would you get that principally, on the
small orders?
Mr. Grace. On the smaller type of order, possibly, and some con-
tractual situations may have given them to us, but we were netting,
and some products were naturally not as disturbed as other products.
The demand was holding in certain lines. Take the consumers lines,
like the canning industry and that sort of thing. There was reason-
ably good demand.
But when it came to capital goods, it was just all over the map.
Mr. Feller. Mr. Grace, I think we have come to a somewhat im-
portant point here. The base price remaiued at the high level. So
far as the operation of your company and of United Sta,tes Steel Cor-
poration were concerned, you weren't getting that price. Your real-
ization was substantially lower, and yet some purchasers were paying
that price and they included certain types of consumption and also
small buyers.
Now, by keeping that base price at that fictitious level, to use your
own words, weren't the small buyers in effect being penalized?
Mr. Grace. No; not on an average more than the large buyers. I
used the term "small buyers," spoke of the small buyers as being an
instance. Some of the large buyers may have been paying a price,
too. It was general throughout the industry to have price decreases
and there was no particular class of buyer that wasn't involved in it
and getting lower prices under it.
Acting Chairman King. I suppose some products, and probably
some of the specials, so-called, or extras, maintained a reasonably
stable base price, or rather the departures from base price were not as
great as departures in many other commodities.
Mr. Grace. Exactly, sir.
Acting Chairman King. In other words, there was no continuous
line for all products. The base line would be departed from in some
products but not in others, and where there was no very great depar-
ture in the base line it is because the demand kept up.
Mr. Grace. And different degrees of departure where departure
did take place.
Acting Chairman King. I suppose from your statement that the
capital goods during this period to which you have referred sustained
a greater departure from the base line than some of the other com-
modities and some of the specialties?
Mr. Grace. That might be true. I wouldn't know, offhand, but I
would assume that it might be — some of the capital goods.
Acting Chairman King. But if there were consistent demand for
certain of the commodities or 4)roducts of the mills, consistent with
years past, I presume there would be a greater adherence to the base
line.
Mr. Grace. Yes; as your demand increases your ability to main-
tain your published prices is naturally easier than it is in low demand,
where competition is keener. It is all controlled, substantially, by
competition in the industry.
Acting Chairman King. Are you sufficiently familiar with other
commodities in other lines of industry than the steel industry, with
124491— 40— pt. 19 10
10594 CONCENTRATION OF ECONOMIC TOWER
the woolen industry and all of the cotton fabrications, wheat markets
and all of the other agricultural commodities, to state that there was
a variation there from what might be denominated a base line?
Mr. Grace. I don't think I had better try to go afield,
Mr. Chairman.
Acting Chairman King. You want to stick to your own last, do
you? You want to be a good shoemaker and stick to your own last?
Mr. Grace. I think we had better stick, from my standpoint,
to the steel business.
Mr. Feller. You wouldn't care to say, Mr. Grace, that the price
of steel should behave the way the price of wheat behaves?
Mr, Grace. No, I wouldn't want to compare the two, but I do
know that the steel industry is no different than any other basic
industry in our whole bag of tricks of our industrial and economic
structure. It goes and comes with the conditions of business.
GOVERNMENT BIDS
Mr. Henderson. Mr. Grace, I have examined a number of the
contracts for Government purchasing during that period, and most
of them I have seen show that your company and all other
companies bid the base price and the identical price. Was that your
poUcy during that period?
Mr. Grace. Our poHcy was, during that period, to get our pubUshed
prices if we could.
Mr. Henderson. And your bidding on government contracts was
' at that price.
Mr. Grace. That is right. We were trying to get it, it was ap-
propriate and proper to get it in our commercial activities, if the
demand and conditions were such that we could get it.
Mr. Henderson. What I am getting at is, it wasn't always just the-
small buyer that paid it. Sometimes the powerful buyer, one sup-
posedly powerful, paid th^ base price.
Mr. Grace. That is right.
Acting Chairman King. Was there competition for those purchases
by the Government? Were there more bids, in other words, than
bids submitted by your company?
Mr. Grace. Oh yes; many bids.
Mr. O'CoNNELL. On that question of competition for government
purchases, I take it from your earher statement that since you all
adhered to the posted price, that whatever basis the competition was
on, it was not strictly on the price basis.
^ Mr. Grace. I couldn't say what the bidding of other companies
were to government inquiries. I didn't think Mr. Henderson asked.
me to say whether they were all alike or not. He asked me what our
company did. Our company substantially bid to the Government
largely our published prices. What other companies bid, that I
wouldn't have knowledge of. I know we didn't by any means get all
the business. I am sure of that.
Mr. Henderson. I think we will have some material on that,
Mr. O'Connell, at a later date when we take up the question of
Government purchases.
Mr. Feller. The fact as I imderstand it is substantially as Com-
missioner Henderson has stated it, that during that period generally
CONCENTRATION OF ECONOMIC POWER 10595
Speaking the bids submitted to the Government by various steel
companies were identical, substantially identical.
Mr. Henderson. And were base price.
Mr. Feller. Base price plus the extras as set down in the extra
book. Now I am trying to get at the significance of this base price.
Didn't the base price although not adhertid to over the average
because of the conditions of the market, didn't the base price have
this significance: That it resulted in some purchasers who perhaps
because of iuferior knowledge with respect to market conditions or
perhaps because of insufficient buying power, didn't it result in a
discrimination between purchasers so placed and purchasers who
knew more about the market and who could buy more?
Mr. Grace. I shouldn't have thought so. I think you have
varying degrees of differences on the base prices. I think when you
are in a market of that natiu-e, it is operating daily; the seUing of steel
and similar projects at a specific time would have been done on a
similar and like basis. That basis may have been quite different
tomorrow from what it was today as we would obtain knowledge of
our competition.
Mr. Feller. Yes; but the base price was at any rate the ceiling,
was it not? Nobody paid more than the base price plus extras,
Mr. Grace. I think that is fair >to assume. We weren't getting.
any premium prices.
Mr. Feller. By virtue of the base price being where it was at this
relatively high level, some purchasers, those purchasers who werp
paying the base price, and because the price was at that level, were
paying more than if you' had reduced the base price in that period.
Mr. Grace. In the operation of our own activities we wouldn't
knowingly discriminate to our like respective trades for respective
services. When a condition arises from a competitive field that
somebody else should have gotten from some other steel company a
lower price than we gave them and that constitutes discrimination or
a hardship, let us say, in the trade, that is a result purely of com-
petitive activities over which we couldn't have any control.
Mr. Feller. I am not suggesting that there was any deliberate or
calculated discrimination. What I am concerned with is whether or
not the fact that the base price remained where it was at this relatively
high level, whether that did not increase the area within which
discrimination would result from the market conditions.
Mr. Grace. Well, if a period of greater competition that resulted in
differing prices would constitute discrimination, I don't know that
it does. I shouldn't think it did, because as you are doing business
currently, the trade is getting the benefit of what you are doing
currently and accepting it.
Mr. Feller. Was the Government getting the benefit of that?
Mr. Grace. The Government was getting the benefit, from our
company's standpoint; the Government was getting our oflScial
published price. It was our effort at all times to try to obtain them
and I think we lost a lot of Government business, a lot of it, because
our prices were not low.
Mr. Feller. With respect to the market
Mr. O'CoNNELL (interposing). Just a minute. You wouldn't care
to indicate that you lost the business because your prices were too
high?
10596 CONCENTRATION OF ECONOMIC POWER
Mr. Grace. That might be the case; yes.
Mr. O'CoNNELL. You wouldn't say that necessarily followed?
Mr. Grace. Yes; because our prices were higher than some other
prices the Government had.
Mr. O'CoNNELL. Do you understand you lost any sales of material
to the Government on that basis?
Mr. Grace. Because our prices were high?
Mr. O'CoNNELL. Because there were prices lower than yours.
Mr. Grace. Yes; undoubtedly we did, just the same as we lost
a great deal of business because our prices were competitively high in
the commercial field.
Mr. O'CoNNELL. May I interpose there? It doesn't seem to me the
situation is exactly comparable, at least you didn't treat the situation
exactly the same as I understand you in other areas to meet competi-
tion.
Mr. Grace. In^ the main we tried to get our published prices for
what we sold the Government.
Mr. O'CoNNELL. Of course, but in other areas because of competi-
tive forces you found it impossible to get business on that basis.
Mr. Grace. Certain places and then we varied it.
Mr. O'CoNNELL. You reduced it so your net realization during this
period was substantially less than the posted price.
Mr. Grace. In certain areas that might be true, if it was com-
parable business.
Mr. O'CoNNELL. It is also the fact that you didn't use that same
policy in your Government transactions, that is, attempting to reduce
'your price in order to get the business.
Mr. Grace. Not as aggessively, no; I think that is true.
Mr. Henderson. You know, Mr. Grace, how a contract is awarded
on a Government contract when all of the bids are tied.
Mr. Grace. I don't know that I do, Mr. Henderson.
Mr. Henderson. That surprises me quite a bit.
Mr. Grace. I don't know that I do.
Mr. Henderson. Then maybe I had better wait until we get into
the Government method of coin pitching.
Mr. Feller. Mr. Commissioner, perhaps you can tell us what
your understanding is of Government contracts.
Acting Chairman King. That is a matter to be presented later
after the evidence.
Mr. O'CoNNELL. I would be perfectly willing to enlighten Mr.
Grace on what ordinarily happens in the purchase of steel by the
Government. The bids are ordinarily ties, as I understand it, and
they put a number of slips in the hat, one slip representing each
bidder, and the lucky man gets the job.
Mr. Grace. I think we have been unlucky.
Acting Chairman King. There were lots of contracts upon which
you bid you didn't get?
Mr. Grace. Lots of them. «.
Mr. Henderson. If he had cut his price on some of those other
contracts he certainly would have got it.
Mr. Grace. I think that statement is correct.
-x-Mr. Feller. Is it correct, then, "Mr. Grace, to say that during this
period when the base price was fictitious as far as the trade was con-
cerned, that it was not fictitious as far as the United States Govern-
ment was concerned?
CONCENTRATION OF ECONOMIC POWER 10597
Mr. Grace. I have told you what our policy was in quoting to
the United States Government. That is as far as I can go.
Mr. Feller. Your policy was that the published base price was
a real price?
Mr. Grace. That is the basis upon which we quoted and undertook
to get Government business.
Mr. Feller. Mr. Grace, I should like to return just for a moment
to the question as to which you testified previously with respect to
your views on whether or not the price should have been reduced
during this period, and I have here an extremely interesting letter
which you wrote to the official of a steel fabricating concern. The
letter which you WTote is dated May 15, 1938, and it is in reply to a
letter from A. Katchen of the Irvington Steel & Iron Works, which
letter was dated May 10, 1938. Would you mind identifying it?
Mr. Grace. I take it that is the same letter. Yes.
Mr. Feller. I should like to offer these ^r the record.
Acting Chairman King. No objection.
(The letters referred to were marked "Exhibits Nos. 1419 and 1420,''
respectively, and are included in the appendix on p. 10733.)
Mr. Feller. I shall read just part of Mr. Katchen's letter to
which yours is a reply, to get the drift of it, but I can't omit the
first paragraph, Mr. Grace, which is a decided compliment to you.
Mr. Grace. I don't see any objection to reading the whole letter.
Mr. Feller (reading from "Exhibit No. 1419"):
I have always been an admirer of yours, and still have the highest regard for
your initiative and good judgment.
Mr. Grace. I'd like to get that in the record. [Laughter.]
Mr. Feller (reading further from "Exhibit No. 1419"):
I wonder if I, a small-business man, engaged in the steel industry, may give
my viewpoint to you, hoping that by this measure, you as a leader in industry
can make the start to bring back recovery, and dispel this present recession.
This letter was dated May 10, 1938.
Reports show that your company, working only 32% of capacity, for the first
quarter of this year, was able to make a profit of over Nine Hundred Thousand
Dollars. Now, if such is true, why can't the steel companies reduce the selling
price of steel.
The lower cost will increase, I am certain, production. This lower price will be
an incentive for the automobile manufacturer to buy; the building industry to
wake up from its letha-gy, a number of other industries, too numerous to mention
here to wake up, and create jobs for millions of jobless, which in turn creates added
business for you, and still give you a profit because of the increased production.
If less time were spent in Washington, and in the Courts, but more time at our
desks; the workers problems our problems, our problems the workers; and Mutual
Co-operation with Government, Bankers, Other businesses, and with Labor; we
can soon rid ourselves of the Dreaded Old Man of the Sea, who hangs so tenaciously
from our shoulders.
Can't we give it a try?
Your reply was as follows [reading from "Exhibit No. 1420"!:
I have your letter of May 10th suggesting, in view of our first-quarter showing,
the possibility of aiding recovery through a price reduction for steel products.
You are somewhat in error as to our figures, as the operation on which we showed
a profit was somewhat higher than the 32% you mention, and today's operation,
both with us and others, is below first-quarter operations.
To comment specifically on your suggestion, I think the opportunities for
stimulating business through price reduction should be looked at from the point
of view of the steel industry as a whole rather than the case of a single company.
10598 CONCENTRATION OF ECONOMIC POWER
As a matter of fact, during the first quarter Bethlehem was one of only two or
three companies in the entire industry that showed any earnings on preferred stock.
Inasmuch as our preferred stock is cumulative and we earned only a part of it in
the first quarter, even m our case, though our showing was satisfactory under
existing conditions, we failed to earn our full preferred dividend, which we really
look upon as a fixed charge. In the case of the industry as a whole it is all the
more true that the first-quarter operations were not such as to make a price
reduction feasible. Moreover, even if it were feasible, it is a serious question
whether that is the proper course to pursue, since with such narrow margins in
the industry today reductions in prices would inevitably entail readjustments in
wage rates, which starts the whole structure of bu3'ing power downward.
I appreciate the spirit in which you have written, but I personally do not feol
that the cure for our troubles lies in that direction.
Mr. Grace, it would appear that about 5 weeks before the price
reduction took place you were of the opinion that it was not feasible
and even if it were feasible that it should not be done.
Mr. Grace. In this particular case, Mr. Feller, bear in mind that
we were dealing with conditions that existed at that time in the
industry. Our published prices were not prevailing nor obtainable
nor controlling. In speaking of the price situation that existed at that
time, I naturally would have in mind the prices currently which we
were obtaining for our product. They didn't tie into the published
prices which you call oflBcial prices in any sense of the word.
Acting Chairman King. Mr. Feller read from your statement that
announced lower prices would call for readjustmemt of wages.
Mr. Grace. Lower prices, because the steel industry as a whole
wasn't in position to further decrease its revenue.
Acting Chairman King. Was your company losing money?
Mr. Grace. Our company made a little money at that time.
Acting Chairman King. Did it make enough to pay the dividends
-on preferred stock?
Mr. Grace. It did not.
Acting Chairman King. Did you earn anything to pay on common
stock?
Mr. Grace. Not at all.
Acting Chairman King. How long since you paid any dividends on
common stock?
Mr. Grace. On our common stock since the last time that we paid
dividends in '37 we paid dividends this year; we have declared $1.50;
on two occasions, 50 cents at one time, and a dollar.
Mr. Feller. Mr. Grace, the gentleman who wrote you this letter
was apparently concerned with a price which he felt was too high. It
isn't clear from this letter whether he is referring to the base price or
the actual price, but at any rate, as far as he was concerned he thought
the price was too high.
Mr. Grace. He is propounding an apparent theory of his own;
yes. I in kind replied as to my thoughts in that direction. I can't
say what inspired his letter; I assume they were proper motives in
every respect.
Mr. Feller. In your reply you indicated on May 15 that you
thought the reduction of the base price would not be a feasible or an
advisable thing to do.
Mr. Grace. Reduction of prices; I didn't use the words "base price."
Mr. Feller. Reduction of prices. Would you have welcomed the
action of the United States Steel Corporation in reducing the base
price if it bad occurred 5 weeks earlier?
CONCENTRATION OF ECONOMIC POWER 10599
Mr. Gkace. I have said that only a few weeks after this I welcomed
the opportunity to establish hefore the public a set of base prices
which were then certainly more representative of the conditions of
prices currently then existmg in the trade.
Mr. Feller. Then you take the view that the price reduction in
June 1938 was in effect a confirmation of the actual price.
Mr. Grace. To a great extent; to a great extent it certainly rep-
resented then the obtainable prices, the prices that were being obtained.
Mr. Feller. Was the realization per ton of your company lower
in July than it had been in May, or substantially the same?
Mr. Grace. 1 suspect it would be substantially the same because
you don't fluctuate in such a narrow cycle in the industry.
Mr. Feller. Take a few months later. Let us take November.
Woidd you know?
Mr. Grace. November in 1938, what our realizing prices would be?
Mr, Feller. Yes.
Mr. Grace. No; I couldn't without looking it up.
Mr. Henderson, Would your assistants have that?
Mr. Grace. Let's get clearly what you ask and I wiU try to get it
for you if we have it.
Mr. Feller, The question I am addressing myself to at the moment
is this: Whether or not the base price reduction in June 1938 repre-
sented a real cut in prices as far as your company was concerned.
Mr. Grace. Yes; it would represent a cut in prices as against the
prices that we were obtaining, I should think.
Mr. Feller. In other words, the base-price reduction did some-
thing more than confirm preexisting prices. Did you have something
on that, Mr. Mackall?
Mr. Mackall. If I would have it he would have it. I don't know
whether this answers the question or not.
Mr. Grace. Let's see if I get clearly what we are talking about;
whether the effect of the new official price schedule which went into
effect or was published to go into effect in June 1938 represented a cut
in prices which we were currentlv obtaining at that time. Is that
right?
Mr, Feller, That is right.
Mr. Grace. Whether the effect of those prices would represent a
net less selling price to us.
Mr. Feller. That is right.
Mr. Grace. That would be very difficult to obtain, very difficult.
What is your impression, Mr. Mackall, without going over a period
with your tonnage on the books, the new business which would sub-
sequently be booked after we established " the new prices, let's say,
and the effect then of the demand currently existing against them,
picking up now. I think it is fair to assume that eventually in this
demand — I couldn't make a supposition, I just wouldn't know.
Mr. Feller. You wouldn't know whether your net miU realization
after these announced reductions in base prices was lower than
Mr. Grace (interposing). Attached to those base prices, a part of
those base prices, no, I couldn't tell you, because I think the cycle
would have to be quite a long one and then whether you could attribute
it to that cause, again I don't know, because now, since that period we
have gone from that time of 1938 and a very low rate of operations to a
10600 CONCENTRATION OF ECONOMIC POWER
substantial hundred percent operation in this industry, in that short
period. Those factors would have to come into this picture.
Mr. Feller. Let us take it on the basis of a year; a year after the
price change, in June 1938 would it be possible to say that on the
average the consumer of steel was paying less for steel than he was
in May 1938?
Mr. Grace. May I refer to our comptroller? Have you anything
there that would give us a line on that without just picking out
individual commodities? Have you anything that would show what
Mr. Feller is trying to obtain for the committee, that is what has
transpired in the price structure since the establishment of new price
schedules in June 1938, say up to now?
Mr. Feller. Let me ask you about a specific consumer, an im-
portant consumer, one we are all interested in. Is the United States
Government today being quoted lower prices for the steel which it
buys than you were quoting it in May of 1938?
Mr. Grace. To the extent that the new price schedules thi t went
into effect changed commodities which they buy; yes. Om policy
has been, as I have said, to quote the United States Government
official published prices. Now there was a reduction in the official
published schedule generally in the new schedules put out in 1938,
and that became then our new schedule for quoting to the United
States Government.
Mr. Feller. We have established this point, then, I take it, that
the base price is significant at least to the United States Government
and when you reduced the base price in 'tfune of 1938 the United
States Government on those products where you reduced the price,
and that included most products, was being quoted less for steel.
Mr. Grace. In respect to the Bethlehem Steel Co.
Mr. Feller. Later on I think the matters which Commissioner
Henderson refers to will give us some light on what the United States
Government relations were with respect to other steel companies.
Mr. Henderson. Let me ask this: The finished steel composite
price before the 1938 reduction was nearly 105, as shown by the chart
already introduced in the record, and the drop took the finished
composite down to about 95, so that if it bought in the same relation-
ship to the construction of this average it would be somewhere
in the neighborhood of 10 percent; but it would be, if it were bujnng
some products from you, $5 or $6 a ton more on account of the
establishment of Sparrows Point as the basing point, would it not?
Mr. Grace. That would again depend on the point of delivery,
wouldn't it?
Mr. Henderson. If it were buying in the area comprehended by
the establishment of that basing point, which was substantial, was it
not?
Mr. Grace. Where we changed our basing points in June 1938?
Yes.
Mr. Henderson. Something like $5 or $6 a ton on sheets?
Mr. Grace. Take an item, let's say, of plates, which the Govern-
ment would be large buyers of. We decreased our basing point price
at Sparrows Point, as a basing point $3 at that time.
Mr. Feller. I am going to come back to that.
Mr. Henderson. I think there were some that ran as high as
$6, too, on sheets, perhaps.
CONCENTRATION OF ECONOMIC POWER 10601
Mr. Grace. Probably so, because at that period there was a basing
point established for sheets at Sparrows Point.
Mr. Feller. I will come back to that very shortly. I should
like to ask you this: In your letter of May 15, 1938, you said, "I think
the opportunity for stimulating business through price reductions
should be looked at from the point of view of the steel industry as a
whole, rather than the case of a single company."
Mr. Grace, if at that moment, in May 1938, the Betlilehem Steel
Co. had, on its own initiative, announced the reduction in the base
price of steel, is it not a fact that at that time that would have become
the base price for the industry?
Mr. Grace. I don't know whether the others would follow it or not.
Mr. Feller. As a steel man, looking back on the thing now, is it
conceivable that it would have been possible for other members of
the industry to have a higher base price when you had a reduction?
Mr. Grace. You asked me whether I thought they would have
announced a revision of the schedules. That I don't know. But
I am quite sure they would have met the prices if it amounted to
lower prices, but what they would have done to their schedules, that
I don't know. I feel sure if it resulted in any other lower prices,
I believe we would have found other fellows after business with us.
Bethlehem's price announcement policy
Mr. Henderson. Mr. Feller, are you going to ask Mr. Grace an
obvious line of questions that derive from this statement having to do
with what they have historically done concerning the announcement
of prices?
Mr. Feller. I am about to come to that.
Mr. Grace, do you recall any occasions on which your company
took the initiative in announcing a lower price on any steel commodity?
Mr. Grace. I can't recall whether we have or whether we haven't.
I know generally we haven't.
Mr. Feller. Then I take it
Mr. Grace (interposing). I know — I am telling you what the
general practice is from our company standpoint. Whether we have
ever initiated any I just couldn't say, but in the main we would
normally await the schedules as published by the Steel Corporation.
Mr. Henderson. That went back as far as you can remember
the policy of the Bethlehem?
Mr. Grace. Yes.
Mr. Feller. Were those schedules announced by the United States
Steel Corporation at any time unsatisfactory^ to you? Did you ever
feel that you ought to publish a different price?
Mr. Grace. I should say it would be impossible for the Steel Cor-
poration oflEicials and Bethlehem officials to have a meeting of minds
on the great question of prices, as to whether they would suit us or
not. I should say it would be an unusual job if we could believe in
everything they do.
Mr. Feller. And yet, Mr. Grace, despite that I take it your general
policy is to do what the Steel Corporation does.
Mr, Grace. Our general poUcy as to prices is to be competitive,
and when the Steel Corporation announces a set of prices it is the
best guide that we have as to what our competition may be. I am
10602 CONCENTRATION OF ECONOMIC POWER
sure we can't get any prices higher than the Steel Corporation gets.
Mr. Feller. Do you ever take the initiative in selling below the
published base price as announced by the Steel Corporation?
Mr. Grace. That I couldn't tell. You have to sell a lot of steel
under very trjdng conditions. I say that we sell steel competitively.
Purchasing agents are quite resourceful. Wliether we take the initi-
ative in making a lower price against base prices, I have never felt
from our company when we had a set of hst prices, if we could realize
the full benefit of those list prices that we would be making anything
but a moderately fair profit, and in most cases not that, and our
ambitions are at all times to obtain the prices which we finally put
out as our official prices, and I would like competition to be such that
that could be reaUzed, but I am sorry to say that in many instances
it is not,
Mr. Feller. And you have historically taken the view that a fair
price for you is what is a fair price for the Steel Corporation.
Mr. Grace. Not necessarily. I haven't subscribed to your sugges-
tion that the Steel Corporation's prices represented at all times my
view of what were fair prices.
Mr. Feller. But they represent to you what you think you can
get in the market.
Mr. Grace. They are one of the factors that tell me what competi-
tion is in the market, and an important factor.
Mr. Feller. You say "one of the factors." Are there any others?
Mr. Grace. We may find some other competitor with different
ideas of prices than the Steel Corporation.
Mr. Feller. You mean some other competitor may announce a
lower base price or a higher base price?
Mr. Grace. They may either announce a lower base price — they
have freedom of action — or they may quote lower prices without any
public announcement. Bear in mind the Steel Corporation is not the
only competitor in the steel business.
Mr. Feller. Well, I am talking now about published prices at the
moment. With respect to published prices, is it your policy to an-
nounce as a published price whatever price is publicly announced by
some other unit in the industry?
Mr. Grace. Wlien we put out a schedule, what we call our official
prices, they usually represent and are the same as our competitor has
put in the market, and in most instances, as a general practice, not
looking for a little difference here and there, as a general practice that
pace is set, if that is a good word, by the Steel Corporation.
Mr. Feller. Now it wouldn't matter, however, in an actual case
if some company would come out at some time in the future, some
company other than the Steel Corporation, with a different published
price. You would still follow that and you have done that in the past?
Mr. Grace. I would still foUow that.
Mr. Feller. You would also revise your schedule to fit the new
pubhshed price?
Mr. Grace. We would be pretty likely to, or I would continue our
policy of meeting competition, if I wanted the business created at
those prices.
Mr. Feller. By meeting competition, you mean going as high as
the Corporation or as low as any person who is quoting on steel.
CONCENTRATION OF ECONOMIC POWER 10603
Mr. Grace. I mean going as low. Tlie word cojnpctition in my
ordinary interpretation of it is to meet a price, if we want the business,
that we find the purchaser has from some other interest trying to sell
that same bill of goods to him.
Mr. Feller. Let's take such a situation as 1936. In the early part
of 1936 you were getting a price which was lower than the price you
were getting in the latter part of 1936, wasn't it?
Mr. Grace. In 1936 we were getting a lower price?
Mr. Feller. Yes; you remember there were two price increases in
1936 and when the Steel Corporation published a new price list in the
early part of 1936, and another one m the latter part of 1936, your
policy was to also announce prices as high as those which had been
announced.
Mr. Grace. That is right. It was very encouraging to find them
doing that.
Mr. Feller. Then you follow them up and you follow them down?
Mr. Grace. I would follow them up in that instance.
Mr. Feller. Do you remember any instance where you didn't
foUow them up?
Mr. Grace. No; and I certainly remember no instances when we
didn't follow them down.
Mr. Henderson. Does that apply also to the extra list?
Mr. Grace. Yes; to the extra list as presented I think quite ably
by Mr. Fairless. You can go to any extent that you want.
Mr. Feller. I would just like to ask this question. Have you ever
felt that the prices published by the Corporation were too high?
Mr. Grace. Never, and results, earnings in the industry, would
seem to me to support that view.
Mr, Feller. How about the situation during the last war?
Mr. Grace. Prices were for aU intents and purposes, I think, sub-
stantially controlled by the Government in that period.
Mr. Feller. Let me put it this way: How about the year 1916,
before we entered the war?
Mr. Grace. I wouldn't know.
Mr. Feller. Prices were pretty liigh, weren't they?
Mr. Grace. I can't remember offhand what prices were back in
1916. As I recall — I don't know, I would have to look to see.
Acting Chairman King. I suppose generally in 1916, by reason of
the torpedoing of boats and assaults wljich were made upon the general
standards of business and prices, there would be an increase in the
price of commodities that were shipped overseas.
Mr. Grace. Oh, there was great demand, great demand.
Mr. Henderson. Your company was one of the first in foreseeing
that demand was it not, due to the activities of Mr. Schwab?
Mr. Grace. In obtaining war orders, if we get into that category —
I guess we were "war baby" No. 1, if you understand or know what
that may be; I guess we were probably that fellow, and properly so
because our busmess was in ordnance Unes.
THE BIRMINGHAM PRICE DIFFERENTIAL
Mr. Feller. Mr. Grace, reference has already been made to the
matter of establishing additional basing points in June 1938. Before
we go into that, I should like to get a little of the background. Prior
10604 C(^NCENTIiATION OF ECONOMIC POWER
to June 1938, as has been testified to here earher, there existed a num-
ber of differentials in the basing point method of quoting prices, and
the chief differentials wliich were discussed were those between Chicago
and Pittsburgh and Birmingham and Pittsburgh, and you may recall
that under that system of quotations, prices at Birmingham were
quoted by the Steel Corporation at $3 higher than prices at Pitts-
burgh. Was it your practice, Mr. Grace, at that time to publish the
Birmingham price as $3 higher than the Pittsburgh price?
Mr. Grace. We were not a producer in the Birmingham territory.
Mr. Feller. But you were a seller, were you not?
Mr. Grace. We were a seller in the Birmingham territory and to
the extent that that basing point price would control, and we put out
a complete list to govern our sales activities, I should assume that we
would have pubhshed our prices in that territory on that base price,
it being a competitively established price let's say at that point.
Mr. Feller. Now, the representatives of the Steel Corporation
testified the other day that in their view, the differential of $3 was
put on because they were developing the works at Birmingham. Now,
you were not a producer at Birmingham. May I ask why you felt
that you could not announce a lower price for the southern territory
in view of the fact that you did not have what the Steel Corporation
considered to be the burden of development of works in that territory?
Mr. Grace. We could have published and announced any base
price we chose at Birmingham. The base price that the Steel Cor-
poration announced in Birmingham resulted in quite as low a selling
price to us as we would be willing to take on our products shipped in
competition with Birmingham production.
Mr. Feller. Quite as low as you would be willing to take?
Mr. Grace. Yes.
Mr. Feller. At the present time, however, you are selling into
the Birmingham area on the same basis as you sell at Pittsburgh.
Mr. Grace. That is the competitive situation, to the extent that
we sell in Birmingham area we have to meet competitive prices in
that area. If the business is sufficiently attractive we take it if we
can get it. If it isn't, we don't.
Mr. Feller. You hope to get it at that price that the Steel Cor-
poration puts on it?
Mr. Grace. We try to. Again the Steel Corporation is not the
only seller of steel in that territory.
Mr. Feller. No; I understand that. Was it the practice, to the
best of your recollection, of aU the companies in the industry seUing
in that territory, to publish prices which included the $3 differential?
Mr. Grace. I wouldn't know, Mr. Feller. I wouldn't know what
other companies put their prices at; I wouldn't know what their
official instructions to their selling department were.
Mr. Feller. Wouldn't it have been at times to your advantage to
have quoted the prices at Birmingham on the same level as the prices
at Pittsburgh? Couldn't you have gotten more business?
Mr. Grace. I shouldn't expect to.
Mr. Feller. You should not?
Mr. Grace. I wouldn't think so,
Mr. Feller. Why not?
Mr. Grace. Because I think our competition would be met.
CONCENTRATION OF ECONOMIC POWER 10605
Mr. Feller. You mean somebody else would go after the business,
too?
Mr, Grace. I should think so.
Mr. Feller. You talk about meeting competitive conditions.
I am interested in seeing just how those conditions arise. Here we
have the situation in the Birmingham territory w^here the price of
steel was $3 higher than it was in the Pittsburgh territory. Now,
when you speak of meeting competitive conditions, I take it you
mean that if the Steel Corporation charges $3 more, you also will
charge $3 more.
Mr. Grace. If the competitive conditions in that territory create
prices, as I said before, that are satisfactory to us to take busmess on,
we try to get it. We try to take the business. I repeat again that
I don't find the prices any too remunerative in the southern territory,
any more than other places, in obtaining business competitively.
Acting Chairman King. Can you produce and sell steel in and
about Pittsburgh, Bethlehem, and Chicago, cheaper than you could
produce steel and ship it down to the Birmingham district?
Mr. Grace. We are not a producer in the Birmingham district
and I don't know the relative costs.
Acting Chairman King. But your freight rates would be larger
from Pittsburgh and Bethlehem to Birmingham than from Pittsburgh
and Bethlehem into the immediate field.
Mr. Grace. That is right. There is a neutral field where you will
pick up the product out of Alabama, say, and our Sparrows Point
plant which is a highly competitive plant in that territory.
Acting Chairman King. Is the freight rate from Pittsburgh and
Sparrows Point to Birmingham considerable?
Mr. Grace. Very great. There is a natural meeting point where
from a transportation cost standpoint it would be equal, and that is
what Mr. Henderson and I almost got on, as to when you get plus and
when you get minus.
Mr. Feller. Mr. Grace, what was your feeling with respect to the
elimination of the Birmingham differential in 1938? Did you welcome
that as you welcomed the reduction in base price?
Mr. Grace. I don't know that I had any particular thoughts
about it.
Mr. Feller .Would you Uke to see it reestablished?
Mr. Grace. That was a matter for the Steel Corporation to decide
in respect to their methods of selling steel. You must bear in mind
that the question of a basing point doesn't make prices. The basing
point is only a convenient medium for the quoting of prices. If
the Steel Corporation, at the time that they took their $3 differential
off of Birmingham had raised the base price $3 at Birmingham, the
results would be the same and you would have been operating on the
same price.
Mr. Feller. But they didn't raise it. They both lowered the base
price and eliminated the differential.
Mr. Grace. That is right, but not because they eliminated the
differential in anyway did that control them in setting whatever
competitive price they cared to for their products at Alabama.
Mr. Feller. But was not the effect this, that you were getting
$3 a ton less for your steel in the Birmingham area than you were
before?
10606 - CONCENTRATION OF ECONOMIC POWER
Mr Grace. That you could tell only by tabulation, I may be
wrong in remembering what Mr. Gregg said in that respect, but I
think Mr. Gregg said that they were not obtaining the full benefit,
let's say, of the $3 differential in the steels they were selling out of
Birmingham. They had been gradually losing the effect of it. I think
he said that.
Mr. Feller. Let's take the situation today, just now. If a $3
differential were in effect, is it not a fact you would be getting $3
more for your steel in the South than you are now?
Mr. Grace. That I don't know; it would depend entirely on the
competitive condition.
Mr. Feller. What is the competitive condition today with the in-
dustry operating at nearly 100-percent capacity? Aren't you getting
more or less your full prices?
Mr. Grace. We know toda^ what the base price of steel charged
by the Corporation is in Birmingham. That base price today is X
dollars flat, and that price is the same as it is for the same commodity,
as I understand it, produced in Pittsburgh.
Mr. Feller. You stated earlier that you welcomed the base-price
reduction in June 1938. If the Corporation were today to announce
again its $3 differential in Birmingham, would you welcome that?
Mr. Grace. If the Corporation would announce an increase of prirc
in the Birminghaili district, whether through the reestablishing of the
differential or a similar increase in the base price, I, naturally, would
welcome it, provided that controlled the competition in that territory.
To the extent we shipped steel in there we would be getting $3 more
a ton and we need it.
Mr. Henderson. I believe Mr. Gregg's testimony was of the nature
that by the elimination of the differential southern buyers were get-
ting an advantage. Does it not, therefore, follow that if it were re-
established, the buyers in that territory would be paying $3 more?
Mr. Grace. If it were established and made effective, yes; but, of
course, it could be obtained just as easily the other way, just increase
the base price a similai amount.
Mr. Feller. May I just make this clear? The differential was on
the base price. In other words, the base price at Birmingham was
different from the base price at Pittsburgh, was it not?
Mr. Grace. They li,ad a base price at Birmingham, if I understand
how this business operates.
Mr. Feller. Which was so many doUars a ton?
Mr. Grace. And they have a base price at Pittsburgh. And before
this change, and for the same product, manufactured at Birmingham
at that time, before any (ihanges, they asked the Pittsburgh base price
for that same commodity plus $3 more, right?
Mr. Feller. As I imderstand it, the method of quotation was, for
deliveries at Birmingham the base price is so many dollars. For de-
liveries at Pittsburgh the base price is so many dollars and the differ-
ence was always $3.
Mr. Grace. That is right, if I understand it correctly.
Mr. Henderson. Some of your testimony — although most of it is
very clear — doesn't quite clear me up on whether you are entirely
indifferent as to whether the base prices are low or high. It does
make a difference, does it not, Mr. Grace, as to your sales realization?
CONCENTRATION OF ECONOMIC 1*0 WER 10607
Mr. Graci'^. I think it is a very good guide and certainly lias an
influence, a great influence, because we don't just out of the hat pull a
list of base prices and put them out to the trade. It is all a study, a
complete study of what we would like to obtain and believe we are
entitled to, and our effort is to get it.
Mr. Henderson. And in the getting of it, the establishment of a
higher base price is very helpful.
Mr. Grace. We would expect it or we wouldn't put out higher base
prices if we didn't believe they were fair and we had an opportunity
to get them.
Mr. Henderson. That is the clearing up I wanted.
Mr. Grace. Oh, I am sorry if I haven't been clear on that.
Mr. O'CoNNELL. Mr. Grace, if I understand the position of your
company correctly, it is that competition to you means meeting what-
ever prices are established, either by posting or by the operation of the
market.
Mr. Grace. Whatever we find, right.
Mr. O'CoNNELL. And I understood you also to say that you were
sufficiently old-fashioned to believe that supply and demand still
operated in the steel industry. Would it be also fair to say that withia
the price structure of .the mdustry the extent to which supply and
demand operates is evidenced by the extent to which there are devia-
tions from concessions made from the posted price, price reductions,
competitive price reductions to get business?
Mr. Grace. Well, of course, in my old-fashioned way, as I tried
to indicate, I believe the law of supply and demand has a major part
to play in the conduct of any industry. I think it is pnly demon-
strated in common sense, in a period of great demand your competition
would be less acute than it would be in a period of less demand. It
is easier without a doubt to get your published prices, the prices you
would like to have, in a season of great demand, because the other
fellow feels the same way. He would like to get it if he can.
Mr. O'CoNNELL. Let me put it this way. We have heard a great
deal about competitive conditions; every witness we have had has
discussed them. Is it fair to say, when you are discussing competitive
conditions as relating to price, you are discussing the condition as is
evidenced by the extent to which your actual prices relate to the
posted prices?
Mr. Grace. Not necessarily, because I think the posted prices
represent the actual conditions
Mr. Feller, (interposing). Let me interpolate at this point.
The posted price, then, on the basis of what has been set up until
now, represents the judgment of the officials of the United States
Steel Corporation as to what the present conditions are. Is that
correct?
Mr. Grace. I can't interpret the minds of the Steel Corporation.
Mr. Feller. That is what you take into account. You take that
into account as a major factor in determining what competitive
conditions are.
Mr. Grace. Because it is an important factor. In our industry
the Steel Corporation is a very important factor.
10608 CONCENTRATION OF ECONOMIC POWER
Mr. O'CoNNELL. As your answers indicate, I don't want to discuss
whether or not the posted price is really a result of a competitive
situation
Mr. GsBACE (interposing). It may not be; I don't know.
Mr. O'CoNNELL. I don't know either. At least it would be fair
to say that the price competition that exists within the industry, and
which is evidenced by concessions from the posted price, from the
established price, is a result of a competitive situation.
Mr. Grace. That would be one of the factors. Other factors would
he service, quality of products, and things of that kind, but definitely
it would be evidence of the price movement.
Mr. O'CoNNELL. During the last year or two we have heard quite
a bit of discussion about the extent of that type of competition, the
extent to which actual prices have been less, concessions have been
made from the posted price, and it has been indicated to us that that
was evidence that competition was existing in the industry. From
your standpoint is that situation a desirable one, from the standpoint
of the industry, for the Bethlehem Steel Corporation?
Mr. Grace. I still believe, Mr. O'Connell, in the fundamental law
of competition in business, yes. I thoroughly believe in that.
Mr. O'Connell. I have yet to hear anyone that does not believe
in that before this committee.
Mr. Grace. Doesn't that answer your question?
Mr. O'Connell. No; it does not.
Mr. Grace. Well, then, I'm sorry.
Mr. O'Connell. I was inquiring as to whether you thought com-
petitive conditions of the sort evidenced by concessions and reduc-
tions from the posted price is, from your standpoint, a desirable type
of price competition.
Mr. Grace. It seems to me that is pretty difficult to answer;
whether w^e like it or not, it is there. I can't volunteer the fact that
I would like to see a price structure destroyed. No ; of course I don't.
Mr. O'Connell. That is what I thought. The reason why I am
inquiring, frankly, is that before the committee, in this hearing, we
have been offered this situation of price concessions, reductions from
the posted price, as evidence of the fact that a competitive situation
exists in the industry, and I am wondering whether you take comfort
in that situation or whether y^ou expect us to take comfort in that
situation. It seems to me it is given to us as a desirable thing from
our standpoint. I want to know whether you think it is desirable,
Mr. Grace. I think it is wholesome; yes, I think it is wholesome.
But I think this, Mr. O'ConneU. Let's say just what takes place in
our industry when we have been talking about this reestablishment of
new base prices. Competition in the price movement made it neces-
sary to establish those newer low base prices. Now that could go to
extremes. It can be wholesome, it can be unwholesome, but whether
we like it or whether we don't, I believe the precepts of this country,
and its economic structure and its industrial development, have
fundamentally been based upon the competitive system.
Mr. O'Connell. Well, let me ask this. Wouldn't it be fair to say
that the price concession situation, or competitive forces compelling,
or which result in, deviations from the posted price are in and of
themselves inconsistent with the ideal of the posted price system?
Mr. Grace. That might be true; that might be true, yes.
CONCENTRATION OF ECONOMIC POWER 10609
Mr. O'CoNNELL. From my standpoint, I am a little bit on tlie lioms
of a dilemma. I am given a situation, told that competitive forces
require deviations or in certain situations result in reductions in the
price level in the steel industry, and it is given to me as something I
should take comfort in; but I can't help but think that from the pomt
of view of your industry that situation is one which is evidence of
breaking down, partially breaking down, of the very price structure
which you and the industry think is a good price structure and some-
thing to be maintained.
Mr, Grace. The reason it is so hard to answer specifically, it seems
to me this would help us: We have, in effect, published a set of prices.
We endeavor to obtain those prices. As we have seen it through this
period we have been discussing, that price structure failed. Even-
tually we drift to another set of prices. Now we have in front of us
another published set of prices.
I claim the factor of competition has played a great part in estab-
lishing that new set of prices, and for any set of prices which is put
out reasonable and fair for any industry it can't be devoid of the com-
petition which has taken place in creating same.
Mr. O'CoNNELL. My difficulty is that I am expected to take some
comfort out of the forces of competition which result in the change in
the price structure on the one hand, and I am to be expected to be
comforted by the fact that you are trying to maintain the price struc-
ture on the other.
Mr. Grace. And we poor fellows are suffering.
Mr. O'CoNNELL. Isn't, it somewhat of an anomalous situation?
Mr. Grace. It would seem so, stated that way.
Acting Chairman King. Is it possible to project from current con-
ditions into the future for 1 year, even, a price structure, a datum line,
which even under the law of competition would maintain the same
regularity?
Mr. Grace. Certainly not. We couldn't in our industry.
Acting Chairman King. For instance, you project a line today
upon the theory that there will be no shipbuilding, A situation may
arise within a limited time waich calls for an enormous demand for
steel in the construction of ships.
Mr. Grace. Correct.
Acting Chairman King. The line which you have projected would
have to be deviated from. Or uJ)on the other hand, there is a boom
in building. I am invited out today, this afternoon, to see what new
buildings must be constructed in the District of Columbia, and
whether or not a considerable amount of steel is to be required in the
construction of those buildings. Probably when the line was pro-
jected for this coming year no provision was made for a very large
augmentation of iron production or steel production for buildings.
Mr. Grace. Entirely sound,rMr. Chairman. That observation is
fair and proper, in my judgment.
Acting Chairman King. And is it not true that frequently during
a year, so-caUed extras — when the line was projected it was con-
templated, there would be a large demand for certain kinds of extras,
using a term which has heretofore been used, and the trade and
124491— 40— pt. 19 11
10610 CONCENTRATION OF ECONOMIC POWER
development, technological or otherwise, ruled those so-called extras
out of the
Mr. Grace (interposing). Out of date. They can well be out of
date.
Acting Chairman King. So there would be a tremendous drop,
then, in the demand, and necessarily you would have to deviate from
your datum line in order to sell the output, have to revise your rates
entirely.
Mr. Grace. I know of no better example than what took place in
our industry from the raUroad situation. The railroads for many
years were the biggest customers of the steel industry. In the imme-
diate past they have been very poor customers of the steel industry,
for reasons that we all know. There starts a pick-up in business in
the industry. It isn't long before the raihoads, using your own
example, come m to us with an unexpected demand for new equip-
ment, repairs and maintenance of old equipment, and they throw
into our industry a demand which we hadn't had for years, and that
is a fair sample of just what you are saying.
Acting Chairman King. While it is desirable that there should be
a datum line, if I may use that expression again, and have no devia-
tions from it, in a dynamic industrial situation, or in an economy
such as we have in this capitalistic sj^-stem, there are bound to be, are
there not, changes from day to day or from month to month or cer-
tainly from year to year in any plans which you project for the
future to deal with your economic condition which calls for the pro-
duction of steel and other commodities.
Mr. Grace. There always has been.
Acting Chairman King. If we were a static nation, we might be
standardized. If we had a Hitler to tell us what to do, what to think,
and how to act and what to produce, you might have a datum line
from which you would not need to deviate.
Mr. Grace. But we certainly don't want him.
Acting Chairman King. But where you have intuition and whore
you have initiative, new industries are being developed, departures
irom new industries are daily perceived, there are bound to be changes
in your datum line.
Mr. Grace. Mr. Chairman, that is a very able presentation of the
situation, in the broad sense of industry, not only of our line.
Acting Chairman King. I am speaking of the broad sense, particu-
larly the manufacturing industiy.
Mr. Grace. That is very well expressed. ^
Acting Chairman King. Any other questions, Mr. Feller?
Mr. Feller. Yes; I have quite a number of other questions. I
suggest this would be a good time for a recess. It is 12:25.
Acting Chairman Kiis(q. We ,\v'ill take a recess until 2:30.
(Whereupon, a recesS' -^as' tajce'n a,t,']L2,^30 P- m. until 2:30 p. m. of
the same day.)
afternoon session
The hearing was resumed at 2:35 p. m., upon the expiration of the
recess. Representative Williams presiding.
Acting Chairman Williams. The committee will be in order, please.
Mr. Feller. Mr. Chairman, earher this morning reference was
made to various basing point differentials, and I should like to touch
(JOXCIONTKATION OF ECONOMK; POWER 10611
very briefly, before going on to another topic, on one or two of the
matters relating to the change in pricing which took place after
June 24, 1938.
You will recall that on June 24, 1938, the United States Steel
Corporation announced both a reduction in the base price and the
elimination of these various basing point differentials.
Mr. Grace, following the announcement of the Corporation on
June 24, 1938, Betlilehem Steel also issued a price announcement in
which its base prices were brought down to the level of the previous
announcement of the Corporation. That is correct?
Mr. Grace. Yes.
Mr. Feller. In addition to that, did you not on your own initiative
make certain other price changes?
Mr. Grace. We made some other price changes in the form of
eliminating certain differentials which we had against our basing
point prices, and in addition the creation of some additional basing
points.
Mr. Feller. And one of the more important ones was the creation
of a basing point on certain products at Sparrows Point?
Mr. Grace. There were four products giving new basing pomts on
our part at Sparrows Point and three at Lackawanna.
establishment of new basing points by BETHLEHEM
Mr. Feller. Mr. Grace, can you tell us why Bethlehem decided
to establish these new basing points?
Mr. Grace. As a part* of our simplification and method of pricing
we decided that it was right, better, and proper for us to have basing
pomts, those additional basing points, as I have enumerated them,
at the Lackawanna plant, a basing point on hot rolled sheets, cold
rolled sheets, and galvanized sheets; and at Sparrows Point on hot
rolled sheets, galvanized sheets, concrete bars, and semifinished.
Mr. Feller. Why did you not establish those basing points earlier?
Mr. Grace. The development of the sheet production, to treat it
in a general way, at the Lackawanna and the Sparrows Pomt plants
had only just recently been completed and a substantial production
based upon the development in the buildmg of those new mills was
part of our construction program that we were going through at that
time — developing the sheet production at Lackawanna under the
contmuous rolling process. Lackawanna had not been any important
producer of sheets up to that time, and the same condition obtained
for Sparrows Point.
Mr. Feller. Up till that time had Sparrows Point become sig-
nificant in sheet production?
Mr. Grace. It had been growingly so, but not by the continuous
roll process, by the old hot hard mill process, and when we constructed
the increased capacity obtained .through the continuous roll product,
then it became an important toimage product with us at that plant.
Mr. Feller. Was it an important producer of sheets by the
continuous process in the latter part of 1937?
Mr. Grace. I couldn't teU you offhand just when that plant went
in operation at Sparrows Point. Could you give me that, Mr. Shick?'
' Mr. F. A. Shick, comptroller, Bethlehem Steel Corp.
10612 CONCENTRATION OF ECONOMIC POWER
When did the continuous mill go into operation? My memory is
that it went into operation in the latter part of that year.
Mr. Feller. The latter part of 1937?
Mr. Grace, I should think so — certainly during the year, and I
think the latter part of it.
Mr. Feller. Is there any particular reason why you didn't estab-
lish Sparrows Point as a basing point oii these products at the time
your plant went in operation then?
Mr. Grace. Shortly after we did. The first month a plant starts
in operation it isn't in real productive operation. When we made
our first price announcement, our first general price list, after that
mill had been in operation, then we made Sparrows Point a basing
point.
Mr. Feller. Do you remember the date on which you announced
the Sparrows Point differential, the Sparrows Point basing point?
Mr. Grace. June "27, '38.
Mr. Feller. Four days after the announcement of price reduction.
Mr. Grace. As part of our general new price schedule; right.
Mr. Feller.. Was there any connection between the announcement
by the Steel Corporation of this new price schedule and your announce-
ment of Sparrows Point as a basing point?
Mr. Grace. No; it was a convenient time to deal with it, that was
all; it was just a convenient time to deal with it.
The basing point is only a method of quotmg price. It doesn't in
any way control the price itself or the making of the price. It is
only a convenient method of quoting prices. It of necessity would
have no definite connection with what the Steel Corporation did.
We are talking now of the new basing point.
Mr. Feller. Let me see if the committee can understand what the
effect of that was. Perhaps a few questions will bring that out.
Prior to June 27, 1938, when you sold sheets in Baltimore what price
did the purchaser pay?
Mr. Grace. The method of quoting prices?
Mr. Feller. What price did you quote?
Mr. Grace. The quoting method was on the Pittsburgh base;
I think I am right.
Mr. Feller. Yes; was on the Pittsburgh base.
Mr. Grace. That is right.
Mr. Feller. And after Jime 27, 1938, the purchaser at Baltimore
was quoted by you on the Sparrows Point base.
Mr. Grace. That would be the normal operation of that basing
point system. Consumer at Baltimore, you asked me.
Mr. Feller. Yes.
Mr. Grace. That is right.
Mr. Feller. And similarly before June 27, 1938, it was the custom
of all sellers of sheets to quote in Baltimore the Pittsburgh price.
Mf. Grace. I should think so.
Mr. Feller. Now; assuming that the quoted price was adhered to
prior to June 27, 1938, the purchaser of sheets at Baltimore would
have paid the price at Pittsburgh plus the freight from Pittsburgh.
Mr. Grace. Right.
Mr. Feller. Could you tell us, then, what the amount of saving
was to the consumer at Baltimore in consequence of the establishment
of a Sparrows Point differential?
CONCENTRATION OF ECONOMIC PQWER 10613
Mr. Grace. I can tell you the effecj; of establishing a Sparrows
Point basing price. I can't give 3^ou the exact figures. If in estab^
lishing Sparrows Point as a base for sheets, we priced at tliat basing
point sheets at the same price as they were being quoted on the Pitts-
burgh base, then the natural saving would be to the Baltimore con-
sumer the difference in cost of transporting the plate from our
Sparrows Point plant to Baltimore, and the cost of transporting that
same plate from Pittsburgh to Baltimore, starting with base prices
being the same.
Mr. Feller. Now; prior to the change, prior to the institution of
this basing point at Sparrows Point, if you sold to a customer at
Baltimore and he paid you the quoted price, which was the Pittsburgh
price plus the freight, your company w^ould have received as part of
its profit margin an amount equivalent to the charge, the freight
charge from Pittsburgh to Baltimore.
Mr, Grace. Starting with the same price, I have said, we would
have net more for our sheets in Baltimore, net price to that extent
than the Pittsburgh producer would have netted.
Mr. Feller. Yes. Now ; subsequent to the change, the Pittsburgh
producer selling to a consumer at Baltimore would have to absorb
the amount of the freight between Pittsburgh and Baltimore.
Mr. Grace. I wouldn't state it that way. I would have stated
that I think it is the practice for a Pittsburgh producer to quote a
delivered price on sheets at Baltimore ; whether he absorbs it out of
his freight or his cost of producing sheets, or what not, we are talking
about a delivered price of the commodity at Baltimore.
Mr. Feller. Do you recall offhand what the price of sheets is
today at Sparrows Point?
Mr. Grace. Sheets at Sparrows Point today — T can give you that;
yes. I think I can.
Mr. Feller. It is about $2 a hundred?
Mr. Grace. That is right. It is the same price that is published
at Pittsburgh base.
Mr. Feller. When you sell sheets in Baltimore, you receive $2,
from which you pay the cost of operation plus the cost of transporting
that hundred pounds of sheet from Sparrows Point to Baltimore.
Mr. Grace. We quote a delivered price, and our price would be
our Sparrows Point base of $2 plus the cost of transportation. Our
price would be just that.
Mr. Feller. Just that. The cost of transportation is how much?
Mr. Grace. I don't know.
Mr. Feller. It is a very small amount.
Mr. Grace. It is very small as compared to Pittsburgh.
Mr. Feller. Sparrows Point is
Mr. Grace (interposing). Twelve miles, just on the Chesapeake
Bay, as I said this morning.
Mr. Feller. And the Pittsburgh producer, assuming that the
quoted price was adhered to, would sell his 100 pounds of sheets in
Baltimore for $2 also.
Mr. Grace. If he wanted to compete with us.
Mr. Feller. That is right.
Mr. Grace. If he wanted to compete with us — I am not sure
whether that would be a good example where we lowered the price of
10614 CONCENTRATION OF ECONOMIC POWER
the product of the Steel Corporation. If he wanted to compete with
us, unless he is a better salesman than we are, if he had to get his
business competing with us on price, he would have to quote that
price, he would have to quote our price.
Mr. Feller. He would have to quote your price?
Mr. Grace. Or less.
Mr. Feller. His cost then would be not only the cost of operation
but the cost of transporting that steel from Pittsburgh to Sparrows
Point.
Mr. Grace. Where he takes it off. It doesn't make any difference
to me. It would be the cost to him of delivering his sheet at Baltimore.
Transportation is one element of cost, production is an element of
cost, taxes are an element of cost, so I don't know whether he weighs
particularly what it is but I take it he would view the market the
same as we would view it. That is, the price of sheets delivered in
Baltimore.
Mr. Feller. Unless his costs were very much lower than yours,
he would have to absorb some freight.
Mr. Grace. He would have to reduce his price to meet ours if
he wanted the business.
Mr. Feller. He couldn't possible sell any higher.
Mr. Grace. No matter where he is taking it or how he is doing it.
Mr. Feller. When you estabhshed the Sparrows Point basing
point on sheets were you not on your own initiative reducing the
price to the consumer at Baltimore?
Mr. Grace. In effect that is exactly what took place.
Mr. Feller. There we have an instance, then, where you did
take the initiative in reducing the price.
Mr. Grace. I was dumb in not referring to it this morning.
Mr. Feller. I take it that the reason why you took the initiative
in that one specific case was because you had established your mills
and they were getting into production at that time.
Mr. Grace. We had become an important producer of sheets at
that plant.
Mr, Feller. Were you an important producer of those sheets at
that plant prior to 1926 when the continuous roUing mills had not
yet been installed?
Mr. Grace. We had a moderate hand-mill production of sheets.
It wasn't important in the total picture of sheet production.
Mr. Feller. Were there any products on which you were an im-
portant producer at Sparrows Point prior to 1926?
Mr. Grace. Yes, sir; plates. Take plates as an example.
Mr. Fellows. Was Sparrows Point a basing point for plates?
Mr. Grace. Sparrows Point was a basing point with a differential
of $3 up from Pittsburgh.
Mr. Feller. With a differential?
Mr. Grace. Yes. The basing point had a price of $3 over Pitts-
burgh.
Mr. Feller. Could you give us a reason why they wanted that
differential?
Mr. Grace. Yes.
Mr. Feller. What was the reason?
CONCENTRATION OF ECONOMIC POWER 10615
Mr. Grace. When we established a basing point there we were
developing the production of plates, and it wasn't necessary, com-
petitively, with the plate capacity that we had there for the obtaining
of markets against that production at a fair profit, to go to the full
extreme of putting that price, in our judgment, as low as the Pitts-
burgh base price. That was all.
Mr. Feller. When did you eliminate that differential?
Mr. Grace. In those prices in June '38.
Mr. Feller. For how many years had the Sparrows Point plant
been an important producer?
Mr. Grace. I couldn't say, but Sparrows Point was a recently
modern development. It was gradually developed. Just when we
had that present capacity at Sparrows Point I couldn't teU you.
Mr. Feller. Was your Lackawanna plant or Buffalo, which is
adjacent to it, basing point on any of the products produced at the
Lackawanna plant prior to June 1936?
Mr. Grace. Yes; structural shapes, bars, and sheet pihng.
Mr. Feller. Were you a substantial producer at Lackawanna of
any other products?
Mr. Grace. RaUs, and the new capacity that had just gone into
operation on sheets.
Mr. Feller. The new sheet mills in both Lackawanna and Spar-
rows Point went in operation about the same time?
Mr. Grace. No ; Lackawanna went in sometime ahead of Sparrows
Point.
Mr. Feller. Do you remember just when that was?
Mr. Grace. No; I wouldn't remember.
Mr. Feller. If the basis for establishing a new basing point is the
fact that it would go into substantial operation on a product, I wonder
if you could tell us why Lackawanna wasn't made a basing point
earlier.
Mr. Grace. Lackawanna must establish itself in the sheet market,
and it isn't a long period after we get into substantial production of
sheets that we deem it advisable to reach the point where we thought
we would have a basing point at Lackawanna. When you bear in
mind, it doesn't make any difference whether you have a basing pouit
or not, you can always keep in mind the thought that basing point is
only a method of making price.
Mr. Feller. Yes; but it makes a substantial difference, does it
not, to the customer? It made a substantial difference to your cus-
tomer in Baltimore.
Mr. Grace. Yes; certainly.
Mr. Feller. And it may make a substantial difference to you?
Mr. Grace. It may make a substantial difference to us? Yes, if
we didn't consider it had been good judgment to create that price
situation, that basmg point condition, and make the price on that
basing point the same as at Pittsburgh, let's say, or at Chicago, let's
say, we had reached a point in the conducting of our business that
we deemed it desirable, competitive wise, to establish the same price
on our basing points for those commodities at Lackawanna, let us
say, as it was in Chicago, as it was in Pittsburgh.
Mr. Feller. Then, am I correct in saying that your policy on the
establishment of new basing points is this, that shortly after you get
10616 CONCENTRATION OF ECONOMIC POWER
into substantial production at any particular plant with respect to
any product, you establish a basing point.
Mr. Grace. Not necessarily. It depends upon conditions of the
business.
Mr. Feller. What I am trying to get at is just exactly what are
the considerations which lead you to establish a new basing point.
Sparrows Point was an example in June 1938, and Lackawanna was
an example in June 1938, and I understood you, up to this point, to
say that the reason for the establishment was that it was not very
long after substantial sheet production began.
Mr. Grace. That was certainly one of the important reasons.
Mr. Feller. Will you tell us what the other reasons were?
Mr. Grace. To extend our competitive ability.
Mr. Feller. Extending your competitive ability is something that
I should presume every businessman would want to do at all times.
Mr. Grace. That has the effect.
Mr. Feller. Then wouldn't that lead to using every one of your
plants as a basing point on every one of your products at all times?
Mr. Grace. Not necessarily, because you might not want your
ability extended to that extent.
Mr. Feller. Why not? As a businessman
Mr. Grace (interposing). The business might not be attractive.
Mr. Feller. That I don't quite understand.
Mr. Grace. It might not be attractive from a profitable standpoint,
that is all. Again, whether you have your basing points or whether
you don't, it is only a method of quoting prices.
Mr. Feller. Let us go back to this question of Sparrows Point and
its relation to Baltimore. Is there any reason why, prior to 1938, you
should have found the sale of sheets in Baltimore unattractive from
a business standpoint?
Mr. Grace. Prior to that time, prior to 1938?
Mr. Feller. Yes.
Mr. Grace. Is there any reason why we should find the sale of
sheets unattractive?
Mr. Feller. Eight at your back door? You would certainly want
to accept all the business you could for the sale of sheets in Baltimore.
Mr. Grace. The price was such that it was satisfactory to us, and
if it were to be satisfactory any place you would think it would be
nearer our plant in Baltimore, certainly.
Mr. Feller. What I am trying to find out is, what other consid-
erations were there besides the fact that you had gotten into substan-
tial production, which led you to establish the basing point at Spar-
rows Point on sheets? Wnat were these other considerations?
Mr. Grace. I said, to meet competitive conditions, take more of
the business, possibly.
Mr. Feller. But you are always presented with that possibility.
Mr. Grace. Maybe we didn't have the capacity, so that it was
difiicult to sell against the consumption. Maybe as our capacity was
increased we would have more sales effort, wouldn't we? I am sorry
to use the word "maybe" — that is exactly what takes place.
Mr. Feller. I take it if you had established a basing point at
Sparrows Point some years earher you would have been in an excep-
tionally favorable position with respect to quoting of prices in Balti-
more as compared to Pittsburgh producers, would you not?
CONCENTRATION OF ECONOMIC POWER 10617
Mr. Grace. I should expect, as has taken place since we established
that basing point, that the competitive producers would still seek busi-
ness and obtain business in Baltimore. They do.
Mr. Feller. Yes; but would you not have been in a much better
position to get that business because of your distance advantage?
Mr. Grace. Provided we didn't have a big enough market to absorb
that production, because it was only a small, not important production
against the consumption. We naturally wouldn't be a particular
factor in that product until our production increased, and as it
increased the problem of its distribution and sales became greater.
Mr. Feller. And therefore you establish a basing point which has
the effect of lowering the price?
Mr. Grace. Has the effect of lowering the price; let's say, if 3^ou
want to put it the other way, making the business in that territory to
that extent less attractive to our competitor who has to deliver his
materials there.
Mr. Feller. Yes; but the attraction of the business for you is just
the same whether you arc operating a small mill or a large mill.
Mr. Grace. No, it isn't; not if j'^ou can sell your capacity against a
higher yield price. It is much easier to sell 10,000 tons of a com-
modity a month than it is 100,000 tons. It is all part of the problem
of distribution against competition.
Mr. Feller. Let me go back to a specific example. In the last
part, in the last few months of 1937, the last quarter, your mills at
Sparrows Point weren't running at anything near capacity; were they?
Mr. Grace. In the latter part of '37? Let's just assume that they
were. I don't know what it is.
Mr. Feller. They were probably well below capacity; wouldn't
you say that, Mr. Mackall?
Mr. Grace. Let's assume they were somewhat below capacity,
anyway.
Mr. Feller. At that time, by establishing Sparrows Point as a
basing point, you would have been in a position, would you not, to get
a good deal more business out of the territory near your Sparrows
Point mill, the eastern seaboard?
Mr. Grace. The lower we made the price adjacent to our point of
production, I would assume that we would capture, let's say, or ob-
tain, more of that business — the lower we would make that price,
making the price less attractive to our^ competitors, the more pressure
or more desire there would be on our part to take our business close to
home.
Mr. Feller. Well, now, you have told us that one of the reasons for
establishing the basing point is the desire to get more business.
Mr. Grace. The necessity, in our process of distribution, of
obtaining broader and bigger markets; yes.
Mr, Feller. Couldn't you have obtained that when your opera^
tions were at a relatively low rate at Sparrows Point by establishing
a Sparrows Point base earlier?
Mr. Grace. Again I repeat that our production of sheets at that
time was rather small, relatively, to what it was after we put in our
continuous process.
Mr. Feller. Yes; but the mills that were operating there were not
running at capacity, were they?
10618 CONCENTRATION OF ECONOMIC POWER
Mr. Grace. 1 couldn't say, without looking. Wo have had a
pretty good operating performance at our Sparrows Point plant.
Mr. Feller. I would like to go on now to another topic. I don't
know whether the Committee has any questions on this.
Mr. O'CoNNELL. I should like to ask one. I am not entirely clear,
Mr. Grace, just exactly what you mean when you say the basing point
is merely a method of quoting prices.
Mr. Grace. That is right. It is simply a method of quoting prices.
Mr. O'CoNNELL. The basing-point price is an integral part of the
price under the basing-point system?
Mr. Grace. It is the price, it establishes the method by which you
make your price. I am afraid that isn't well selected. You have to
tell your trade what your prices will be. Now, you can tell them it
will be so much at this point or so much at that point, or so much at
another point. It is just a medium used for quoting prices, that is all.
Mr. O'CoNNELL. To the extent that the system as a system oper-
ates, I would have understood that the basing-point price at Sparrows
Point, let us say, of a given piece of steel, is an integral part of the
price of the steel.
Mr. Grace. It is the way of telling what the price of steel is.
Mr. O'CoNNELL. It is part of the price too, is it not?
Mr. Grace. No; the basing point — I don't want to get too technical
with you, and I am sure you know I don't want to. A basing point
as such is not a cost. It has nothing to do with the production of steel.
Mr. O'Connell. The price of steel doesn't necessarily have any-
thing to do with the cost of steel, either, does it?
Mr. Grace. No; but it is not a cost. Let me see if I can get it clear
that way. It is only a method of expressing what price we charge for
our steel. You can charge it all on one basing point if you want, you
can have any number of basing points, as you know.
Mr. O'Connell. One time you only had one.
Mr. Grace. In the old days it was all Pittsburgh base. As the
industry grew up country-wide, important productions grew in differ-
ent locations and they became important and other basing points came,
all as a method and a convenience for quoting prices. That is all.
Mr. O'Connell. That is all, but maybe wc mean the same thing.
Mr. Grace. I believe we do.
Mr. O'Connell. And it is merely a matter of emphasis. I take it
that the basing-point system is the essence of the pricing system in the
industry.
Mr. Grace. It is the system, I think that is a good word. It is a
system used for the quoting of prices, right.
Mr. O'Connell. And heing specific, the base price at Sparrows
Point for any given product is an integral part, one part of the quoted
price, the selling price, of steel in Baltimore and in the area adjacent
to the basing point.
Mr. Grace. It is certainly the way of telling a customer — if we
say that product is $2 f. o. b. Sparrows Point, then that basing point
becomes significa,nt to him, and tells him exactly what price he has
to pay for his steel, doesn't it?
Mr. O'Connell. Sure; to the extent that it works the basing point
in any given area is very significant to every purchaser.
Mr. Grace. That is right, very.
CONiJKNTRATlON OF ECONOMIC TOWER 10619
Mr. O'CoNNELL. And to the extent the system works the basing
price is an integral part of the final price, the price being made up as
I understand it by the basing price, extras, and so on.
Mr. Grace. And if we would quote that way, a customer would
know exactly what his goods at his plant would cost him.
Mr. O'CoNNELL. And you do quote that way to the extent that it
is possible to do so and get buiness.
Mr. Grace. I think our method of quoting is usually the delivered
price, but he knows what makes up the delivered price, that is right.
Mr. O'CoNNELL. Base price plus extras plus freight, all of which
if the system works are known not only to you but to your customers,
to your competitors and everyone else.
Mr. Grace. Everybody; that is right. That is a good develop-
ment of it; exactly so. It isn't any mystery.
Mr. O'CoNNELL. No; I don't think it is any mystery, either.
Mr. Grace. But it has been confusing m its everyday use in many
instances.
Mr. Henderson. That confusion extends, does it not, Mr. Grace,
to the trade journals as well as to the general public? For example,
on this question of whether or not the July changes meant dealer
reduction in price or, as you suggested tliis morning and the vvitnesses
for the Corporation suggested yesterday, to bring it more in Une
w4th reality, I would Hke to quote from Sieel of July 4, 1938 [reading]:
In the important Detroit dist/ict ])rice action was less drastic but nevertheless
important. Hot rolled bars formerly sold at an arbitrary Detroit delivered price
of $3.00 over Pittsburgh base and flat rolled steel commanded a $4.00 diflferential.
These were reduced to $2.00 a ton for both products, giving the automotive
industry a total saving of $5.00 a ton on practically the greater majority of steel
it buys.
Skipping a paragraph or so :
The fact that the widespread reduction in iron and eteel pi ices may serve to
stimulate activitj'^ in the metal working industry to a certain extent has been
overshadowed by speculation among producers and consumers as to what eflfect
the new price relationship between various mill districts will, have upon com-
petition and customers.
I suppose that confusion arises somewhat, does it not, Mr. Grace,
from the fact that the trade journals do not have the information on
reaUzation?
Mr. Grace. Yes; and plus this fact, I should think, it wouldn't be
confusion, it would only be a question* of getting accustomed to what
the creation of a new basing point would do to the delivered price at
this fellow sitting over here. He would be like this — let's take as an
example, the producer at Pittsburgh has been accustomed to buy his
bars over here at X town, based on a Pittsburgh base. That is the
cheapest source of supply he has. On June 22, Bethlehem Steel Co.
at its Lackawanna plant reduced its base price of bars produced at
Lackawanna by eliminating a differential and putting it on exactly
the same base price as Pittsbargh. That fellow immediately has to
say: "Well, I may have a cheaper cost of transportation from Lacka-
wanna than I used to have from Pittsburgh. If so, there is my normal
low-priced supply as compared with Pittsburgh." Therefore, you can
see that when a number of these things took place, and at this par-
ticula r time there were a number of new basing points made, a nimiber
of dificrential changes, and it took some time for the trade to get their
10620 CONCENTRATION OF ECONOMIC POWER
bearings as to the effect it was going to have at all these many con-
suming points throughout the country.
Mr. Henderson. I know it took me a long time.
Mr. Grace. And it took us a long time.
Mr. Henderson. But my point is that the trade journals do look
upon any change upward or downward in the base price as a change
in price. They are accustomed to that.
Mr. Grace, Naturally.
Mr. Henderson. Because perhaps as I indicated, they have no
knowledge of the realization.
Mr. Grace. No; they wouldn't.
Mr. Henderson. They don't know what the actual sales realization
is.
Mr. Grace That is the point. They would definitely know what
a bill of goods made at our Lackawanna plant and sold on a 2-cent
base would net us if delivered at a certain point. They don't know
the vohmie of the business, they can't equate it; you are quite right.
Mr. Henderson. Isn't it true — and this is along the lines you have
indicated as to what the base price is — that to the extent that any
producing center goes outside its natural area and absorbs freight, it
will have a realization which is less than the base price?
Mr. Grace. Yes; if it is sold as against a consumer in its neighbor-
hood location.
Mr. Henderson. That means, of course, that even if you have, as
we had yesterday, I think it was, information as to the difference
between the base price and the realization to the Corporation, there
are probably two things in that. One of them is the extent of their
freight absorption, and the other is the extent to which they made
concessions to customers.
Mr. Grace. I said I didn't know on what basis, if you recall, that
chart was made, whether it reflected both of those instances or not.
Now, of course, a realization of a price against your published price
is not affected, because you have to take less than your basing point
price. You still get your full price. You still get your full published
price. Do you see?
Mr. Henderson. No.
Mr. Grace. Yes; sure you do. We publish a price
Mr. Henderson (interposing). Maybe I missed something in there.
Mr. Grace. Now I can give you an example, I think, which wiU
clear that up.
Mr. Henderson. I probably missed something in your statement,
Mr. Grace.
Mr. Grace. Yes; because I know you would get it. The published
price of bars at Pittsburgh, as an example, say, is $'2, or 2 cents a
pound. The published price of bars at Lackawanna, Buffalo, is
2 cents a pound. If I sell a customer in Pittsburgh bars at 2 cents a
pound and it costs me X cents a pound to get it there, my net is below
the base price but I am still getting the official published price on bar.
Mr. Henderson. That is right.
Mr. Grace. You would know that as well as I would.
Mr. Henderson. If, however, in order to get that Pittsburgh
order, you have to go below the base price, make a concession, you
wouldn't get your base price.
Mr. Grace. Then that'is the extent that you are not realizing the
published prices; that is right.
CONCENTRATION OF ECONOMIC POWElt 10621
EXTRAS
Mr. Feller. Mr, Grace, you are familiar, I take it, with the
testimony which was given day before yesterday with respect to the
matter of extras.^ May I ask you first whether it is a fact that the
extras pubHshed in the extra book of Betlilehem Steel Co. are the
same, are identical with the extras published in the extra book of
Carnegie-Illinois Steel Corporation?
Mr. Grace. I would expect they would be the same.
Mr. Feller. And do you agree with Mr. Fairless' statement that
the extras are based upon cost?
Mr. Grace. On cost studies of performing those extra operations.
We have no system developed in its detail in our cost accounting that
could definitely tell us that this is what it costs this month to do that
particular job, and what it costs next month to do the same job.
They have to be based on what we call cost studies, and I think that is
what Mr. Fairless means.
Mr. Feller. Whose costs do they use?
Mr. Grace. In our case, it is appraising what we would call an
extra effort. In appraisal, we have to appraise it ourselves. We have
to study it, our operating men, primarily, to see if a man wants,
instead of the standard product of steel, something a little different
from that standard — we have to stop and see and estimate what it
would cost us to make it in the form that he would want it rather than
our standard.
Mr. Feller. Now are these costs of performing the extra operations
as expressed by the extra list your own cost of performance or your
own cost estimate of the cost of performing those operations by the
Bethlehem Steel?
Mr. Grace. They would be; yes; comparable to our own because
we take them into consideration. When they are put out by us, we
haven't done it just blindly; we have endeavored to see that that
extra cost to do that extra job is reflected and specified as an extra.
Mr. Feller. What I am trying to get at is the question as to whose
cost experience is reflected here. Is it the cost experience of your
company, of the United States Steel Corporation subsidiaries, or is it
some other cost experience?
Mr. Grace. I would say it is a cost which has been from time to
time appraised generally in the industry,
Mr. Feller. Mr. Fairless' term was a cross-section of the costs of
the industry,
Mr. Grace. I would say that is appraised in the industry. His
language is possibly better than mine. But I think we mean the
same thing.
Mr. Feller. You mean the same thing.
Mr. Grace. Yes; I think so.
Mr. Feller. And you support the testimony of Mr. Adams with
respect to the manner in which that cross-section of cost is arrived at.
Mr. Grace. I don't know just how Mr. Adams went at his job,
but as I heard Mr. Adams reciting it, I should think that that is about
what took place there; yes.
> Supra, pp. 10459 et seq. and 10557 et seq.
10622 CONCENTRATION OF ECONOMIC] POWER
Mr. Feller. Could jou tell us who were the officials of your cor-
poration who take part in these discussions on whicli the cross-section
of cost is arrived at?
Mr. Grace. Oh, there would be different people, depending on the
project that you were appraising.
Mr. Feller. Have you ever taken part in those, Mr. Mackall?
Mr. Mackall. No. They would be specialty men on the product
involved and I wouldn't be involved.
Mr. Grace. Mr. Adams was dealing with sheet, and therefore our
sheet people would be interested in that.
Mr. Feller. Mr. Grace, you told us a moment ago that you were
interested in seeing before these extras were put out whether they
conformed to your own cost experience, is that correct?
Mr. Grace. That is right.
Mr. Feller. \o\i make some appraisal of your own costs. Now
I presume that before these extra lists are issued to the trade, there is
some review by responsible officials of the corporation, and recom-
mendations to the special products group.
Mr. Grace. Our people, the people who pass the product, people
working on any specific project, any specific extra for a project they
would be interested in, would certainly report back home to our
organization.
Mr. Feller. To you or Mr. Mackall?
Mr. Grace. They wouldn't report to me.
Mr. Feller. Do you recall whether they reported back to you
specifically with respect to the extra changes in May of 1938?
Mr. GraceT No; I know they didn't.
Mr. Feller. Did they report to you, Mr. Mackall?
Mr. Mackall. They discussed the matter with me; yes.
Mr. Feller. Now, Mr. Mackall, when they came to you with their
recommendations or their report, the extras which they recommended
included, did they not, both the specifications themselves and the
amoimts the extras were to be charged?
Mr. Mackall. Yes; their discussion with me just was the general
principle of simplification, and the policy as to whether it was good
business to do that. I didn't go into the details of that, I didn't
know anything about it, whether this was a justified extra or not
because it was more or less the effect the whole situation would have
on properly pricing the same commodity in the same way. As I
got that particular situation, you could take the same piece of s,teel
and using four or five methods as applied to sheet or plate, get four
or five different prices. They explained what this was going to bring
out and I said that is a good thing. Now the studies depended on the
specialists who were doing that job.
Mr. Feller. And these specialists were concerned, then, not only
with the specifications themselves, but with the various charges which
were to be made on the basis of that list of specifications?
Mr. Mackall. I would say that was true. By charges I would
mean the cost of each specification they were interested in.
Mr. Feller. Cost to the customer.
Mr. Mackall. And cost of manufacture, cost of making that
change from a mill point of view.
Mr. Grace. Cost plus or minus.
Mr. Mackall. Cost plus or minus against the base price.
CONCENTRATION OF ECONOMIC POWER 10623
Mr. Grace. Just as Mr. Fairless presented it.
Mr. Feller. According to the figure which is expressed in the
extras book, if I may just take an example on plain cutting extras,
the extra book says, on hot rolled carbon steel plates: Thickness in
inches, 1 inch or under 16 cents; lli inches 18 cents; 1% inches
20 cents, and they would then discuss and study both -the question of
how you arranged these various thickness and the exact number of
cents of charge that would be set alongside of it. Is that correct?
Aj!r. Mackall. They would study what the cost of that thing was
and then those were published by someone else and we would study
that to see if it was our costs.
Mr. Grace. A reclassification of those.
Mr. LuBiN. May I ask Mr. Grace a question on that point? Mi.
Grace, what happens when you find that these rates don't coincide
with your costs they are either too much or too little?
Mr. Grace. ' ^he tendency would be to have them changed, to have
them corrected, to have that recognized after you have had experi-
ences with them. If they didn't reflect the proper effort in cost to do
that specific extra thing, if practice indicated that it wasn't right,
either high or low, it would be eventually corrected and modified.
Mr. LuBiN. Have you ever modified your extra rates without at
the same time having the extra rates of your competitors modified?
Mr. Grace. I couldn't say that, I coiddn't say that. We certainly
have been a part many times in the adjustments, the studies for
adjustments, of out of line rates for extra.
Mr. LuBiN. Do you ever find that your own opinion, the judgment
of your own experts, doesn't coincide with those of your competitors?
Mr. Grace. You would have a difference of opinion but when you
think of the type of thing which is classified as an extra, it can't be
much difference in the end as a cost to o-ur mills or somebody else's
nulls.
Mr. Reynders. For the sake of the record, if I may state, I don't
think that the cost of the extras, Mr. Lubin, show up in the course of
a month's work. They are more or less continual with the general
operation. For instance you may have a plate of a certain width,
there are plates of different widths, and they all go into the same total
cost. I think as a matter of necessity these costs of extras must be
constructed costs rather than actual. I think for the sake of om-
record here we ought to understand that these costs don't appear in
the cost sheets as a separate item but they are rather bunched up in
the total operation for the month.
Mr. IiJBiN. Which means in effect it is an arbitrary decision as to
whether you add 5, 6, or 7, or 10 percent.
Mr. Reynders. It is a matter of generalizing.
Mr. Grace. It isn't a process of attempting, to use a bad term, to
sweeten the base price. It isn't for that purpose at all. It is defi-
nitely attempting to be appraised for the cost of doing that extra
performance, that extra work against your base price. It may be
minus, it may be plus.
Mr. Henderson. That would depend somewhat, Mr. Grace, on
the volume of operations you had for that particular product,
would it not?
Mr. Grace. It would, and at many times a product is started as an
extra and as it has been developed and gotten to a tonnage where it
10624 CONCENTRATION OF ECONOMIC POWER
becomes important, where it can be definitely classified as a product
on its own, then it takes a base price.
Mr. Henderson. One thing we missed. Dr. Lubin wasn't here.
He will find in the record an excellent discussion of the making of
extras and the changes, but it wasn't clear'— and this is partly due to
my neglect — as to what rate of operation was taken as the basis for
the cost of an extra.
Mr. Grace. It wouldn't be anything. You couldn't definitely
classify on a rate of operation basis. You just couldn't.
Mr. Reynders. You are quite correct, Mr. Henderson, that it
affects the cost of the extra very materially. The extra may be
high in one month and may be too low the next. It depends upon
rate of operation as well as the particular extra.
Mr. Henderson. I understand that, but what I didn't understand
when we had Mr. Adams here — I am sorry I didn't ask him, I guess
he is gone — was this, and I was wondering whether any of your
staff could answer
Mr. Grace. No; we couldn't.
Mr. Henderson. As to what rate of operation is generally assumed
when the extras which have certain constructed costs in them.
Mr. Grace. I never heard of any, and I don't know whether
Mr. Adams had any in mind in his particular study of the sheet
situation.
Mr. Reynders. Wouldn't you necessarily take the average rate
of operation to try to get a correct figure?
Mr. Henderson. I would gather, Mr. Reyriders, from what work
I have done with costs that that would be it. Maybe we can get
some information later as to that.
Mr. Grace. You take an extra like this, a plain rolled piece of
material, the standard material, carrying a base price and ship it
to the trade, cut it standard length, suppose they wanted that same
material sheared into shorter and half a dozen lengths rather than
the one length, it costs us more to perform those extra shearing
operations.
Mr. Henderson. And if you only had a small run the actual cost
to you would likely be higher than you would receive by the charging
of the special extra.
Mr. Grace. Maybe. It may be too high, it may be too low,
depending on the volume of that particular extra job you have to
do at that time.
Mr. Henderson. In this response you gave Dr. Lubin, let's see
if I get it clearly. Although extras may be 10 percent of the total
price quoted to a customer, the difference between what your cost
is and what might have been the cost, say, of the Corporation in
establishing that extra, would be so small that it wouldn't make an
important difference in the actual quoted price.
Mr. Grace. I couldn't see how there could be much difference.
Mr. Henderson. Was I correct in my statement?
Mr. Grace. Yes; I think you are entu-ely correct.
Mr. Henderson. But the general level of extras, if there was
at any time a general increase in the extra list, would make a differ-
CONCENTRATION OF ECONOMIC POWER 10625
ence, would it not? If you made an increase, say, of 10 percent in
the extras that would make about a 1 -percent difference in the
Mr. Grace (interposing). Yes; but it is never dealt with that
way, it is always trying to appraise the cost of doing that extra
thing above base.
Mr. Feller. Just to complete this, Mr. Grace, the variations in
cost of doing this extra service may depend not only on the rate of
operation but also on the particular character of equipment used,
isn't that true?
Mr, Grace. Yes; but it is assumed that we would all have economic,
efficient machinery if we were called upon to do the same thing. I
don't think you can get anybody to admit they are not as efficient as
we are, although in some instances I don't think they are.
Mr. Feller. Isn't it a fact that some plants have .more modern
and efficient equipment for doing a particular operation than other
plants?
Mr. Grace. Oh, yes; yes.
TIN plate prices
Mr. Feller. Mr. Grace, reverting again to some of the matters
discussed yesterday, you may recall that the record shows that tin
plate is sold on the basis of the officially announced price at Carnegie-
Illinois, at least insofar as the sale is made on contracts. The record,
I believe, showed one exception to that in connection with contracts
of the Continental Can Corporation, but that is the only exception
I happen to know of. A*s I understand it, your company has a con-
tract with the American Can Co. under which it sells tin plate on the
basis of the officially announced price of Carnegie-Illinois. Is that
correct?
Mr. Grace. Yes.
Mr. Feller. Do you have such a contract with Continental Can
Corporation?
Mr. Grace. I think we do.
Mr. Mackall. Yes.
Mr. Feller. Mr. Grace, can you tell us why your corporation has
adopted a policy of using the officially announced price of Carnegie-
Illinois as the standard for the sale of its tin plate?
Mr. Grace. That in our judgment sets the competitive price for
us for tin plate. It is no more significant in that product, maybe,
than any other because that is the competitive situation which we
accept and must sell at no liigher price than that price to get the
business.
Mr. O'Connell. You speak of that as being a competitive price.
I also understood from the testimony yesterday that the other major
suppHers of tin plate had contracts based ugon the same officially
announced price of Carnegie-Illinois Steel. When you speak of the
competitive price, are you thinking of a price which is arrived at by
competition between a seller and a buyer? Certainly it doesn't
sound to me Hke a price arrived at by competition between sellers.
Mr. Grace. I mean that is a price we have to meet. We consider
that to be the competitive situation there, when the American Can
Co. and United States Steel Corporation have announced the official
124491 — 40— pt. 19 12
10626 CONCENTRATION OF ECONOMIC POWER
price for tin plate we immediately adopt that^rice and endeavor to
sell our product against it.
Mr. O'CoNNELL. But if I understand you correctly, the competitive
situation which you accept is a situation brought about not by com-
petition between sellers but by bargaining between one strong seller
,«,nd a major buyer. Is that so?
Mr. Gbace. It was very evident from yesterday's testimony that
that is the way the price of tin plate is made. Then that is our price
; which we must meet, isn't it?
Mr. O'CoNNELL. It is what you do; don't ask me.
Mr. Grace. I speak in the sense of our obtaining tin-plate business.
I take that to be the price which we have to meet.
Mr. Feller. Would you go lower?
Mr. Grace. Yes.
Mr. Feller. To get more tonnage?
Mr. Grace. I don't know whether it gets more tonnage or not, but
we go lower.
Mr. Feller. One of the ways of getting more tonnage is to go
low. Isn't that competition, to make u lower price than somebody
else and get more business?
Mr. Grace. Somebody else might make a lower price than we
have and we would lose that business.
Mr. O'CoNNELL. There is one school of thought at least that feels
that when you are thinking about the competitive price and a price
made by competition you are thinking of a price made by competition
between those who are striving to sell that particular product, and it
seems to me pM^ectly clear from your explanation of what you do
in the tin-plate business you are talking about a different type of
competition altogether.
Mr. Grace. I think that is true.
Mr. O'CoNNELL. If you want to call it competition, between a
buyer and a seller as distinguished from competition between sellers
for business.
Mr. Grace. I think that is right. That price has been established
as we heard it yesterday, and I say that looks as if that is the price
that we have got to meet if we want to get tin-plate orders.
Mr. O'CoNNELL. I was to some extent objecting to your use of it
as a competitive price because the competitive price as you understand
it in this situation is not a competitive price in my parlance.
Mr. Grace. I see what you mean. It is a quite proper distinction.
Mr. Henderson. But getting now to the actual prices, getting
away from the theory in the case, haven't you got business within
the last few years by underquoting that published price?
Mr. Grace. Do you mean in the tin plate?
Mr, Henderson. Yes.
Mr: Grace. I should expect we have in tin plate and lesser i)roducts.
Mr. Henderson. I am referring now to this letter of Mr. Pfeltz to
Dr. Baker.^ I presume you read that. Did you read the letter in
fuU?
Mr. Grace. I heard extracts read from it.
Mr. Henderson. Did you read the letter in full?
Mr. Grace. Yes; I have read the letter.
. > "Exhibit No. 1407," Included In Hearings, Part 20, appendix, p. 10992.
CONCENTRATION OF ECONOMIC POWER 10627
Mr. Henderson. It seemed to indicate that you did walk out and
get some business that way. Is that so?
Mr. Grace. If you are talking in that letter— I would just like to
know, Mr. Henderson, what phase of the letter you are talking of. I
am not accepting what was stated in that letter as a rumor as being
a fact, if that is what you mean,
Mr. Henderson. Getting away from the paragraph that was read,
I find that all through Mr. Pfeltz's letter he feels quite sure that
Inland and Bethlehem have been quoting lower prices, and he goes
so far as to bring up the question of the validity of their contracts
with you because of the Robinson-Patman Act, which would mean,
of course, a very definite feeling on his part that you had discriminated
against him.
Mr. Grace. Based upon information given to him by Mr. Block,
of the Inland Steel Co., he was meeting our competition. I don't
know how Mr. Block had any authority for making any such state-
ment. He may have had. T don't know what Mr. Block's price is
in the sense that he speaks of, but I do know this: That for this
particular customer that Mr. Block is talking about we have never
sold a ton of tin plate to that customer for his Chicago operations, so
we couldn't have been the competitor that Mr.. Block thought existed.
Mr. Feller. There may be some misapprehension. I think Mr.
Henderson is referring also to other parts of the letter. If you will
notice, one of the paragraphs of the letter reads as follows [reading
from "Exhibit No. 1407"]:
There is no doubt in my mijid but that Crown and Continental are both buying
from Bethelehem at prices lower than we are paying, and the same is undoubtedly
true with respect to their purchases from Weirton.
Is that what you referred to?
Mr. Henderson. I was going to come to that next. I don't want
to inquire into the names of the companies to whom you might have
quoted lower than the ofl&cial price, but I would be interested to know
along the lines of the interchange with Mr. O'ConneU on competition,
whether or not in this period you did get any substantial volume of
business by beating the ofl&cial price.
Mr. Grace. We have had tin-plate business, we have had tin-plate
business at times, we have taken tin-plate business at times less than
the ofiicial price, just the same as we have sold other steel products
at less than the published price.
Mr. Henderson. You use the phraseology "taken business," and
that has a -Special meaning to you. That doesn't preclude the idea
that you went out and got business?
Mr. Grace. No; I mean the same thing, we have booked business,
we have sold tin-plate in competition, we have sold tin-plate in com-
petition at prices less than the official price announced for tin-plate,
the same as we have sold other products.
Mr. O'CoNNELL. That is what I had in mind when I said com-
petition.
Mr, Henderson. That is what I am getting at.
Mr. Grace. The issuing of our official price now again, then that
is competition in the sense that we both believe in it, isn't it?
Mr. O'Connell. Referring for just a minute to what we said this
morning, you contrast the reality of the situation in a given period
with the ideal from your standpoint or the standpoint of industry.
10628 CONCENTRATION OF ECONOMIC POWER
Mr. Grace. Entirely right.
Mr. O'CoNNELL. You wouldn't have price competition in my words
if the ideal of the price structure in your industry were attained.
Mr. Grace. That wouldn't constitute competition, as you picture it.
Mr. Henderson. And maybe Mr. O'Connell woula accept this,
that in the main the major activities, the mechanics of quoting,
tend toward standardizations and stabilizations which very definitely
run contrary to nxarket competition.
Mr. O'Connell. I am not testifying, but certainly that is my view.
Mr. Henderson. That is my view also. I think Mr. Grace
recognizes the distinction that we are making, that the mechanics,
the means, th6 procedures, do lead away from market competition in
the sense that it is generally known in competitive theory.
Mr. Feller. Mr. Grace, while we are on the subject of that letter,
I would like to recall to your mind again the statement which you
just mentioned which I will read:
The same situation which confronted them in 1937 again confronted them in
1938, and regardless as to the promise made by Mr. Grace at the time the confer-
ence was held by leading officials of all the steel companies, regarding the price
for tin plate for 1938, Bethlehem again name a price below the official and as
Inland was like the others badly in need of tonnage they found it necessary to
meet the situation.
Mr. Grace, I think you were about to make some statement with
respect to that.
Mr. Grace. Are you asking me a question, is that true? Is that
the question?
Mr. Feller. That is the question.
Mr. Grace. It is in no sense true.
Mr. Feller. I should like to ask you, then, this: Under the system
of contracts which we have discussed now, which was more fully
brought out yesterday, what particular method have j6u for seeing
that the price which you get for tin plate is a fair price from your stand-
point?
Mr. Grace. What particular method?
Mr. Feller. Do you go to the American Can Co. and say, "We
think the price is too low; we would like to have a higher price"?
Mr. Grace. We can express our views to the American Can Co.
or any other consumer of tin plate as to the fairness of the tin-plate
price; of course we can.
Mr. Feller. But you can't say, "This price is all out of line, and
consequently we wiU have to charge you a higher price"?
Mr. Grace. Not if there is somebody selling at a lower price. I
shouldn't expect we would get any business.
Mr. Feller. You, in your bargaining with American Can Co.,
can do nothing more than merely express your feelings about this
mattep, because you have no way at all under your contract of seeing
to it that the price you get is one which was in line with your own
operations and your own profit expectations.
Mr. Grace. We certainly can't get any more; we certainly can't
get any greater price from the American Can Co. than oiir competitors
are selling the American Can Co. tin plate for.
Mr, Feller. Would you be apt to say to the Camegie-IUinois
Steel Corporation, "Look here, you fellows set the price here under
this contract system in the business. Why don't you ask for a higher
price for it?"
CONCENTRATION OF ECONOMIC POWER 10629
Mr. Grace. I would be very likely to say it if I didn't like the
price they made.
Mr. Feller. Would you be apt to say to them, "What price are
you going to set this year?"
Mr. Grace. I would be likely to say, "Why in the devil don't you
get the right price for tin plate?" Don't put that in the record that
way; I thought I was in a steel plant.
Mr. Henderson. I think it is quite proper that way. I think we
appreciate it more.
Mr. Grace. Thank you.
Mr. Feller. Wouldn't you also be apt to say, "So far as my
business is concerned, such and such a figure would be a price that
would be right from my standpoint?"
Mr. Grace. I would feel free to tell any of my tin-plate competitors
at any time if I thought the price of tin plate was too low, and try to
encourage them in some way or other to get a higher price for it; of
course I would. I would be foohsh if I didn't.
Mr. Henderson. Do you recall, in 1937 or '38, anything that
looked like this conference that Mr. Pfeltz refers to so emphatically?
Mr. Grace. I cettainly do not, Mr. Henderson; no.
Mr. Henderson. Nothing that would be more than one or two
people, you might say?
Mr. Grace. Nothmg more than just the kind of conversation we
are talking about.
Mr. Henderson. He said something to the effect that perhaps it
had to do with the Steel Institute meetings.
Mr. Grace. Only as you might, as we always do, meet some of oui
associates at these meetings; but as a part of any procedure or busi-
ness of the American Iron and Steel Institute, it couldn't in any way
come up for discussion.
Mr. Henderson. Did you have any knowledge before this letter
was put into the record that Mr. Pfeltz was under that kind of
misapprehension?
Mr. Grace. Well, Mr. Pfeltz, as I remember, testified finally that
it was purely hearsay.
Mr. Henderson. Did he communicate his hearsay to you at aiiy
time at that period or since?
Mr. Grace. Not that I can remember, he didn't.
Mr. Henderson. So you can't remember anything now that Mr.
Pfeltz may have said to you which would have let you know that he
felt you were getting together?
Mr. Grace. No. Mr. Pfeltz has never, to my knowledge^ accused
me of sitting down with other steel people- for the purpose of making
a tin-plate price, nor did he ever specifically — you have got a specific
instance here in which he quotes a conversation he had with Mr.
Block, one of our chief competitors in this business — Mr. Pfeltz never
suggested to me that he had had any such talk with Mr. Block.
Mr. Henderson. It is so definite — it cites the time and it cites
a conference and it cites the fact that again Bethlehem made a price
below the ofiicial, you see.
Mr. Grace. I can't be connected with it in any manner, officially.
I really don't know^ Mr. Pfeltz has got to make his own explanations.
10630 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. He made an explanation yesterday/ and I think
I indicated that it wasn't completely satisfactory to me. It would
seem to me, as I indicated yesterday, that if it is only as far back as
March 1938, and it had to do with such an important matter as the
price for all my tonnage, I could have remembered something quite as
specific as that.
Mr. Grace. That is a matter you wouldn't expect me to comment
on, of course.
Mr, Henderson. No. That was
Mr. Grace (interposing). Only to the extent I have indicated. I
wasn't the person that he talked to. If he did, I would have remem-
bered it.
Mr. Henderson. And you would probably have had something to
say about it, also.
Mr. Grace. Yes, sir; I should have; I promise you that, too.
Mr. Feller. Mr. Grace, I should like to just inquire a bit further
with respect to these contracts or conversations that you might have
with respect to the tin-plate price. You have told us that after the
tin-plate price is annoimced you might meet an official of the United
States Steel Corporation and say, "Why didn't you name a higher
price?" Now, before the tin-plate price is announced, at around the
period when you expect that price announcement to come out, isn't
that something that you are vitally interested in?
Mr. Grace. Definitely interested in.
Mr. Feller. Do you ever indicate to officials of the United States
Steel Corporation what you think would be satisfactory to you from
that standpoint?
Mr. Grace. Never specifically discuss the situation only in the
sense I am telling you now. If I was to meet Mr. Fairless and I
thought Mr. Fairless was going to be in the relative capacity — not
going to be, but he is in the relative capacity I am in our company —
and we were approaching the tin-plate season, it would be a perfectly
natural thing for me to say, "Well, Mr. Fairless, I would like to see
tin plate raised somewhat for this next year's business," or "Condi-
tions have changed in such a way that the present price would be
entirely satisfactory." I wouldn't hesitate to talk about it at all
with him. That is all there is to it. And the first time I would know
about it would be when the United States Steel Corporation has an-
noimced a price of tin plate, and it hasn't been as I hoped it would be
on many occasions.
Mr. O'CoNNELL. The answer to this question may be very obvious,
but I would like to get your reaction to it. You have been very
careful and frank to say that you did nothing and you would have
nothing to do with the sort of concerted action which was indicated
by Mr. Pfeltz's letter. May I ask whether that is because, and solely
because, you understand that concerted action by you and your com-
petitors is illegal under the Sh«rman Act?
Mr. Grace. I should say that I have a definite feeling, and believe
that I could not sit down with my competitors and agree upon a price
schedule for the steel industry, definitely agree on it, and see that it
was kept in effect. I should say that that is going into realms of
fllegality against the Clayton Act or whatever it may be. I have at
.» Mr. Pfeltz's testimony appears in Hearings, Part 20.
CONCENTRATION OF ECONOMIC POWER 10631
least been talked to and instructed, and my experience in business
would be that that is not the thing to do.
Mr. O'CoNNELL. Supposing that we had no Sherman Act or Clay-
ton Act, would you think it an improper thing to do?
Mr. Grace. Think it a proper thing to do? I. hadn't thought along
those lines. 1 am in no sense
Mr. O'CoNNELL (interposing). It would be a very natural tiling
to do.
Mr. Grace. I am in no sense indicating that I think the Sherman
or Clayton Acts have been good or not. i
Mr. O'CoNNELL. It may not be a fair question. I wanted to get
your reaction.
Mr, Henderson. Let me ask you this: During the period of the
N. R. A. your organization and Judge Moore, ^ whom I happen to
know, worked very faithfully to try to make the code work during
that period. Did you feel that if, under proper sanctions, you could
discuss costs and all the things which supposedly go into the making
of price, it would be a good thing?
Mr. Gra ce. You are askingmy opinion whether the N . R. A. method ,
let's say, of running a business, codified, and so forth, plus and minuses,
and I should say *'No."
Mr. Henderson. You should say "No."
Mr. Grace. I would say "No."
Mr. Henderson. You feel, then
Mr. Grace (interposing). I believe it was wise — this is only per-
sonal with me — to abandon that thought for the control of business.
Mr. Henderson. The control features of it, you mean?
Mr. Grace. Yes. I have always contemplated what could be done
under it. I think probablj;; the Steel Code was one of the well-
prepared codes and well-administered codes, and I believe in our whole
industrial and economic structure that we are better off without that
kind of control and administration of business.
Mr. Henderson. You have a tendency to agree, then, with what
Mr. Fairless said at the conclusion of the hearing yesterday, I gather.
Mr. Grace. I didn't know that he talked along that line.
Mr. Henderson. I think he did.
Mr. Grace. I may not have heard that.
Mr. Henderson. He said: "I cannot recommend following any
untried theory in this important and complex business in attempting
to accomphsh this result." He had reference there to regularizatiori
of employment, and he said finally: "We have spent our bpiness'
Hves in the industry. I think we are fully qualified to deal with the'
problems of the United States Steel Corporation." Those were the
things which the press picked out, I think.
Mr. Grace. I didn't at the time recognize it as refeiring to the N.
R. A. conditions. I didn't infer that Mr. Fairless was in any wav
against normal improvement of conducting of business, but as I look
back, you are asking me for my personal opinion and I don't believe
the N. R. A. scheme of affairs fit this country's general picture. We
have done as a whole a pretty good job in this country in the develop-
ment of its industries.
Mr. Henderson. I would take it, then, that you mean you
wouldn't preclude the possibility of a normal amount of setting of
' Hoyt A. Moore, Counsel.
10632 CONCENTRATION OF ECONOMIC POWER
standards by governmental authorities because of the increasing com-
plexity of business.
Mr. Grace. Well, I always believe in government having a certain
function to play in its, let's say, policing of business, that is probably
not a good word, but if we would start on this subject I am sure you
and I would keep at it for a while, but there is a part that government
can and should play and has played in our whole industrial activities.
Mr, Henderson. Some of those things when they were suggested
were untried theories. For example, the reduction in the workday
and also Pittsburgh plus. If it hadn't been for some untried theories
the reduction in hours and the increase in the number of basing points
probably would not have taken place so fast.
Mr. Grace. I don't visualize those sorts of processes and develop-
ments as coming about through government activities in it. If you
go back to the days when I went into the steel industry we were work-
ing two shifts. I worked weeks about 12 hours in the daytime and
13 hours at night, taking an apprenticeship in the industry. I have
seen you go from that point gradually to the processes of the 10-hour day,
the processes of the 6-day week, then to the 8-hour day, the 40-hour
week-^all progress, that has developed substantially, yes wholly,
within industry itself. The picture's development is a picture of
progress. I am glad we are there. I don't want to see it go to the
point where we are not going to use a constructive amount of effort,
manually and mechanically, in industry in this country. If it does,
then I think we are going to go down the other side,
Mr. Henderson. Your organization has had, over a period of time,
if I remember correctly, some relation with the cartel system neces-
sarily in your foreign business.
Mr. Grace. Yes.
Mr. Henderson. And probably you, and I think Mr. Schwab
before you, are fairly familiar with the general cartel provisions —
allocation of production, agreement on price, and contracts to keep
out of certain markets, and the like. I take it what you were saying
previously would mean that you would not favor that kind of a
system for this country.
Mr. Grace. I know I wouldn't favor it for our domestic business.
I am sure of it.
Mr. Henderson. It is a necessary incident to trying to do business
in a foreign market but it isn't something that you would want
Mr. Grace (interposing). I don't think it can be constructively
adapted to our domestic life and activities. That is my personal
judgment.
Mr. Henderson. I have one other question along the line that I
was taking up with Mr. Fairless. . That is, not what the posting of the
next quarter's price or the quarter's price after that is likely to be, but
what the general level of prices for steel products is likely to be in the
future as compared with, say, the 1929 level. Did you hear the
colloquy between Mr. Fairless and myself the other day?
Mr. Grace. Yes, I heard some of that. Your 1929 comparable
to today.
Mr. Henderson. And to the future.
Mr. Grace. Now, as you encounter increasing costs, if there are
not other types of developments to offset definite increased cost which
CONCENTRATION OF ECONOMIC POWER 10633
you experience, I believe it is good business, and must be good busi-
ness, to recognize for the good of everybody, the good of the employees,
the good of the pubhc, and for the necessary protection of our stock-
holders, that we run a business on a profitable basis.
Mr. Henderson. I think I can subscribe to that.
Mr. Grace. I am still old-fashioned enough to believe that business
should and must make money if we are to progress and live.
Mr. Henderson. I am old-fashioned enough to agree with you.
Mr. Grace. I am sure you are. I know you are. I don't have to
argue that with you, sir.
Now, as to what the future trends will be in our own industry, as
Mr. Fairless very ably pictured it, we have experienced substantial
increase in labor costs. There has been, on the other hand, coincident
with that some developments, technological, mechanical, improvement
of processes, which is tending to the lowering of labor costs. I think
you must take those conditions, probably amalgamate them, and con-
tinue to run a business on the profit motive. You must, on the other
hand, have equated with that the necessity that those tools that you
are working with are efficient, modern, up-to-date in every respect,
and there isn't a workman in the world, in my estimation, who com-
pares with the eflEiciency of the American workingman. Give him
the tools to work with, give him as high compensation as you can give
him in the ordinary economic conditions that exist at current times,
always looking to a better scale of living, and as we progress, maintain-
ing a profit, maintaining efficiency, maintaining our scale of life and
living in this country — and that has been the progress of this country.
I have been in the steel industry 40 years and I can come right
through and see how we have grown, to the service of the public, to
the character of products in every way, to the improvement of the
working man, and you ask me a definite comparison between '29 and
'39 and I find that labor has been improved, if it is to be measured by
the rates of pay it is paid — substantially 33 percent improvement in
wages — and I find that today the selling prices of our commodities
are quite close to those that existed in '29. At the present moment the
steel industry is beginning to make a little money, and I claim that is a
very fine accomplishment for this industry — for any industry —
and I don't think it is all just the steel industry. I think that is gen-
erally the development of improvement of industry in this country.
Now if that statement is true, we ip,ust be reasonably right in our
economic policy and in our industrial policies, which go hand in hand.
Mr. Henderson. In order to maintain those admirable advantages,
do you think that you have to get back to the 1937 level of prices
sometime in the next few years?
Mr. Grace. I think we can only appraise that, Mr. Henderson, as
time goes on and we get experience. I am satisfied
Mr. Henderson (interposing). That isn't quite so good an answer
as you have been giving to our questions, Mr. Grace, and I share
with Mr. O'Connell ;
Mr. Grace (interposing). Do we think we would have to get back
to 1937 prices, is that right?
Mr. Henderson. Yes. I share with Mr. O'Connell his apprecia-
tion of the way in which you have testifieid today concerning certain
practices. / '
10634 CONCENTRATION OF ECONOMIC POWER
Mr. Grace. I didn't mean at all not to be frank but'you are asking
me now to deal with theories and beliefs. Therefore, I have to think
of it a bit. I don't just know offhand the comparison between '37
prices and our present scheduel of prices, but this" is the way I feel
about our present schedule of prices. If those present schedules of
prices return to us a reasonable profit, I don't want those prices raised.
If there are factors beyond which we do not have control and our costs
rise to a point where our profits are vanishing, then I say, if we are
economic, if we are efficient, then w6 must ask some more for our
products.
Mr. Henderson. Let me ask you this, then. As for this future
period with which I am intensely concerned, and I know you are also,
what would be the effect on the price level if your company and the
industry stayed for a reasonably long period above the break-even
level? Would there be likely to be a reduction in the price of steel?
Mr. Grace. In my estimation there would be no question about
there being a reduction, a disposition and definite action toward giving
to the public the benefit of anything which would be regarded above a
normal, proper, fair profit to this industry.
Mr. Henderson. I take it you mean that getting out of the feast
and famiue line of existence and having a reasonable stability, very
probably you would have economies that could be passed along to
the public.
Mr. Grace. Yes, and one of the greatest things which affect our
economy is our volume of production. We are a great big, enormous-
volume institution.
QUESTION OF STABILIZATION
Mr. Henderson. Let me ask you this: Is it more important as far
as your costs are concerned, and therefore in relation to your price,
to have the kind of high volume you have now at certain periods, and
then radical slumps, or to have a volume of business which for a
continuous period Would be above your break-even line?
Mr. Grace. I think it is unquestionably to get as near an average
curve, an ironed-out curve, as we can. Nothing is more injurious
than these peaks, down or up.
Mr. Henderson. You must have enormous expenses when you have
to delimit your operations drastically, and you must have enormous
expenses when you have to put a blast furnace back in operation,
do you not?
Mr. Grace. We do. But you take the element of speculation in
our business, it is very ruinous, in my judgment. We don't want a
speculative period, we don't want a period of inflation, people judging
that the market is now low and we will buy the future.
Mr. Henderson. Does it often happen that people stock up on
steel when the market is low?
Mr. Grace. Not to any great extent, but there is some element of
that kind in it. But I want to say this: The business is not being
best conducted when we as a basic industry are producing products
that are not going reasonably into consumption. As those products
start in accumulation, we are robbing tomorrow.
Mr. Henderson. That is the kind of a situation that happened in
late 1936, for example, when it was well known that not only was
CONClONTilATION OF lOCONOMIC POWER 10635
there a prospect of a December price increase, but that it probably
would be followed by a higlier posting in the following period.
Mr. Gkace. You combine a bit of a panic, let's say, in the buyer's
mind with a little element of speculation in it, and the first thing
you know, we get an entirely out-of-line demand and we will see our
properties required to run 100 percent in order to satisfy that demand,
and in a few months time, bang! we come down through the processes
you speak of, we take off these very important units, expensive to put
into operation, expensive to take off. There isn't any industry I' know
of that has anything like the requirements of investment in units
in order to produce its product that the steel industry has.
Mr. Henderson. Another important element is the relation of
turnover to your assets, is it not?
Mr. Grace. Right.
Mr. Henderson. Did most of that backlog you spoke of as con-
tinuing through 1937 get put on your books in late 1936?
Mr. Grace. In late 1936 and early 1937, and now, wouldn't it
have been a great deal better if at the beginning of '36 we had had
a reasonable demand, if possible. A basic industry is definitely in
the hands of the purchasing public, just definitely there. We are at
the mercy of their whim. We can't help it.
Mr. Henderson. Isn't there anything you can do about assuring
your customers when they get to a position like that? Take the
condition we have been in with a change taking place, do you have
any positive selling policy with relation to your customers tending to
smooth out this curve?
Mr. Grace. We definitely say to our trade, yes; and everybody is
saying it now over this period when tilings have become sort of
excitable, people feeling that they weren't going to get the service
maybe because of war conditions or other condit ons, because all
inventories were down to bone, there just wasn't anything in Mother
Hubbard's cupboard in many cases. It was ridiculous in a way, but
a large number of our customers, large consumers of steel, were work-
ing on too low an amount of inventory, A lot of them didn't have
any inventory and they got caught because they didn't have; they
were just working from hand to mouth. They saw the possibility
that maybe with a repetition of war conditions, they were going to
have difficulty being serviced.
We have said to our customers, '(You are going to get all the
service we can give you. Please don't get stampeded. We are not
going to take any opportune business that would replace the service
that we are iadebted to you to give. Now just don't get foolish and
inflate your ideas for protection purposes. Sure, you have been run-
ning too low in inventories, you always should have normal working
inventories." We believe it is bad business not to have.
Mr. Reynders. Mr. Grace, may I ask this question? Isn't this
matter of inventories frequently overemphasized? There are a great
many lines of steel where I don't see how inventories can be accumu-
lated. Now there are some, but take the matter of roUed structural
sections, that is out entirely.
Mr. Grace. That is right, but Mr. Reynders, I was thinking along
the line of the definite user of steel for his line of product, his estab-
lished line of product. He got entirely too low in his normal supplies
10636 COXCENTKATION OF ECONOMIC POWER
to take care of himself. He was depending on getting service from
the steel mills overnight.
Well now, that is not the best business — that is not the best business
tactics, if we are going to get a reasonably ironed-out operation.
Mr. Reynders. In the matter of volume it couldn't represent a
tremendous lot. Go through your various products and you don't
accumulate inventories in rails, you can't accumulate inventories m
those sheet products that go into automobiles, because the models
may change overnight.
Mr. Grace. Your point is a good one. We cannot as a basic
industry, the way we operate and the tonnages we operate, accumulate
any important inventories to take care of the peaks and the valleys,
no ; certainly we cannot do it.
Mr. Reynders. I think it will add to our correct understanding
of that problem if we analyzed these products, because I do think the
question of inventory, to my mind, is rather misunderstood as far as
the steel industry is concerned. There are a few items on which you
can accumulate inventory, but by and large, I hardly think that is
always true.
Mr. Grace. But at the same time, I am not going to let some of
our trade, some of the purchasers of steel commodities, for their
ordinary standard production of their commoditj?^, get away from the
thought that in my estimation they were running entirely too low
for normal inventory purposes.
Mr. Henderson. Do you make a special effort, Mr. Grace, in those
periods to try to get your customers to carry the normal inventory?
Mr. Grace. We always encourage them, of course.
Mr. LuBiN. Mr. Grace, would it help any to encourage that atti-
tude on the part of the buyers if you could assure them in advance
there would be no price increase' the next quarter?
Mr. Grace. That would have a certain factor in it. I agree it
would have a certain part to play in it. You wouldn't want to get
so-called high price .inventories, but I think as well that we can get
to an average, as Mr. Henderson has properly portrayed to us, also
we get to a reliability in pricing as well.
Dr. LuBiN. Isn't the experience of the industry in the past in
itself a deterrent to rational judgment on the part of the purchaser?
In other words, he has known that every time volume has gone up
in the industry prices have gone up. When I say every time, there
are exceptions of course, but in recent years he knows that as volume
goes up his costs have gone up for those steel products. Has your
company, for example, ever said, "We'll give ^ou the service we can
and we'll assure you too the chances are the price isn't going up."
Mr. Grace. Naturally, we have talked to them in that language
aU the time, and we do now in our current operations protect our
purchasing trade, let's say, 3 to 4 months ahead of time. Normally,
we price the steel requirement for a quarter about a month or 6 weeks
before that quarter and that gives them a definite idea of what their
prices will be. As we can develop more Mr. Henderson's line here,
more steadying influence in all phases of the law of supply and demand,
the better we can appraise the situation and the better job we can
all do as to service, prices, and everything else.
Dr. LuBiN. The reason I raise this question is bec0,use I think
it has a very definite bearing upon the immediate future. I have
CONCENTRATION OF ECONOMIC POWER 10637
had a shipbuilder tell me within the past month, and he is rather an
important shipbuilder, a big consumer of steel products, I don't know
whether he buys from you or one of your competitors, that he has
ordered his vice president to buy a year's supply of such steel as he
knows he is going to need, assuming his ways are going to be full;
I think he has enough orders on hand now for ships to know what
he is going to need. That buyer isn't going to be on the market
next spring as I can see it. He has bought for delivery at this quarter
at prices to be assured of his price structure, and if that is a common
attitude on the part of buyers, isn't the inventory situation that is
now developing a threat to a continued demand in the spring, and
would he have gone into the market and purchased in such quantities
had he been assured that there is no advantage in doing it because
the price next quarter wouldn't be any higher than at present?
Mr. Grace. Mr. Lubin, here is what actually takes place in the
particular instance that you have referred to. I take it that that
shipbuilder — it is our experience in selling steel to shipbuilders that
when that particular man contracts for his ships — and a lot of it has
been done, it is one of the factors which has put demand on the steel
industry — he contracts at that time for his ships, his steel supply, but
that steel supply doesn't go on our mills today, that steel supply goes
on our mills to meet his requirement of consumption, and to that
extent we wUl take that steel and price it throughout the time when
he will need it for the building of that ship.
Dr. Lubin. In other words, you are willing to quote prices more
than a quarter in advance.
Mr. Grace. On that type of business that we call — you weren't
here the other day — identified-structure business; yes. We go out
and build the Golden Gate Bridge in San Francisco. It is a 2-year
or more operation and we have to tell the contractor the price for
his steel to do that project, to be delivered as he requires it in con-
struction. That is what we do in the ships. That is what you do in
big office buildings.
Dr. Lubin. What percentage of the total output of your company
would you say is that sort of business?
Mr. Grace. I just wouldn't want to make even a wild guess at it.
Dr. Lubin. Is it an important factor in the total steel business?
Mr. Grace. Oh yes; yes, indeed. You take our Navy program as
an example today, a shipbuilder building Navy ships, it takes a bit
longer to build a ship of that type. He buys his steel today. We
price it. We have to take it going and coming. We carry the bag,
if you want to put it that way, but there is a lot of business which is
taken that way.
Mr. Henderson. Mr Grace, it wouldn't be possible in the existing
price leadership we have been going over today, for you to do what
Dr. Lubin has suggested about the future of prices and stability
unless you had a lot of identified structures, would it?
Mr. Grace. We always have to bear in mind fluctuations Avhich
are likely to take place in our costs. There are a great many things
that enter the costs of making steel over which we have no control.
Mr. Henderson. But on the basic question, you are the second
largest producer of steel, and the testimony today indicates in the
main you follow Carnegie-Illinois.
Mr. Grace, In the price structure.
10638 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. In the price structure; and since by your own
terms of reference, your own explanation of what you think is a
healthy way of conducting your business, it is impossible for you to
discuss prices, particularly for any long period with Carnegie and
other companies. Because of this method of pricing, you are more
or less unable to do what Dr. Lubin suggests.
Mr. Grace. Yes; we are; and the largest percentage, without a
doubt, of our business goes into what you would call current con-
sumption.
Mr. Henderson. It leads to the kind of a pricing policy reflected
in the tin-plate contracts, where although it is for the current year it
is based upon the official posted price of Carnegie. In other words,
to do what Dr. Lubin says, you, with perhaps a substantial number
of others in the industry, would have to adopt almost an independent
pricing policy, would you not?
Mr, Grace. Or sit down together legally and be pennitted to
develop for the industry a price policy.
Mr. Henderson. I was coming to that because I was wondering
whether you had given any thought to that. I had that in mind when
I asked you about N. R. A. — something similar to the English system
as far as price announcement is concerned. You are familiar with that.^
Mr. Grace. Oh, yes.
Mr. Henderson. As I read the economic jojamals, they have pretty
generally felt that to be able to know for a longer period than a cur-
rent quarter that prices were not going to be raised was a tremendous
stabilizing factor in the England of today. It did lead in England
to an ability on the part of the consuming industry to make some plans
knowing that a component in their cost was not going to be any higher.
We get back to that point that I was leading up to — in this I am not
suggesting anything, I have no mental reservations or secret evasions
to the contrary notwithstanding
Mr. Grace. You needn't even add "notwithstanding."
Mr. Henderson. I am wondering whether or not, if there were
more adequate information about inventories, which is important, or
less uncertainty about price policy, or a volume of guaranteed busi-
ness by the Government — for example if the Government should
distribute all of its business on a scale adapted to the amount of
capacity each producer has, and do its planning of its buying so that
each manufacturer knew that he had a certain backlog — or any
other considerations that may suggest themselves to you, it would be
possible to get this desideratum of a fairly reasonably sustained
volume of production over a period of time?
Mr. Grace. It seems to me that that would be a very new order.
It would go, as I see it, a bit further even then the N. R. A. in the
definite rationing and controlling of business within business and
with business in its relation to Government.
Mr. Henderson. But as far as the Government is concerned, Mr.
Grace, business doesn't pass on the competition, as we know; I know
that and you know that.
Mr. Grace. I am talking now about a new order of controlling
industry in the doing of business. I thought that is what you were
getting at.
Mr. Henderson, i am not suggesting it as a control, I am not
advancing it as an idea of mine, but let me go back again. You and I
CONCENTRATION OF ECONOMIC POWER 10639
agree that a continuously good level of operation over a period of
time would be liighly advantageous, not only to the companies but
to the consuming pubhc, and certainly as to price.
Mr. Grace. I certainly agree on that.
Mr. Henderson. And we have examined here some suggestipns as
to how that stability might be obtained. You introduced the question
of the "or" in which you evidently have in mind a control feature.
I am asking you, entirely apart from exercising any regimentation or
control over the steel industry, what has occurred to you and your
associates as to how that stai3ility could be attained, whether there
is something the Government could do which would be helpful and
not in the nature of control.
Mr. Grace. I am not being bothered about the Government control
in the discussion which you and I are having. That is something I
can't deal with nor influence one way or the other.
Mr. Henderson. You probably know I lean more toward laissez
faire than I do toward control.
Mr. Grace. It seems to me we get into a realm of a situation like
tliis: If we could appraise how many automobiles are going to be
bought next June, if we could appraise how many new cars the rail-
roads are going to buy, how much new rail the railroads are going to
l£l,y ; if we could appraise the construction operations throughout next
year in the use of steel, if we could have some ways or means of know-
ing what the law of supply and demand is going to give us, what our
average economics is going to result in, where we could have knowledge
of those things and have them ironed out, let us say, to create more and
more an average demand, it certainly would be useful toward the
economic end of running any business, it seems to me. But how to get
there I don't know.
I don't know whether the conditions in this country are going to be
that the automobile industry is going to build 2,000,000 cars or
4,000,000 cars. I speak of the automobile industry because today
they are the biggest consumer of steel in the country. Probably
mechanically 20 percent of the steel we produce goes today in the
construction of automobiles. Think of the factor it is. The Govern-
ment buying factor isn't anything like as important as all of our
industrial activities. It is really a flea bite.
Mr. Henderson. Some of the public would like to get bitten by a
flea.
Mr. Grace. Positively, but I don't like to be bitten by the flea that
requires us to build battleships. I don't like that bite. I wish this
country never had to build another one. I don't want that kind of
business. I don't want prosperity dependent upon that kind of
business. If there is anything false, that is what is built for destruc-
tive purposes. Let's put that money and effort into constructive
purposes and the world would seem to be in better condition.
However, we are getting off now. How to do what you are suggest-
ing, because it would be helpful. Goodness knows, it is too big a
problem for me.
Mr. Henderson. WeU, as I see it, the import of your testimony is,
then, that you don't see any stabilizing factors, either, so far as your
industry is concerned, which would bring about a sustained level of
operation.
10640 CONCENTRATION OF ECONOMIC TOWER
Mr. Grace. No. We are always looking for it, wc are always
striving for it.
Mr, Henderson. You don't see anything that could be done to
achieve stability of which you would be willing to approve?
Mr. Grace. No, I haven't reached that. If I had I would have
done it, Mr. Henderson.
Mr. Henderson. You see where it leaves this committee.
Mr. Grace. Oh, certainly.
Mr. Henderson. Here is an industry that has, in its best times,
more than half a million people in it, and then -swings down to half
that number in almost no time.
Mr. Grace. And take the industries dependent on it and collateral
to it, you see.
Mr. Henderson. Yes.
I think, Mr. Chairman, I ha^ e finished.
Acting Chairman Williams. Have you any further questions, Mr.
Feller?
Mr. Feller. I have no further questions.
Acting Chairman Williams. Anyone else?
Dr. LuBiN. May I ask Mr. Grace one question? Unfortunately
I have been away, and I wasn't here this morning. I understand,
that the record states that this morning you made a statement to
the effect that despite the fact that there is a differential in the mini-
mum wage paid between your corporation and some of your competi-
tors, your average hourly earnings are identical with theirs, or approxi-
mately that. Will you tell us how you arrive at that figure? Do you
take the total pay roll and divide it by the number of man-hours
worked?
Mr. Grace. The total pay roll against the number of man-hours
worked. I am referring to my comptroller.
Dr. LuBiN. Total man-hours worked by all employees?
Mr. Grace. All employees that we pay wages to.
Dr. LuBiN. It omits your office workers?
Mr. Grace. That is the complete pay roll, put in that way because
that is the only way we have to compare it with the Steel Corporation's
pay roll.
Dr. LuBiN. Did you include your officers?
Mr. Grace. That is our complete pay roll.
Dr. LuBiN. Everything paid out in wages or salaries.
Mr. Grace. The complete pay roil, that is right, and it is put in
that form, as I say again, because that is the only figure we had to
compare with the Steel Corporation, and that is the reason we set
it up that way.
Acting Chairman Williams. Are there any other questions? Are
you through now with Mr. Grace? All right, we thank you very
much. We have enjoyed your presentation.
Have you any further statement to make?
Mr. Grace. No, Mr. WiUiams, I haven't. If the committee doesn't
want any more of my philosophy, I want to thank you for this courte-
ous treatment and the opportunity; and if the committee ever wants
to see me again, they won't have any trouble finding me.
Acting Chairman Williams. I am sure we have been very much in-
structed by your presentation and we enjoyed it very much.
CONCENTRATION OF ECONOMIC POWER 10641
Mr, Grace, I can say this: For once it has been a pleasure to be
here. [Laughter.]
Acting Chairman Williams. The committee vpill be in order,
please. Are you through for the day, Mr. Feller?
Mr. Feller. I suggest we adjourn for today.
Acting Chairman Williams. The committee will stand in recess
until 10:15 tomorrow.
(Whereupon, at 4:40 p. m., a recess was taken until the following
day, November 10, 1939, at 10:15 a. m.)
124401 — 40— pt.
INVESTIGATION OF CONCENTBATION OF ECONOMIC POWER
FBIDAT, NOVEMBER 10, 1039
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 10:20 a. m., pursuant to adjourmnent on
Thursday, November 9, 1939, in the Caucus Room, Senate Office
Building, Senator William H. King presiding.
Present: Senator King (acting chairman) ; Representative "^Uliams;
Messrs. Henderson, Avildsen, O'Connell, and Brackett.
Present also: Hugh White, representing the Federal Trade Com-
mission; John V. W, Reynders, representing the Department of Com-
merce; A. H. Feller, sp^ial assistant to the Attorney General; John W.
Porter, Irving B. GUckfeld, Hyman B. Ritchin, Monroe Karasik,
and Ward S. Bowman, Department of Justice,
Acting Chairman King. The committee will be in order.
Mr. Feller. I would like to call Mr. Ernest T. Weir.
TESTIMONY OF ERNEST T. WEIR, CHAIRMAN, NATIONAL STEEL
CORPORATION, AND PRESIDENT, AMERICAN IRON & STEEL
INSTITUTE, PITTSBURGH, PA.
Acting Chairman King. Hold up your right hand. Do you
solemnly swear the testimony you shall give in this hearing shall be
the truth, the whole truth, and nothing but the truth, so help you God?
Mr. Weir. I do.
Mr. Feller. Give you name to the reporter.
Mr. Weir. E. T. Weir, Chairman of the National Steel Corporation,
Pittsburgh, Pa.
Mr. Feller. In addition to your connection with the National
Steel Corporation, you are also at present president of the American
Iron and Steel Institute.
Mr. Weir. Yes; I have that honor.
operations of national steel corporation
Mr. Feller. Mr. Weir, it would be useful for the record if you
could very briefly tell us something about the National Steel Corpora-
tion. It has two main subsidiaries, has it not?
Mr. Weir. Yes; the Weirton Steel Co., of Weirton, W. Va., and the
Great Lakes Steel Corporation of Detroit, Mich. Those are the steel-
producing subsidiaries.
Mr. Feller. EarUer in the testimony we had references made to
your connection with the M. A. Hanna Co., which, in effect, manages
your ore properties. Is that true?
10643
10644 CONCENTRATION OF ECONOMIC POWER
Mr. Weir. Yes.
Mr. Feller. Could you tell us what the relative standing in the
industry is of National Steel in terms of total assets?
Mr. Weir. I think it is fourth in size in the industry.
Mr. Feller. Do you recall approximately what the total assets
of National Steel are?
Mr. Weir. I think it is about $225,000,000.
Mr. Feller. Perhaps the committee might want to have some
notion of the kind of products which you manufacture. You manu-
facture— you are extensively engaged, are you not — in the manu-
facture of light flat-rolled products?
Mr. Weir. Yes.
Acting Chairman King. Did he state the principal places of where
his industry is active?
Mr. Feller. I believe the principal plants are at Weirton, W. Va.,
and at Detroit. The Weirton, W. Va., plants are operated by the
Weirton Steel Co., and the Detroit plants by the Great Lakes Steel
Corporation.
Mr. Weir. Then we have a manufacturing plant in Buffalo, N. Y.,
making merchant pig iron.
Mr. Feller. Is it correct that the National Steel Corporation has
recentlyerected a mill to manufacture structural steels?
Mr. Weir. That is correct.
Mr. Feller. Where is that plant?
Mr. Weir. At Weirton.
Mr. Feller. Has that come into production yet?
Mr. Weir. Yes; that started operation on July 1, of this year.
Mr. Feller. Do you manufacture, aside from structural steels
which have just come into production, principally sheets?
Mr. Weir. We manufacture sheets of all ^ades, strip steel, mer-
chant bars, tin plate, structural steel was mentioned, and miscellaneous
materials for railroads.
Mr. Feller. In contradistinction to the two corporations which
have been described in the previous days' testimony, it is true, is
it not, that National Steel Corporation does not engage in the fabri-
cation and erection of structures?
Mr. Weir. That is correct; we do not.
Mr. Feller. And you also do not engage in the manufacture of
ships?
Mr. Weir. No, we do not.
Mr. Feller. Would it be correct to say, then, that the National
Steel Corporation is primarily a producer of steel?
Mr. Weir. That is correct.
Mr. Feller. Rather than of finished articles?
Mr. Weir. We do no fabricating of any kind.
Mr Feller. Would j^ou say that the National Steel Corporation
is what is known in the industry as an integrated company?
Mr. Weir. It is; yes, sir.
Mr. Feller. The word "integrated" has been the subject of some
doubt here. The term integrated, as used in the industry as you
understand it, is a company which mines its own ore, makes its own
pig iron, makes its own steel, and makes a product from steel,
Mj. Weir. That is correct.
CONCENTRATION OF ECONOMIC POWER 10645
Acting Chairman King. For my own information, you state that
your company does not do any fabricating. In just what form does
the highest finished product, if you may call it a finished? product,
emanate from your organization?
Mr. Weir. Well, tin plate; then it goes on to the consumer, who
manufactures it into cans; and structural steel — that goes out to
the fabricator, who puts it in the buildings or bridges or whatever it
may be required for. We make the steel which is used in fabrication.
Acting Chairman King. Would that include steel bars?
Mr. Weir. Yes, sir; we make steel bars.
Representative Williams. As I understand now, you don't make
any products that are finally — in a finally finished state.
Mr. Weir. You mean that go to the ultimate consumer? No;
we do not.
Mr. Feller. Such as railroad ties and wire.
Mr. Wei». No; we don't manufacture wire. We manufacture
railroad suppUes such as tie plates, on which the rails are set, and
spikes — railroad spikes.
Representative Williams. Then there are a few finished products
that are manufactured by you?
Mr. Weir. Everything we produce are finished products in the
term as it is understood in the steel industry.
Representative Williams. What I mean is in the shape that it
finally reaches the ultimate consumer, like railroad spikes and railroad
plates, as you have described, and railroad rails — do you manufacture
those?
Mr. Weir. No ; we do not.
Representative Williams. You don't manufacture those or wire in
any shape, which is ultimately consumed?
Mr. Weir. That is correat.
Mr. Reynders. Your demand results from the requirements of
industries that carry the product to the ultimate consumer?
Mr. Weir. That is right ; the fabricators in different lines.
PRICE policy for STEEL INDUSTRY SUGGESTED BY MR. WEIR
Mr. Feller. Mr. Chairman, some weeks ago Mr. Weir delivered
an address at the annual meeting of the American Institute of Steel
Construction, The address was delivered on October 17^ 1939, in
New York City. We have prepared mimeographed copies of the
address, and they are available before the members of the committee.
In this address Mr. Weir deals with the question of the price
policy, the matter which has concerned the committee for the last 5
days, the question of general price policy for the steel industry to
follow, and it is one of the questions of high moment for this cona-
mittee to consider the price poUcy suggested by Mr. Weir in his
address.
I should like the whole of the address placed in the record ; but of
course, I can only read parts of it here, otherwise I shall be taking
up much too much time. I shall read the parts which are concerned
with the matter of a price policy for the steel industry. I think the
committee would be very much interested in having an elaboration of
Mr. Weir's views with respect to that price policy.
10646 CONCENTRATION OP ECONOMIC POWER
Acting Chairman King. May I ask one question, Mr. Weir? Of
course, you are familiar with the address which you delivered.
Mr. Weir. Oh, yes.
Acting Chairman King. Now that it is to go into the record, do
you desire to make any modifications of the statements therein
contained?
Mr. Weir. No.
Acting Chairman King. Further reflection has not led you to
desire to modify statements therein contained?
Mr, Weir. It represents my views, Mr. Chairman.
Acting Chairman King. It may be received.
(The manuscript of the address referred to was marked "Exhibit
No. 1421" and is included in the appendix on p. 10734.)
Mr. Feller. For the record, I think perhaps Mr. Weir would
prefer to have it all printed, since I shall only read parts of it.
Mr. Weir. I would think so; yes. I would like to have it dis-
tributed.
Mr. Feller. It has been.
Mr. Weir deals in this speech with the problem presented b}*^ thp
losses which the steel industry has suffered at various times during
the last decade, > particularly the period of the depression and the
subsequent depression which began in 1937 and extended through
the early part of 1938. And he goes on to say as follows [readine
from "Exhibit No. 1421"]:
Assuming constant eflBciency, I can see only three methods by which our
industries can convert their loss position to a profit position. Increased income
could be realized from increased volume, from reduced costs resulting from
reduced capacity, or from increased return on existing volume.
Mr. Weir then goes on to discuss, in turn, each of these first three
methods. He examines the possibility of increasing income from
increasing volume, and I am correct, am I not, in saying, Mr. Weir,
that you assume, that you reach the conclusion that that cannot be
done by the action of the steel industry itself, because you consider
the demand for steel to be inelastic, and not to respond — well, I don't
think you put it quite that way. Your point is that the steel industry
can do nothing which can influence the demand for steel itself. That
is correct?
Mr. Weir. Correct.
Mr. Feller. You then go on to consider whether reducing capacity
is a cure for this condition, and you reach a conclusion which I think
many members of the committee, and I hope all members of the
committee, will be in agreement with, that the destruction of capacity
is not a solution which would be in accord with the best interests of
the country.
Mr. Weir. Right.
Acting Chairman King. You don't believe in the philosophy of
scarcity?
Mr. Weir. No; I do not, Mr. Chairman.
Mr. Feller. Mr. Weir then examines the third method for cming
this situation — increased return on existing volume. And these are
his words at the bottom of page 7 Ireading]: *
In the light of this, let us go back to the first method suggested as a means by
whidh loss can be converted to profit. That is, to increase the return from the
> AppendU, p. 10737.
OONOENTRATION OK' ECONOMIC POWER 10647
pjrevailing volume. This means getting better prices. I realize that this is what
has been condemned as "maintenance of a rigid price structure" by the long-on-
theory, short-on-experience economists in the bureaus down in Washington and
in other places. The proposition is a very simple one. It means only that you
must charge a price, under any given condition, which covers all of your costs —
including the cost of carrying unused capacity — and returns a reasonable profit.
If you fail to charge such a price, you must give something away. And in busi-
ness, if you continue to give something away for very long, you eventually give
the business away. No one is justified in asking business to do this. I can see
nothing wrong — morally or economically — in business asking prices for its prod-
ucts and services that cover costs and yield a reasonable profit.
Yet in many branches of industry, and in the steel industry particularly, the
price policy, if it can be so called, has been a total failure.
Acting Chairman King. By what I assume you mean that you
have not reahzed what you have stated as the goal, namely, such re-
retm*ns from the sale of your commodities as would meet your costs
and give you a reasonable profit.
Mr. Weir. That is correct, Senator.
Mr. Feller. Now, turning over to page 9,^ the first full paragraph
at the top of the page continues the discussion of this point. [Read-
ing:]
Yet the cure for this condition — in your industry, in mine and in all others
not controlled by government — is in the hands of management. Management
simply has to determine now and at all other times that it will not accept business
at a price which does not include costs and a reasonable profit. In saying this, I
am not suggesting that companies in an industry get together and agree on prices.
There are many phases of business on which companies can cooperate through
their trade associations to their own and the public benefit. Price is not one of
them. A price policy is one that must be established by each individual com-
pany in accordance with cost and other factors peculiar to that company. The
job of each individual company is to see that its prices cover its own costs, not
empirically established average costs of its industry.
Acting Chairman King. That is, each company is a unit by itself.
Mr. Weir. Yes.
Acting Chairman King. And must determine its policy based upon
its own demands.
Mr. Feller. I think one more sentence at the top of the page is
significant. On the top of page 10, the last two sentences in the top
paragraph [reading]:
Each of us must find its solution in our own back yard. Know our costs, see
that our eflSciency is at least as high as our competitors, then determine that re-
gardless of volume, regardless of the practice of any other company, we will do
business only at prices that include coats and a reasonable profit.
Mr. Chairman, this suggested price poUcy for industry is one that
the committee would be interested in considering in view of the testi-
mony which we have had in the last 3 or 4 days. The committee
will recall that yesterday, particularly, Mr. Grace characterized the
poUcy of his company, which was the second largest company in the
industry, as meeting the competition of the United States Steel Cor-
poration, and that that poHcy included publishing those prices, after
the United States Steel Co. announced prices the Bethlehem Steel
Co. would announce the same prices and would attempt to secure
those san:e prices that it had announced, and members of the com-
mittee ciiaracterized that, I beUeve, as following the leader.
Acting Chairman King. I didn't so characterize it.
> Appendix p. 10737.
10648 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. Some members of the committee did.
Mr. O'CoNNELL. I think, Mr. Chairman, Mr. Grace didn't say
follow the leader but lie did say they would attempt to follow the
corporation, which v/oiild indicate a. follow-the-leader policy. I
don't think they saw anything wrong -about it.
Acting Chairman King. The observation I just made was not in-
tended as any criticism or any comment as to the weight of the
testimony or its tendencies. I do recall, however, that Mr. Grace
did testify that there were constant departures from what I called
the datum line or from the published prices, the posted prices, the
departures resulting from going down in various phases of the in-
dustry or increased demand, a multitude of causes which would
result in departure from the datum line.
Mr. Feller. Mr. Weir, is it fair to summarize the price policy
which you suggest in this speech in these words: That each company
could sell its product on the basis of its own cost plus a reasonable
profit from its own standpoint and insist on selling on that basis at
all times.
Mr. Weir. Well, to begin with, among the leading companies
there is a very small difference in cost of production. The prices in
the steel industry are made in the competitive market from day to
day, irrespective of what the Steel Corporaion may put out as their
prices for the quarter. Prices are actually made, as I say, in the
competitive market from day to day. The criticism comes from al-
lowing those prices, the prices made in the competitive market,
to get below the cost of production, selling on a basis that nets the
individual company a loss.
Mr, Feller. And in your own words, Mr. Weir, how do you think
that could be avoided?
Mr. Weir. By determination on the part of each company that
they will not sell their product at a loss.
Mr. Feller. At any time?
Mr. Weir. At any time, that they will set prices that will cover all
costs of production and include a fair, reasonable profit.
Acting Chairman King. My recollection is that some of the testi-
mony indicates that some of the steel companies have sustained
great losses.
Mr. Weir. Yes, sir.
Acting Chairman King. If they had maintained those prices and
had not deviated from the posted prices, would there have been no
losses?
Mr. Weir. No, there would not.
Acting Chairman King. Would there not be losses if they adhered
to the posted prices and the demand for their products shrunk to a
very small point?
Mr. Weir. Well, I think when the industry gets down to a mate-
rial subnormal basis of production, such as it did in 1932 when it got
down to an average of 19K percent, that there are bound to be losses,
but when the industry operates on a basis of 35 to 40 percent I see
no justification for prices that result in losses.
Representative Williams. What is your explanation under those
conditions of these big companies having reduced the prices to such
an extent that they did sustain material losses on accoimt of those
reductions?
OONORNTRATiON OF ECONOMIC POWER 10649
Mr. "Weir, Of course in this discussion of mine which has been
referred to, I criticize management for the responsibility for so doing,
in my own opinion, that is my personal opinion, I believe that man-
agement is not justified in ever allowing prices to go to the point
where it nets the company a loss. When I say that management is
responsible, I mean tins, that executive management is responsible.
In the steel industry the competition at times is so frightfully keen
that ordinary salesmen are sent out and given authority to take any
price that is necessary to get business. In other words, the very life
of the company, the very life of the industry, is placed in the hands
of an ordinary salesman. That is what I take exception to.
Acting Chairman King. Among any manufacturing organizations
outside of steel, manufacturers of clothing and a multitude of com-
modities which enter into the daily consumption of the people, are
there not departures from prices which may be regarded at the begin-
ning of the season or of the period as suflBcient to yield a reasonable
profit as the result of which there are reasonable changes in the
market, prices are departed from, fixed prices or fixed understandings
are departed from and losses are sustained?
Mr, Weir. There may be. You are speaking of seasonable goods.
There may be a reason why a clothing manufacturer makes a low
price and sells at a loss on a certain particular design. Take auto-
mobiles, it is the same thing. That does not apply to steel. Styles
don't change so rapidly.
Acting Chairman King. In the industries to wuich I have referred
there are departures from a projected line of prices by the organiza-
tions at the beginning of the season, are there not?
Mr. Weir. Yes, and that may be a normal part of their procedure.
They have to expect that. Consequently, their selUng prices generally
should be on a basis to allow them on the average to cover those losses
and give them a profit on the year's business.
Acting Chairman King. Is it your view that in the steel industir
you men who conduct the steel industry are so wise and have such
prescience that you can project the policy for the future, fix your
prices, or rather fix a datum line, and you must adhere to that, you do
adhere to that, you are expected to adhere to that?
Mr. Weir. No, absolutely not.
Acting Chairman King. There are seasonable demands, are there
not, in the steel industry?
Mr. Weir. Yes. There are wide fluctuations in steel industry
demand.
Acting Chairman King. Foreign conditions as well as domestic
changes in the industry affect the steel industry, do they not?
Mr. Weir. Absolutely, very definitely. We only make our prices
as a rule for 3 months, for a quarter, so that if conditions change for
the next quarter we can adjust our prices to meet those conditions.
Acting Chairman King. Suppose that you feel or some members
of the steel industry believe that given the kind of steel that is going
to be the large demand for the future and they build extensive plants
at large cost, and that demand is not reaUzed, would you expect that
the prices which would be fixed following the constructiou of that
costly plant should take into account the fact that it is obsolete or
obsolescent, and that you must get prices upon a plant which is
obsolete?
1Q650 CONCENTRATION OF ECONOMIC POWER
Mr. We;r. Obsolescojice is a very definite item of costs, Mr.
Chairman. The monev is spent; it must be returned to the com-
pany in some way. After all, where will it come from otherwise?
Acting Chairman King. Doesn't your address — I haven't read
it
Mr. Weir (interposing). I hope you will.
Acting Chairman King. Doesn't it contempate a rather ideal
situation, that producers of goods, whether steel or anything else,
must have such wisdom that they may envision the future business
and fix their policies with reference to that ideal which they have?
Mr. Weir. Well, I think it just common-sense poUcy of the busi-
ness that it must make a profit. It cannot operate at a loss.
Acting Chairman King. That is your thesis, I suppose.
Mr. Weir. It is a very practical necessity with any industry,
certainly an industry such as the steel industry that has enormous
sums of money, invested and requires tremendous new investment
every year. Where will the money come from? Furthermore, the
matter of credit, which is based on the earning of money on the
capital invested, is a matter of vital importance in this industry.
The losses in this industry for the 9 years ending 1938 showed a loss
to the common-stock holders who have $2,000,000,000 invested, of
$80,000,000 over that period. During that time they received very
little if any return. In order to carry the fixed charges of the industry,
$80,000,000 was taken from the value of the common-stock holders'
interest.
As I said, it is an industry that requires large sums of money con-
stantly for improvement and development. That money must come
from some place. Now, it is very evident, based on the record of
the industry over these past 10 years, where it has not been able to
carry its fixed charges over an average period of 10 years, it cannot
afford to go out into the money market and borrow money in the
shape of bonds or put out preferred stock, which are fixed charges;
it cannot afford to increase its fixed charges, but yet it must continue
to develop and spend money. The only place left for us to get
money, to go out and borrow new money, is to sell common stock,
and I venture to say that no steel company would have sufficient
credit to allow them to sell common stock. It is a pretty broad state-
ment, but I say there are very few if any steel companies that today
can go out into the market and sell common stock at a price that
would vustify them in making sales.
Mr. Keynders. Mr. Weir, as I understand this formula which you
lay out here, it would be carried out during a period when the volume
of business would be iu the neighborhood of 35 percent or 40 percent.
Does that me^n that ygu regard that as a break-even point?
Mr. W?:iR. Well,, I ^biuk that 35 percent should be a break-even
point within the industiry,
Mr. Reynders. Then when you %j:e beloWi wheai the volume of
business of the country is below that break-reveh point, then, of course,
it would be impossible to carry out your theory,
Mr. Weir. Yes; but in normal times^ Mr. Reynders, there are very
few years when the average operation is that low. I mean, we may
have quarters when the operation is down to 30 percent or 35 percent,
hut there are very few years in which the average operation gets as
CONCENTRATION OF ECONOMIC POWER 10651
low as 35 percent. I refer to 1938, which was a very depressed year,
and the operation, I think, was about 40 percent.
Mr. Reynders. Nevertheless, those periods have occurred, and
necessarily I assume they create a disturbance in the industry on the
part of companies that find that they would be better off with some
tonnage than with no tonnage. I mean, carrying out the theory that
you announce that you should not under any circumstances quote a
price that did not show a profit, it might be under such circumstances
that some companies would shut down altogether, which would be a
detriment to their forces. Mr. O'Connell says one remedy would be
to raise prices.
Mr. O'Connell. In a period when your production got down to
30 percent or less, or less than 35 percent, according to your theory
the proper thing to do at that point would be for the industry to raise
prices.
Mr. Weir. I have in mind always a period of a year's average, not
a period of a quarter.
Mr. Feller. Is that what you mean by "at all other times"? You
have used several times the phrase "now and at f U other times industry
must adopt this poUcy." You also used the words "under any given
condition." Do I understand you are modifying that? How would
you know in any particular sale what the condition for the balance of
the year would be.
Mr. Weir. That is a matter of judgment and experience of the
industry. You can look back over the record; and, as I say, there
are very few years in which the average operation has not been in
excess of 35 percent, outside of these very extreme instances.
Mr. O'Connell. Take the year you mentioned, was it 1932, at
which you operated at 19 percent of capacity?
Mr. Weir. Yes.
Mr. O'Connell. According to your solution of the problem, I take
it, you would have required a substantial price increase at the end of
1932.
Mr. Weir. I wouldn't expect the industry would make money in
1932. I mean it is an extreme year.
Acting Chairman King. You lost money, didn't you?
Mr. Weir. We (the steel industry) lost money in 1932, and there
would be no way of avoiding losing money unless you put prices up
beyond what I think the industry would not think of doing. It was
an extreme period which very rarely^ occurs.
Mr. O'Connell. It would be logical, it seems to me,^ under your
theory of charging prices at all times and under aU circumstances
sufficient to return you a profit. Would it also follow that in periods
of high demand your prices would be decreased?
Mr. Weir. Certainly. I am not speaking of static prices at all.
When we have a high demand and costs are down and earnings are
satisfactory, we go beyond the point of a satisfactory return, and the
industry should reduce their prices as they have done in the past.
Mr. Reynders. In the event that there are periods which you
indicate where the industry is bound to lose money, then would you
think that at other times when its demand is active that they should
have the opportunity to make up the loss that occurred during those
periods?
10652 CONCENTRATION OP ECONOMIC POWER
Mr. Weir. Absolutely; I think in times when the demand for
steel is great that the industry should make a good profit; they should
make a profit sufficient to cover, well, say, an extreme period like 1932.
Mr. Feller. Mr. Weir, it is one of the salient facts of this industry,
as I understand it, that as the rate of operation increases the cost
per unit decreases.
Mr. Weir. The overhead charges are less per ton of production.
Mr. Feller. Costs you less per ton^of steel; and conversely, as
the rate of operations goes down, the cost per ton goes up.
Mr. Weir. Yes; fixed charges.
Mr. Feller. Doesn't your theory lead to this — that as the demand
for steel declines and with it the cost increases, of necessity the price
would have to keep going up?
Mr. Wfir. Absolutely.
Mr. Feller. In other words, as the demand went down like this,
the price would go up to meet it?
Mr. Weir. Absolutely.
Acting Chairman King. But it might reach such a point that it
would encoimter sales resistance and you would be preve^ '■ed from
making any sales.
Mr. Weir. Then, I say, in the judgment of the individual or the
industry the price would not be raised to that extent.
Acting Chairman King. You do encounter sales resistance, do
you not?
Mr. Weir. If we have fluctuating prices — I believe in fluctuating
prices — I stated in good times we should make a good profit; in poor
times we can't make much profit, but I see no justification on the
basis of 35 percent as a minimum why the industry should sell on a
basis of losing money.
Mr. Feller. Mr. Weir, I think we should have this clear in. mind.
The fundamental goal toward which your speech is directed is pre-
cisely the fundamental goal toward which, as I imderstand it, the
efforts of this committee are directed. This committee wants to find
out how the steel industry can make a reasonable profit at all times.
Wliat we are concerned with at the present moment is your suggestion
of a method by which that could be reached. We agree that it is
not only common sense, patriotism, and for the best interests of the
country that the^ steel industry make a reasonable profit at all times.
The committee, I think, is interested in finding out hbw we can reach
that, and you have made, from your standpoint as a practical executive,
practical suggestions. The suggestion is that management should
decide now and at all other times or imder any given conditions not to
sell unless they receive for their product cost plus reasonable profit.
I should like to examine the question as to where the limits of this
practical suggestion should be placed.
You have already indicated one. You said when the industry
falls below 30 percent of capacity, it would be very difficult if not
impossible
Acting Chairman King (interposing). Thirty-five percent, he said.
Mr. Feller. It would be very difficult if not impossible to adhere
to that kind of a pricing method.
Let's take, then, the point of 35 percent. The demand for steel
is at the level of 35 percent. A good period about there would have
been the first quarter of 1938, wouldn't it?
CONCENTRATION OF ECONOMIC POWER 10653
Mr. Weir. Yes; I tliink so.
Mr. Feller. About the first quarter of 1938. Now, what I should
like to examine is the practical implications of this practical suggestion,
for individual companies, because it is to individual companies that
you have been addressing your thesis. Assume a period like the first
part of 1938. The demand for steel is only capable of taking up 35
percent of the industry's facilities. And let's assume, further, that the
major part of that demand comes from the activities of the auto-
mobile industry.
Now, is it not a fact that if all companies were at that time to follow
your suggestion, that it would mean, in effect, that those companies
which, by virtue of location, are not favorably situated to secure their
own costs, plus profit from the sales to the automobile industry, would
be required to stay out of the market and should stay out of the
market?
Mr. Weir. No; they can't be required to stay out of the market.
Mr. Feller. I don't mean required legally, I mean, following
out this theory.
Mr. Weir. No; they can't be expected to stay out of the market.
Mr. Feller. Assuming, now, that the industry is operating at this
low level: The companies favorably situated with respect to the
automobile companies go to the automobile companies and decide to
sell them steel at a certain price which covers their own costs plus a
reasonable profit. Such a company would be a company which had a
plant at Detroit, for example. Now, how about a company which is
situated at Pittsburgh, and which finds that the only way it can sell
steel at the price which has been set by virtue of the bargaining
between the Detroit steel company and Detroit automobile manu-
facturers— that the only way it can meet that price is to sell below
cost, or at cost without the profit. What would j^ou suggest they do?
Mr. Weir. Well, Mr. Feller, the determination on prices is not
made with regard to any one product. As an example, we have a
plant in Detroit, the only steel plant in Detroit. We don't sell all of
our product to the automobile companies. We have to sell products
produced in Detroit in other territories. And in those other terri-
tories we may have to absorb freight, so that our determination of the
price at which we would sell the automobile people is based on the
determination of our position, taking into consideration all of our
products, and the freight absorption which we must have in dehvering
mto other territories — all steel companies have a freight absorption,
imder the principle on which they work of selling and delivering into
all consuming territories.
Mr. Feller. I should like to take a specific case. Supposing at a
period when the utilization of capacity of the industry is at the rate
of 35 percent you find that at your Great Lakes steel plants you can
sell sheets to the automobile companies and receive a return which
will net you your cost plus what is a reasonable profit for you. And
let us assume that price is $2.20. And let us now take a company
situated in Pittsburgh which finds that by virtue of the freight dis-
advantage it cannot sell steel to the same automobile company in
Detroit unless it gets $2.20 plus the freight. ^ It is just as efficient as
you, but not more efficient. Are you suggesting, now, that that com-
pany should take either one of two alternatives — either sell at $2.20
plus the freight from Pittsburgh to Detroit, or else forego the business?
10654 CONCENTRATION OF ECONOMIC POWER
Mr. Weir. Well, to begin with, we don't fix prices in Detroit or
any other territory where we have plants with the idea of corralling
all of the business in that particular territory. We must consider
the over-all picture. If we would sell and make a price on sheets in
Detroit that would represent our costs — simply our cost and nothing
else — then we would have a loss on the products that we ship in other
territories, and where we have a freight absorption, so the basis which
we set up is an average consideration. Part of the freight we take up
in other territories goes into the cost of what we sell in Detroit.
Acting Chairman King. Then you lose on the freight absorption,
but you make on sales in fields nearer the plant that is the source of
production.
Mr. Weir, The answer to that, Mr. Chairman, is that we get an
average price that nets us an average that prevents us from losing
money or allows us to make a profit. We can't take any one single
territory nor can we take one single product. It must necessarily
be an average. What advantage would there be to us in selling
sheets in Detroit on which we don't lose money, at a price on which
we don't lose money, and selling other products in other territories as
a result of that price on a basis that would cause us a loss?
Acting Chairman King. Don't you recoup in some instances upon
some products sold in a contiguous territory for losses sustained in
other territories remote from the source of production?
Mr. Weir. Absolutely. That is the principle on which the steel
industry operates.
Acting Chairman King. So you balance your gains, so to speak,
with your losses.
Mr. Weir. Yes.
Acting Chairman King. Or you balance the returns in a favorable
field with the returns in an. unfavorable field, and whereas in the
former you would obtain a considerable profit, in the latter you would
have no profit, and yet you adjust the matter so that perhaps, taking
it by and large, you have a very small profit if you have any at all.
Mr. Weir. That is right; that is the basis, I say, on which the
industry operates. Each steel company very jealously guards its
rights to sell its products in all the consuming markets
Acting Chairman King. Do you sell some at a loss?
Mr. Weir. In certain markets at times.
Mr. Feller. Mr. Weir, it is precisely that queston that I am trying
to elucidate here. Should it jealously guard its rights to sell in -afi
markets, under the conditions that we have assumed, a low rate of
operation for the industry, I shall examine it now on the basis that you
have placed for us. You make your price to the automobile com-
panies in Detroit taking into consideration your entire sales problem,
selling everywhere. And let's assume again that the price is $2.20.
Now, let us take a Pittsburgh steel producer who is in an inferior
position to you from two angles: First, he is further away from
Detroit; and, secondly, he not quite as efficient as you. His costs
are higher, so that over all, on all his sales, he would perhaps lose
money in this period.
Now, are you suggesting to that producer that he should not sell
steel in Detroit at all unless he can get for his steel his cost plus a
reasonable profit?
CONCENTRATION OB' ECONOMIC POWER 10655
Mr. Weir. No. Detroit is only one consuming territory in which
he sells.
Mr. Feller. I am assuming the major part of the demand has
come from the automobile companies. That has happened occasion-
ally, hasn't it?
Mr. Weir. When you say the major part, the difference in per-
centage I would say will be very small. When the general business
is poor the automobile demand is poor; when general business is good
and demand for other products goes up, the automobile demand
goes up. There may be a difference in the automobile industry.
The automobile industry in good periods might use 15 percent of the
steel produced. In bad periods it might use 20 percent.
Acting Chairman King. Without intending to express any opinion
from the form of the question I am prompted to ask,, does not the
theory that you should guard your markets wherever they are tend
to preserve the competitive system; that is to say, if you made
reasonable mone}'^ in a given area in which you were favorably
situated, and you abandoned a more distant area where you had
some losses or at any rate very small profits, if you abandoned that
field it would result in a lack of competition, and surrender to the
person or company that occupied that field an opportunity to charge
prices entirely too great?
But by preservtQg your fields, even though you sold at a loss, or at
least a very small profit, would you not, by preserving that field and
entering and continuing in that field, tend to protect the competitive
system?
Mr. Weir. Absolutely.
Mr. Henderson. I gathered, Mr. Weir, from your speech some-
thing which is directly contrary to the answer you have given to
Senator King. As I gathered from this, you are suggesting that each
producer get a rate which covers all his cost, including the cost of
carrying unused capacity, and returns a reasonable profit and then
you denominated the profit system as the American system elsewhere
in your speech.
Mr. Weir. True.
Mr. Henderson. Well, now, under the condition that the Senator
has outlined, a company would be doing business at a loss, and there-
fore it seems to me it inevitably follows that you would consider that
company un-American, and therefore not following the maintenance
of competition.
Mr. We^ir. Well, I don't know whether you were here, Mr. Hen-
derson, when I made an explanation of that.
Mr. Henderson. I regret very much, Mr. Weir, that I was not.
Mr. Weir. You may sell at a loss in a certain territory where you
have a heavy freight disadvantage, but that is only one territory.
Mr. Henderson. There are years, even at the 35-percent level of
operation, when some of the steel companies cannot cover their costs.
Their break-even points are higher than that. United States Steel
indicated recently it was around 50 percent. If I followed your out-
line it Would mean that United States Steel would stay out of the
market rather than take a loss, and if they take a loss they are
un-American.
Mr. Weir. Well, they said 50 percent on certain prices. Probably
on the existing prices that they are receiving it would be 50 percent.
10656 CONCENTRATION (JF ECONOMIC POWER
Mr. Henderson. That's right.
Mr. Weir. Prices, I say, are too low on that basis. I sayv the
prices should be higher.
Mr. Henderson. What price do you mean, the base price?
Mr. Weir. Yes; the prices they receive per ton for their product
are too low, and that has been general in the steel industry.
Mr. Henderson. But your proposition was very specific that each
individual company ought to set its price based on its costs.
Now, in this situation that Mr. Feller has outlined, and in the one
that the Senator has outlined, obviously the most favored producer
in that market prevents other companies from capturing their costs
and a reasonable profit, and therefbre it necessarily follows, it seems
to me, under the very terms of your outline, that they have to stay
out of the market in order to meet your terms,
Mr. Weir. No; I gave an explanation of that using our own oper-
ation in Detroit as an example.
Mr. Henderson. Yes.
Mr. Weir, We produce sheets and other steel products in Detroit;
the prices that we mat;e to the trade in Detroit that buys our product
is a price that covers an average cost situation, including the freight
absorptions that we must make through going into territories that
are not so favorable. I mean that is all part of the cost. We don't'
f)retend at any titne to make a price in Detroit that represents the
owest cost that we can make on sheets, forgetting all of the other
territories and the higher costs that we have through the freight
absorption. After all, it is an average cost.
Mr, Henderson. That is your own cost, you mean,
Mr. Weir. Of course. It has nothing to do with anybody else's.
Mr, Henderson, And your own average costs are lower. Let's
see, I took a 10-year period at one time from about 1927 to and
including 1936, and as I recall, the rate of profit of your company was
something like 6)i percent. That was for that 10-year period. There
was only one other company that exceeded you, and in that same
period the average earning of the industry was about 2% or 2.9 per-
cent, sometliing like that, and some of the companies larger than
yours, of course, had lower than 2.9.
Mr. Weir. Tliat is right.
Mr, Henderson. Now, your costs are admittedly in the industry
much lower than the rest of them, even your average costs and I have
great admiration for the way you have been able to reduce them.
Therefore if your pricing policy became the pricing policy for the
indilstry, if they accepted your contention, there are many, many
concerns that would not sell because they cannot get a profit,
Mr, Weir. Why not? If we have an advantage in cost or location,
that is our advantage, and we want to take advantage of it. The
average of the industry must be a determining factor in the industry's
position, and if we are able to make more money than the average of
the industry, that is something that we want. You can't level them
all down, see.
Mr. Henderson. That is right, but you propose to level them all
down to your costs.
Mr. Weir, No; I don't say that at all.
Mr. Henderson, Let me get to what you suggest should be th«
price policy. You say, "It is the job of each individual company to
CONCENTRATION OF ECONOMIC POWER 10657
see that its price covers its own costs, not empirically established
average costs "of an industry," and then you go further and indicate
what would happen if your general policy was adopted, that prices
would inevitably gravitate to the point at which the more efficient
producers can cover costs and make a profit.
(The witness nodded in the affirmative.)
Mr, Henderson. And that the low price established this way is
an economically sound basis.
Mr. Weir. Well, our record that you refer to there, Mr. Henderson,
indicates that we don't use this lower cost that we may have lower
average cost, possibly through a better average location. We don't
use that to go out and operate, we will say, full, when the balance of
the industry can't meet those costs and operates at 30 or 40 percent.
We try to take that in additional profit. I set no limit on the profit
that a company can make. I mean
Mr. Henderson (interposing). Just so it is reasonable.
Acting Chairman King. If you obtain satisfactory profits, a fittle
more than satisfactory in some commodities and in some sections of
your operation, that sort of recoups the unsatisfactory profits obtained
from your other parts of your operation.
Mr. Weir. Yes, we have to do that. As I say, it has to be an
average proposition.
Mr. Feller. Mr. Weir, I am interested in seeing just what manage-
ment should do in line with your suggested price policy. Let's take
a specific case. Let us take the United States Steel Corporation in
the last months of 1937^ The testimony of Mr. Fairless indicated
two important things, first, that the prices had been increased. The
base price had been increased in the early part of 1937 in order to
meet the increased costs and in order to insure the company a reason-
able profit.
The second thing that he indicated was that beginning in the latter
half of 1937 the United States Steel Corporation was not getting
those prices. It was reaUzing something considerably below that
price. Now, speaking as a practical man, what should the United
States Steel Corporation have done in the last month of 1937. Should
they have refused any business which they could not get at the pub-
lished base price?
Mr. Weir. Of course not, they have to maintain their position in
the market. What I have been criticizing is the extreme competition
that brings about prices that are so low that they have to operate
below cost. Those extreme prices may not have been caused by the
steel corporation. They may have been caused by some other com-
petitors. But I am saying, in my remarks — they are addressed to
the company who willfully and specifically, in terms of competition,
goes down to a point of selling their product below cost, and which,
of course, affects all the other, standard companies. None of them
can lose their competitive position.
Mr. Henderson. Then you are criticizing the company that takes
the action that Senator Kjng outUnes.
Mr, W^EiR. Selling below cost.
Mr. Henderson. In order to keep their position, yes. And you
say that competition drags down prices.
Now take this occasion when the United States Steel was confronted
with low volume in that laat quarter Mr, Feller spoke about, and the
124491 — 40— pt. 19 14
10658 CONCENTRATION OF ECONOMIC POWER
first quarter in 1938. Based upon their break-even point, they would
have had to get the base price plus the full extras in order to meet
the terms you are suggesting. And they didn't. They took less for
realization, and they got to a point where, in order to meet your
terms, they would have had to get more than the base price in order
to cover their costs — even though they produce 35 percent of the
market. If they had posted or quoted a higher price and attempted
to get it, then their margin and their competitive position with relation
to you would have been absurdly out of line, much more out of line,
would it not?
Mr. Weir. You are talking about their posted prices.
Mr. Henderson. Yes; but I am talking about the necessity that
might fall upon them to meet this price theory you have expounded.
They would have had to increase beyond those base points, and they
were having difficulty, as the testimony shows, in getting anything
like the base price. The realization was several percent under that.
Now, that would mean that they would have to increase their price
in order to cover their costs, and the costs for idle capacity and a
reasonable profit, and since they couldn't get it, they would have to
stay out of the market.
Mr. Weir. No.
Mr. Henderson. Then I must say that
Mr. Weir (interposing). I think they testified that they were not
able to secure even their published prices at that time.
Mr. Henderson. That is right, but they lost money.
Mr. Weir. They did, and somebody was responsible for breaking
the prices down considerably below those published prices. It may
have been the corporation, I don't know, but somebody in the indus-
try broke the prices down to a point at which the Steel Corporation
and everybody else had to sell on a basis of where there was no profit,
and they had a loss.
Mr. Henderson. Did they do it in order to keep their position?
We had testimony yesterday concerning what Inland did in that period
in order to keep its position in tin plate. They broke the tin-plate
price for certain things.
Mr. Weir. That wouldn't necessarily follow that they had to do
that to keep their position. If they^ did it — I don't know — for the
purpose of increasing their position in the tin-plate situation. It is
done for a number of reasons.
Mr. Henderson. I think the letter indicates that it was to try to
keep their position.
Acting Chairman King. May I interrupt right there?
Mr. Henderson. I just want to see whether I have misread this.
It is very easy, Mr. Weir, as I know, for some one to misinterpret
what your theory is.
Mr. Weir. Very easy.
Mr. Henderson. I think I have been in that situation once or twice
myself. I don't want to be under any misapprehension as to what
your price theory is in this particular case. But what is wrong with
the interpretation I have^ placed on your theory as it applies to
United States Steel'in thes'e periods that I have mentioned?
Mr, Weir. I am criticizing the company who inaugurated the
prices that were below cost.
CONCENTRATION OF ECONOMIC POWER 10659
Mr. Henderson. You mean the one that touched it off?
Mr. Weir. Yes; absolutely. I am talking to that particular com-
pany or companies.
Acting Chairman King. Suppose at that time that the company
which reduced prices found such sales resistance that it affected not
only that company, but others, and in order to break the dam, and
to keep some of the plants in operation, rather than close them down,
it lowered prices even below cost, that course would fall under your
condemnation?
Mr. Weir. Yes, because experience has shown that no company
gets any particular advantage through so doing. They cut this price
today below the standard, the fair standard, and below their costs.
Tomorrow it is known, because there are no secrets about the price
situation in the industry. The buyer that received that price took
advantage of it tomorrow by telling some other competitor what the
price was and what he would have to do to get his share of the business.
The result of it always is that no one company gets any particular ad-
vantage in operation or in tonnage, but it does have the effect of break-
ing the standard of prices down for the industry below a fair price.
Mr. Henderson. The company that does that thinks it is getting
an advantage in relation to covering its o\^erhead costs, doesn't it?
And as I gathered from your paper and from your testimony now,
you felt that they weren't correct in that, that they were exercising
poor business judgment when they did something like that.
Mr. Weir. They are not only breaking the price on this particular
sale on themselves, they^are breaking the price on practically every-
thing they sell, because I say
Mr. Henderson (interposing). I gather this is a serious thing in
your industry. Time and again somebody does break the price
thinking it is to his advantage to do it.
Mr. Weir. Yes, it is a rather common practice. As I have stated,
there is extreme competition in the steel industry. The corporation
puts out its prices at the first of every quarter, but the actual prices
are made through the day by day competition in the market. It has
been unfortunate over these last 9 or 10 years that this competition
eventually has resulted m prices that have been so low and below the
costs so that the companies on the average have netted a loss.
Mr. Henderson. Let me ask you this. In the period when you
were building up National, particularly in the period when you were
developing Weirton, what was your practice about cuttmg below the
base price?
Mr. Weir. Well, of course, the theory on which we operated, Mr.
Henderson, was that we were meeting competition.
Mr. Henderson. Do you mean that the theory you operated on
was that you never initiated it but that you met it? Is that it?
Mr. Weir. That was the theory.
Mr. Henderson. It wasn't the actual practice, though, iiow was it,
Mr. Weir?
Mr. Weir. I certainly wouldn't say so,
Mr. Henderson. Then to that extent you were doing just the thing
that calls up the condemnation Senator King has indicated.
Mr. Weir. No, the condemnation is not of the practice of compet-
ing and not securing prices that have been posted by the Steel Cor-
poration, but the condemnation is carrying the competition to the
10660 CONCENTRATION OF ECONOMIC POWER
point of where the prices eventual Uy get down below the cost of produc-
tion. I have no criticism of the competition that exists in the market
from day to day.
Mr. Henderson. You have met it very adequately because over
a period of time your operating results show that. There have been
times, for example, take 1937, when your net after all charges was
close to 18 percent, wasn't it?
Mr. Weir. Eighteen percent on the
Mr. Henderson (interposing). On stock surplus and earned surplus.
Mr. Weir. I don't remember the figures. I doubt whether it is
that high.
Mr. Henderson. I have made this computation from the pros-
pectus that you filed with the Securities and Exchange Commission.
It may be off a percentage or so.
Mr. Weir. Are you spealdng about the net after-all charges, interest
charges, and everything?
Mr. Henderson. Yes; after something like five million of Federal
taxes, too.
Mr. Weir. I don't think it wasi that high, Mr. Henderson.
Mr. Henderson. 1 made a fast calculation.
Mr. Weir. 1937 was a good year.
Acting Chairman King. Over the past 10 or 15 years, how many
years have you had no profits, paid no dividends, no returns to the
common stockholders?
Mr. Weir. We have never been in the red, Mr. Chairman. We
have always paid some dividends, although they have been very small.
Acting Chairman King. What dividends have you been paying
generally?
Mr. Weir. This last year we paid a dollar a share on stock selling
today at about 75. This year we are paying on the basis of $1.60.
Mr. Henderson. You made about six and a quarter percent
between 1927 and 1936, as I remember.
Mr. Weir. On the average.
Mr. Henderson. Yes; on the average, and that was a period when
you had at least double the average for the industry and many times
more than some of the most important of your competitors in the
industry.
Mr. Weir. Yes.
Mr. Hendbrsln. I gather in that period when you were aggres-
sively building up Weirton and later National, that because of your
lower costs you were able to keep this policy you outlined iu the
speech you made and that you very seldom were driven to the place
where you couldn't recapture your costs including idle capacity and
a reasonable profit.
Mr. Weir. That is true, but I didn't indicate that we had made
prices on account of our ability to make some profit during that
period. We had gone out in the market and met prices; of course the
average of the industry was at a loss.
Our efforts always was to get the best price we could get.
Mr. Henderson. But in this 1937 experience that I refer to, if you
had taken, say, the average of your 10 years from 1927 to 1936 you
would have been able to cut the price rather substantially, would
you not?
CONCENTRATION OF ECONOMIC POWER 10661
Mr. Weir. Undoubtedly, undoubtedly. We had no disposition to
do that. Prices fluctuated greatly during that period.
Mr. Henderson. Yes, but the net result was a rate of earning in
1937 which was at least double what the average had been from 1927
to 1936 in your company and you were in a position, if you wanted
to follow rigidly the price policy you outlined, of being able to cut that
price.
Mr. Weir. No, I didn't say anything about that. I put no limit
on what a company can make. I put no upper limit on what the
prices should be.
Mr. Henderson. Even the term "reasonable" isn't a limit?
Mr. Weir. Well, in my opinion, of course, our earnings have never
been unreasonable.
Mr. Henderson. I have never yet met a businessman who did feel
that way, because he felt that that was a reward for his particular
efficiency and marketing ingenuity. But certainly in terms of
what you outline here, unless you assume that something way beyond
the rate of profit in the industry is not unreasonable, you could have
cut the price substantially.
Mr. Weir. That hasn't been our practice.
Mr. Henderson. "VMiat I am suggesting is that you didn't in that
period follow your policy; Other companies less advantageously
situated for whatever reason, are driven to the conclusion, as I am,
that they either have to stay out of markets in periods when they
can't meet your terms, or be considered un-American. I can't get
any other connotation out of it.
Mr. Weir. Mr. Henderson, my condemnation is of prices that are
made below costs. 1 put no limit on what a company should make
or could make. I mean if we had been able to sell our product on a
basis where we made a profit, I put no limit as to what that profit
could be, except it be a reasonable profit.
Acting Chairman King. In view of the fact that so many of the
companies have been in the red for years is it not evidence that there
has been fierce competition in the steel industry?
Mr. Weir. Why, of course. It speaks for itself.
Mr. O'CoNNELL. That is what you are complaining about.
Mr. Henderson. That is what he objects to.
Mr. Weir. I can't view this industry simply from the point of view
of my own company. I must look at it from the total over-all picture.
Mr. Feller. Mr. Weir
Mr. Weir (interposing). May I go on?
Mr. Feller. Yes; please.
Mr. Weir. One of the very important and essential things |n the
steel industry is the quality of products that are produced. There
is constant change, constant improvement in that quality, all of
which requires enormous expenditures of money. Over recent years
there has been a great change in the method of producing sheets and
of producing tin plate, going from the hand method to the continuous
mill method. That has required a tremendous investment. We have
one mill at Detroit that we built a few years ago on which we spent
$25,000,000 alone for that mill. That was to introduce in that par-
ticular company, this new method of rolling sheets. That produced
a quality that was so superior to the quality that had been produced
10662 (CONCENTRATION OP ECONOMIC POWER
in the old mills that i<t allowed a great improvement, we'll say, in
the quality of the automobile as one example. Now, that is a necessity
within the industry. It doesn't apply only to our company. So that
the whole Lad us try must in some way get a return on its sales and its
operations that allows it to keep up this development that has been
so valuable to the consuming public. I don't see alone the position
of my owm company. Of course when I say that I don't think any-
body should sell products below cost I know if that practice is con-
tinued it would be detrimental to the steel industry as a whole and
in the long run anything that is detrimental to the industry as a whole
is bound to be detrimental to my company in some way, shape or form.
Mr. Henderson. Isn't the assumption in the competitive theory
of a system of profit and loss, which is what I was talking about as
the American system — I think Senator King has referred to it several
times himself because he knows what losses mining agencies and
institutions have suffered — that under
Acting Chairman King (interposing). There are 90 losses where
there is 1 gain.
Mr. Henderson. That under fair competition and constant adjust-
ment to supply and demand you wUl get a price which to the eflficient
producers, will yield a profit and will enable them to continue, as you
have indicated. That profit will be sufficient to determiue the
allocation of factors in the reward that they get — wages, building of
new equipment — and will be sufficient to maintain that industry's
growing needs. What I ain suggesting is that perhaps what has been
taking place is a constant impact on the price, certainly some of it
due to your vigor and that perhaps what is^needed is not less of it
but more of it; I mean there^is a reasonable^'assumption in terms of
the competitive theory that there ought to be more of it.
Mr. Weir. Should be more competition?
Mr. Henderson. Yes.
Mr. Weir. Well, it is pretty hard for me to visuahze in the steel
industry how there could be more competition on price without ruin-
ing the industry. It is so extreme now that the industry operates at
a loss, and after all, that is a very definite fact, it is not a matter of
theory. This industry over a period of the last 10 years has lost
money. That money has had to come from some place. Where
does it come from? The operation of these mills, the protection of
the organization, the protection of the trade, is a practical matter.
That can only be done when there is money coming from some place
to keep the companies going, to keep them alive, to keep them de-
veloping and meeting the continual new requirements of the country.
When the industry loses, according to my figures, over a period of 9
years of the stocldiolders' money $80,000,000 and they have had no
return whatever over that period, that is a very practical matter,
not a matter of theory. The money must come in.
Mr. Henderson. I disagree that it isn't a matter of theory, I
don't concede that the steel industry today does not operate upon a
certain theory. Certainly
Mr. Weir (interposing). They don't agree on the theory appar-
ently.
Mr. Henderson. They may not agree on the theory, but there is
a theoretical background as to the general basis upon which the steel
CONCENTRATION OF ECONOMIC POWER 10663
industry operates. It does have a pricing policy, it has certain me-
chanics such as the basing point and the extras by which it operates.
Long before this period of which you speak, Government agencies
such as the Federal Trade Commission were suggesting that there
was something wrong with the theory of that pricing policy. They
were suggesting, to take it in terms of the price rises in '36 and '37,
as was amply testified to by Mr. Grace here yesterday, that a theory
of pricing policy that assumes there should be a rise in price with rising
demand and a reduction in unit costs helps to destroy demand and
to disorganize the industry. I submit that there have already been
three theories advanced before this Committee, Mr. Chairman: One,
the theory of prices and price making b}^ the Steel Corporation;
another by Mr. Grace yesterday; and another by Mr. Weir today.'
Acting Chairman King. I assume there may be more theories and
this comimittee, acting as judges, I assume, after a reasonable inves-
tigation, will in their findings which they will subsequently make, it
is presumed, indicate which of the theories they regard as sound and
which they regard as very falUble. Perhaps none are infallible. As
far as I am concerned I am here to listen and to get all the information
I can and any statement which I made was not intended to convey
the idea that I have prejudged the case.
Mr. Weir. I know that. Mr. Henderson, I don't understand the
difference between the theory of the Steel Corporation and the
theory of Mr. Grace and the theory of myself. I don't know that
they touched particularly on this matter of developing products
below cost. This is one item.
Mr. Henderson. It is the central thesis of your address.
Mr. Weir. The theory has been entirely a basis of a fair, reasonable
price.
Mr. Henderson. It has not been your theory that if they can't
get enough to cover their costs and a return on idle equipment, which
is very substantial in many years, they would stay out of the market?
Mr. Weir. I haven't advocated that at all.
Mr. Henderson. I think it follows.
Mr. Weir. Not necessarUj-. I said that companies that compete
must continue the competitiori . I criticize in that address tJie
company or companies that have inaugurated prices below cost.
Mr. Feller. Their own costs?
Mr. Weir. It must be; yes.
Mr, Feller. Isn't it conceivable that a company may inaugurate
a price which is below the published price but which is above its
own costs and yet is below everybodj'^ else's costs, or below the costs
of so manj^ other units in the industry that in order to follow that
thej'^ must cut below cost and thereby reduce the return of the in-
dustry, and isn't that, perhaps, Mr. Wf>ir, the thing which explains
your profit showing?
Mr. Weir. As I say, in these major companies the ditterence of
cost is not very great. We know that. We can make a pretty good
estimate of what the costs are.
Mr. O'CoNNELL. Can that be demanstrated to be the fact, that
there are no substantial differences in costs between the steel pro-
ducing companies?
10664 CONCENTRATION OF ECONOMIC POWER
Mr. Weir. I think so; yes. Their location and employment on
the average is much the same.
Mr. O'CoNNELL. What is the explanation of the substantial
differences in return of the different companies over periods?
Mr. Weir. That may be a matter of management for one thing.
Mr. O'CoNNELL. It has to do with costs.
Mr. Weir. Management has a great deal to do with costs.
Mr. O'CoNNELL. That is right, and might it not follow that
because of different types of managements you have a substantial
difference of costs between the companies? Wouldn't it also follow
that you are possibly being a little too dogmatic in saying that every-
one knows there are no substantial differences in costs between the
steel companies?
Mr. Weir. When I say substantial differences I mean differences
that would make a great difference in the ability to sell at certain
prices.
Acting Chairman King. There is a ^reat deal of difference in the
freight rates, isn't there, from Detroit to Birmiugham and from
Detroit to the immediate neighborhood?
Mr. Weir. I think, Mr. Chairman, though, that for the companies
pretty well covering the whole country in selling into these different
territories, I would assume that their freight absorption on the
average is not very different.
Acting Chairman King. Isn't there a difference in costs as to the
prices of ores, between those who have mines of their own and those
who do not?
Mr. Weir. Very Uttle difference. There has never been very much
profit in the ore business. There is so httle profit in the ore business
that the fellow that buys his ore on the average I should say is about
as well off as the fellow that owns his property and produces it.
Mr. O'CoNNELL. Do you buy your own ore?
Mr. Weir. No; we mine aU of our own ore and are a seller of iron
ore.
Representative Williams. Would you say the reason for loss in
some companies and gains in others was by reason of the fact that they
went out on the market and by this pricing policy reduced the price
and made concessions and reductions from the base price to such an
extent that they sold below cost and by that reason actually lost?
Mr. Weir. That would be one reason; yes.
Representative Williams. You take the record here of the United
States Steel during '38, it was perhaps a loss or very little gain, if any,
while you had a sustantial profit. Would that explain the diiOference
between your poUcieSj between your gain on the one hand and their
loss on the other, that they sold their products below cost while you
didn't?
Mr. Weir. They must have done that.
Representative Williams. I asked you whether you think that is
the cause of that difference, whether it is a matter of pricing policy
between them and you? Or is it for some other reason? That is a
fact according to the record here. I am simply asking your judgment,
your explanation, of that difference.
Mr. Weir. I think it is a httle easier for a company of our size to
operate and make a profit than it is for a company of the size and
ramifications of the Steel Corporation.
CONCENTRATION OF ECONOMIC POWER 10665
Mr. Feller. I think one of the most important statements that has
yet been made has been made right here; one of the most important
statements made before this committee.
Acting Chairman King. What was that? The size of the company
has something to do with profits? There has been some effort tending
to show that smaller corporations do not have some of the difficulties
that lai^er corporations and larger units have, and therefore they
have profits when the larger units do not have.
Mr. Reynders. Mr. Chairman, I should like to call attention to
the fact that the Steel Corporation is in a great many lines of products
which have to do with capital expenditures. This sheet business has
been running at a somewhat higher rate than structural steel, plate,
rails, and the Steel Corporation's earnings are an average of all these
products, some of which have not been in as good shape as the sheets.
Mr. O'CoNNELL. Is your company in the business of producing a
pretty wide range of products?
Mr. Weir. Oh, yes.
Mr. O'CoNNELL. Does it compare with the range of products pro-
duced and sold by the United States Steel Corporation?
Mr. Weir. Oh, no. No company except Betlilehem, I think, has
anything like the range of products.
Mr. O'Connell. Are you in substantially all lines that they are in?
Mr. Weir. Well, of the large standard lines we are in all of them
except pipe and wire, and they make a wide range of specialties.
Mr. Reynders. But you have only been in structural in the last
year?
Mr. Weir. We have made structural steel for 5 years.
Mr. Reynders. You don't build any ships?
Mr. Weir. Oh, no.
Mr. O'Connell. Would it be fair for me to understand that the
record of earnings of your company over the period of the last 10 or
12 years would support your recent general statement to the effect
that the smaller companies in the steel industry are able to operate
at a lower cost and more eflBciently than the larger companies, such
as the Steel Corporation?
Mr. Weir. Oh, I don't say that about aU of them. The record
shows that some of the smaller companies also have not made money
and have lost money.
Mr. O'Connell. You indicated gen,erally that
Mr. Weir (interposing). I was speaking about our own company.
Mr. Henderson. General Johnson — pardon me, I thought you
were through.
Mr. O'Connell. The statement you made was a rather general
one, that in your judgment the smaller companies did have certain
advantages in terms of costs.
Mr. Weir. I was thinking particularly about our own company
because I know more about that.
Mr. O'Connell. Certainly insofar as your company is concerned
your record of earnings as compared to the larger companies would
tend to support that belief.
Mr. Weir. Oh, yes. On the average I think in times when the
demand for steel is great and operations are heavy that the Steel
Corporation has a very definite advantage over the rest of us; they
10666 OONCENTIIATION (W E(30N0MIC POWER
have very substantial trausDortation profits which the rest of us do
not have.
Mr. O'CoNNELL. You mean that the rate of return as compared
to their investment would tend to be higher in those periods or they
just get more profits?
Mr. Weir. They might; their cost per ton I should think would be
lower.
Mr. Henderson. I don't think the record of profits, Mr. Weir,
shows that. General Johnson quoted you on November 3, 1939, in
his column, in this wise [readingl:
In Pittsburgh the other day I heard one of our greatest industrialists, E. T.
Weir, say exactly what I have heard Judge Brandeis say: "The trouble with our
great economic empires is that they are too big for any single human mind to
manage. There aren't enough brains." Weirton papers please note.
Is that a correct quotation?
Mr. Weir. No; it certainly was not. I didn't make that remark.
General Johnson and I had a conversation for about an hour and a
half and there were many things said, but I didn't make that statement.
I think I did make a statement criticizing management for not making
sufficient profit out of business.
Mr. Henderson. Now that gets back to something I wanted to
speak about
Acting Chairman King. I think Mr. Reynders wanted to ask
a question.
Mr. Henderson. Pardon me, Mr. Reynders.
Mr. Reynders. I didn't want the impression to prevail that youi
company, Mr. Weir, was anything like as diversified as the Steel
C^orporation. Their customers are in the railroad business, which
lias been a ver}'^ poor buyer, and shipbuilding, during this period of
depression, bridges and building. The percentage of the Steel Corpro-
ation in sheets and strips has certainly been very much less than
your percentage. I mean you are essentially a manufacturer of sheets
and strips.
Mr. Weir. No; we are nothing of the kind, Mr. -Reynders. We
have a diversified line of production.
Mr. Reynders. What percentage of your business is sheets and
strips?
Mr. Weir. I should say offliand 25 or 30 percent . We make quite
a diversified line of production. I did say, you will remember, that
in the period it was a lot more diflB.cult for a large company hke the
Steel Corporation with its various ramifications to make a profit
equal to ours, particularly when the demand is ojff. In good times
when the demand is great the Steel Corporation has the advantage.
I would say that probably today their costs were below ours.
Mr. Reynders. Essentially speaking, your business is in the con-
sumer-goods line, tin plate which goes into canneries, sheets which go
into automobiles; that certainly has been more active in both cases
than any of these other lines.
Mr. Weir. There is no product within the industry that I know
which has a lower price than sheets today.
Mr. Avildsen. Mr. Weir, I think Mr. Reynder's point is, do you
do a substantial rail business, for example? Do you have a large
rail mill that might have been lying idle for a long time?
Mr. Weir. We have a rail mill but we haven't made rails.
CONCENTRATION OF ECONOMIC POWER 10667
Mr. AviLDSEN. Is that a substantial part of your set-up, to make
rails and heavy plates and bridge material, and so forth, such as is
true of the corporation?
Mr. Weir. Well, nothing like the percentage that they have in
that particular product.
Mr. AviLDSEN. That is what I mean. They have been at a dis-
advantage in that the heavy industries, buidlmg construction, rail-
roads, bridge builders, and so forth, have been inactive for a long time.
Isn't that true?
Mr. Weir. Yes.
Mr. AviLDSEN. You have a very small percentage comparatively
of that kind of business and a very large percentage of the types of
steel which have been in active demand. Isn't that true?
Mr. Weir. Understand, I said nothing in criticism of tlie Steel
Corporation.
Mr. AviLDSEN. I am just trying to clear the record here and get
at the facts, that is all. If there is an essential diflFerence between
the nature of your production and the nature of their production,
we should know about it because it affects the question.
Mr. Weir. With respect to that I think the matter of price has a
lot to do with it. I say today that one of the worst things in the
way of price structure is sheets. I would veiy much rather manu-
facture structural material or bars or plates or shapes. We can make
plates, by the way. I didn't mention that before.
Mr. Henderson. The sheets go to big buyers who have an organ-
ized buying strength and tend to press the price pretty close; the
structural materials go to individuals of smaller size and they tend to
pay more nearly the base price?
Mr. Weir. I don't think there is any organized buying activity on
the part of the automotive people. Each one buys for himself.^
Mr. Henderson. I had in the N. R. A., running at the same time,
a study of the automobile industry and a studj^ of one function of
the steel industry. Almost without exception the steel industry
complained about the extraordinary amount of close bargaining
the automobile manufacturers did. The automobile manufacturers,
on the other hand, were constantly complaining that the steel people
were keeping prices above what they felt was a reasonable level. I
wondered whether that difference in bargaining strength as between
the automobile companies — not an oj-ganized buying strength — and
those who buy structural steel didn't have something to do with the
difference in the realizations.
Mr. Weir. I don't think that the low prices that exist in the sheet
industry today are the result of any undue pressure on the part of
the automotive buyers. I think it is the result of the weakness in the
selling, the merchandising.
Mr. Henderson. Failing to follow your thesis.
Mr. Weir. The automobile people, m my experience, have a]wa3'^s
been willing to pay a fair price. It has been stated in publications
that they are constantly putting pressure on the market. I don't
think they put any undue pressure on the market. They know the
methods by which steel is merchandised, they know the weaknesses
that exist and they are out at times to try to find out what is the price.
Mr. Henderson. I didn't suggest any undue pressure. I was
saying that because of their size and strength and because of their very
10668 CONCENTRATION OF ECONOMIC POWER
knowledge of these weaknesses^tliey are able to trade better and
as a result you get a weaker price on sheets than on structural shapes,
Mr. Weik. I think all buyers of steel buy on a strictly competitive
basis.
Mr. Henderson. Isn't there a difference in the degree of compe-
tition?
Mr. Weir, Just as there exists in the different quality of the differ-
ent purchasing agents. Some are more aggressive than others.
I don't thmlv you can apply that to any consuming industry as an
mdustry. I think it depends on the individual pressure of the
purchasing agent.
Mr. Henderson. How do you account for the fact that the steel
industry has such a bad merchandising poUcy on sheets?
Mr. Weir. I think the merchandising policy is bad not only as
regards sheets, Mr. Henderson, but as regards all other products.
Sheets are not the only product that has been sold below cost. Other
products have been sold below cost too.
Mr. Henderson. On that matter of selling below cost, would you
want to state the companies in the industry which initiate this selling
below cost in times of stress? Is it the corporation?
Mr. Weir. I can't put my finger on any particular company and
say that they do or they do not.
Mr. Henderson. I thought you told me in response to some other
question that a price cut was known immediately to the industry,
that you couldn't keep it concealed.
Mr. Weir. Well, but we do not know the name of the company
which made the price cut.
Mr. Henderson. You just know that there has been a price cut?
Mr. Weir. Yes.
Mr. Henderson. Don't you know as a matter of fact what the
principal sources of supply are for most of the big buyers of steel,
what their customary trade lines are?
Mr. Weir. Yes; ihe larger buyers ordinarily buy from practically
all of the producers, or a large percentage of the producers, so that we
might have a suspicion as to who was introducmg an extremely low
price, but we would have no definite assurance of it.
Mr. Henderson. There is no open-price system now by which you
would be able to know that?
Mr. Weir. No. If I would ask, If I had a suspicion that a certain
company had made a low price and I would ask the principal of that
company, I probably wouldn't get the facts.
Mr. Henderson. I disagree with you on the basis of other things I
happen to know. Taking it just on the basis of Mr. Pfeltz* letter to
Dr. Baker, he got it out of-31ock, of Inland, as far as that Campbell
Soup contract was concerned, and he got a substantial rebate on his
own item because of it.
Mr. Weir. I don't know anything about that.
Mr. Henderson. You may not find out in every case but I have
good reason to believe that you do track it down pretty well.
Mr. Weir. No. I am talking about it from my own experience,
which goes over a long period.
Acting Chairman King. That is a leading question.
Mr. Henderson. I am trjing something that you lawyera would
of course object to ; I am trymg to lead the witness.
CONCENTRATION OF ECONOMIC POWER 10669
Mr. Weir. In the great majority of cases we do not know who is
responsible for the extremely low prices.
Mr. Henderson. Therefore, if each of them would follow the advice
you gave them every day in their own offices, to do their part about
seeing that their own companies earn a profit, that would take care
of that situation.
Mr. Weir. Yes.
Mr. Henderson. What would that do to capacity, Mr. Weir, to
building capacity?
Acting Chairman King. Obsolete machinery?
Mr. Henderson. No, building new capacity.
Mr. Weir. The steel industry has always been very liberal ^ in
providing additional capacity; even during this period of depression
they have been building; the industry always has peaks such as it is
having today, such as it had in 1937 and in 1929, you will always find
that the industry will build up to take care of those peaks. That has
been a principle in the steel industry.
Mr. Henderson. Suppose all of them had a pricing policy which
yielded the standard of 7 percent which you set in your speech and
which they made in 1928 and 1929. I think you said that judging
by results these profits must have been reasonable.
Suppose the steel industry adopted your pricing policy and each of
these companies with a wide degree of variance in cost, as has been
shown, recaptured their costs and made a profit. What would that
do in terms of attracting new investment into the industry?
Mr. Weir. Well, based on past experience, Mr. Henderson, it would
not result in increasing the capacity beyond the expected reqmre-
ments. You have the history of the steel industry over a long period.
You have a period when it had the opportunity of going into the money
market and getting what money it needed. Yet I don't think that
it has ever built to extreme. The demands on it within a few years
following have always taken up the slack for a period.
Mr. Henderson. Would you say that is true about structural
shapes?
Mr. Weir. Oh, yes; absolutely.
Mr. Henderson. Don't you think there is an excess capacity in
structural shapes?
Mr. Weir. Based on the demand today?
Mr, Henderson. Based on the peak demand.
Mr. Weir. Well, of course that is a very variable thing, don't you
know.
Mr. Henderson. I am asking your opinion because I have it that
on tubes, wire rods, structural shapes and rails there is a tremendous
excess of capacity even in high periods.
Mr. Weir. And yet today tne steel production, the whole steel
being produced, is all taken up. As I say, it is a very variable thing.
A structural mill, we will say, can produce 75,000 tons a month if they
have the steel, or they may operate it at 10,000 or 15,000 tons per
month if they want to put the steel into some other product.
Mr. Henderson. I take it that your answer is that you do not think
there is an excess capacity in. these four categories I have mentioned.
Mr. Weir. There is no excess capacity in steel today.
Mr. Henderson. Steel as a composite.
10670 CONCENTRATION OF ECONOMIC POWER
Mr. Weir. Yes. That is the basis from which these finished prod-
ucts are made.
Mr. Henderson. If we had all companies getting this profit you
think is reasonable, it would be a natural assumption in the eco-
nomic theory I was taught that there would be an additional increase
in capacity, and it would be particularly true if it was the thesis in the
industry that nobody would sell unless he got a profit. Don't you
think that is likely to happen? Don't you think that if they all sold
and got this profit there would be a building of additional capacity?
Mr. Weir. I say, I can only speak from past experience and that
has not been the experience withm the industry.
Mr. Henderson. But that is the thing you complained about, they
haven't made this profit. I am saying if they all did, wouldn't we
get a building of additional capacity?
Mr. Weir. I am speaking here about the present situation and going
back over the last 9 years. Prior to that the industry did make
money. Every 10-year period the average earnings in the industry
I think were satisfactory.
Mr. Henderson, What I am suggesting is that if thfl,t situation
came back and this rigid price policy you have announced were fol-
lowed, there would be more mouey attracted into the industry if it,
followed what is expected in economic theory. And if you say you
don't think it will happen, then my response to that is that the steel
industry again is different from the rest of the industries.
Mr. Weir. Of course the investment required to increase the pro-
duction of steel is tremendous, and it is certainly given very careful
consideration.
Mr. Henderson. But we are not having, as you know, full use of
our savings now.
Mr. Weir. I see at no time any disposition on the part of those in
the industry, they have such a large investment in the industry, of
increasing a basis that is unjustified by the outlook as they see it.
Mr. Henderson. But the way we get an excess of capacity in other
industries where there is competition and where there is a fair rate
of profit is b}'^ the return that exists in that industry. That is how
excess capacities get built up.
Mr. Weir. Mr. Henderson, you used the phrase "rigid price
policy." I certainly am not advocating any rigid price policy.
Mr. Henderson. Not a policy of rigid prices, I understood that,
but a rigid adherence, then, to the policy of selling under the temis
you have outlined.
Mr. Weir. Not selling at a loss.
Mr. Henderson. The term that you used was, as I recall:
It means that you must charge a price under any given condition which covers
all your costs including the cost of carrying unused capacity and return a reason-
able profit.
Mr. Weir. Any given condition, any average condition that exists
at the time. I see no justification for selling 50,000 tons of steel at
a loss, and that is done. That is what I criticize. I am in favor of
the competition that we have in the industry, but I am not in favor
of competition that goes down to the point where some producer
establishes a price that is below the cost, a fair average cost.
Acting Chairman King. That would mean the others follow
CONCENTRATION OF ECONOMIC POWER 10671
Mr. Weir. They do follow, Mr. Chairman. We have been doing
it for a number of years and I have been exercised about it. It is diffi-
cult for. me to see where this industry, if it continues on this basis, will
get the money to continue the improvements and developments that
are necessary within the industry. As I say, we can't increase our
fixed charges, we can't go out and put any more bonds, any more
mortgages, on the property, we can't afford to put out any more
preferred stock and we cannot sell common stock.
Representative Williams. What in your opinion has been the
extent to which sales have been made below the cost of production?
WThat part of this business has been conducted on that basis?
Mr. Weir. I can't give you any percentage but certainly sufficient
to result in a loss the industry.
Representative Williams. Can you give us any idea?
Mr. Weir. No; I haven't the slightest idea.
Representative Williams. It must be a rather substantial amount
according to the losses that have been sustained by some of the com-
panies.
Mr. Weir. Sometimes it doesn't require a great deal of tonnage to
aflFect the market.
Representative Williams. You haven't done any of that yourself.
Mr. Weir. I wouldn't say that.
Representative Williams. I thought that was against your policy.
Mr. Weir. That is against my policy but I am not saying that our
own organization follows out my policy. It is a large organization
and it covers a lot of territory.
Acting Chairman King. You are speaking generally that if indus-
try, whether it is steel or any other industry, where there is individual
enterprise, cpntinues to operate at a loss in its business it is bound
idtimately to get into bankruptcy.
Mr. Weir. Absolutely.
Acting Chairman King. And that the capitahstic system or any
system must have some degree of profit in order to survive.
Mr. Weir. Absolutely, it must do that. Business must be profit-
minded, it must undertake to make a profit.
Acting Chairman King. And if you start out with the idea that
you are going to be so humane as to sell everything at a loss you are
sure ultimately to bankrupt your concern and injure the public gener-
ally.
Mr. Weir. Yes.
Mr. Henderson. But you have not sold at a loss, have you?
Mr. Weir. We may have sold some products. Not on the average.
Mr. Henderson. Not on the 'average.
Mr. Weir. No, sir.
Mr. Henderson. And a number of other companies have not sold
at a loss, mainly what we call the medium-sized ones, have they?
It is a matter of public record that they haven't. You would have no
difficulty in getting financing for additional fines based upon your
record, would you?
Mr. Weir. I don't believe that we, on account of the general aver-
age of the steel industry, could sell common stock today to the pubfic,
although our common stock has made a profit througli all these years
and we have paid a small dividend, but on account of the general
10672 CONCENTRATION OF lilCONOMiC t»OWER
situation in the steel industry I don't believe that National could go
out and sell common stock today at a price.
Mr. Henderson. It could get financing at a price which would
increase the leverage of earnings of the existing common stock, could
it not?
Mr. Weir. I don't think we could sell it. I don't think there is
any market for it.
Mr. Henderson. If you anticipated increased business you don't
think the public would be enamored by the very amazing record
you have made, beginning with Weirton and on through National?
Mr. Weir. No ; I don't. I don't see that our stock on the market is
in any great demand.
Acting Chairman King. In view of the large capacity in the steel
industry with its various plants, is there any very great invitation to
any person today to ^o and build new plants?
Mr. Weir. No; it is a very difficult thing, Senator, because of the
enormous amount of money that is required to build these plants.
As I say, one mill doesn't supply the raw material for this mill. This
is just a mill to roll sheets, semifinished, and finish those sheets and
plates, that cost us $25,000,000 for that one mill, and then back of
that 'you must have the raw material, the steel production, pig-iron
production, and the ore and the coal. We have spent in the last 10
years in Detroit bmlding this plant, something I think over $100,000,•^
000. It is not by any means a completed plant.
Acting Chairman King. I assume that in the production of steel
by the various organizations which do produce steel, that some of their
products yield a profit, whereas some of the commodities or products
do not yield a profit.
Mr. Weir. That is right.
Acting Chairman King. That is true generally, is it not?
Mr. Weir, Yes; and that is a fluctuating thing. In a certain
period the demand for one product may be better than another, a
better price.
Representative Williams. Do I understand that during the last 10
years generally there has been a substantial increase in investment in
the steel industry?
Mr. Weir. Oh, yes. For 9 years, ending 1938, nine leading com-
panies of the industry spent a billion-one-hundred-and-some-milllion
dollars in new development.
Representative Williams. Does that represent increased capacity
in production?
Mr. Weir. To some extent. In others it means changing the
methods.
Representative Williams. What percentage increase in production
would you say has taken place in the steel industry during the last
10 years?
Mr. Weir. I don't have those figures. They are a matter of
record.
Mr. Henderson. As to increases in capacity?
Representative Williams. As to production.
Mr. Weir. That would be steel production.
Mr. .Henderson. We have that right here.
Acting Chairman King. There would be increased capacity in
some factors, in some branches of the industry, and perhaps decrease
in others because of the obsolesence.
CONCENTRATION OF ECONOMIC POWER 10673
Mr. Weir, The governing item would be, of course, the steel
production, what we call ingot production, raw steel production,
because we might build a mill, we might have a production of, say,
10,000 tons a month in some particular Hne like sheets, and we have
of course to build a new mill to provide this better quaUty and new
system. That mill can produce times over that 10,000 tons, but we
don't undertake to run it up to its fuU capacity.
Acting Chairman King. The technological developments which
have improved the product, necessitate the obsolesence of large plants
that have cost millions of dollars.
Mr. Weir. Absolutely.
Mr. Henderson. There is no doubt that the American steel
industry is in the finest condition it has had for a long time; probably
the top of the world, is it not?
Mr. Weir. Oh, yes; imderstand my criticism of the management
of the steel industry, which includes myself — I am part of the manage-
ment— is only in the merchandising end. I think that there is no
better operated industry in the United States than the steel industry
in an operating way, and its technological development, its constant
research, and its iraprovement of products. It is a wonderfully
operated industry.
Representative W ^lliams. In this increased billion dollars in
investment during ti e last 10 years, and plus, as I understood your
testimony, where dia that come from? Has that been from your
depletion and depreciation and obsolescence or by the addition of
new capital?
Mr. Weir. Yes ; the industry borrowed over that time five-hundred-
some-million dollars of new money.
Mr. O'Connell. There seems to be a little inconsistency to me.
On the one hand, in the past 10 years over a billion doUars has been
invested in the steel industry and also that the steel industry is at
the present time in the best operating condition apparently that it
has ever been, and for you to say on the other hand that because of
pricing policies in the industry it is impossible or prospectively im-
possible to attract sufficient capital to the industry.
Mr. Weir. Well, the basis on which you attract new capital is the
possibility of getting a return on that capital. As I say, when the
mdustry has been operating, after all of these improvements and this
tremendous expenditure of money, at a loss, with no return to the
common-stock holders who have $2,000,000,000 invested in the indus-
try, it is certainly no encouragement for them to put any more money
in.
Mr. O'CoNNELL. On the record, has not the necessary capital been
forthcoming in spite of the fact that the return has not been satisfac-
tory? There has been no shortage of capital in the sense that you
now have the best operating unit that you have had?
Mr. Weir. I realize it would be impossible to get more capital.
Mr. O'CoNNELL. So you are being theoretical.
Mr. Weir. No; I am not being theoretical.
Mr. O'CoNNELL. At least it is a prospective view and not based on
any existing record.
Mr. Weir. It is based on my observation of the industry and the
capital market. I see nobody who is interested in investing money
in common stock of steel companies.- That to me is a very important
124491 — 10— pt. 19 16
10674 CONCENTRATION OF ECONOMIC POWER
matter because if we go along and require more money, and my esti-
mate is that "National Steel will have to spend $30,000,000 to $35,000,-
000 over the next 3 years, the question is, Where do we get that
money? That is a practical thing.
I say, I find none of our stockholde'rs, who have been fairly well
treated — that is, they have had some returns, very small — ^interested
in buying any more common stock from the company, so with me it
is a practical matter of where am I going to get the $35,000,000 if we
decide to spend it and I want to spend it.
Acting Chairman King. We will take a recess until 2:30.
(Whereupon, at 12:30 p. m., a recess was taken until 2:30 p. m. of
the same day.)
AFTERNOON ^SSION
The hearing was resumed at 2:30 p. m., upon expiration of the
recess, Senator King presiding.
Acting Chairman King. Are you ready, Mr. Feller?
Mr. Feller. Yes, sir; may I have Mr. Weir recalled?
Acting Chairman King. The committee will be in order. Take
the stand, Mr. Weir, please.
TESTIMONY OF ERNEST T. WEIR, CHAIRMAN, NATIONAL STEEL
CORPORATION, AND PRESIDENT, AMERICAN IRON AND STEEL
INSTITUTE, PITTSBURGH, PA.— Resumed
.Mr. Feller. Mr. Weir, you may recall the testimony which was
given by Mr. Fairless a day or two ago, and by Mr. Grace yesterday,
with respect to the extras and the basis on which they are established.
Mr. Fairless stated that the basis for the estabhshment of the extras
was, in his words, a cross section of the costs of the industry. Now,
in your speech you said:
The job of each individual company is to see that its prices cover its own costs,
not empirically established average costs of its industry.
Do you feel that the basis on which the extra books have gone out,
that is a cross section of the cost of the industry, is an improper one?
Mr. Weir. No ; I think it is a very proper one. There are thousands
of these extras. It is particularly for the benefit of the buyer of steel
to have standardized extras, or differentials, rather, because they are
not all extras.
Mr. Feller. We understand that some of them are deductions.
Mr. Weir. With an extremely competitive base price situation, if
that applied to the actual price of each article, there being thousands
of them, it would be impossible for the buyer himself to know what the
prices were from day to day. With the differentials set, and they
represent a fair cross section of the costs of the producers, then the
fluctuations from the prices from day to day are m the base, so that
the buyer knows exactly ^ whatever articles he looks at, just exactly
what his price is.
Mr. Feller. Then you don't think that your restrictions against
following what you call empirically established average costs of the
industry apply in the case of the extras?
Mr. Weir. No; I do not. It is just a matter of practical applica-
tion of the situation within the industry. It would just be impossible,
CONCKWrUAI'lON OF ECONOMIC POWER 10675
as I say, for the buyer to know what the prices are of these thousand or
more different articles. It may use the base price as the determining
factor in determining the fluctuations in the price from day to day.
Mr. Feller. Well, in taldng the base price, at what level would
you want the base price established, at a level which would cover the
costs of every individual company?
Mr. Weir. Yes ; I said I don't think any of the standard companies
is justified in selling the product below cost, on the average.
Mr. Feller. Over a period of time, you mean, for each company?
Mr. Weik. Yes. Each individual transaction — I mean we have
got to be hteral about this situation. The losses that occur to the
industry come about from selling over an average period sufficient
tonnage below cost so that there is a loss represented in the final figures.
Mr. Feller. Well, would you say that a company, that every com-
pany today — you have a pretty good market now — should sell on the
basis which would yield it cost plus a reasonable profit?
Mr. Weir. Yes; I think so.
Mr. Feller. Now, let us take the hypothetical unit which is the
most inefficient unit in the industry. Wouldn't the result be that the
price set by that most inefficient unit would become the price set for
the industry?
Mr. Weir. When referring to the industry I have particularly in
mind the really competitive units within the industry. As I said this
morning, there is not so very much difference between then- average
location, their equipment, and consequently their costs.
Mr. Feller. Well, let's take, for example, the smaU companies
which are still operating the old hand miUs for sheets. There are some
stUl in business. Do you suggest that they go out of business?
Mr. Weir. Well, I think that is inevitable, not because anybody
wants to put them out of business but because they have a method that
is entirely obsolete, and it not only is not competitive from a cost basis
but from a quality basis, in a broad competitive way.
Mr. Feller. One more question along a general nature and then I
would hke to ask one or two questions relating to specific situations.
From time to time during the testimony here reference has been made
to producing merely to give employment. You may perhaps recall
that such a reference was made in connection with iron ore, that there
was a period when the iron-ore producers said they were producing
merely to give employment, and then reference was made at various
points, I think during the testimony of Mr. Pfeltz, I am not quite sure
about this, to the eft'ect that efforts were made to continue production
in various plants in order to give employment. Would you say that
that was unjustified?
Mr. Weir. No; I think that is perfectly justified. I don't think it
has anything to do with the selling price.
Mr. Feller. But suppose thfe market is such and the situation of a
particular plant or mine is such that it cannot sell at cost plus a
reasonable profit in a given situation, then isn't vour suggestion that it
don't sell at all?
Mr. Weir. Well, of course, I don't agree that on the average there
should be situations of that kind.
Mr. Feller. I don't think any of us agree. The trouble is that they
happen, they happen much more frequently than we like. The prob-
10676 CONCENTRATION OF ECONOMIC POWER
lem really is whether your method, the method you suggested, is a
workable solution.
Mr. Weir. Well, it is of just as much importance in the long run.
The idea of selling below cost in order to give employment I don't
think on the average increases the employment, because I don't
think that increases the demand for steel.
Acting Chairman King. I assume, Mr. Weir, that there are crises
in industry, extraordinary conditions, which woidd result in unemploy-
ment, and your general thesis that the industry should be run so as to
furnish a reasonable profit instead of a loss would not envisage, in
crises to which I refer, that efforts to keep people employed though at a
great loss should not be permitted.
Mr. Weir. People can be kept at employment, ore inventories can
be buUt up. There is no demand for ore that would justify us in
shutting our mines down. Instead of that we run the mines and
build up inventories of ore to a point that is as far as we can go.
Acting Chairman King, Do you mean to convey the idea that any
crises to which I have referred, when there is considerable imemploy-
ment resulting from a variety of causes, that in those temporary
situations the industry ought not to run at a loss in order to keep the
people on the employable list?
Mr. Weir. I don't think it is a matter of running at a loss, Mr.
Chairman; as I say, the industry can operate and build up her inven-
tories on certain standard articles.
Mr. Henderson. I think we theorists had better get our heads
together here. As I understood this morning, one of the points you
made was that no more business would result from somebody shading
the price ; that it was your contention and that of others in the industry
that there isn't a real increase in demand but merely a shift from one
producer to another.
Mr. Weir. In a period such as mentioned, when there is a very
low demand for steel, it is not on account of the price of steel, it is on
account of conditions beyond the power of the steel industry to cor-
rect. It isn't a matter then of being able to go out and force the sale
of a lot of material at any price, because there isn't the demand.
Mr. Henderson. On another matter of theory, and I think I ou^ht
to say that while the exchange on theoretical ground this mormng
got pretty Hvely, that is what happens in the field of theory and I
have seen it much more lively among the ivory-towered theorists.
Mr. Weir, you mentioned in the three ways by which your industnr
might get on a profit basis that reduced capacity has been. suggested,
that this step has been urged by some theorists. Were they theorists
within the industry or without the industry, you were referring to?
Mr. Weir. Well, not theorists within the industry.
Mr. Henderson. Of course, in the N. R. A., as you probably recall,
proposals for buying or destruction of equipment came from the
industry.
Mr. Weir. I never heard any offered within the steel industry.
Mr. Henderson. Where do these theories come from?
Mr. Weir. That statement was a general impression I had that
somebody had said it. I can't think who it was, but it is a theory.
Mr. Henderson. It was advanced many times. It was by the
paper industry during N. R. A. A proposal was made that a corpo-
ration be formed under the sanction of the N. R. A. for the purpose
CONCENTRATION OF ECONOMIC POWER 10677
of buying up equipment and plants and taking them off the market.
It came from within the industry and was rejected.
Just one more item on theory and I am about through. I just
want to recapitulate. On page 7 * you explained youj price policy
about like this — now I am quoting:
It meana only that you must charge a price, under any giyen condition, which
covers all of your costs — including the cost of carrying unused capacity — and
returns a reasonable profit.
Then on page 14 of the copy of your speech you ask the question:
" What is a reasonable profit?" And then you give the answer on the
following page Uke this [readingl :
In 1928 and 1929, which are considered boom years in which the American people
enjoyed unparalleled prosperity, and the full use of savings was attracted, profits
averaged seven per cent. Again judging by results, these profits must have been
reasonable.
Now, if this price policy is followed, you say on page 9 [reading! :
Prices inevitably gravitate to the point at which the more efiicient producers
can cover costs and make a profit. Lower prices established by this method are
economically sound. Any immediate advantages to more efficient and disad-
vantages to less efficient producers soon even out, because less efficient producers
are compelled to increase efficiency at least to the point where they can stay in
business.
That is pure, unadulterated, orthodox theory, there is no doubt
about it and as something which ought to happen I subscribe to it
most thoroughly. But looldng at the situation, you see that La 1937
you in your company and some of the other medium-sized companies
went considerably beyond this 7 percent you mentioned. When they
were tending that way toward the end of 1936, instead of getting
lower prices, instead of the orthoaox theory working out the way it
should and the more efiicient getting the business and making their
profit and forcing the others to come down, we had a price iacrease,
and the price level, as I have pointed out before, for steel is now about
15 points above the general average of prices. How do you explain
why your theory didn't work out?
Mr. Weir. Well, of course, you are referring only to the one year,
Mr. Henderson, and the- industry had had a period prior to 1937 that
had been very, very lean.
Mr. Henderson. Yes, but you were in this period the efiicient
producer and you were coming pretty close to what you considered
the average profit. Then you moved considerably above it and you
would expect in orthodox theory that what you would do would be
to reouce the price, as for example du Pont does with its newer
products, and tnat you would compel anybody who wanted to stay
m business to meet your price with your reasonable profit, or else
become as efiicient as you.
Mr. Weir. As I said this moiuing, I wasn't speaking of an indi-
vidual producer in this address which you are referring to.
Mr. Henderson. Yes, but steel gets produced by individual pro-
ducers. Price policies get made by individual producers.
Mr. Weir. After all, you must take into consideration the average
situation within the industry.
> Of "Exhibit No. 1421."
10678 CONCENTRATION <^F ECONOMIC POWEE
Mr. Henderson. Do you mean by that that the reason why you
didn't keep your price or even lower it as volume went up was because
you had some other considerations for the industry itself, in other
words, taking into account some kind of live-and-let-live policy?
Mr. Weir. Of course.
Mr. Henderson. That is the explanation of it.
Mr. Weir. In addition to that, I wasn't particularly'^ bappy about
our own average eammgs.
Mr. Henderson. Although they came close to what you defined
as a reasonable profit.
Mr. Weir. I am speaking about reasonable profit within an industry
on the average. Sometimes it would be up, sometimes it would be
down.
Mr. Henderson. But this price pohcy is clear to the individual
producer. You suggest that he do it on the basis of his costs.
Mr. Weir. The hidividual producer does not sell his product on a
basis over a period tliat produces a loss for him.
Mr. Henderson. That is right.
Mr. Weir. Because by doing that of course he loses money himself
and breaks down the standard for the industry, which results in losses
on the average for the industry.
Mr. O'Connell. That isn't what you said in your speech.
Mr. Weir. What did I say?
Mr. O'Connell. I understood you to say that each individual
company should make prices that returned costs and a reasonable
profit. That doesn't seem to me to mean the same thing as not
selling below cost.
Mr. Weir. The general theory on which I made this statement was
to encourage industry, this particular industry that I was addressing
myself to, to handle its affairs on a basis so that it would make a profit,
so that it would be profit-minded, and it is pretty hard in an address of
this kind to make every point balance. The general theory was that
they eliminate selling at prices that resulted m a loss, that they get
prices that would result in a profit.
Air. O'Connell. But you don't think that that bad result that they
get is because they are not profit-minded, do you? You indicated you
were trying to persuade them to be profit-minded.
Mr. Weir. Yes.
Mr. O'Connell. Don't you think the steel industry is profit-
minded?
Mr. Weir. I don't think it has been.
Mr. O'Connell. You are speaking now of the results from what-
ever technic they adopt, I take it.
Mr. Weir. From my observation, and I am closely associated with
the industry from day to day, I think the continued failure of the
industry over this period of 10 years to make a profit is certainly the
result of not being profit-minded, sufficiently profit-minded to make a
profit, because I think over the period if they had been profit-minded
they could have made a profit.
Mr. Henderson. Even at the low level of use of capacity?
Mr. Weir. On the average.
Mr. Henderson. I say even at the low level of use of capacity?
Mr. Weir. Yes; over this 10-year period I think they operated on
an average of about 50 percent.
OONOKMTKATION OF E(M)NOMIG POWER 10679
Mr. O'CoNNELL. In answer to a question from Mr. Henderson in
discussing the attitude of a particular compan^f as having to deal with
the industry as a whole, I understood you to uidicate that his sugges-
tion of a sort of live-and-let-live policy wns rather essential from the
point of view of individual companies.
Mr. Weir. I think that is a matter of good business, from my point
of view. We may be in position today to make a profit better than
the average. That may not be our position next year or the year
following. As I say, I think the conditions that affect an industry,
the basis on which an industry is put before the public as an industry,
has its effect on every company within the industry, every one of the
standard companies.
Mr. Henderson. Particularly when it comes to financing.
Mr. Weir. Yes, sure; and in the public estimation, and so on, and
in its relation with its employees, and so on.
Mr. O'CoNNELL. Then your view of the poUcy of your company,
or any company in the steel industry, as regiirds price and other niajor
policy mattere, is one that you should be concerned with the welfare,
of your competitors, as well as the welfare of your company.
Mr. Weir. Well, the welfare of the industry, for the reasons I
have given.
Mr. O'Connell. The industry is the sum total of your competitors.
Mr. Henderson. And I gather that, as you might have a par-
ticularly advantageous position in 1 year, and might not have it next,
there is implied in that, that is
Mr. Weir (interposing). Maybe less retaHation, less interest in
retaUation — but in a broad way, what effects an industry does have an
influence on the individual company on important matters.
Mr. Henderson. On this matter of financing, you spoke this morn-
ing about the difficulty that might be encountered in selling common
stock. You had no difficulty, however, in the spring, in selling your
$65,000,000 3-percent stuff, did you?
Mr, Weir. No ; that was very largely refunding.
Mr. Henderson. But it has to go to the public?
Mr. Weir. Yes; but that is very different. I mean I don't feel
that we can afford to go out today. We might sell more bonds, we
might sell them at 3 percent, I don't know, but I don't feel that we can
afford to sell, or put any further fixed obligations on the business. I
think that we have reached about our limit as I see it.
Mr. Henderson. Don't you get a leverage on common if you do
that? Suppose your earning rate stays above 6, as it has for about 12
or 13 years, and you can get 3-percent money. On account of the
leverage, it is to your advantage, is it not?"
Mr. Weir. Nevertheless it is a fixed charge, Mr. Henderson, and
in years ahead that are uncertain there is a limit.
Mr. Henderson. On account of the slow turn-over?
Mr. Weir. Yes; very slow turn-over and uncertainty as to what the
profit position will be. As I say, in the contemplation of our own busi-
ness, I hesitate to go out and sell any more bonds or put out any pre-
ferred stock which is in the nature of a fixed amount that we must
pay each year. I think we have gone about as far, an(i I certainly
thmk that appUes to the industry, and I think it has been indicated by
the results of the industry over the last 10 years.
10680 CONCENTRATION OB' ECONOMIC POWER
Acting Chairman King. Well, perhaps there is not a real analogy
between the development of private industry in contradistinction to
corporate industry; nevertheless, have not most of the private in-
dustries— that is, owned by individuals, developed and grown out of
their own profits? And they have so adjusted their business so that
each year they would have some little profit which they would add
to their surplus, and use for the expansion of their business.
Mr. Weir. That is so.
Acting Chairman King. And isn't that true of partnerships? Some
of the biggest private businesses in the United States, individual and
partnerships, have been built up in the main, have they not, from the
surplus earnings which they have utilized to expand their business
activities?
Mr. Weir. That is right.
Mr. Henderson. A lot of this one billion one addition to. plant in
the steel industry was financed from internal sources, wasn't it?
Mr. Weir. Well, it came about thi-ough the borrowed money and
also through the money that came back from depreciation charges,
which of course was quite heavy.
Mr. Henderson. That is what I meant by internal sources. For
example, in '37 and '38, as I recall, and up to the end of September
1939, the issues passing through the S. E. C. for the iron and steel
industry were, about $350,000,000, but in one of those periods
there was your $65,000,000, a large portion of which went for the re-
funding of 4-percent obligations, and some of them a little higher.
Mr. Weir. Yes, but over the 9-year period that I mentioned this
morning there was, I think, $512,000,000 of new money brought into
the industry. That is absolutely new money.
Acting Chairman King. Would j'ou regard it as improper for cor-
porations, after paying reasonable salaries to the officers and reason-
able wages to their employees, meeting the increased demand which
is quite proper for increased wages, to have some surplus which might
be used for plant expansion, rather than to issue new stocks and sell
more bonds to get the money for plant expansion?
Mr. Weir. Oh, very definitely they must build up some surplus,
Senator, as they go along, because they can't fiinance entirely from
new money in any form. They must, out of whatever they earn,
retain a certain portion, and my observation of the steel industry is
that — this is just my own opinion — in normal times, with normal
earnings, it cannot afford to pay out more than 50 percent of its
earnings, and that has been more t^an I have been willing to do.
Acting Chairman King. In the general fields of industry, manufac-
turing industry, clothing, automobiles, generally, without identifying
each one but speaking generally, has it not been the policy of business
to continue the competitive system, but notwithstanding the com-
petitive system the policy has been, if possible, to have some earnings
and not run their business at a loss.
Mr. Weir. Oh, absolutely. That is fundamental.
Acting Chairman King. And the progress which has been made
under the capitalistic system has resulted from the competitive system
and plowing back into the business whatever profits were avauable?
Mr. Weir. That's right, absolutely.
Mr. Feller. Mr. Weir, I just want to ask one or two questions on
Erice policy with respect to a particular commodity, and then I shall
e through with you.
CONCENTRATION OF ECONOMIC POWER 10681
The record shows that the tin-plate producers in the industry, or
nearly all of them, have followed the practice in their contracts of
agreeing to sell tin plate to the tin-plate buyers on the basis of the
officially announced price of Carnegie-Illinois.^ Do you think that
is a good policy for the industry to follow?
Mr. Weir. Well, you have an unusual situation in the tin-plate
and the tiu-can industry, in that the price is really set by the Corpora-
tion in their dealings with the American Can Co., the Corporation
being the largest producer of tin plate and the American Can Co. the
largest consumer of tin plate. I think that that price is set on a
competitive basis, because as a buyer of tin plate the American Can
Co. is interested in buying as cheaply as it can, and naturally uses
all factors to that effect in its dealings with the Corporation in getting
a price which it thinks is a proper and fair price, taking all conditions
into consideration.
That results, as I say, in a price, in my opinion, originally being
set through competition, strictly competition between a large buyer
and a large seller which, after all, is what produces the price. Then
the American Can Co., the largest producer of cans, the largest
buyers of tin plate, is willing to pay that price. It would be assumed
throughout the balance of the industry that that would be a fair
price.
Acting Chairman King. The chairman omitted stating this morn-
ing that we have been favored during the hearings this morning and
yesterday by the presence of the distinguished Senator from Penn-
sylvania, Senator Guffey, and he is with us again this afternoon.
Mr. Feller. Does your company follow this policy, Mr. Weir, of
selling tin plate in accordance with the officially announced price of
Carnegie-I] linois ?
Mr. Weir. Not all of our sales are made on that basis, Mr. Feller.
Mr. Feller. You have contracts in which you sell at a different
price?
Mr. Weir. I would say so.
Mr. O'CoNNELL. But in general I understand you are sympa-
thetic
Mr. Weir (interposing). I might say, so far as the American Can
Co. is concerned, we have no contract with the American Can Co., if
you arc referring to a sale with them.
Mr. Feller. With other producers, do you have contracts at
which you sell at a different price?
Mr. Weir. Some.
Mr. O'CoNNELL. In general, though, from your first answer, I
understood you were sympathetic with that type of price making in
that particular, let us say, competitive situation. You are willing to
defend it, I take it.
Mr. Weir. Yes. As I say, I think price would be fixed on a com-
petitive basis.
Mr. O'CoNNELL. Is it your understanding that ordinarily a com-
petitive price is one which is determined by negotiation between one
buyer and one seller and accepted by all the other buyers?
Mr. Weir. No; except there is naturally competition when there
is an effort to trade between a buyer and a seller. The seller knows
■ Testimony on this subject is iDclnded in Hearings, Fart 20.
I 0682 <^ONCENTRA1 ION OF ECONOMIC. POWEE
tbe market, he knows the conditions, he iias an idea as to what he
can buy from other producers, so he brines into the conference a
competitive knowledge.
Mr. O'CoNNELL. But that is a peculiar type of competition, though,
in price.
Mr. Weir. Well, it is; it's unusual in view of the fact that the
American Can Co. are very large users. They buy particularly from
the corporation. They always have.
Mr. O'CoNNELL. But to the extent that that system operates, it
is exactly the situation as though you had one buyer and one seller
controlling the supply — to the extent that that system operates. I
believe that that is what it is, is it not?
Mr. Weir. No; because back of it all the American Can Co.
know that they have a number of other producers that tiiey can
buy from.
Mr. O'CoNNELL. You probably don't give the same force that I
do to my suggestion, to the extent that that system operates. To
the extent that the system involves a negotiating price between the
Carnegie-Illinois Steel Co. and the American Can Co., followed by
the other producers of steel, it is exactly the same position as though
there were only one buyer and only one seller in the market.
Mr. Weir. I don't agree with that, because as I say, if there were
only one buyer and one seller, the position of the American Can Co.,
as a buyer would be nothing like as strong in i)ressing for a lower
price, as it is when they know they have a number of other companies
from whom they can buy quantities, or probably all that they can
require.
Mr. O'CoNNELL. But at any given moment, I take it, the other
suppliers of tin plate, to the American Can Co., are bound by contract,
to supply the American Can Co. at whatever price is negotiated by
the American Can Co. and Carnegie-Illinois.
Mr. Weir. Not all companies are in that position.
Mr. O'CoNNELL. That is why I qualified it, to the extent the
system operates.
Mr. Weir. That would mean the companies that have contracts
of that type. Some, such as ourselves, have no contracts of that type.
Mr. O'CoNNELL. But in this situation you accept as competitive
a situation in which the competition is between buyer and seller,
rather than between sellers.
Mr. Weir. Yes; that is a form of competition.
Mr. O'CoNNELL. Is that the form of competition that generally
prevails in the steel industry?
Mr. Weir. No.
Mr. O'CoNNELL. It isn't the type of competition that prevails in
ordinary competitive industry, is it — or is that a fair question?
Mr. Weir. It is one form of competitive competition. I wouldn't
say it is the major form. I don't assume the American Can Co. are
willing to pay the corporation a price that they think is higher than a
competitive price would be. I assume that they know all the com-
petitive factors in the industry.
Mr. O'CoNNELL. I have no way of knowing whether the price is
lower or higher than it would be were another system in effect. I was
merely attempting to demonstrate, afi T think it is demonstrated.
CONCENTRA'L'IUN 01<' ECONOMIC POWER 10683
ordinary market competition, when the competition is between a
buyer and a seller, as distinguished between sellers.
Mr. Weir. It is a little different form of competition on accoimt
of the magnitude of the purchasing by this particular company.
Mr. Feller. Just one question more. I believe you expressed
your opinion to be that this type of contract for the selling of tin
plate, which is in fairly general usage, is peculiarl}^ appropriate to the
conditions under which tin plate is produced and sold. May I ask
why your company pursues a different policy with respect to its sales
of' tin plate?
Mr. Weir. Well, I don't say that we do pursue a different poUcy.
We pursue the same poUcy as far as the American Can is concerned.
Mr. Feller. How about your other
Mr. Weir (interposing). In dealings with other consumers, we
meet competition. There is competition of a different type which
may result, at times, in a lower price.
Mr. Feller. Is your policy, for example, in selling Continental Can
Co., to meet competition?
Mr. Weir. To meet competition; yes — in selling to anybody.
Mr. Feller. In selling to the Continental Can Co., which has a
number of contracts with other tin-plate producers providing for
purchases to be made on the officially announced Carnegie-Illinois
price, you sell at a different price, don't you, than the Camegie-
lUinois price?
Mr. Weir. A different price than the price at which they are buying
on these other contracts?
Mr. Feller. A different price than the price they are obligated to
buy on these contracts.
Mr. Weir. I don't understand; will you repeat the question?
Mr. Feller. Under the contract which Continental Can Co.
has with other tin-plate producers than you, the contracts provide
that the price shall be the officially announced price of Carnegie-
Illinois. You don't have such a clause in your contract with Con-
tinental Can?
Mr. Weir. That the price shaU be the official price at which the
Carnegie-Illinois sell the American Can Co.?
Mr. Feller. You don't have such a clause?
Mr. Weir. I don't remember the contract we have with them.
Mr. Feller. The Continental CauiCo., in a letter dated October
30, 1939, si^ed A. C. Hoffman, president, addressed to Mr. Thurman
Arnold, Assistant Attorney General, stated [reading]:
I am enclosing copies of can contracts with Bethlehem Steel Company, Carnegie-
Illinois Steel Corporation, Inland Steel Company, and National Steel Corporation.
Contract with National Steel Corporation is in the form of a letter
with an attached sheet. It is dated October 1, 1935, signed hj
Mr. Weir and accepted, "Carl C. Conway." The letter which is
addressed to Mr. Conway reads:
I herewith confirm to you the verbal contract entered into between us when I
was in New York a few days ago, to the efifect that beginning January 1, 1936, and
extending for a period of five years therefrom, on all of the material we ship to you
special allowances will be made as per the attached list. The reason, of course,
for these allowances is the large tonnage of business that you give us, and its
consequent value to us.
10684 CONCENTRATION OP ECONOMIC POWER
The attached sheet — and I shall omit the exact number of cents
and merely say "blank" cents, a practice I have followed whenever
referring to specific contracts — reads:
List of allowances verbally agreed to be made to the Continental Can Com-
pany, Inc. on tin plate for the calendar year 1939 —
applying to the 5-year contract dated October 1, 1935, attached;
and underneath that occurs the line:
Tin plate allowance, blank cents per base box.
Acting Chairman King. If any part that you have omitted to
read, is desired by Mr. Weir to be inserted, I presume that may be
done.
Mr. Feller. For that reason I have not offered this as an exhibit,
as it may be a matter which should not go into the record.
Mr. Weir. I think that confirms the statement we made that we
don't sell all of our tin plate at a certain price.
Mr. Feller. Yes; that is correct.
Mr. Weir. We have different prices owing to different conditions.
The Continental Can Co. are extremely large buyers from us.
Mr. Feller. I am familiar with the contracts of the American Can
Co. and the Continental Can Co., and the record shows what those
contracts are. This is the only contract that we have seen of these
two companies which is different from the usual contract; and the
question I am asking you is whether, since in your own sales you
follow a different system of selling tin plate, you don't think that it
would be a wise thing for the industry generally to abandon the system
of contract which other people in the industry follow. You apparently
differ from other people in the industry in this respect.
Mr. Weir. In connection with this Continental Can Co. matter.
Mr. Feller. You think that is an exceptional situation?
Mr. Weir. I think it is with us.
Mr. Feller. That is all.
Acting Chairman King. Any other questions?
Mr. Avildsen. I have some questions, Mr. Chairman.
Mr. Weir, this morning I was trying to find out the difference
between the capacity of your company and the United States Steel
Corporation; I was also — I think we are all here — rather curious to
know why your earnings should be so much better, on the average,
than the industry as a whole, and I have been wondering whether it
could be due to the difference in the products which you manufacture.
I would now like to hand you this pamphlet put out by the Depart-
ment of Justice, entitled "Major Characteristics of the Iron and Steel
Industry." On page 15, table 16,^ you will notice it shows that the
National Steel Corporation has an invested capital which represents
4 percent of the total invested by the industry, whereas the United
States Steel Corporation has an invested capital of 40 percent of the
total invested by the industry.
Now, if you will turn over to page 16 — it may be diflBcult to read
it, because the type is very small — you will find that under the
heading "Cold-reduced tin plate"' National Steel Corporation has
20 percent of the capacity of the industry; or, in other words, five
times your proportionate investment in the industry. You have 4
> "Exhibit No. 1340," Included In HcBrlngs, Part 18; the teble ippears on appendix p. 10408.
« Ibid, p. 10409.
CONCENTRATION OF ECONOMIC POWER 10685
percent of the money in the industry and 20 percent of the cold-reduced
tin-plate capacity, whereas the Steel Corporation has 40 percent of
the investment and 25 percent of the tin-plate capacity. You have
five times your proportionate amount, you might say, and they
have only about 60 percent of their proportionate amount.
We also find, under "Cold-rolled sheets" the National Steel has 14%
percent of the capacity and United States Steel has 10.7 percent of the
capacity. Now those two items — I assume cold-roiled sheets go
very largely into automobiles, and tin plate goes largely into tin cans,
two businesses which have been very active in recent years; whereas
we aU know that railroad buying has been very low, we know bridge
building and structural business has been very low. I find that under
"Heavy rails" National Steel Corporation has no capacity, whereas
United States Steel Corporation has 57 percent of the capacity of the
industry.
Now let's see about structurals. That would be "Shapes." You
have 3.1 percent, and United States Steel has 52.9 percent, and so on.
Would you say that that difference in capacity which I have just
explained accounts to a large extent for the difference in earnings of
your company compared with the United States Steel Corporation?
Mr. Weir. Well, I would think that it accounts to some extent.
Mr. AviLDSEN. Would you think that your company would have
made a satisfactory earning if they had the same proportion of
capacity as the United States Steel Corporation? In other words, if
you had 10 percent of everything that they have on this list — your
capital is 10 percent of theirs — you have only, say, 2% percent of the
tin-plate capacity, that would then be your proportion
Mr. Weir (interposing). I can't answer that. The fact remains
that we don't have that proportion.
Mr. AviLDSEN. I am asking your opinion. Do you think your
earnings would have been as great?
Mr. Weir. I don't think they would, no.
Mr. AviLDSEN. The committee is trying to find out facts, why
there should be such a difference in earnings, whether it is mere size
that makes the difference, or is it the difference in the products that
you manufacture?
Mr. Weir. I think the difference in products would have a very
considerable bearing on it, but the fact remains, as far as my own
company is concerned, we have invested our money in things that
have produced a profit.
Mr. AviLDSEN. That is true, and I think you should be compli-
mented on that. You have shown very wise judgment in selecting
the products which have shown the continuous demand. I wanted
to be sure that I understood that that was probably the reason for it,
your good judgment in picking things that were coming along, and
not trying to make things for which there was a Umited demand.
Acting Chairman King. If the one steel company had geared its con-
structive capacity to the construction of steel for ships and for rail-
roads and for bmlding steel buildings, and the market for those was
very low, very much depressed, and another steel company had geared
its activities for the construction of a different kind of steel products,
the latter might make a large profit, and the former not.
10686 (lONOKNTRATION OF ECONOMIC POWER
Mr. Weir. That is true, and then, of course, the conditions between
years probably will change. We will probably run into periods when
the demand for structural and rails and the heayy steel lines will be
better and gi'eater and the profits larger than in these other lines.
That is the change that takes place within the industry, and then, of
course, it is up to us to protect ourselves against that.
Acting Chairman King. And if there is to be a regeneration — and
1 don't use the term offensively — of the railroads — new rails, new
engines, new cars, great booms so to speak in the railroad business,
then those companies that are geared for that kind of steel production
would have advantages over other companies.
Mr. Weir. That is right, Senator.
Acting Chairman King. That had not been in the business of Con-
structing that form of steel.
Mr. Weir. That is right, tou must keep yourself in a financial
condition where you can meet those sitiuations. I said this morning
we did not manufacture rails. We have a rail mill, and if that
condition comes about and there is a big demand for rails and it is
more profitable than the manufacture of sheets, we, of course, will
manufacture rails. That is all within the management.
Acting Chairman King. But a large corporation that attempts to
meet every demand for every form of steel, including the thousand
forms of extras, would have a very large capacity not used much of
the time, and a very large investment which would not be put into
active operation at all times.
Mr. Weir. Yes; that is perfectly natural, and that is one of the
very difficult problems.
Mr. Henderson. Mr. Weir, as Mr. Avildsen has pointed out, and
as you have indicated, you went into the newer lines that are more
profitable, and you had the advantages, as I seem to recall, of new
technology which helped you meet this demand for what you might
call durable consumers products. But you did have, also, a very
definite and aggressive selling policy of your own on those products,
didn't you?
Mr. Weir. We were always very competitive.
Mr. Henderson. You probably had quite an influence on the fact
that some of those prices have come down, have you not?
Mr. Weir. I wouldn't be surprised.
Mr. Henderson. Neither would I.
That brings me up to the other point, and if you don't want to
comment on this, I am willing to skip it, but it has always been said —
I have found it running through the comments — that one of the
reasons why you could grow and use this price policy is that the cor-
poration was holding an umbrella over you, and that that umbrella
was to some extent taken away in June of 1938. Do you want to
comment on that?
Mr. Weir. Of coursOj I don't subscribe to that theory at all. It
has been stated many times. I don't think they have held the um-
brella, I don't think they have had a disposition to hold the umbrella.
Mr. Henderson. You don't think they have had a disposition
lately to take the umbrella down?
Mr.. Weir. I see no change. They have always been very com-
petitive.
(X>N('KNTKAT10N OK ECONOMIC I'OVVKK 10t)87
:
Mr. Henderson. Haven't their recent activities been much more
vigorous?
Mr. Weir. I don't think so.
Mr. Henderson. You don't think the eUmination of the Birming-
ham and Chicago base differentials
Mr. Weir (interposing). I think the prices at that time were down.
I think the chmiges that they made in price at that time only repre-
sented, and possibly didn't quite represent, the prices that were going
within the industry.
Mr. Henderson. On that point, there has been reference, Mr.
(Jhairinan, from time to time, to the difference between the mill net
yield, that is, the realization, and the reported composite price.
And I think the Steel Corporation has a table of their own experience.'
It is well worth study, and I imagine every competitor af the corpora-
tion will be doing some tall figuring on the basis of this. But it shows
in the main that the spread between the composite price and the mill
net yield runs from 2 to 3 or 4 percent, gets up as high as 5 percent
at times — in fact in July, which is the last date they reported, it
was 5.2. In 1937, in the early period when prices had been advanced
and there was a substantial volume of business, there was the largest
spread. In March of 1937, for example, the composite price was
106.2, and the mill net yield was 93.3, almost 13 points difference.
Now, what needs to be taken into accoimt, of course, is what
Mr. Fairless pointed out, the lag between the attainment of the
new posted price, because of the fact that they are delivering on con-
tracts made at the previous quarter's posting, and the other thing
that needs to be taken into account is what brought Mr. Fairless
back to the stand yesterday. There is in tliis difference between the
realization and the composite price the amount of freight absorption.
That is, any time they have moved out of their natural area and ab-
sorbed freight, that naturally reduces their mill net. I am not a
qualified judge, but it just seems to me — I don't know how it seems to
you, Mr. Weir — that isn't such an enormous spread between the
posted price and the mill net yield as to be destructive of the in-
dustry. It would seem to me that it was more a question of volume
than anything else. There is no amount of volume, for example —
if big steel is running at 17 or 18 percent of capacity — which would
really make up for that loss of capacity,
Mr. Weir. That is what I said this morning, that the industry
running at 19K percent, as it .dJd in 1932, coiddn't possibly break
even.
Mr. Henderson. In 1932, for example, during the worst months —
let's take a mid-point of June — the composite price was 82.4, and the
mill net yield was 79.2. In other words, it was much worse than it
is at the present time, and only a small percentage of what it was in
the months of the big winds in 1937.
The volume is a much more important question than the differ-
ence in the cut in price, is it not?
Mr. Weir. The volume has a very definite influence on it, but the
cut in price, of course, is bound to have an influence. You can have
a good volume and still have prices that are below the cost of pro-
i "Exhibit No. 1393", appendix, pp. 10720-10721.
10688 CONCENTRATION OF ECONOMIC POWER
duction if the policy is followed out. But the industry — you can't
take, I didn't take and wouldn't take an extreme period such as
that. 1 think the industry when it gets to a 35 percent basis of
operation should be able to break even or make a httle money. I
would say that from that up would be normal, because — I am quite
sure that my figures are correct— over the past 10 years the average
operation of the industry has been about 50 percent. Now, if we
can just break even at 35 percent, then we must make our money
between the 35 percent and 50 percent average. It doesn't give a
great spread there.
Mr. Henderson. I take it you want officially to destroy that
umbrella business.
Mr. Weir. I will say this, as far as the umbrella is concerned, if I
thought that I was sitting in this industry solely protected by some-
body holding an umbrella, I would feel very, very uncomfortable. I
certainly had no such idea.
Mr. Henderson. You admit there has been quite a bit of talk.
Mr. Weir. Oh, there has been talk about it, certainly, just as
there have been statements about other situations in the industry
that haven't been facts.
Acting Chairman King. Any further questions?
Mr. Feller. No, sir.
Acting Chairman King. Thank you very much, Mr. Weir.
Mr. Weir. Thank you, Mr. Chairman.
(The witness, Mr. Weir, was excused.)
Acting Chairman King. The next witness.
Mr. Feller. Mr. Hook, please.
TESTIMONY OF CHARLES R. HOOK, PRESIDENT, AMERICAN
ROLLING MILL CO., MIDDLETOWN, OHIO
Acting Chairman King. Do you solemnly swear that the testimony
you shall give in this proceeding is the truth, the whole truth, and
nothing but the truth, so help you God?
Mr. Hook. I do.
Acting Chairman King. Give your name, please.
Mr. Hook. Charles R. Hook.
Mr. Feller. You are president of the American Rolling Mill Co.?
Mr. Hook. That is correct.
Mr. Feller. For the information of the committee, you were
formerly president of the National Association of Manufacturers?
Mr. Hook. That is correct.
development of the continuous rolling mill
Mr. Feller. Mr. Hook, your company is distinguished in the
industry as a company which developed the continuous rolling mill,
is it not?
Mr. Hook. I think that is the case, sir.
Mr. Feller. And all the continuous strip mills which are now in
operation are operated under license from your company.
Mr, -Hook. That is correct.
Mr. Feller. Could you tell us, Mr. Hook, very briefly, something
about the time when the rolHng rnill was first developed by your com-
pany and somethmg about the number which are in operation now?
CONOENTKAa'lON OF ECONOMIC POWER 10689
Mr. Hook. I think I had better read from my record as far as the
number.
Mr. AviLDSEN. Mr. Feller, you said continuous strip, is that the
same as continuous sheet?
Mr. Hook. That is right.
Mr. AviLDSEN. It is all the same thing?
Mr. Feller. Yes. That is the continuous mill to wliich reference
has been made again and again during this hearing. That is one of
the great technological advances of the industry.
Mr. Hook. Mr. Feller, I prepared a short statement. Would you
like me to read that for the advantage of the chairman and the other
members of the committee? It gives a general picture of the develop-
ment of this process and I think possibly you would better understand
it.
Mr. Feller. May I suggest that it might be advisable to read it
down to just before you come to the form of license because there
may be some matters that we want to develop from it.
Acting Chairman King. Proceed.
Mr. Hook. The rolling of sheets up to the time that this develop-
ment was made in 1925 was largely a hand operation in which a crew
of 8 men working 8 hours a day produced about 6 tons of salable sheets
and handled this red hot material, with the heating furnaces on one
side and the hot rolling mills on the other 3 times, namely, handling
30 tons. It was extremely hazardous work in that especially in the
summer time men had to have substitutes take their place as the work,
the weather and the surroundings were beyond human capability of
continuous effort.
Previous attempts had been made to ameliorate this situation and
develop a continuous sheet mill but after the expenditure of many
millions of dollars these attempts were discontinued and the equip-
ment dismantled.
Fifteen years after the last of these attempts the American Rolling
Mill Co. who had been conducting experiments purchased a blast
furnace and steel plant at Ashland, Ky., for several million dollars,
and proceeded to spend an additional $7,000,000 despite the previous
unsuccessful attempts and misgivings of many. This Ashland
installation was entirely successful and very startling to all of those in
the sheet business and in view of the fact that the earlier attempts by
others were failures, discovery and invention of a very high order were
apparent and, therefore^ patents were secured covering this develop-
ment and the various details which go to make it complete.
As a result there has been close to $500,000,000 spent on mills of this
type with a capacity of production of the order of 13,000,000 tons per
annum.
Naturally such a startling, really revolutionary method of produc-
tion of such a largely used commodity was viewed with much interest
not only by producers but by consumers as well and, therefore, the
American Rolling Mill Co. endeavored to direct the use of these
inventions in such a way that it would not work a hardship on the
43,000 men employed in the old fashioned sheet mills in 1926. It
would also provide the consumer of sheets with their requirements
at a less cost, for instance, automobile fender sheets — 0.0375 gage
39 x 80K — from. $135 per net in 1923 to $59 this year, a reduction
of over 56 percent.
124491 — 40— pt. 19 -16
10690 CONCENTRATION OF ECONOMIC POWER
It was discovered that due to this new process of rolling sheets that
their quality both structurally aijd* of surface were so much improved
that it could appropriately be stated that it was an entii-ely new
product lending itself to many subsequent fabricating operations that
were previously impossible due to the variation from one to the other
of sheets rolled by hand.
Of equally great importance it was also found possible to make these
sheets of width and lengths so far greater than was the case by hand
that the familiar automobile body top and other large surfaces can be
made without joints or welding, reducing the cost and increasing the
safety.
Thirteen steel companies in the United States have licenses and there
are 23 continuous nulls in their plants in operation and three in our
own plants, and licenses were also issued to some foreign companies.
The list of those who have these mills in operation in their plants
follows.
Mr. Feller. May I suggest at this point that in "Exhibit No.
1349," ^ on page 20, there is a Hst which gives the size, which gives
the year started, the size, and capacity, the annual capacity in gross
tons. I think it might be just as well if you would read the names
of the companies, too.
Mr. Hook (reading):
Allegheny Steel Co.
Bethlehem Steel Corp.
Granite City Steel Co.
Great Lakes Steel Co.
Gulf States Steel Co.
Inland Steel Co.
Jones & Laughlin Steel Co.
Otis Steel Co.
Republic Steel Corp.
Weirton Steel Co.
Wheeling Steel Co.
U. S. Steel Corp.
Youngstown Sheet & Tube Co.'
CONTINUOUS ROLLING MILL LICENSE AGREEMENTS
Mr. Teller. Mr. Hook, I wonder whether at this point for the
convenience of the committee, you could describe generally a typical
Ucense agreement.
Mr. Hook. They are now practically uniform, and I think I have
covered that point in here to some extent, although I have and you
have, of course, actual copies of all these hcense contracts, Mr. Feller.
Here is the uniform license agreement, and here is the short form
license agreement from which this was developed as we negotiated,
with these several companies. What do you want me to do?
Mr. Feller. Briefly, these agreements provide for a Hcense on the
part of a particular steel company to operate these nulls on which you
have patents.
Mr. Hook. That is right.
Mr. Feller. That is generally what they provide. -;
Mr. Hook. That is right. ' ■
Mr. Feller, Each of these contracts, each of these ijicense agree-
ments, has in it a clause with reference to price.
> Included In Hearings, Part 18; list appears on appendix p. 10411.
* Mr. Hook evidently read from a different list.
CONCP^NTRATION OF ECONOMIC POWER 10691
Mr. Hook. Correct.
Mr. Feller. That is the substantial point of difference among the
various types of contract?
Mr. Hook. Substantially only one. I think if you would let me
finish this statement and go back to that question maybe some of
the other members might cover that. If I fiiiish this statement you
can cross-question me all you wr -^
These United States licenses w«it^ granted over a period of years
because some of the companies were reluctant to throw into the scrap
heap their hand mills, but nevertheless it was inevitable, and the steel
industry discarded equipment costing probably between one hundred
and two hundred million dollars, but the improved quaUty, increased
range of sizes, the removal of the human hardships, and reduced sales
price compelled the change.
Of these 13 companies 8 are operating under a uniform license agree-
ment which was prepared in 1937 and effective April 1, 1937. This
license grants rights under 43 different patents and required the pay-
ment of 10 cents a ton royalty on only certain sizes of sheets, a small
fraction of 1 percent of the selling price.
Those companies are Granite City Steel Co., Great Lakes Steel Co.,
Inland Steel Co., Jones <fe Laughlin Steel Corporation, Wheeling Steel
Co., U. S. Steel Corporation, Youngstown Sheet & Tube Co.
The other five companies have very much the same form of license
except that there are some minor modifications, which don't amount
to anything. For instance, the Allegheny Steel Co. had patented a
subsequent treatment of sheets that they claimed were infringed and
we purchased these patents outright for a consideration which was a
certain number of tons of sheets to be rolled annually before they
started payments of the standard royalty.
The Gulf States Steel Co. have not as yet installed a continuous mill
and they still have their original form of license.
In the case of Republic Steel Co. they had secured a patent on a
method of hot rolling which they were using but there was no certainty
that this method could be applied to the modern wide sheets. After
paying the regular royalty for some considerable time — I think it was 2
years — when their patent issued it was turned over to us and they con-
tinue to pay a certain sum per annum.
The departures by the other companies from the standard form are
of very minor importance, some of which have to do with a very perti-
nent subject, the fixing of prices on the material made by the patented
process.
This was a matter that was given very great care and consideration
from the very beginning.
First of all we secured what we consider the very best legal advice
on the subject.
There had been so much controversy with regard to the fixing of
prices of patented products and products made by patented processes
that a very careful study was made of all of the authorities relating
to the subject and of decisions of the various courts from the United
States Supreme Court down, and we were advised that we had a right
to a reasonable price control and we felt that it could not be success-
fully controverted especially if we ourselves conform, or in other words
if we at some time set a minimum price below which the material
should not be sold, we would bind ourselves not to sell at a lower price.
10692 CONCENTRATION OF ECONOMIC POWER
To make the matter perhaps a little plainer, we would not attempt to
set the price, we would only state -a price below which the material
should not be sold, and we reserved the right to determine if it were
desirable so to do, very carefully avoiding any obligation to set a
minimum price.
On two occasions, on October 17, 1929, and April 18, 1931, the
Federal Trade Commission were sent complete copies of all of the
existing licenses, and they were returned with the comment:
They have found no necessity for the exercise of those remedial powers granted
by law to this Commission.
In other words, there had apparently been a complaint of some
kind, or an inquiry, as to whether or not these licenses were used for
price control, and after an investigation by the Federal Trade Com-
mission in both instances, we were given a complete bill of health, as
it were.
Acting Chairman King. Did you give the Federal Trade Commis-
sion copies of these contracts?
Mr. Hook. Yes; they were given complete copies of all license
contracts.
Mr. O'CoNNELL. To the Federal Trade Commission?
Mr. Hook. Yes, sir; at their request.
Mr. O'CoNNELL. At their request?
Mr. Hook. Yes.
Mr. O'CoNNELL. It wasn't a volunteer submission?
Mr. Hook. No; we didn't laiow there was a complaint. Some
members of the department, I think, came to Middletown and dis-
cussed it with us and we gave them everything that they wanted.
At the time they had use of our files.
In view of the fact thai there were no decisions of the Supreme
Court directly on this question, counsel for some of the companies,
ostensibly at least, maintained that there was no merit in the argu-
ment and, therefore, some of the companies do not have anything
relating to a price control in their contracts and this constitutes the
major difference. The qualification of the price fixing clause in the
present contract reads as follows:
6. In the event, but only in the event, that the Licensee is satisfied that it can
legally agree to be bound by the provisions of this Article 5 then on and after the
date of notifying Licensor to such effect it shall be a limitation and condition of,
this license that the Licensee is only licensed and authorized, under said Letters
. Patents, or any reissue thereof, to sell the royalty bearing products at prices not
less than those specified by the Licensor from time to time in accordance with
the following conditions.
The conditions are here in this license contract.
Mr. Feller. Mr. Chairman, in order to complete the record, the.
clause which Mr. Hook has referred to differs among the various con-
tracts'; I think the record should have the various different provisions.
Mr. Hook stated that most of the contracts contain the provision
that he just quoted.
There are four contracts which contain somewhat different pro-
vision. The contract with Bethlehem Steel Co. reads as follows:
In the event but only in the event that the licensee is satisfied to be bound by
the provisions of this article 5, then or after the date of notifying licensor to such
effect, it shall be a limitation and condition of this license that the licensee is
only Ucensed and authorized to sell the royalty bearing product at prices not less
than those specified by the licensor from time to time.
CONCENTRATION OF ECONOMIC POWER 10693
The difference between that and your standard form, I take it, is
that the reference is not made to the licensee being satisfied that it
can be legally bound, that is whether or not they think it is legal they
have the discretion to decide whether or not they should be bound
by that clause. Is that correct?
Mr. Hook. Yes, sir.
Mr. Feller. Going on to other clauses which are different, the
Republic contract provides [reading]:
It is a limitation and condition of this license that licensee is only licensed and
authorized to sell the royalty product at prices not less than those s[jecified by
the licensor from time to time.
A similar clause is contained in the contract with Gulf States Steel
Co., reference to which was made by Mr. Hook. That is now a sub-
sidiary of Republic.
Mr. Feller. Finally, the Otis Steel Co. contract whicli was en-
tered into on April 1, 1937, provides [reading]:
It is a limitation and condition of this license that the licensee is only licensed
and authorized to sell the royalty bearing products at prices not less than those
specified by the licensor from time to time.
That is very similar to the Republic Steel clause. Those are all
the differences as far as I know. Is that correct?
Mr. Hook. That is correct. I think that the members of the
committee ought to understand that the Republic Steel contract is
the original contract. It was never changed to a uniform or short
form license because there was no reason, there were no changes in
the conditions. In other words, the amount of royalty which they
were continuing to pay was the same as it was origmally, and in the
case of the Otis Steel Co., for instance, they were offered the
uniform-license contract which all the others have now, with those
several exceptions, and they preferred the short-form license, which
we had started out to use.
Mr. Feller. Is that because they felt there was no legal obstacle
as some of the others did?
Mr. Hook. I couldn't tell you; probably on advice of counsel.
Acting Chairman King. Are your contracts available to any cor-
poration engaged in the steel business?
Mr, Hook. Yes, sir.
Acting Chairman King. That desires to use the patents?
Mr. Hook. Yes, sir. In fact, every continuous mill in the United
States is licensed with these contracts.
Acting Chairman King. You have not denied Ucenses to any cor-
poration that sought them?
Mr. Hook. We have not.
Mr. LuBiN. Are royalties based upon the same principle in all
cases?
Mr. Hook. Yes.
Mr. LuBiN. They all pay the same royalty per ton?
Mr. Hook. Absolutely; it is identical. Mr. Feller has reviewed
those licenses.
Mr. Feller. Yes. Incidentally, I think the committee might be
interested in the arrangement which you have on your foreign licenses.
Would you tell the committee briefly about those?
10694 (JONCENTBATION OF ECONOMIC POWER
Mr. Hook. We have two license contracts abroad. They are or
were exclusive license contracts : The first one with Richard Thomas
& Co., Ltd., of London, England, whose works are distributed over the
English Isles, the largest of their plants being in South Wales. A
new continuous mill of theirs which is operated under patents which
we secured in England is located at Ebbw Vale, South Wales.
The license provided for a certain number of shillings per ton. I
am perfectly willing to tell you what it is; there is no secret about it.
It aggregates in all about 44 cents. It is divided into sections.
Maybe I had better give you this summary that we prepared.
In 1935, the American Rolling Mill Co. entered into an agreement
with Richard Thomas under which Richard Thomas was granted an
exclusive license, also counsel and advice — by counsel and advice we
mean this, they wanted our continued help and assistance in the
operation of this mill after they put it into operation, and therefore
that was part of the total consideration.
Acting Chairman King. They wanted you to show them how?
Mr. Hook. Yes.
Mr. Henderson. You have gone abroad several times on that par-
ticular thing, haven't you?
Mr. Hook. Yes; I have.
Richard Thomas was granted exclusive license, also counsel and
advice, at a total royalty rate of 22 pence per ton for the first 300,000
tons per annum and 12 pence per ton for all tonnage greater. In
January 1936, this was modified and royalties computed in advance
and paid for by Richard Thomas stock for the 300,000 tons per annum
part. In other words, they wanted us to have a continuing interest
in their company, and they proposed to us that they would pay us
royalties in advance, giving them to us in stock, on the value of
which we agreed at the time, on the minimum tonnage that they were
to produce each year, the 300,000 tons I was talking about.
We have been advised by cable — we ^ave our manager authority
to change it to some extent — that a revision in this contract has been
made by which the stock was retained, the license was made a non-
exclusive one, and an annual lump-sum payment for a period of
10 years was substituted for this arrangement on the 300,000 tons;
they had had an exclusive right up to that time.
Summers — John Summers & Sons Co. of England — originally had
an agreement with the American RoUing Mill Co. under which the
American Rolling Mill Co. was to furnish technical data and inform
mation to Summers and certain operations were to be conducted in
England by Summers and Armco as joint venturers. This agreement
was canceled in 1938 and Summers was granted a sublicense with the
approval of Richard Thomas under the British^' continuous mill
patents. Now, in making that change and Richard Thomas giving
up the exclusive right, there were certain adjustments made so that
Sunamers Co. built and is building one of these continuous mills at
Shotton, England, near Chester. That has to do with the English
situation. I have a oopy of it here.
There is one built in Germany. In 1935 the American Rolling
Mill Co. entered into an agreement with Vereinigte Stahlwerke,
corresponding to United States Steel Corporation in size and impor-
tance, I mean corresponding in that country to the Steel Corporation
CONCENTRATION OF ECONOMIC POWER 10695
in this, granting an exclusive license under the continuouB rolling-mill
and cross-rolling patents with the right to sublicense others.
This license also obUgates the licensee to protect and defend the
patents against others. The royalty rate was 45 -cents per metric
ton, subsequently reduced to 30 cents per metric ton, with a miTiiTmiTp
annual payment. They have one mill operating and are involved in a
suit with another steel company at the present time.
I think that is the story unless you want me to amplify it.
Mr. Feller. Mr. Hook, as you know, one of the matters with
which this committee has been concerned has been this matter of
price-fixing clauses in agreements, licensing patent processes or
products. Would you give this committee the benefit of your, views
with respect to your feeling as to why you should have that provMon
or be permitted to have such a provision in the contract?
Mr. Hook. Yes. I think that when an individual or a corporation
takes the risk and spends large sums of money they should have that
protection which would prevent those who came along afterwards
from ruining their own situation, because it takes a good many years
to get back the hundreds of thousands of dollars th^t you spend, for
instance, on a development of this kind. It is impossible for me
to state how much money we spent in the development. We took
great risks, and it seems to me that that is what encourages a man
to sacrifice and to spend money, and to think, and to plan, if he feels
that over a period of time if he does develop something which is in
the interest of the public — and all these things have been shown to
be in the interest of the public — he won't be wrecked during the
years that he is trying to get back the money that he has expended
not only in the equipment but in experimental work. Therefore, we
have reserved — I will answer the question you probably are going to
ask me — in these contracts the right to set a price, and we felt as far as
we ourselves were concerned, we were convinced that although it is
a process patent, it would be pervectly legal for us to set a minimum
pnce. We have not exercised that right, or didn't under the old
contracts, and we did agree to these modifications in the price-control
clause in line with the discussions that went on here a few minutes
ago, because we didn't want to have litigation. What we wanted to
do was to get these contracts uniform, and the royalty was so low,
such a small mount, that it wasn't anything to fight over, and yet
we felt that it was very important to retain in the contract at least
the indication; certainly it shows very definitely that we feel that
we have a perfect right legally to set a minimum price.
Mr. Feller. Omitting the legal side, you are compensated for
the trouble and expense and ingenuity which you have expended by
your royalty at the time, and, as you said, that is very small. Why
should you feel it necessary to protect the price structure of the
industry when your royalty is such a small proportion of that pr »e?
Mr. Hook. We haven't. That is what I am saying. In our '.par-
ticular case we have not exercised it and the situation had not ansen
where we felt that it was nec^sary. Assuming this situation
Mr. Feller. That is what I would like to know, what situation
would be one where you would have done that.
Mr. Hook. Assume, for instance, after licensing one or two com-
panies and we were trying_to recover some of the great expense that
we had gone to, those companies had gone out and thnply wrecked
10696 CONCENTRATION OF ECONOMIC POWER
the market and sold so low that our losses plus what we invested in
experimental work would be so great that it is conceivable we might
betwrecked.
Mr. Feller, Losses on what? Do you mean your losses in the
operation of your business as a roller of sheets?
Mr. Hook. Sure, the price that it might have been sold at.
Mr. Feller. What you were thinking about there was partly the
protection of the royalties, but also the protection of your own business
as a producer.
Mr. Hook. It wasn't a question of protecting the royalties. That
takes care of itself. It was anticipating a situation which might
arise where introducing a new method that was so revolutionary and
which reduced the cost of the product, others might have been tempted
to go out and establish a price that would have simply wrecked us,
and we thought that we ought to have that protection, and I. think we
should have had, and I think that any patentee ought to have that
protection, so if that condition arises he can protect his interests.
Because if you don't give him that protection, then you kill that
incentive to invent and develop new products.
Mr. Feller. I understand how these fears could have been in your
mind at the time you granted your first licenses, but when this revision
took place on April 1, 1937, did you stUl have those same fears then?
Mr. Hook. I won't call them fears, but we certainly wanted to
reserve that right.
Mr. Feller. And you still want to reserve that right?
Mr. Hook. Sure, I do.
Mr. Feller. Assuming that the legality of this should become
settled either by enactment of Congress or decision of the Supreme
Court, and so that the condition contained in these price clauses
should fall by the way, doesn't it mean that on all this tremendous
tonnage, this extremely important part of the business of the steel
industry, the matter of determination of the minimum price would
be ia your hands?
Mr. Hook. Well, on certain products.
Mr. Feller. All products rolled on a continuous rolling mill?
Mr. Hook. Oh, no. Those that come within what we call a royalty
product range. If you have read that license contract you notice that.
Mr. Feller. Can you tell the Committee briefly what products
those would be?
Mr. Hook. It shows right on the license contract.
Acting Chairman King. Do I understand you are questioning the
reason assigned in the case of United States versus an electric
company
Mr. Feller (interposing). General Electric.
Acting Chairman King. Where Chief Justice Taft said in substance
that this right was within the scope of the lawful patent monopoly?
Mr. Feller. No, sir. I am not questioning the decision or the lan-
guage of the dedsion. What I am trying to have placed before the
Committee now is the desirability from the standpoint of general
economy and the standpoint of the operation of this industry of having
price clauses of this kmd in effect.
Acting CK^irman King. That is to say, you are laying the founda-
tion— probably that is too strong a term — to justify recommendation
CONCENTRATION OF Et^ONOMIC POWEll 10697
by this Committee to modify the patent law in this important
particular?
Mr. Feller. Senator, I am not laying the foundation for anything.
The Conunittee has already had before it this very problem. It has
looked at it from the standpoint of two industries, the automobile
industry and the glass industry.* We have an extremely important
industry in which it now appears that a similar problem exists, and I
am adding, shall I say, a fagot to the bundle of information that the
Committee has.
Mr. Reynders. May I ask one question? You had the choice, as
I take it, to make this invention available to the entire industry or
perhaps confining it to your o\vn operations, and in doing so as a
manufacturer you didn't want to sacrifice j^our own interest in the
manufacture by making the invention available to the entire industry
at a very small royalty?
Mr. Hook. Correct, Mr. Reynders; you have helped the explana-
tion very materially to date. In other words, in the beginning after
we secured our patent, then it was up to the board of directors of the
American Rolling Mill Co. to determine whether they were going to
attempt to reserve that entirely to their own use or whether they
were going to give it to the industry, those who wanted it and could
afford to build the plants to use- it, and we decided.
Mr. Reynders. By your decision some $500,000,000 was invested
by the industry and m this process were 13,000,000 tons of capacity.
Mr. Hook. Yes; but even more important than that, at the proper
time we wiU bring out what it has meant economically to the industry
in the way of better products and lower prices and increased wages.
Mr. O'CoNNELL. Mr. Hook, along that line, I take it that the
determination by your board of directors as to the extent to which
you would make the patented process available and the conditions
under which you would make it available to your competitors was
determined by what the directors conceived to be the best interests
of your company within the framework of existing law relative to the
use to which patents may be made.
Mr. Hook. Looking ^ long way into the future, sir. You make
decisions not only on what is in the interest of your company at the
time but over a long period of time — if it isn't in the pubhc interest it
isn't in your interest.
Mr. O'Connell. Always within th,e framework of existing patent
law which was of suflScient importance that you felt justified in con-
sulting with eminent counsel as to what lengths you could go.
Mr. Hook. Correct.
Mr. Henderson. I have a little disagreement, Mr. Hook, maybe
about the period. Do you mean over a long period, if it isn't in the
public interest it isn't in your interest? That is what I got to wonder-
ing about in connection with those glass patents. I couldn't see that
they were in the public interest. I was wondering how long it would
be before the plain intent of the constitutional basis for those pat-
ents would be reaUzed. Maybe it is just a question of the period
I have in mind; maybe over a longer period that is so. But that
does. get to be a pretty aerious question.
• See Hearings, Pari %
10698 (lONCENTllATION OF ECONOMIC POWBR
One question I want to ask: Do you think if you people weren't
manufacturing yourselves that you would have had this clause?
If you just put it out on a royalty basis would you have been likely
to have had it?
Mr. Hook. Well, we never would have developed such a process if
we hadn't been manufacturers ourselves.
Mr. Henderson. You have got about one-twelfth or one-thirteenth
the capacity Ucehsed now, have you not?
Mr. Hook. I don't know what percentage.
Mr. Henderson. After you got your patents you did go on with
other installations. After Ashland you had two more installations,
didn't you?
Mr. Hook. Sure.
Mr. Henderson. I am just asking out of curiosity whether or not,
if you had made your choice after you built Ashland and had con-
fined yourself to Ucensing and not to manufacturing, you would have
felt any necessity for this clause.
Mr. Hook. I am afraid I don't quite get you.
Mr. Henderson. Would your corporate purposes have been better
erved by no limitation on the price at which the products rolled
could be sold, if you hadn't been in the business yourseK? It does
act as a protection to your own business, doesn't it?
Mr. Hook. Sure.
Mr. Henderson. But if you weren't in the business-;- —
Mr. Hook (interposing). Oh, if we weren't in the business we prob-
ably would have tried to sell- — just assuming for the moment that we
were not manufacturers of sheets and Mr. Tytus had discovered this
technique of rolling by a new process, something entirely new, it was a
real discovery as a method of producing continuous sheets. Assuming
that he as an individual had discovered that method and he wasn't
a producers of sheets and had no intention of going into the business
himself he would have gone out and probably sold it for the largest
amount of money he- could get. He would have sold it to a producer,
probably of sheets, and that producer would have wanted to be pro-
tected, I think, for certainly a period of time, in case he needed that
protection and therefore would have wanted just such a clause as we
had in our original contracts.
Dr. LuBiN. May I ask you the same question in another way.
You had the alternative of keeping that patent to yourself, develop-
ing your own mills, underselling all of your competitors because you
had lower costs than they did under this process, or you had the other
alternative of permitting your competitors to use your patents. Let's
assume that your attorneys had said to you- — this may be a very unfair
question: if it is, don't answer it- — "It is illegal to put this price clause;
all you can do is charge a royalty in these contracts," would you then
have been willing to make this patent available to your competitors?
Mr. Hook. You are asking a question now some years after the
fact and I don't know.
Dr. LuBiN. It might have changed your whole attitude.
Mr. Hook. It probably would have changed very definitely our
attitude.
Mr, Henderson, We didn't get what products you call royalty-
bearing products.
CONCENTRATION OF ECONOMIC POWER 10699
Mr. Hook. Perhaps I had better read this [reading] :
The license fee which the licensee shall pay for the right to employ the invention
of all or any one of license patents shaJl be computed as follows:
"The tonnage of material produced on the rolling mill equipment of licensee,
arranged for hot rolling by continuous process, which material shall be over 20
inches in width," —
that is one of them —
"and less than three-sixteenths inches in thickness, hereinafter called royalty-
bearing products, shall be computed quarterly and from this tonnage," —
and so forth.
Mr. Henderson. Anything over 20 and under three-sixteenths?
Mr. Hook. Yes.
Mr. Henderson. Is subject to the royalty?
Mr. Hook. That is right.
Mr. Henderson. So if they roll wide stuff they don't pay the
royalty?
Mr. Hook. Oh, no; they do.
Mr. Henderson. But not below 20.
Mr. Hook. That is right. That was an arbitrary figure which
we set.
Mr. Henderson. Did that have some relation to the maximum
width being roUed by the hand process at that time?
Mr. Hook. No, not the hand process, but it had relationship to
what was done on strip mills prior to that time.
Mr. Henderson. Have you any idea what percentage of the
total products do pay a royalty in any one year, to get some idea
of the magnitude involved?
Mr. Hook. No, I couldn't tell you. I have not computed the
total tonnage and then computed the tons that we have been paid for.
Mr. Henderson. It would be pretty substantial?
Mr. Hook. Well, I should imagine it would.
Mr. Henderson. On all^sheets?
Mr. Hook. Those that you caU sheets.
Mr. AviLDSEN. Williyou tell us what percentage of the production
your company represents?
Mr. Hook. About 3}^ percent.
Mr. AviLDSEN. And your production is mostly sheets?
Mr. Hook. Correct.
Mr. AviLDSEN. Who are the principal users?
Mr. Hook. The automobile industry, of course, is the largest
user, and the suppliers, fabricators of parts to the automobile industry.
When we talk about the automobile mdustry we not only talk about
the manufacturers of the motor cars themselves but those who
supply parts to them, so taking the motor industry as a whole it is
by far the largest user of sheets. Then there are other manufacturing
industries such as the refrigerator industry, the stove manufacturers,
and then through the jobbers all over the country who furnish the
small tinner who does repairing. There are innumerable industries
of that kind, but the major purchaser of sheets we make are the
automobile manufacturers.
Mr. AviLDSEN. Is tin plate an entirely different thing? Does that
go through these continuous mills too?
10700 CONCENTRATION OF ECONOMIC POWER
Mr. Hook. Yes; the hot-rolled production where it is wider than
20 inches; and then the technique is used, the same technique is used
in the cold reduction of the material.
Mr. AviLDSEN. I mean, you get royalty on all the tin plate?
Mr. Hook. Not unless it is hot-rolled at a width wider than 20
inches.
Mr. AviLDSEN. Isn't the ordinary everyday tin plate made that
way?
Mr. Hook. No.
Mr. AviLDSEN. So that is not involved?
Mr. Hook. Not very much tonnage.
Mr. Feller. Some light plate for tinning is rolled.
Mr. AviLDSEN. Will you tell us whether you do any fabrication of
the rolled products, such as fenders, semifinished parts of motor cars?
Mr. Hook. No, we do not. What little fabrication we do is sold
in some one or two small subsidiaries. It has always been otir poUcy
in our particular company, right or wrong, that we do not compete
with our customers. It is just a matter of policy.
Mr. AviLDSEN. Mr. Hook, there has been a great deal of testimony
here that there has been a large investment in new mills and equip-
ment during the depression years. Could you give the committee
the benefit of your explanation of this investment?
Mr. Hook. WeU, of course, the very large part of this large invest-
ment in the steel industry, if you will trace it back, you will find is in
these new mills, these new continuous mills that have been brought
about as a result of the development of this continuous mill process,
approximately $500,000 000 up to date.
Mr. AviLDSEN. So that constitutes 80 percent of the new invest-
ment, 75 percent or more or less?
Mr. Hook. Well, I should think it would. I have no figures on
that, but I rather imagine it would run pretty close to 75 percent
during the particular period.
Of course I rather imagine you are trying to ask me another ques-
tion. I wiU ask it and answer it, because I heard a couple of questions
this morning with respect to our ability to finance these investments
during a period of depression when we were losing money. Well,
those who lend you long-time money look over your past record of
some 10 years, and the early money that was raised for these large
installations were largely influenced by the record of the steel industry
of the twenties. It is a different situation now._
Mr. AviLDSEN. In other words, a lot of this investment was made
what year? When was the money raised to put in these continuous
mills?
Mr. Hook. It started in 1927; and in *30 there was a good deal of it,
and '31 and '2 and '3, right through there, a large part of it was up
there in the early years of the depression.
Mr. AviLDSEN. You don't think that if they had started out begin-
ning in 1939 to raise this money they would have been so successful?
Mr. Hook. I think you men who are famUiar with the money
market know what we would be up against in going to investment
bankers today, and private corporate investors, to get money, with
industry showing the record that this industry has shown.
Mr. Henderson. I have made a rough calculation. This report
shows over seven million out of thirteen was installed in the beginning
of 1936 and running through 1937.
CONCENTRATION OF ECONOMIC POWER 10701
Mr. Hook. Well, you see you arrange for your jBnancing ahead of
the time that you do the building. Nobody knows that better than
you do.
Mr. Henderson. A lot of it was done from internal sources.
Mr. Hook. Sure.
Mr. Henderson. Then there was some borrowing and it was
finished later, as I recall.
Mr. Hook. I am perfectly willing to comment, Mr. Henderson on
our own experience in 1937. We raised $45,000,000, but the industry
was getting back on an earning basis. In '36 we had earnings, in '37
we were showing excellent earnings. Quite frankly, we hit it just in
time. I think if it had been 3 weeks later, there wouldn't have been
any question but that we would have been unable to raise the
$45,000,000.
Mr. Feller. Mr. Hook, in your statement, you refer to the effect
of this new process in bringing down the price of automobile fender
sheets, you spoke of. I take it you think that is beneficent, the fact
that the advantages of technological improvement have been passed
on to the consumer.
Mr. Hook. Well, of course
Mr. Feller. You don't think that this reduction in the price of
this particular commodity, automobile-fender sheets, has been a
beneficent result of this technological development for which your
company is largely responsible.
Mr. Hook. I wouldn't call it an absolute development along that
line, but without this development there would not have been this
tremendous reduction from $135 a ton in '23 to $59 in 1939.
Acting Chairman King. It is beneficent if it cheapens the price of
the commodity.
Mr. Hook. Well, I think so.
Acting Chairman King. There may be some question as to whether
automobiles are beneficent.
Mr. Hook. Well, I have a record here and of course Mr. Feller has
a copy of this record, which I gave him, which shows that — we will
take in 1936, I am talking about the average price received for all
grades of sheets, not just any one, in which case you might say, "Well,
yes, of course, you did produce, you are picking out an item, auto-
mobile fenders, in which *^there was very great reduction, but how
about some other items?"
Coming down on the train I picked up out of my portfoHo a record
here, for instance, on 18-gage enameling iron for washing machines,
and that is a specialty of ours. In other words, that is another patent
that we developed some years ago. We discovered a method of
making pure iron in an open-hoarth furnace, therefore in that line
we are the leaders. If we had a tendency to maintain a fictitiously
high price, certainly it would have shown in our record over the years.
In 1923 we got $152.55 a ton for that material and in 1938, $80 a ton.
There is $72,55 a ton reduction between 1923 and 1938 oa that item.
Now taking the average of all the products that we make, lumping
them all together in an average price per ton of all we sold, this is the
actual reahzing price. We will take 1926, that is often used as a base;
we started our plant, this first mill at Ashland, in 1924, and that year
we got $95.51 a ton for our product, average; in 1926 it dropped to
$83.18, 1929 it was down to $73.87.
10702 CONCENTRATION OF ECONOMIC POWER
Mr. Fellee. What commodity is that? Is that the sheet for the
washing machine?
Mr. Hook. No; this is the average of all. I gave you the washing
machine sheets. Did you get it?
Mr. Feller. Yes; I did.
Mr. Hook. This is an average of all our products. During that
period, as you remember, from '23 to '29, the price of manufactured
products went up, not down, yet here is a case due largely to a tech-
nological development where the average price had gone down, in
other words from $95.51 in 1924 to $73.87 in 1929, which was the
biggest year the steel industry had ever had up until that time, and
it kept on dropping down until 1933 when we got an average of $45.98.
We had veiy heavy wage advances there, and other raw material
advances which increased our costs, and it rose to as high as $66.69 in
1937.
Acting Chairman King. Was that due exclusively to increased
wages and costs of your raw materials?
Mr. Hook. I think it was, Senator. Of course you had a better
market naturally and you got a better price. It dropped down so that
the first 9 months of 1939 it was $61.06. There are the facts.
Mr. O'CoNNELL. A few moments ago you referred to a particular,
product, I think it was the first one of this group you mentioned,
which I understood you to say you were the leader in, and that had you
had any desire of maintaining a fictitious price
Mr. Hook. Eighteen-gage enameling iron for washing machines,
that goes into the homes; women are all interested in that.
Mr. O'CoNNELL. You were the leader in the development of that?
Mr. Hook. Yes.
Mr. O'CoNNELL. Is it protected by a patented process?
Mr. Hook. It is not now. That is the pure iron was protected
for some years. That patent ran out in 1926, that is the iron patent.
Mr. O'CoNNELL. Being the leader would you explain to me how
you could have maintained fictitious or abnormally high price, higher
than you did. I understood you to say you could have, that you were
the leader,
Mr. Hook. No; I didn't say we could have. PubUc opinion —
there are a great many things that enter into the question of price,
of course, as you know. You are trying always to sell your product,
and naturally the first objective is to pay all your expenses and to pay
some wages to your common-stock holders who are taking all the risks
of your business, and then within the bounds of reason get a price
to sell your product. If you make a price which is too high on an
article of that kind of course you hold back the development of the
sale of that machine upon which you are dependent for orders.
Mr. O'CoNNELL. You mean if the price is too high it (restricts the
demand and you don't sell as much as you had hoped to?
Mr. Hook. Correct.
Mr. O'CoNNELL. When you were speaking of leadership, did you
m^an in the development or
Mr. Hook. In the market of that particular grade of material.
Mr. O'CoNNELL. Were you the price leader in the sale of that?
Mr. -Hook. I think we have been for a number of years. For in-
stance we have a product which we have recently developed which is
a patented product. An engineer developed this thing and we sent for
CONCENTRATION OF ECONOMIC POWER 10703
him clear over to Poland. We realized that it had great merit and we
bought the rights. But we had spent, we did spend, approximately
$300,000 before we ever marketed a sheet, in experimental work and
developing and making what he had; he had the idea; another thing
was to put the idea into practical operation. On that product we had
to set a price, we had to estimate what the thing was going to cost us,
and we set a price that we thought would sell the product. We
couldn't make it too high. We missed some on the cost, but we are
still Btud3dng price in connection with that particular product.
Mr. O'CoNNELL. The one you just referred to before, I take it
that is at least one steel product in which you think the demand is
sufficiently elastic so that the price has a bearing, a real substantial
bearing, on the demand?
Mr. Hook. Yes. When you have wide differences in price, it has a
very definite value, but when we talk about, for instance, an auto-
mobile, $5 a ton on sheets, it doesn't amount to anything on an
automobile, and yet it means almost hfe and death to us as far as
cost is concerned.
Mr. O'CoNNELL. But this enamelware proposition, I have forgotten
what you call it, you were in that case at least impressed with the
desirabihty of having the price pohcy as regards that particular
product which would be reflected in the maximum amount of demand.
Mr. Hook. Most of that enameling iron goes into the field of what
I term semidurable goods, in other words, stoves and ranges, refrig-
erators, and things of that kind.
Mr. O'CoNNELL. As to which the demand is somewhat more elastic
than some other things?
Mr. Hook. Yes, naturally; you want to make a profit, you want
to get enough for your goods so that you can pay all your expenses
and, as I say, wages to your stockholders, and then not get your price
to a point where it would in any way affect the sale of the product.
Mr. O'CoNNELL. One of the factors in determining the price,
other than the cost factors, because they in turn depend to some
extent on volume, is the relationship between the price and the
demand.
Mr. Hook. Oh, sure, the demand affects your competition. It
can't help but do that.
Acting Chairman King. When do your patents expire under which
you have developed this
Mr. Hook (interposing). These royalty contracts cease in 1944.
Acting Chairman King. 1945?
Mr. Hook. I will give you the exact date if you are interested.
Acting Chairman King. That is sufficient.
Mr. Hook. It is the fall of 1945.
Acting Chairman King. Your patents, then, of course, have ft
lease of life until 1945?
Mr. Hook. Correct.
Mr. O'CoNNELL. May they have one after 1945? In fact, might
there not be, as I heard happening in other industries, improvement
patents held by your company which would have the effect of extend-
ing the life of your control?
Mr. Hook. I am perfectly willing to answer quite frankly, sir, that
we have no such idea at the present moment, unless there is some very
decided improvement or new process. We have nothing in mind.
10704 CONCi]NTRATION OF ECONOMIC POWER
Dr. LuBiN. As I understand it, your patents are process patents.
Mr. Hook. Correct.
Dr. LuBiN. Irrespective of who makes the equipment, or what
kind of equipment you use, the process itself is patented and the
royalty is based on that, so in the^case of the Irvin Works, for ex-
ample, even though their methods may be quite different from yours,
the fact that they use a hot-rolling continuous process is the important
factor in the picture.
Mr. Hook. They use the technique involved in the rolling; yes.
The invention was the method of doing it.
Representative Williams. You have given us the price during
these various periods per ton. Does that reflect the cost of produc-
tion? Have you the figures on the cost of production per ton during
that same period?
Mr. Hook. No; I have not, sir.
Representative Williams. Have you the cost as compared to what
it was before -^our process was discovered and put into use?
Mr. HooK. Well, costs have been affected not only by the reduc-
tion dye to the reduction in rolling cost, but since that tmie we have
had, of course, a very decided increase in labor costs of approximately
30 percent, or about one-third, since 1936, which very naturally
affected the cost of your finished products.
Representative Williams. But on the other band, hasn't this proc-
ess itself displaced a great deal of labor?
Mr. Hook. No; it has not.
Representative Williams. I was just going to ask you about that.
How many men, before you discovered this process, were engaged in
this particular business, and how many are now engaged in it?
Mr. Hook. I am awfully glad you asked me that question.
Mr. Feller. In this particular business, Congressman, you mean
the making of flat-rolled products?
Representative Williams. In which this patent is used.
Mr. Hook. I am very glad you asked me that question, because I
have the information here to give you. I am speaking for the Amer-
ican Rolling Mill Co., our own company, at the present moment, and I
will comment on the industry later. In 1923 we had 6,060 employees,
and the number of employees per hundred tons of output was 1.36.
In 1926, 6,876; 1929 — now we are getting into the continuous mill
operation— 10,752; 1935, 10,444; 1938, 10,384; and in the first 9 months
of this year the average number has been 10,322, and the number of
employees per hundred tons, 1.46.
During the development of this process hours have been greatly
shortened, so that more men have been employed, so you might — I
will ask and answer the question at the same — so you might say,
"Oh, well, that accounts for the increased number of men in the
industry, due to the shorter number of hours requiring more men."
Well, we have checked our own records. About 2 years ago I asked
my assistant who is in charge of that end of our work, the labor sta-
tistics, and everything of that kind, to confer with other members of
the industry who are operating under our continuous mill patents,
because we had made this record up for ourselves showing a lower
price, a better product, higher wages, higher annual wages, and more
men employed, certainly covering the whole gamut.
CONCENTRATION OF ECONOMIC POWER 10705
Now, is that true with respect to the industry? Well, I haven't a
complete report, but fortunately several of the mills are cooperating
with us and they are still making studies, and we have from four com-
f)anies that we have been comparing with and who have, during the
ast year — and this represents a very careful check of the year — in
these four companies, and in the sheet, strip and tin-plate depart-
ments only, so as not to confuse it with the other part of the plant —
there may be additions or other reasons for increases or decreases
there, but right in these plants or departments where the continuous
mills have been in operation, in these four companies, in 1926 they
employed 11,769 men in those departments, and in 1937, 23,678 men,
and their total pay roll went from $21,552,000 to $41,280,000, and
their average weekly wages in 1926 were $35.77, and on the reduced
number of hours their actual weekly wages were $34.49 in 1937, and
if you use the National Industrial Conference Board index and adjust
and get their real wages, then the real wages in 1926 were $34.30 per
week, and in 1937, $38.97.
Yet during that period the average hours worked in 1926 '^^ere 52.3,
whereas in 1937 it was 38.2; it was reduced from 52.3 to 38.2. Now
In my assistant's report to me — and maybe this will be helpful be-
cause it brings out the point I think you are trying to get at — in 1926_
the average hours worked per week in eight companies was 51.2.
This is eight companies, in which we took all the departments, the
above-mentioned four being included in the eight, was 51.2 hours
per week, and in 1937 it was 37.1 hours, a reduction of 27.5 percent.
To compensate for thi^ reduction in average hours worked per week,
25,826 additional men were required, just for the reduction in hours.
The balance of the total increase amounting to 13,634 employees, or
34^3 percent of the total increase was required to handle the additional
tonnage resulting from technological improvements, and increased
markets.
In other words, we did actually increase the number of men em-
ployed by 34.3 percent in those eight companies. Now let us see in
these fom* companies where we have the accurate records with respect
to their sheet, strip, and tin-plate departments where the continuous
mill process applies.
Acting Chairman King. The increase of rate was 30 percent plus?
Mr. Hook. More than that. I will give it to you exactly, sir.
Mr. O'CoNNELL. The hourly rate?
Mr. Hook. Annual earnings. I would like to give you that in
just a minute.
Representative Williams. Let me understand you. So far as the
output is concerned, did I understand from your statement there
that there has been an actual increase in the number of men em-
ployed per hundred-ton output?
Mr. Hook. Yes. Now that is due largely to the technological
development beyond the hot-rolling process. In other words this has
brought about not only a better product structurally as it comes off
the continuous mill, but the demand of the industries being served
has made it necessary to add large numbers in the processing depart-
ments beyond this point, so that in spite of the reduction in the num-
ber of hours having increased the number of men required, your
total number of men per hundred tons of shipment has still kept very
close to what it was originally, in fact actually in our case increased:
124491 — iO— pt. 19 17
10706 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. You mean this, that because you can now sell more
sheets through the fact that you can produce more because of this
process, the employees who handle those sheets after they get off
the mill and process them in various ways, shear them and so on, and
that tliat number has been increased?
Mr. Hook. Yes; very definitely, due to technological development
in those departments. For instance today
Mr. Feller (interposing). That is something. How does tech-
nological development increase the number of men employed in that
particular process in which the development has taken place?
Mr. Hook. Why, because of the requirements — when I sajf tech-
nological developments it is our discovery how to treat a sheet to do
these very difficult jobs.
Mr. Feller. You mean because you have a new kind of annealing,
for example, that is now demanded by customers, and therefore
people are employed in doing that annealing Job?
Mr. Hook. Let me explain this to you, Mr. Feller. For instance,
in the old hand mUl before this process was developed an automobile
sheet was pretty much an automobile sheet; in other words, you hot-
rolled it and you gave it temper passes in the cold rolls, and you
annealed it, and then you gave it a lot of passes through a two-high
mill and they were able to stamp that sheet, make certain draws; let us
say this glass here represents an article that you could stamp out of
that sheet. Now, when the continuous mill came along, the structure
was so superior that we could not only say stamp this glass in its
present form, but put a flare on it and turn it inside out, and a few
other things — that is exaggerating, but you know what I mean.
Now then that encouraged, of bourse, development, particularly in
the automobile industry where they kept requiring more and more
difficult jobs to be done by these sheets.
Therefore we had to not only take this very superior sheet which
came off the mill as a hot-rolled product, or as a cold-roUed product,
but even go further and make a still superior sheet. We had to re-
search and find out just exactly what we could do beyond that point
to make it a still superior sheet. In other words, that required more
heat-treating apparatus and all kinds of treatments, which we didn't
know anything about in the early days.
For instance, 3 years ago we were making an automobile fender
sheet of such superior quality that in 1926, before the development of
the continuous process, we will say, or even in our early days of the
continuous process, we just couldn't have made. In the case of a
sheet made by the hand method there was no series of treatments
that you could give it, there was no known method, there wasn't
any way that you could treat that sheet to make it do the job which
today we are doing through the production of miQions of stampings.
Representative Williams. Well, is it right to say that the actual
cost of production by reason of this process has increased, per ton?
Mr. Hook. No, no. You have saved in your actual rolling opera-
tion, of course, a great deal of money per ton. I haven't the figures
here, but it is a relative figure; but it is self-evident from the very fact
that we have been able to produce sheets or sell the sheets at these
continually decreasing prices. In other words, prices would not be
decreased if we hadn't reduced our costs in various ways not only by
CONCENTRATION OF ECONOMIC POWER 10707
reducing the hot-rolling cost on the mill, due to the continuous opera-
tion, but in addition by the reduction at other places all through the
mill. We have been working our heads off, of course, to reduce costs.
Representative Williams. As far as the labor part of it is concerned,
as I understand you, there has been very material increase in the
cost per ton?
Mr. Hook. Yes, there has been a material increase in cost, in the
hourly cost, but in the actual labor cost on the rolling operation, that
has been reduced because we get more tons per man-hour in the rolling
operation.
Mr. AviLDSEN. I think, Mr. Hook, what is confusing here is that
you state that the number of men required to produce 100 tons in a
certain unit is greater now than before?
Mr. Hook. I tried to make that clear.
Mr. AviLDSEN. So, therefore, Mr. WiUiams asks how could that
be when you are paying a higher rate of wage and more men per unit.
Now tell me this. Do you get some extra charges for these extra
operations that these men perform? Do you charge extras to com-
pensate for that?
Mr. Hook. Oh, well, there are extras.
Mr. AviLDSEN. That are not represented in this price?
Mr, Hook. No, no; that is the net reahzing price. I was a little
afraid maybe that would be confusing to you but I have to get back
again and call your attention to the fact that we are talking about
numbers of men per hundred tons of output, and that has been in-
creased over what it would have been due to the shortening of the
hours which I gave you here, for instance, in these four companies, of
from 52.3 hours per week per man to 38.2. You see, just due to the
decrease — for instance, in these 8 mills on which we have figures — in
the average hours worked, 25,626 men would have been needed.
Representative Williams. But the fact is, as I understand you,
that you still have more men employed in the business than you had
before?
Mr. Hook. Correct.
Representative Williams. And you are paying them a higher wage?
Mr. Hook. Correct.
Acting Chairman King. Let me ask if you have many more
questions.
Mr. Feller. I have one question.
Mr. Hook. That is up to you. Senator. There are some things I
imagine you might want to ask me on this question of price with
respect to cost.
Dr. LuBiN. May I intervene at this point? Perhaps we can clarify
this issue. As I understand it, your base year is '26, the year you
used for comparison, '29, '36, and '38?
Mr. Hook. For what?
Dr. LuBiN. Number of people employed.
Mr. Hook. I can give you any number of years you want. Here
is '23.
Dr. LuBiN. But you made the comparisoD for Congressman
Williams to show that increase of 25,000. What years were those?
Mr. Hook. That was '26 and '37.
10708 CONCENTRATION OP ECONOMIC POWER
Dr. LuBiN. Now part of that increase in employment between '26
and '37, as you say, is accounted for by the fact that your hours per
week went down?
Mr. Hook. That is right.
Dr. LuBiN. And you had to increase your labor force in part to
offset that, although the new developments in production took care of
part of that in addition, did they not?
Mr. Hook. That is right.
Dr. LuBiN. So as far as your rolling mills were concerned per ton
of steel produced, you need less labor now than you did in '26?
Mr. Hook. Per ton.
Dr. LuBiN. But between '26 and '37, according to these figures on
ingot production, if that is a good index for the industry as a whole,
there was an increase of about 25 percent in output; you took '26 as
a year and '37 as a y^ar. In other words, the index of ingot output in
'26 was abou,t 115 and in '37 it was about 130, the average for the year?
Mr. Hook. Yes.
Dr. LuBiN. So that this increase in number of people on your pay
roll is accounted for for the most part, then, really, by this increase in
output which would have required more men, whether you had new
processes or not, plus the fact that hours have been shortened, but
that shortening of hours had not been entirely offset by greater effi-
ciency of the new rolling mills?
Mr. Hook. Well, I gave you four companies where we related it
right back to the tin-plate sheet, strip, and tin-plate department, so
that that consideration that you are talking about would not be in-
volved. In other words, what I was trying to show you was that we
did not reduce the number of men employed ; in other words, the num-
ber of men employed in the industry was actually increased and even
if we had increased the tons during that period on all our products
generally, if this development hadn't increased the use of the material,
then we would have had less men.
Dr. LuBiN. In other words, let us put it this way: If the volume had
remained unchanged and the hours had remained unchanged, you
would have had fewer men?
Mr. Hook. That is right.
Dr. LuBiN. But because volume had increased and hours had been
shortened, it was just necessary to take on more people, so that the
machine itself, assuming conditions identical with '26, would have
displaced workers?
Mr. Hook. That is right.
Acting Chairman King. Mr. Hook, there will be no meeting of the
committee tomorrow. The committee will stand in recess until
Monday morning at 10:15 o'clock.
(Whereupon at 6 o'clock a recess was taken until 10:15 a. m.,
Monday, November 13.)
(Testimony on the Iron and Steel Industry is resumed in Hearings,
Part 20.)
APPENDIX
Exhibit No. 1379
PRICES OF IRON AND STEEL PRODUCTS AND OF ALL COMMODITIES
BY MONTHS. 1913 "1918
(JULY 1913 TO JUNE, 1914 • 100)
INDEX NUMBERS
Exhibit No. 1380
IRON AND STEEL PRICES AND STEEL INGOT PRODUCTION
BY MONTHS. I9I3-I9I8
(JULY, 1913 TO JUNE, 1914-100)
10710
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 1381
INDEX OF INGOT PRODUCTION AND FINISHED STEEL COMPOSITE PRICE
1926-1939
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 I93S 1939
Exhibit No. 1382
FINISHED STEEL COMPOSITE PRICE INDEX
BY MONTHS, 1926-1939 INCLUSIVE
I
ii^l
K
5=;
1926
1927
1928
1929
B
1930
193
1932
1933
1934
1935
1936
1937
i:
1938
1939
CONCENTRATION OF ECONOMIC POWER 10711
Exhibit No. 1383
INDEX OF SEMI-MANUFACTURED ARTICLES AND FINISHED STEEL COMPOSITE
1926H939
1927 1928 1929 1930 IMI i9M "933
Exhibit No. 1384
Caknegie-Illinois Steel Corporatiois
united states steel [seal] corporation subsidiary
General Offices: Carnegie Building, Pittsburgh, Pa.
B. F. Fairless, President
November 20, 1936.
Mr. Robert Gregg, „,,/-,
Vice President, United States Steel Corporation
71 Broadway, New York, N. Y.
Dear Sir: The price situation for the First Quarter of 1937 has been studied'
very carefully, because of the increased costs which face us, and it is very strongly
SmmenSthat we announce immediately, effective as of December 1st prices
as represented by the attached memorandum on business taken for shipment
durinftheFSst Quarter of 1937, which memorandum a so shows the present
pSs for comparSon. The factors that make it imperative to take immediate
^''i^l^'^^tltTnu^^S.e program which became effective November 16th will
add very materiaUy to our manufacturing costs of all commodities. Exact
f^orSo^concerning this increase in costs due to the new labor program has
b?en compiled by Mr. Vogt, and you no doubt have received a report from him.
^ (5) Thfrnaterials we uf'e in our manufacturing processes, and for plant and
eauipment maintenance, wUl show a decided increase in cost as evidenced by pre-
S5y reports which have already been received from sources normally supply-
'"'^rstl^T?'™! -No change in the selling price is proposed and it is estimated
our Un^rcturing costs wSl be increased by about $5.00 per ton. Therefore
shipments during the year 1937 wiU show a $5.00 per ton reduction in profit to us
(^ Sheet Mill Pr6ducts.-A review of this product shows very clearly an
increased cosf of about $4.00 per ton. At present selling prices, under favorable
operating conditions, the large tonnage items show the foUowmg losses.
Blue Annealed, 16 gauge and heavier.— - No profit
Hot RoUed Annealed, 17 gauge and hghter l^'^^ ^-OO per ton oss.
Single Pickled, aU gauges |2.50/$3.00 per ton oss.
Tack Plate, aU gauges $3.00 per ton loss.
These losses are on a Carnegie-Illinois integrated net miU basis.
10712
CONCENTRATION OP ECONOMIC POWER
(6) There has been no time in the history of the Steel Industry where the Trade
has been so outspoken in regard to possible price changes, and we can say with con-
fidence that they are expecting at least the advances we propose. It is imperative
that this question be settled quickly in order that the Trade may know what their
raw materials cost will be, and permit them to adjust their price programs accord-
ingly.
(6) December 1st is recommended as the effective date for First Quarter busi-
ness, and an immediate announcement would, we believe, have a very beneficial
physchological efifect on the consuming trade at this time. In fact, inquiries from
the trade as to our price position for the First Quarter, are becoming very numer-
ous and our trade is pointing out to us that it is imperative we make an immediate
decision in order that they may prepare their own business programs.
(7) Average increase in price would represent approximately $3.00 per ton, but
it is difficult to estimate this accurately owing to the variations in commodities
ordered from time to time. From past experience, however, it would be fair to
state that these prices would represent this average increase to us.
In conclusion, while this proposed price advance is to become efifective on
December 1st on business for first quarter shipment, we will not be benefitted by
this change to any great extent until February, owing to obligations that will carry
us well into, and in some cases through, the month of January at present prices.
Yours very truly,
(Signed) B. F. Fairless,
President.
Comparison of fourth quarter 19S6 and proposed first quarter 1937 prices at Pittsburgh
Advance
Per
Present
Ton
$2.00
$2.00
$32.50
$32.50
$1.00
$39.60
$2.00
$1,825
$3.00
$2. 075
$4.00
$2,676
$4.00
$51.50
$4.00
$1. 975
$.3. 00
$1. 925
$3.00
$1. 925
$4.00
$1. 975
$4.00
$2. 625
$4.00
$2. 625
$4.00
$3. 075
$3.00
$2. 476
$3.00
$3. 075
$4.00
$3,225
$4.00
$4,090
$4.00
$3. 526
$4.00
$2. 776
None
$5. 275
$3.00
$2,276
$3.00
$2. 375
$2.00
$40.60
$5.00
$2. 926
$3. 625
$36. 376
$3.00
$2.66
Proposed
Rerolling Billets, Blooms and Slabs
Sheet Bars
Forging Bloms, Billets and Slabs
Hot Rolled Carbon Steel Skelp... .-
Hot Rolled Carbon Steel Bars and Small Shapes. -..
Hot Rolled Alloy Steel Bars
Hot Rolled Alloy Steel Billets, Blooms and Slab's
Hot Rolled Carbon Steel Strip
Hot Rolled Carbon Steel Structural Shapes -
Hot Rolled Carbon Steel Plates ,
Hot Rolled Sheets— 10 gauge base
Hot Rolled Annealed Sheets— 24 gauge base
Cold Rolled Sheets
(Primes with seconds arising) — 10 gauge base... <
(Primes with seconds arising)— 20 gauge base
American Vitrenamel — 10 gauge base ,
American Vitrenamel — 20 gauge base
Galvanized Sheets— 24 gauge base
Galvanized Corrugated 26" Wide after standard 2H" Corruga-
tions—24 gauge base
Long Ternes Unassorted— 24 gauge base -
Tin Mill Black Plate— 28 gauge base Hot Rolled and Annealed..
Tin Plate .- -
(This does not represent a change in Tin Plate, but rather a
dl.scontinuance of the deduction that became operative
under the Steel Code and the NRA.)
U. 8. B. Sheet Piling -...
U. 8. 8. Zee Piling —
Tie Plates .
Steel Axles for Cars or Locomotives. -..
Standard Rails weighing over 60# per lineal yard Shipping Mill '.
Splice Bars for Standard Rails weighing over 60# per lineal
yard — Shipping Mill • -
$34.50
$34.60
$40.50
$1. 926
$2. 225
$2. 775
$55.50
$2. 175
$2. 075
$2. 075
$2. 175
$2. 825
Q. T.
G.T.
O. T.
100#
100#
100#
G.T.
100#
100#
100#
100#
100#
$2,825 100#
$3,275 100#
$2,625 100#
$3,225 loo*
$3,425 100#
$4. 340 Square
.$3. 725 100#
$2,975 100#
$4. 875 Base Box
$2. 426
$2. 526
$42.60
$3.n76
$40.00
100#
N. T.
lOOiC
G.T,
$2.70 100#
> In our opinion it is too late to get any advantage of an increased price in the first half of 1937. We do not
see how we can avoid taking orders up to January 1 for shipment through the first half at present price.
New price should apply on any sales made after January 1 for shipment during 1937.
CONCENTRATION OF ECONOMIC POWER 10713
Exhibit No. 1385
[Western Union telegram]
1937 Feb. 19 PM 2 29
Received at CXDA58 Chgo 19
RoBT. Gregg
USS NYK:
Our price for foundry pig iron now effective is $18.50 base furnace Iron ton Utah
Stop We have made careful survej' and have concluded this price should be
advanced one dollar per ton and unless you instruct to contrary will make this
advance effective for 2nd quarter Pis advise.
W. A. Ross
COL.
$18.50 2.
Exhibit No. 1386
TKLEGBAH
Via Private Wire System
United States Steel Corporation
and subsidiary companies
Sent
Februart 20, 1937
W A Ross Columbia Steel Co
Russ Bldg San Francisco Cal Via XD Chgo
Your wire Pig iron price Why not make advance two dollars instead of one
Advise
Robert Gregg
USS
Exhibit No. 1387
[Copy of letter]
Carnegie-Illinois Steel Corporation
united states steel [seal] corporation subsidiary
(Notation:) 225
75
300
(Stamped:) Refer with previous file to: A. H. W., Jr. R. G. L.
March 10, 1937.
J. H. McKown
A. H. Warren, Jr.
Recommendations for the Revision op Prices for High Tensile Steels
Pursuant to your request, we have the following recommendations to make:
cor-ten
Pittsburgh Chicago
Plates 3.80 3.85
Shapes 3.70 3.75
man-ten
Plates 3.15 3.20
Shapes 3.05 3.10
SIL-TEN
Plates 3.00 3.05
Shapes...- . 3.00 3.05
■ Cor-Ten: It is evident that our cost of production of plates is $4 to $5 per ton
over the price of standard shapes. Unquestionably wnen the new 100" semi-
continuous mill at Homestead gets on a more regular basis, the cost of plates will
be brought down, possibly a differential of $2 per ton. If no revision is made in
10714 CONCENTRATION OF ECONOMIC POWER
the prce of Cof-Ten and the prices on other commodities advance, it will in a
sense be an admission on our part that the price of Cor-Ten is already too high
and does not warrant an advance. We think that we should offset any possible
criticisms of this character and, therefore recommend modest advances to the
bases as above indicated.
Man-Ten: On a basis of our first-quarter pricing on this grade we maintained a
differential of $5 per ton between plates and shapes. We believe the new plate
mill at Homestead will narrow this difference and consequently recommend the
smaller spread as above indicated.
It must be remembered that Structural Silicon Steel Astm-A-94, specifies cilicon
.20 min. with no mention of manganese. However, to produce the required tensile
strength of 85,000 lbs., a manganese range of 1.25 to 1.70 is used, which is similar
to that of Man-Ten. Man-Ten, therefore, is similar to Astm-A-94, except that
manganese is shown. It follows, therefore, that the same can command only a
slight advance over Sil-Ten bj' reason of its slightly higher tensile strength.
Sil-Ten: We believe that the prices on Sil-Ten for the second quarter should be
advanced $4 per ton on both shapes and plates. The regular extra for silicon
steel is 75^ per 100 lbs., and we believe this is the proper diffierential between the
price of ordinary carbon shapes and plates and similar commodities in Sil-Ten.
Note. — fhe old spread of $9 per ton between Cor-Ten structural shapes and Cor-Ten
strip appeara to be excessive and nas affected the marketing of our Yoder Mill products,
since the latter have been built up from a strip base. Yoder Mill sections are competitive
with hot rolled structural shapes, and the resultant price has not been particularly attrac-
tive to the trade. This angle might be taken into consideration when Cor-Ten strip prices
are established.
Exhibit No. 1388
American Steel & Wire Company
subsidiary op united [seal] states steel corporation
Rockefeller Building, Cleveland
C. F. Blackmer, President
November 12, 1936
Mr. H. L. Hughes,
Vice President, United States Steel- Corporation,
71 Broadway, New York, N. Y.
Dear Sir: Referring to phone conversation of yesterday, my recommendations
as to Sales Prices are to make the following increases:
Wire Rods $3. 00 per gross ton
Bright Basic and Bessemer Wires 2. 00 per net ton
Premier Spring Wire, including other High Carbon
Wires 3. 00 ditto
Wire Nails 4. 00 ditto
Barbed Wire 4. 00 ditto
Woven Wire Fence 3. 00 ditto
Bale Ties -- 3. 00 ditto
Cold Rolled Strip.! Either $2.00 or $3.00 per ton, according
to what is done on Hot Rolled Strip.
Galvanized Wire $1.00 per ton in excess of Bright Wire.
Other miscellaneous wire products, such as Fine Wires, etc., in the usual
proportion.
I have shown an advance of S3.00 per ton for Wire Rods. This, I understand,
is the same advance that is to apply to Bars.
I have only recommended $2.00 for Basic and Bessemer Wires because of the
desire to lessen, as much as possible, the spread between Rods and Drawn Wire.
There is a tendency for Wire users to install machinery and draw their own wire.
I think a lessening of the spread between Rods and Wire will discourage them to
some extent from putting in their own drawing equipment.
Premier Spring Wire has been increased $3.00. There was no increase in
October when Bessemer and Basic Wire was increased $2.00 per ton; moreover,
during the past we have made very drastic reductions in the price of Spring Wire;
therefore, I do not believe that $3.00 is out of line.
Nails and Barb Wire have been entirely too low; therefore, I recommend an
increase of $4.00 per ton.
CONCENTRATION OF ECONOMIC POWER 10715
My recommendation would be that these prices be put into effect as quickly
as possible; that is, some day next week. As to whether they apply for the
first quarter of 1937 would somewhat depend upon the plan effective for Bars,
Sheets, etc.
Mr. Merriman agrees to all the above recommendations.
Yours truly,
(Signed) C. F. Blackmer,
President.
P. S. "We inadvertently omitted Posts in the foregoing, I would recommend an
advance of $2.00 per ton. I feel that this is about all we can increase on this
product due to keen competition from many Steel Post Manufacturers and
competition from Wood Post Manufacturers. C. F, B.
Exhibit No. 1389
[Copy]
New York, June S4, 1938.
Myron Taylor,
Morgan Bank, Paris, France.
The following releases made this afternoon Quote Carnegie Illinois Steel
Corporation announces reduced prices effective immediately Delivered F. O. B.
cars Pittsburgh and Chicago in carload lots as follows
Rerolling billets blooms slabs per gross ton__
Sheet bars per gross ton..
Forging blooms billets slabs per gross ton..
Hot rolled carbon steel bars and
small shapes per 100 lbs
Hot rolled alloy steel bars per 100 lbs
Hot rolled alloy steel billets blooms
and slabs per gross ton..
Hot rolled strip per 100 lbs
Hot rolled carbon steel structural
shapes per 100 lbs
Hot rolled carbon steel plates per 100 lbs
Hot rolled sheets per 100 lbs
Hot rolled concrete reinforcement
bars cut lengths per 100 lbs
Cold rolled sheets (primes with
seconds arising) per 100 lbs
USS sheet piling per 100 lbs 2.425 2.43 stop
Prices on other products will be announced later Stop The new prices are
approximately on the same level as those in effect prior to 1928 Stop The price
reductions are made to meet competitive conditions and with the hope that such
reductions will stimulate a demand for steel products Stop MUl prices of these
products are identical at the mills in both Pittsburgh and Chicago a revision
which has been made because of increased production facilities and greater
diversification of products in the Chicago district Unquote Stop Quote
Tennessee Coal Iron and Railroad Company announces reduced prices effective
immediately delivered F. O. B. cars Birmingham in carload lots as follows
ReroUing billets blooms and slabs $34. 50 per gross ton
Forging blooms billets and slabs 40. 50 per gross ton
Hot rolled carbon steel bars and small shapes 2. 275 per 100 lbs.
Hot rolled strip^ 2. 175 per 100 lbs.
Hot rolled carbon steel structural shapes 2. 125 per 100 lbs.
Hot rolled carbon steel plates 2. 125 per 100 lbs.
Hot rolled sheets 2. 175 per 100 lbs.
Hot rolled new billet steel concrete reinforcement bars
cut lengths.. 2. 075 per 100 lbs.
Prices on other products will be announced later Stop The new prices are
lower than those in effect prior to 1928 Stop The price reductions are made
to meet competitive conditions and with the hope that such reductions will
stimulate a demand for steel products Stop Prices of these products at the
Birmingham mills are now identical with mill prices of Carnegie Hlinois Steel
Corporation for like products at Pittsburgh and Chicago Unquote Regards
Stselitet
Pittsburgh
$34 50
34 50
40.50
Chicago
$34 60
34 60
40.60
2.275
2.825
2. 18
2.83
66.50
2.175
56.60
2.18
2. 125
2. 125
2.175
2.13
2. 13
2.18
2.075
2.08
3.225
2.425
3.23
2.43
10716
CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
10717
Exhibit No. 1391
[Submitted by U. S. Steel Corporation]
RATIO OF EARNINGS TO NET ASSETS
(EARNINGS BEFORE INTEREST - TOTAL ASSETS LESS CURRENT LIABILITIES)
U. S. STEEL (X)RPORATION AND SUBSIDIARIES
12
12
10
10
J
8
/
8
/
6
f
6
i
s
y
\
/
»-
\
X
>
(T
J
\-
z
4
\
i
1
/
4
z
o
\
\
/
o
^v
\
1920-1938
I
2
\
^i*
J
2
Ui
\
/
UI
CL
a
i
f
0
a.
\
/'
-2
-4
\
d
X
-2
-4
,-6
\
/
-*'o f-icsjfo^mvo r^ooo^O»-<c\4 oo<;*■tn^o^^ooo>c
'MCMCJcsjrgcNjc\iCNj<NjcgmroPoroforo?*5roron^r
wl d O^ CT>C^0^wlO0>CT*0^0^0^ O^ Oi O^ O^ 0> O^ 0> O^
Since 1920, the ratio of earnings of U. S. Steel Corporation to the com-
bined investment of stockholders and bondholders has averaged approxi-
mately 3.4%. For the past ten years the ratio has been slightly less
than 2%.
Ratio of earnings to net assets — U. S. Steel Corporation and subsidiaries
Earnings
(Before
Interest)
Net Assets
Ratio of
Earnings
(Before
Interest)
Net Assets
Ratio of
Year
(Assets less
Current Lia-
bilities)
Earnings
to Net
Assets
Year
(Assets less
Current Lia-
bilities)
Earnings
to Net
Assets
1920.—-.
$139,043,681
$2,273,801,768
6.12%
1930
110,061,667
2, 277, 566, 636
4.83%
1921
66,109,283
2,264,866,764
2.89
1931
18, 507, 766
2, 214, 480, 212
0.84
1922
68,030,446
2,241,899,632
3.03
1932
I 65, 862, 244
2, no 2?,5,191
13.12
1923
136,718,708
2,283.479,677
6.99
1933.
' 31. 336, S70
2,047,876,024
1 1.53
1924
112,377,701
2,291,236,648
4.90
1934
1 16, 616, 728
2,027,821,920
10.82
1926
117,711,771
2,328,726,168
5.05
1935
6,106,488
1, 752, 870. 694
0.36
1926
143,426,343
2,333,017,257
6.15
1936
65, 501, 787
1,760,418,809
3.16
1927
113,960,340
2,324,660,636
4.90
1937
100,085,446
1, 801, 398, 218
5.66
1928
139,910,784
2,329,614,233
6.01
1938
644,874
1,632,017,676
0.03
1929
212,636,930
2, 157, 164, 530
9.85
1 Indicates loss.
Earnings are before interest but after all otber charges, including all taxes.
10718
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 1392
[Submitted^by XT. B. Steel Corporation]
AVERAGE YEARLY BASE PRICES OF PRINCIPAL STEEL PRODUCTS
REPORTED BY IRON AGE 1924 = 100
'y
V . _/:^ ;; n,. ..ucU ../i r n._ J____
-^2^1 - on
RAI
t r 90 ". SHAPES
-/:--— 80
/ ^ T^>
/ 80
„- 50
^^50 ^^ _
__~ 50
S S S S S^
at O^ Oi o^ O^
fSfOcnS cMCMCMcom
0> 0\ ^ Oi O^OtOO^Ci
mfoP^§ ScMc3°fr
§ a S i
ot o\ o\ a>
Ij:^:;: ;:::::::
,/^^'^ 90 ^V
r k
STANDARD
PIPE
- . -H-
BiR&j ' '" ■""■ , wire'
n 00 Vm"^
"m-^'-Z
•^
'--" I \
il-Z
: I
_50 -.J
: :: i
,-50
iiiii
Sggf |~g§s
i 1 1 2
w::"".
j"i'j-90
- -- 90 ■^»,- "T T
jk V. coiiRou
£D TIN Purr s
NL -- Qrt
S^ETS
D-^-^-80 -- = -^P-
"vM
/:„:;:: ;::i;n
__J^\_ca
_. II
>
it ._ 50
.^^ 50
IIIII
1934
1936
1938
1940
1924
1926
1928
1930
1932
9i Ot Of OTk
Considerable flexibility exists in steel prices. Not only do steel prices
fluctuate widely .but, also, prices of different steel products fluctuate in
varying degree and direction.
As compared with 1924, prices of steel today ore generally lower, whereas
wage rates are roughly 30% higher.
CONCENTRATION OF ECONOMIC POWER
(Reported by Iron Age]
10719
Ralls
Structural Shapes
Plates
Standard Pipe
Bars
Year
Dollars
per
Gross
Ton
1924 =
100
Cents
per
Pound
1924=
100
Cents
per
Pound
1924 =
100
Dollars
per
Net
Ton
1924=
100
Cents
per
Pound
1924-
JOO
1924
1925
1926
1927
1928
1929
1930
1931
1932.....
1933
1934
1935
1936
1937
1938
1939»....
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
42.44
39.26
36.37
36.37
36.59
41.86
41.77
40.00
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.7
91.3
84.6
84.6
85.1
97.3
97.1
93.0
2.19
1.99
1.95
1.83
1.87
1.92
1.69
1.62
1.57
1.68
1.78
1.80
1.85
2.21
2.17
2.10
100.0
90.9
89.0
83.6
85.4
87.7
77.2
74.0
71.7
76.7
81.3
82.2
84.5
100.9
99.1
96.9
2.12
1.91
1.88
1.82
1.87
1.93
1.69
1.62
1.57
1.61
•1.78
1.80
1.85
2.21
2.17
2.10
100.0
90.1
88.7
85.8
88.2
91.0
79.7
76.4
74.1
75.9
84.0
84.9
87.3
104.2
102.4
99.1
70.30
70.30
70.30
69.57
69.84
70.30
67.45
65.29
64.89
61.63
66.32
68.40
62.01
69.17
67.00
63.00
100.0
100.0
100.0
99.0
99.3
100.0
95.0
92.9
9Z3
87.7
94.3
97.3
88.2
98.4
95.3
89.6
2.20
2.02
2.00
1.84
1.87
1.92
1.71
1.63
1.57
1.64
1.81
1.81
1.93
2.40
2.35
2.21
100.0
91.8
90.9
83.6
85.0
87.3
77.7
74.1
71.4
74.6
82.3
82.3
87.7
109.1
106.8
100.5
Wire Nails
Hot Rolled Sheets
Cold Rolled Strip
Tin Plate
Year
Dollars
per Keg
1924 =
100
Cents per
Pound
1924 =
100
Cents per
Pound
1924=
100
Dollars
per Base
Box
1924=
100
1924
2.89
2.72
2.65
2.64
2.58
2.57
2.10
1.88
1.95
1.99
2.52
2.53
2.13
2.67
2.60
2.44
100.0
94.1
91.7
87.9
89.3
88.9
72.7
65.1
67.5
68.9
87.2
87.5
73.7
92.4
90.0
84-4
2.79
2.45
2.37
2.20
2.04
2.12
1.99
1.86
1.71
1.62
1.85
1.85
1.92
2.35
2.25
2.08
100.0
87.8
84.9
78.9
73.1
76.0
71.3
66.7
61.3
58.1
66.3
66.3
68.8
84.2
80.6
74.6
5.00
4.39
4.30
4,17
4.03
4.06
3.64
3.13
2.80
2.48
2.96
2.95
3.02
3.49
3.31
2.88
100.0
87.8
86.0
83.4
80.6
81.2
72.8
62.6
56.0
49.6
59.2
59.0
60.4
69.8
66.2
57.6
5.50
5.50
5.50
5.48
6.25
5.35
5.19
4.94
4.69
4.43
5.25
5.25
5.25
5.22
5.31
5. no
100 0
1925
100 0
1926
100 0
1927
99 6
1928
95 6
1929 ,.
1930
97.3
94.4
1931
89 8
1932
86 3
1933
80 6
1934
95.5
1935
95.5
1936....
95.6
1937
94 9
1938....
06.6
1939 »
90.9
1
J Data for 1939 are on basis of first 8 months.
10720 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 1398
[Submitted by U. S. Steel Corporation]
REPORTED COMPOSITE PRICE AND COMPOSITE MILL NET YIELD
1926 = 100
200
180
160
140
CO 120
q:
UJ
CO
s 100
60
40
COMPOSITE
(IRON AGf
1
PRICE
"^u
^
.-^
.a>^
k
'^"S
-K^t
^
=55*.
^
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\
'A
^
COMP
fllLL N
(TOU
SUBSIC
OSITE
T YIEL
s.s.c.
lASIES)
3
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
200
180
160
140
120 <f>
CO
100 s
=)
z
a
z
60
40
Base prices of steel, as indicated by the composite price reported by
Iron Age, have shown considerable flexibility since 1926.
There has been even more fluctuation in the mill net yield, i. e., the amount
received per ton by the U. S. Steel Corporation subsidiaries on the various
products after deduction of cost of delivery. The mill net yield index
declined from an average of 100 in 1926 to a low of 73.5 in 1933. The In-
creases In prices in 1 937 were the result of increased wages and other costs.
Factors tending to lower mill net yields with respect to reported base
prices are principally (a) reductions from base price, (b) excess of actual
cost of delivery over freight added to base price in computing the deliv-
ered price, (c) quantity discounts and (d) deductions for quality, size, etc.
Factors tending to raise mill net yield with respect to reported base prices
are principally (a) extras for special finish, quality, size, heat treatment,
etc., and (b) extras for small quantity.
CONCENTRATION OF ECONOMIC POWER
Reported composite price and composite mill net yield
[1926=100]
10721
1926
1929
1932
1935
1938
Com-
Mill
Com-
Mill
Com-
Mill
Com-
Mill
Com-
MIU
posite
Net
posite
Price
Net
posite
Net
posite
Net
posite
Net
Price
Yield
Yield
Price
Yield
Price
Yield
Price
Yield
Jan
100.3
99.8
94.7
94.2
81.2
78.6
88.8
92.1
108.5
105.4
Jan
Feb
100.0
100
0
94.7
94.2
81.1
79.1.
88.8
92.0
108.5
105.1
Feb
Mar
100.3
99
6
94.7
93.9
81.2
79.3
88.8
91.9
108.6
105.9
Mar
Apr
100.1
100
2
96.0
94.3
82.4
78.7
88.8
91.9
108.5
104.3
Apr
May
99.5
100
1
96.2
94.2
82.4
77.7
8i>.8
92.0
108.3
104.4
May
Jun
99.7
99
8
96.6
94.3
82.4
79.2
88.8
91.2
106.2
102.7
Jun
Jul
100.0
99
8
96.2
95.0
82.7
79.6
88.8
90.5
99.4
97.9
Jul
Aug
100.0
99
5
95.6
95.4
82.7
79.8
88.8
90.8
99.4
96.2
Aug
Sep
100.0
99
9
95.4
94.5
82.7
79.0
88.8
90.0
99.0
95.9
Sep
Oct
100.0
99
6
94.9
94.3
82.5
78.8
89.1
89.6
97.4
93.7
Oct
Nov
100.0
99
9
94.7
94.3
82.0
78.2
89.1
88.8
98.7
91.6
Nov
Dec
100.0
99
8
95.2
94.0
82.0
77.9
89.1
89.6
98.7
92.2
Dec
1927
1930
1933
1936
193?
Jan
98.6
98.7
93.4
92.4
81.4
77.0
89.1
89.0
98.7
93.2
Jan
Feb
95.9
98.0
92.8
91.6
80.9
76.0
88.1
89.1
98.7
94.1
Feb
Mar
96.6
97.0
92.7
91.2
80.6
76.6
87.3
87.6
98.7
95.8
Mar
Apr
96.2
96.6
90.6
89.9
78.5
75.0
87.6
86.4
98.7
95.1
Apr
May
May.--.
95.7
95.9
88.8
88.9
77.8
74.6
87.6
87.1
97.5
94.8
Jun
95.5
96.4
88.2
88.0
78.6
74.6
87.8
88.2
96.6
92.1
Jun
Jul
95.4
96.3
87.2
86.6
81.1
73.6
90.3
87.3
96.6
91.4
Jul
Aug
95.4
95.0
93.0
92.1
92.1
96.3
96.9
94.9
95.2
93.6
86.3
85.9
85.6
85.4
84.8
86.0
85.0
83.7
83.3
82.0
81.3
81.6
84.2
83.6
84.0
76.0
77.2
79.4
82.6
83.6
90.3
90.6
91.4
91.4
95.0
88.1
88.8
89.6
90.0
90.6
Aug
Sep
Oct
Sep
Oct
Nov
Nov
Dec
Dec
1928
1931
1934
1937
Jan
92.3
93.7
94.1
94.0
93.0
03.0
92.6
93.3
93.3
93.7
94.2
94.5
93.4
93.4
93.3
93.4
94.3
93.8
92.9
92.4
92.7
92.9
93.9
93.7
86.4
85.6
85.6
85.3
85.3
84.8
84.4
84.0
84.0
84.0
83.8
82.5
82.2
83.2
82.3
81.8
81.4
80.4
79.9
79.8
81.9
80.0
81.3
80.2
84.0
84.0
84.0
87.1
88.1
87.4
87.1
88.6
87.4
91.8
92.9
91.9
93.3
92.6
89.9
97.1
97.1
106.2
108.5
108.5
108.6
108.5
108.5
108.5
108.5
108.5
108.5
91.4
92.3
93.3
95.8
98.0
99.8
101.6
101.9
103.4
105.7
104.8
105.3
Jan
Feb
Feb
Mar
Mar
Apr
85
91
91
88
88
88
88
88
88
9
5
5
8
8
8
8
8
8
Apr
May
May
Jun
Jun
Jul
Jul
Aug
Aug
Sep
Sep
Oct
Oct
Nov.....
Nov
Deo
Dec
1
The reported composite price index is based upon the Iron Age composite price, which is an arithmetic
average of the reported base prices of eight representative finished steel prodiicts.
The composite mill net yield index represents the amount, relative to that for 1926, received per ton by
n. S. Steel Corporation subsidiaries (after freight) from sales of a representative constant assortment of
all principal products.
124491 — 40— pt. 19 18
10722 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 1394
Tennessee Coal, Iron and Railroad Company
united states [seal] corporation sttbsidiart
General Offices: Birmingham, Ala^
Ceeiqhton M. Konkle, Auditor
(Stamped:) Office of Chairman, finance committee, Sept. 26, 1938, 9:30.
September 23, 1938.
Re Effect of June Price Decline — July vs. March.
Mr. E. M. VooRHEEs,
Chairman, Finance Committee,
United States Steel Corporation,
71 Broadway, New York, N. Y.
Dear Sir: Replying to your letter of August 10th, asking that Mr. McEwen
prepare an analysis overall to show the eflFect of the price decUne and the eUmina-
tion of differential:
I attach hereto a statement prepared by Mr. McEwen covering the major
products and comparing the figures for July with March. This statement shows
that on the products exhibited our average reduction for July was 5^ per ton under
the decrease reflected by the published reductions.
Yours truly,
(Signed) C. M. Konkle,
Auditor.
CMK:F:C.
Original — Air Mail.
Copy — Regular Mail.
CONCENTRATION OF ECONOMIC POWER
10723
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10724 CONCENTRATION OP ECONOMIC POWER
Exhibit No. 1395
[Prepared by the Department of Jastice for the Temporary National Economic Committee]
Pricing of Steel Products
Uniform Extras and Deductions
Prices of steel products are delivered prices made up of three elements: base
price, extras and freight. 'Extras' are those charges made by the steel producer
for variations from a given norm in the physical specifications, chemical analysis,
processing or quantity of any steel product. In many instances, most commonly
with respect to quantity purchases, corresponding deductions are allowed.
Printed schedules of the§e extras and deductions are issued by the major producers
in loose-leaf book form. Extras and deductions, though changed from time to
time, ordinarily fluctuate even less than the base prices of steel commodities.
Whether the change in extras accompanies or is made independently of a change
in base prices, it is obvious that the net invoice price is necessarily aflFected. A
reduction in base price accompanied by an advance in extras may produce a net
increase in the invoice price. The importance of extras and deductions as a fac-
tor in the total price is therefore substantial.
RATIO OF extras TO TOTAL PRICE
According to an analysis made by the Department of Justice for the Temporary
National Economic Committee, the extras in a group of ten selected products
shipped in the month of February, 1939 amounted to 9%o% of the total invoice
delivered value of these products. This average covers a wide range, from .7%
in the case of cold rolled sheets to 29.7% in the case of cold rolled strip. The
figures as to each product and the aggregate for the group appear in the following
table:
Product
Total invoice
delivered
value
Tons
Extras
per ton
Extras as
percentage
of deliv-
ered value
Extras as
percentage
of calcu-
lated base
price
Sheet and Tin Plate bars.
Wire Rods
Plates -
Heavy Structural Shapes
Sheets and H. R. & H. R. Ann
Strip, H. R
Sheets, O. R
Strip, C. R
Tin Plate (95#box) t
Plain Wire, Drawn
All Products
$248,875
1,220,140
4, 749, 948
3, 802, 049
9, 866, 083
3,298,084
6,176,127
1,660,086
2,975,082
995, 309
8,
27,
96,
79,
190,
67,
82,
17,
29,
17,
$0.05
2.56
4.02
1.89
9.70
6.04
0.45
27.79
-4.02
3.96
(')
5.7%
8.2
4.0
18.8
12.4
0.7
29.7
-3.02
0)
6.4%
9.6
4.6
24.5
16.2
.08
45.0
-4.0
7.8
$33,991,783
617, 353
$5,43
9.9%
11.6%
« Extras on tin plate are quoted per base box rather than per unit of weight. Base boxes lighter than
100 lbs., take deductions, or "negative" extras, and boxes heavier than 100 lbs., take "positive "extras.
IDENTITY OF EXTRAS
In the course of its investigations for the Temporary National Economic
Committee the Department of Justice has examined the extra books of 25 steel
companies applicable to 16 steel products. Obviously all of the products are not
manufactured by each of the companies; some concerns produce but one of them.
The fcompanies whose extra books were studied included 7 of the 10 largest pro-
ducers.' The products included plates, shapes, wire, tin plate, black plate for
tinning, merchant bars, concrete reinforcing bars, hot rolled sheets, cold rolled
sheets, hot rolled strip, cold roiled strip, galvanized sheets, sheet piling, rails, skelp,
wire rods.
> The oompanies were: Acme Steel Company, Apollo Steel Company, American Steel & Wire Company,
American Rolling Mill Company, Bethlehem Steel Company, Atlantic Steel Company, Continental Steel
Oorporatlon, Camegie-Illlnois Corporation, Columbia Steel Company, Firth-Sterling Steel Company.
Offtnlte City Steel Company, Greer Steel Company, The Eastern Rolling Mill Company, Inland Steel
OoBjiftny, Keystone Steel & Wire Company, Jones & Laughlin Steel Corporation, Otis Steel Company,
^&rteld Steel Corporation, Superior Steel Corporation, Sharon Steel Corporation, Wick wire Spencer Steel
Cja^Any, The Stanley Works, Sweet's Steel Company, Tennessee Coal, Iron and Railway Company,
wbeMing Steel Corporation, Youngstown Sheet & Tube Company.
CONCENTRATION OF ECONOMIC POWER 10725
With respect to each of the products examined the extras and deductions
iinnounced by every manufacturer of the product were found to be identical.
Without exception the extras and deductions applicable to these products are
uniform as between all producers of each. The only quaUfication to be made
relates to specifications of a given product not rolled by a particular producer.
In some cases lags in publication of changes in extras resulted in diflferences for
limited periods. Otherwise it can accurately be said that throughout the steel
industry extras and deductions are uniform for all producers.
BXTBA CHANGES SINCE N. R. A.
Although there have been minor revisions in extras from time to time since
the end of the code period, by far the most significant change took place in May
of 1938 when size limits of light flat rolled products were completely redefined
and simplified and revised extras were published. An indication of the over-
lapping of product classifications that existed prior to this date can be seen on
Chart 1. This chart covers the overlapping of major products only. In fact,
the range of sizes described by this chart encompasses some eight or nine flat
rolled uncoated products which were priced by using ten dififerent base prices
and seven different extra lists.
The conditions leading to this reorganization are described in a circular letter
issued by the Carnegie-IUinois Steel Corporation to all sales managers on May
26, 1938:
"In the range of sizes described above (%" to 86" wide and gages 8 to 30
inclusive) there were eight different products being named, specifically: Cold
RoUed Strip, Cold Rolled Commodity Strip, Cold Rolled Sheets, Cold Rolled
Tin Mill Black, Hot Rolled' Strip, Hot RoUed Sheets,. and Hot Rolled Tin Mill
Black Plate. These products were priced by using ten different base prices and
seven different Extra Lists.
"The result of this condition was a state of confusion, and before our current
announcement was made a buyer could purchase as many as five different Cold
Rolled JProducts by name at five different prices, which products were identical
in most cases in so far as their physical characteristics were concerned."
Chart 2 indicates the size limits of Hot Rolled Flat Steel products after the
change had been made. As is indicated on this chart much of the overlapping
has been eliminated by the change.
The cumulative effect of the above changes together with the price reductions
of June, 1938, on the prices of hot and cold rolled sheets is shown on Table I.
Analysis of this table reveals the extent to which extra changes may affect prices.
In the case of both products the net effect of the extra changes as to many sizes
and gages was to diminish substantially the published base-price reduction of
twenty-five cents per hundredweight. In other sizes and gages the reduction
was augmented by the change in extras. In a few instances the net price after
the reduction was actually increased by the new extras. In general, had the new-
extras been applied without a reduction in base prices the net effect would have
been to substantially increase the price of the products effected.
That this result was contemplated at the time of the change in extras appears
from the Carnegie-Illinois circular letter of May 26, 1938:
"We applied our new Lists of Extras and Deductions to our last year's business
(1937) and found that by using a constant base price there was an increase in the
net of approximately $1.20 per ton for Cold Rolled products and $1.04 per ton
for Hot Rolled Products; therefore, in order that we would not have to announce
an increase in our average prices we made a reduction of $2.00 per ton in the
base price for the Third Quarter.'"
Thus, although the average effect was to decrease prices slightly, certain custo-
mers were faced with slight increases in price. Quoting from this letter again:
"The buyer of Flat Rolled Products in the widths 24" to 48" will receive an
increase in most gages, and, therefore, you will undoubtedly receive some_ com-
plaints from this trade, but you can assure any buyer that the adjustment in the
average price for all sizes is slightly downward."
UNIFORMITY OF THE MAY, 1938 CHANGE
The extras included above as well as the extras and deductions on other items
are at all times, as has already been pointed out, strikingly uniform among the
various companies which publish extra books. A review of the announcements
of new extras at the time of the general changes in May, 1938 reveals the same
uniformity. .
10726 CONCENTRATION OF ECONOMIC POWER
Extras on Hot Rolled Sheets, the sample selected, were identical for all items
reported. The actual date of release varied from Maj^ 18 to June 13, as follows:
Bate of Release
Carnegie-Illinois Steel Corporation May 18, 1938
Tennessee Coal, Iron & Railroad Co May 18, 1938
Columbia Steel Corporation May 18, 1938
Continental Steel Corporation May 18, 1938
Granite City Steel Corporation May 18, 1938
Jones & Laughlin Steel Corporation May 18, 1938
Otis Steel Company May 20, 1938
Bethlehem Steel Company May 23, 1938
American Rolling Mill Company May 23, 1938
Inland Steel Company June 13,1938
Apollo Steel Company June 13,1938
OVERLAPPING PRODUCT GROUPS AT PRESENT TIME
Although most of the product overlapping was eliminated in the changes of
May 18, 1938, skelp * dimensions continue to overlap those of strip, sheets, bars,
and plates. This is indidated on Chart 2. Skelp prices are in all cases lower,
and in some dimensions as much as $1.75 per hundred pounds lower than those
of these similar products. Skelp prices, however, are not available to all buyers
who are users of flat rolled steel falling within the skelp dimension limits. Rather,
only manufacturers of pipe, tubes or couplings may purchase this product at
skelp prices.* Thus, a pipe manufacturer could purchase flat rolled steel 5/16
inches thick, 7 inches wide and 16 feet long for $1.90 or base, whereas any other
buyer of this particular product would have to purchase "plate" wh; b would
be priced $2.10 base, plus $1.55 width extra, or $3.65 per 100 pounds.*
QUANTITY EXIi^AS AND DEDUCTIONS
Prior to May of 1939 most flat rolled products including hot rolled, cold rolled,
and galvanized sheets, hot rolled strip, cold roUed strip and bars .^carried quantity
deductions ranging from 5 to 15 cents per 100 pounds on orders over 25 net tons.
In May 1939 all of these quantity deductions were eliminated on each of the above
mentioned products except merchant bars, where the quantity deductions are
still applicable.
On the following products there are neither extras nor deductions for quantity
listed:
Plates up to July 1, 1938 »
Skelp
Heavy Shapes up to July 1, 1938 *
Base quantities on various steel products now vary as shown below:
Wire Rods 5 gross tons or over
Hot Rolled Sheets 7,000 lbs. or. over
Cold Rolled Sheets 7,000 lbs. or over
Galvanized Sheets 7,000 lbs. or over
Hot Roiled Strip 7,000 lbs. or over
Cold Rolled Strip 7,000 lbs. or over
Plates 6,000 lbs. and over
Heavy Shapes 6,000 lbs. and over
Merchant Bars 6,000 lbs. to 25 net tons (then discount)
Black Plate for Tinning 5,000 lbs. and over
Tin Plate heavier than 195# 5,000 lbs. and over
Tin plate 195# and lighter 100 base boxes and over
Wire 1,000 to 39,999 lbs. in carloads.
> Tbe semiQnished material used in the making of pipe.
' Prices here indicated are Pittsburgh base, plus size extra only.
♦ Skelp extra books carry a notation to this effect.
• On July 1, 1938, quantity schedules were first publ 5hed for plates and shapes listing extras for quantities
under 6,000 pounds.
CONCENTRATION OF ECONOMIC POWER 10727
EXTRA CHANGES BY PHODTJCT
The actual changes in extras in the following products are examined in greater
detail under the product headings:
1. Hot Rolled Sheets
2. Cold RoUed Sheets
3. Galvanized Sheets
4. Hot Rolled Strip
5. Cold Rolled Strip
6. Black Plate for Tinning
7. Tin Plate
8. Plates
HOT BOLLED SHEETS
Prior to May 1938 there were two categories of Hot Rolled Sheets (hot rolled
sheets — 16 gage and thicker; and hot rolled annealed sheets — 17 gage and lighter)
each taking separate base prices. On May 18, the two categories were combined
each taking the same base (hot rolled sheet base). At this time the extras were
completely revised and significantly increased on those sizes which were formerly
covered in the hot rolled annealed category. Because there was also a revision
in bases and in base prices at this time the true effect of these changes can only be
ascertained by combining base prices and size extras. The results of this analysis
have been summarized above.
,-v5;^^6LD BOLLED SHEETS
The changes in extras on Cold Rolled Sheets since the code have closely par-
alleled those of Hot Rolled Sheets. Cold Rolled Sheets like Hot Rolled, were sold
on two bases (li^ht and heavy) prior to the May 1938 change. At this date they
too were combined into one classifica:tion and the extras were completely revised.
Here, as was the case with hot rolled sheets, the various sizes were affected diff-
erently. Heavy gage sheets up to' 48" wide were made $1,00 a ton higher in
price whereas some of the lighter gages were decreased as much as $10.00 per ton.
Inasmuch as the published base price drop on Cold Rolled Sheets in the latter
part of June 1938 was 25 cents per hundred pounds, the effect of both extra and
base price changes together was on the average downward. In most cases, how-
ever, the price decrease was minimized by the change in extras.
GALVANIZED SHEETS
The only change of significance in this commodity was in the ord^r quantity
I extras in which extras on orders of less than carload lots were increased 10 cents
per 100 pounds in August of 1937 and increased again in June of 1938.
HOT ROLLED STBIP
The extra changes on Hot Rolled Strip are shown in the tables which follow.
The extra changes on this product have not been of great consequence with the
exception of the elimination of quantity discounts which took place in May of
1939. The revision of size extras which so greatly changed sheet prices did not
greatly effect strip. Prior to May 1938, flat rolled products in certain gages up to
24" wide were classed as strip. After this date any material wide than 12 inches
and under 1/4 of an inch thick was classified as sheet.
COLD BOLLED STRIP
The quantity extras and deductions on Cold Rolled Strip and the changes
therein were the same as on Hot Rolled Strip. There were no other changes in
Cold Rolled Strip of any consequence.
BLACK PLATE FOR TINNING
Black plate for tinning extras have not changed to any appreciable extent over
the period covered, but the limits of this category have been rather drastically
reduced. As was shown on Table 1, much of the overlapping of product categories
prior to May 1938 affected this product.
10728
CONCENTRATION OP ECONOMIC POWER
TIN PLATE
Extras on Tin Plate are quoted per base box instead of by weight as in the case
of the other flat rolled steel products. The weights of these base boxes vary
from 55 pounds to 195 pounds and over. The base classification, however, as
has been pointed out, is the 100-pound base box of coke tin plate. Charcoal
plate in all cases take extras. The deductions quoted for base boxes lighter than
100 pounds do not necessarily represent less expensive specifications. In fact,
the price for cokes sold in boxes lighter than one hundred pounds is actually
higher per pound than for the heavier base boxes. The deductions for cokes
lighter than 100 pounds have been increased as much as 50 cents during the period
since NRA. Charcoal extras, on the other hand, have been increased on all
grades and sizes during the period covered. The actual changes which have
taken place, as in the case of other products, vary among the different sizes and
PLATES
Extra changes on plates since the code have been neither frequent nor great.
Thickness extras for heavy plates were increased from base to 10 cents and 15
cents in February and quantity extras for orders under 6000 pounds were also
published for the first time at this date. At this same date extras on the U. S.
Navy high tensile welding quality specification were increased 50 cents per 100
pounds. There were no decreases in plate extras during this period.
Table I. — Net Effect of Changes in Size Extras, May 19S8, After Reductions in
Base Price, June 19SS
HOT ROLLED SHEETS
Range of Net Change
in Total Price
Number of specifications where actual Increase In extras diminished amount of
base price reduction 1 '. 82
Number of specifications where actual increase in extras resulted in net increase
in price despite base price reduction ' 21
Number of specifications where actual decrease in extra increased amount of
base price reduction ' 61
Number of specifications where change in, extra left base price reduction'
unaffected 204
COLD ROLLED SHEETS
Number of specifications where actual increase in extra diminish Tamount of
base price reduction ' 140
Number of specifications where actual increase in extra resulted in net increase
in price despite base price reduction ' 21
Number of specifications where actual decrease in extra increased amount of
base price reduction L. _ 57
Number of specifications where change in. extra left base price reduction i
unaflected -. 26
Base price reduction at Pittsburgh was $0.25.
CONCENTRATION OF ECONOMIC POWER 10729
Exhibit No. 1396
Carnegie-Illinois Steel Corporation
UNITED STATES STEEL CORPORATION SUBSIDIARY
General Sales Department, Pittsburgh, Pa.
CIBCX7LAB LXTTSB
Mat 26, 1938.
Letter lOa-K-38
Prices — Flat Rolled Steel Products.
To All Managers of Sales:
The numerous requests which we have received from you and from our cus-
tomers concerning our new method of pricing Flat Rolled Products suggest the
advisabihty of covering this subject in detail.
Before making our announcement last week we made a study of the relationship
of these products based upon our production experience during 1937. This study
covered the prices of uncoated flat rolled products in that range of sizes from %"
wide to 86" wide and in gages from 8 to 30 inclusive.
The Steel Industry produced 9,606,491 tons of steel in this range of sizes last
year.
In the range of sizes described above there were eight different products being
named, specifically: Cold Rolled Strip, Cold Rolled Commodity Strip, Cold
RoUed Sheets, Cold RoUed Tin Mill Black Plate, Hot Rolled Strip, Hot Rolled
Sheets, Hot Rolled Annealed Sheets, and Hot Rolled Tin Mill Black Plate. These
Eroducts were priced by using ten different base prices and seven different Extra
ists.
The result of this condition was a state of confusion, and before our current
announcement was made a buyer could purchase as many as five different Cold
Rolled Products by name at five different prices, which products were identical
in most cases insofar as their physical characteristics were concerned.
Therefore, as the basis for our study, we prepared a chart which we are sending
to you with the request that you and your salesmen study it carefully so as to be
prepared to answer questions raised by your trade.
This chart must not be distributed to the trade, but should be returned to us
here in Pittsburgh within thirty days.
Now, if vou wiU refer to the chart, we will attempt to explain it.
On Page"^ 1 we have listed four different Cold Rolled Products in gages from 8
to 30 and in sizes from 2" to 86". The abbreviation in the second column from
the left — "comm" — means Commodity Cold Rolled Strip. The prices inserted
in each block are not extras taken from our Lists but are figures which represent
the difference between the second quarter base price of $3.35 for Cold Rolled
Sheets Mill Run in 20 gage and the second quarter net price for each respective
product.
In other words, Page 1 reflects the old pricing method, whereas, if you will turn
to Page 2, you will see immediately what we have done in the interest of simplifi-
cation; that is, instead of having several different prices apply to the same product
in a given size we now have only one price.
The figures on Page 3 represent the difference between the old net prices and
the new net prices for a specific size when the second quarter base price is used;
in other words, if a buyer should ask you what the difference is between the second
quarter price and the third quarter price for a certain size of a Cold Rolled product,
you can immediately refer to Page 3 and give him the figure outlined there, but,
of course, you must make an adjustment downward of $2.00 per ton in that figure
in order to take care of the reduction in the base price which was just announced.
Page 4 covers Hot Rolled Sheets, Hot RoUed Annealed Sheets, Hot Rolled
Strip, and Tin Mill Black Plate. The figures in each block represent the difference
between $2.40 base and the second quarter net price for each specific product.
Again, you wUl note discrepancies between products and the condition of "over-
lapping".
Page 5 reflects the new method of pricing and you will note that we now have
just one price for any one product in any one size.
< The figures on Page 6 are the difference in the net prices of each product, and
if a buyer should ask what change has been made you simply have to refer to this
10729
10730 CONCENTRATION OF ECONOMIC POWER
page and to the size involved and give him the figure, except that the figure
must again be reduced by $2.00 per ton in order to take care of the adjustment
downward in the base price.
On all pages of this chart where no plus sign precedes the figure it indicates an
extra, a straight line means no change, and a minus sign before certain figures,
of course, represents a reduction.
In addition, in the interest of simplification, we have made a realignment of
these products insofar as the sizes covered by each one is concerned. This
subject will be clearly covered in our new "Manufacturers' Standard Practice"
when issued.
We applied our new Lists of Extras and Deductions to our last year's bus iness
and found that by using a constant base price there was an increase in the net
of approximately $1.20 per ton for Cold Rolled Products and $1.04 per ton for
Hot Rolled Products; therefore, in order that we would not have to announce
an increase in our average prices, we made a reduction of $2.00 per ton in the
base price for the Third Quarter.
With a reduction in the base price of $2.00 per ton for Cold Rolled Sheets, this,
of course, means that our third quarter prices for this product, 20 gage, 24" to
48" wide, represent a net increase of $100 per ton; and we will undoubtedly
receive numerous complaints concerning this adjustment from our trade, al-
though the average price, when the narrow and wide Widths are taken into con-
sideration, is an adjustaient downward.
On Page 1 of your chart you will note in 20 gage, 24" to 48" wide, that we have
the word "Base" inserted, because that ■was a base size, and opposite the word
"Adjusted" you will note a figure of 16^, which is the increase of $3.00 per ton in
this range.
Our customers have been directing our attention to the high extras applicable
to Cold Rolled and Hot Rolled Sheets in widths wider than 48".
Our production experience during 1937 indicated that these extras could be
reduced somewhat, and, therefore, you will note by referring to your chart that
substantial reductions have been effected.
The buyer of Flat Rolled Products in "the wiaths 24" to 48" will receive an
inf Tease in most gages, and, therefore, you will undoubtedly receive some com-
plaints from this trade, but you can assure any buyer that the adjustment in the
average price for all sizes is slightly downward.
We know that we are going to have a state of confusion from now until our
second quarter shipments are completed, which confusion is brought about by
the fact that we wiU be selling from two sets of base prices and two sets of Extra
Lists during this period, but this confusion should disappear with the completion
of our second quarter shipments.
Very truly yours,
Avery C. Adams,
Manager of Sales — Sheet Division.
A. C. A.
Approved:
Thomas J. Hilliard,
General Manager of Sales
CONCENTRATION OF ClCONOMlC POWER
10731
Exhibit No. 1397
[Submitted by U. S. Steel Corporation]
REPORTED BASE PRICE AND MILL NET YIELD
COLD ROLLED SHEETS
o
•^
>^
==s
my
SU.S.S.
JBSIOUtR
Pi
\
ll
— V
Mia
a
SI
ELO
r
\
REF
BAS
(IR(
■ORTED
EPRIC
)NAOD
:^V
1/
U^
V
\
1926 1927 1928 1929 1930 1931 193? 1933 1934 1935 1936 1937 1938 1939 1940
Base prices of cold-rolled sheets, as reported by Iron Age, have declined considerably
since 1926 as well as having shown considerable fluctuation durlnq the period.
The monthly mill net yield, i. e., the amount per pound received by the U. S. Steel
Corporation subsidiary after deduction of cost of delivery, has shown even more
fluctuation than the published base price. The mill net yield curve prior to 1934 appears
to fluctuate less than the reported base price because it is based on annual averages,
monthly data not being available.
Over the period the mill net yield has declined from an average of 4.6 1 # per pound in
1926 to a 1938 low of 2.67{( per pound, a decrease of 42%.
Factors tending to lower mill net yield with respect to reported base price are princi-
pally (a) reductions from base price, (b) excess of actual cost cf delivery over freight
added to base price in computing the deliverda price, (c) quantity discounts and (d)
deductions for quality, size, etc. Factors tending to raise mill net yield with respect to
reported base price are principally (a) extras for special finish, quality, size, heat treat-
ment, etc., and (b) extras for small quantity.
(Data, on which this chart is based, appear on next page.)
10732 CONCENTRATION OF ECONOMIC POWER
Reported Base Price and Mill Net Yield — Cold Rolled Sheets
[Cents per pound]
1926
1929
1932
1936
1938
Base
Price
Mill
Net
Yield
Base
Price
Mill
Net
Yield
Base
Price
MUl
Net
Yield
Base
Price
Mill
Net
Yield
Base
Price
Mill
Net
Yield
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep......
Oct-
Nov
Dec
4.45
4.38
4.35
4.28
4.24
4.15
4.15
4.15
4.25
4.25
4.25
4.26
"il.'ei'
4.10
4.10
4.10
4.10
4.10
4.10
4.10
4.08
4.00
4.00
4.00
3.98
'Vi"23'
2.90
2.80
2.86
2.90
2.89
2.85
2.85
2.81
2.76
2.65
2.63
2.66
"i'z'br'
2.95
2.95
2.95
2.95
2.95
2.95
2.95
2.95
2.95
2.95
2.95
2.95
3.26
3.10
3.18
3.17
3.19
3.36
3.24
3.27
3.27
3.27
3.10
3.06
3.65
3.50
3.45
3.45
3.50
3.35
3.35
3.35
3.35
3.23
3.35
3.35
3,64
3.36
3.35
3.24
3.38
3.32
3.12
3.08
2.97
2.78
2.67
2.69
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1927
1930
1933
1936
Jan
4.18
4.15
4.15
4.15
4.16
4.25
4.26
4.26
4.26
4.16
4.12
4.00
"iTii"
3.90
3.90
3.88
3.80
3.75
3.65
3.60
3.60
3.60
3.46
3.38
3.30
"I's.'es'
2.35
2.25
2.30
2.30
2.34
2.29
2.40
2.47
2.76
2.76
2.76
2.76
"lihe
2.96
2.95
2.95
2.95
2.95
2.95
3.06
3.06
3.06
3.05
3.06
3.26
3.00
2.93
2.85
2.85
3.06
3.03
3.07
3.16
3.16
3.13
3.17
3.08
Jan
Feb
Feb
Mar
Mar
Apr
Apr
May
May
Jun
Jun
Jul
Jul
Aug
Aug
Sep
Sep
Oct
Oct
Nov.L...
Nov
Dec
Dec
1928
1931
1934
1937
Jan
4.00
4.08
4.15
4.04
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.08
"Vi.'og"
3.30
3.90
3.24
3.10
3.03
3.02
3.10
3.10
3.10
3.10
3.10
3.02
"«'3.'i2'
2:76
2.76
2.76
2.85
3.16
3.15
2.99
2.95
2.95
2.95
2.96
2.05
2.88
3.17
3.06
3.08
3.23
3.16
3.27
3.25
3.28
3.38
3.34
3.25
3.25
3.49
3.55
3.65
3.55
3.65
3.55
3.65
3.65
3.55
3.00
3.12
3.27
3.35
3.48
3.57
3.63
3.54
3.52
3. 58
3.64
3.61
Jan
Feb
Feb
Mar
Mar
Apr
Apr
May
May
Jun
Jun
Jul
Jul
Aug
Aug
Sep
Sep
Oct
Oct
Nov
Nov
Dec
3.39 3.66 1
Dec
1
> Yearly average.
Base prices are as reported by Iron Age and are monthly averages of weekly figures. Iron Age data are for
20 gauge cold rolled sheets at Pittsburgh from September 1926 to April 1938; data prior and subsequent to
that period have been adjusted to that gauge.
Mill net yield is a weighted average of yields of plants of U. S. Steel Corporation subsidiaries, which repre-
sents net sales of cold rolled and automobile sheets to domestic market (after freight) divided by number of
tons shipped, converted to cents per pound. Data are for plants of American Sheet and Tin Plate Company
prior to 1937, and thereafter for Vandergrift and Gary plants of Carnegie- Illinois Steel Corporation.
"Exhibits Nos. 139&-1408" are included in Hearings, Part 20.
"Exhibits Nos. 1409-1417" are included in Hearings, Part 26.
"Exhibit No. 1418" ia included in Hearings, Part 27.
CONCENTRATION OF ECONOMIC POWER 10733
Exhibit No. 1419
All Kinds of Fabricated Structure prompt Miscellaneous
Steel— "Designs Submitted" seevick Iron Work
Irvington Steel «fe Iron Works
ENGINEERS, FABRICATORS AND ERECTORS
485-493 Lyons Avenue — Irvington, New Jersey
(Notation: W. B. Rfd. E. G. G.
Mat 10, 1938.
Mr. E. G. Grace,
Bethlehem Steel Co.,
25 Broadway, New York City.
Dear Sir: I have always been an admirer of yours, and still have the highest
regard for your initiative and good judgment.
I wonder if I, a small business man, engaged in the steel industry, may give
my viewpoint to you, hoping that by this measure, you as a leader in industry
can make the start to bring back recovery, and dispel this present recession.
Reports show that your company, working only 32% of capacity, for the first
quarter of this year, was able to make a profit of over Nine Hundred Thousand
Dollars. Now, if such is true, why can't the steel companies reduce the selling
price of steel.
The lower cost will increase, I am certain, production. This lower price will
be an incentive for the automobile manufacturer to buy; the building industry
to wake up from its lethargy, a number of other industries, too numerous to
mention here to wake up, and create jobs for millions of jobless, which in turn
creates added business for you, and stUl give you a profit because of the increased
production.
If less time were spent in Washington, and in the Courts, but more time at our
desks; the workers problems our problems, our problems the workers; and Mutual
Co-operation with Government, Bankers, Other businesses, and with Labor.
We can soon rid ourselves of the Dreaded Old Man of the Sea, who hangs so
tenaciously from our shoulders.
Can't we give it a try?
Respectfully yours,
(Signed) A. Katchbn,
Secretary to the Irvington Steel <& Iron Workt.
Exhibit No. 1420
Mat 15, 1938.
Mr. A. Katchbn,
Secretary, Irvington Steel & Iron Works,
485 Lyons Avenue, Irvington, New Jersey.
Dear Mr. Katchen: I have your letter of May 10th suggesting, in view of
our first-quarter showing, the possibility of aiding recovery through a price
reduction for steel products.
You are somewhat in error as to our figures, as the operation on which we
showed a profit was somewhat higher than the 32% you mention, and today's
operation, both with us and others, is below first-quarter operations.
To comment specifically on your suggestion, I think the opportunities for
stimulating business through price reduction should be looked at from the point
of view of the steel industry as a whole rather than the case of a single company.
As a matter of fact, during the first quarter Bethlehem was one of only two or
three companies in the entire industry that showed any earnings on preferred
stock. Inasmuch as our preferred stock is cumulative and we earned only a part
of it in the first quarter, even in our case, though our showing was satisfactory
under existing conditions, we failed to earn our full preferred dividend, which
we really look upon as a fixed charge. In the case of the industry as a whole it is
all the more true that the first-quarter operations were not such as to make a
price reduction feasible. Moreover, even if it were feasible, it is a serious question
whether that is the proper course to pursue, since with such narrow margins
10734 CONCENTRATION OF ECONOMIC POWER
in the industry today reductions in prices would inevitably entail readjustments
in wage rates, which starts the whole structure of buying power downward.
I appreciate the spirit in which you have written, but I personally do not feel
that the cure for our troubles lies in that direction.
Sincerely yours,
Exhibit No. 1421
Address by Ernkst T. Weir, Chairman of National Steel Corforation
AND President of the American Iron & Steel Institute, on "Profits
AND Patriotism," at the Annual Meeting op the American Institute
OF Steel Construction, Wali^orf Astoria Hotel, New York City,
Tuesday, October 1939, 8:00 P. M.
Mr. Chairman, Members and Guests of the American Institute of Steel Con-
struction:
First, I wish to express my sincere appreciation of the honor you have conferred
upon me in inviting me to be your speaker tonight. As a representative of the
steel industry, I feel perfectly at home among you. It would be difficult to find
any two branches of industry in which the relationship is closer, the interdepend-
ence is greater, or the mutuality of interest is more apparent than they are be-
tween your industry and mine. Our industries are important sources of supply
to each other and therefore important consumers of each other's products. Our
most important problems are parallel in nature. So I believe that in our discus-
sion tonight there will be thorough understanding. We speak the same language.'
It was in mid-summer that I received and accepted the invitation to speak at
this meeting. That is not so very long ago. But even in this age, when violent
change is the rule rather than the exception and when we are all somewhat accus-
tomed to lightning overturns in conditions, it would have taken a prophet to have
pictured 90 days ago the world and national environment in which our meeting is
being held tonight.
Three months ago we were still in a depression frame of mind. Subnormal
business, agricultural surpluses, relief, unemployment, taxation — these were
paramount subjects of interest and concern as they had been in each of the
previous months of this decade. Then, overnight as it were, came the change in
spirit, outlook and actual conditions that is remarkable even in a time which, as
I said, takes change for granted. Action of the stock market became strongly
reminiscent of pre-October, 1929. Buyers began bidding against each other for
commodities. In industry — notably the steel industry — worry about getting
orders was replaced with worry about filling orders. Workmen on part time or
layoff came back to full schedules. Increased retail trade quickly showed that
expended production was having its effect on consumption — that the upward
spiral was starting.
Now I would be the happiest of men if I could believe that this activity was
sound. Nothing would please me more than the ability to say at this moment
that I am convinced we have entered that genuine economic revival so long awaited
that the broken threads of progress have at last been tied together, that America
has resumed the continuous march to higher and better living standards that
characterized our country in most of the years since its birth. But I do not
believe and cannot say this. We may -as well face facts. It is true that the
course of business has been upward since 1938, but without sound fundamentals
mere increase in volume cannot be sound. And however pleasant it may be as a
respite from depression, the present greatly increased business activity does not
have its base on an economic foundation which can support sustained and genuine
prosperity. It is a war boom. Despite the fact that the great bulk of activity
to date has been exclusively domestic activity, it owes its existence to a single
circumstance — the existence of war in Europe.
The point does not need to be labored. The real jump in the business curve
coincided with the declaration of war. On the commodity and stock markets
the greatest activity was in the commodities and in the stocks of companies most
likely to be affected by the initial demands of war. The activity of non-war
business can be ascribed partly to increased consumer purchasing as the result
of increased employment, but mostly to the rush to protect inventories against
material shortages and higher prices. Wall Street gives a clue to the slenderness
of the reed which supports this boom every time it goes up on war news and goes
CONCENTRATION OF ECONOMIC POWER 10735
down on peace news. And if a real peace were declared tomorrow, do any of you
think we would not be right back where we were two months ago; that orders now
piling on top of one another would not be canceled; that inventories would not go
back to their previous subnormal levels?
At this ijaoment, I do not believe that any in this group or very many in the
general public are deceived as to the elements supporting the present increased
activity. And so long as its impermanent and unsubstantial nature is recog-
nized, the so-called recovery holds little avoidable danger. But if war contii '^es
and if under war's stimulation, business activity continues and grows greater,
there is serious danger. Memory can be very short. A year or so of good em-
ployment, good wages and good business in general could lull us into the belief
that war prosperity had solved depression problems for us. Even those with
clearer heads and longer memories, those who kept in mind the fact that another
depression waited at the end of the boom, would equivocate by saying to them-
selves, "let's cross that bridge when we come to it."
Already there can be noticed a disposition to regard the depression as some-
thing already past or, at least, on the way out. From Washington, whicl\ so
recently was almost exclusively concerned with matters of domestic economy,
about all the news which makes front pages now concerns foreign affairs or is
closely related to them. The activities which gave real promise of correcting
some of the New Deal's most glaring failures, and of alleviating some of the
conditions created by the New Deal which prevent sound recovery, have become
sidetracked or lost to public view since the spotlight has been shifted to war.
The mere fact that our attention has been diverted from the familia- depression
problems does not mean that they are not still present. They have npt dis-
appeared; they have merely been glossed over by a surface prosperity which
rests on a foundation about as firm and strong as the filling in a cream puff. These
basic problems are domestic problems. They may be affected by but they cannot
be solved by conditions and events outside of our borders. While they remain
unsolved we may enjoy artificial and transient prosperity, but we will not and
cannot have a genuine, sustained recovery. They must be solved, and the only
successful solutions will'be those which conform to American principles of life and
of government.
I will not attempt a general discussion of our domestic problems. But I do
wish to direct your attention to one which is most important and to which
practically all our other problems are related. I refer to the problem of profits
in industry. There is a school of thought which is opposed on principle to profits,
the profit motive and the profit system. This school is well represented in
Washington. According to its lights, it has done effective work. Its success is
evidenced by much New Deal legislation in which the effect, if not the stated
purpose, is direct restriction of profits, or restriction of the free operation of the
private enterprise system — which is the profits system.
Now it is not unexpected to find antagonism toward profits coming from
zealots or political demagogues who believe or profess to believe that bur present
economic system cannot be saved and is not worth saving. But it is surprising
to find antagonism toward profits — or at least, a seeming antagonism — expressed
not in theory but by deed in the very quarter where you would expect to find the
most stalwart champions of the profits system. I refer to management of in-
dustry. In many cases during recent years, management, by consistent failure
to earn anything approaching adequate profits, has acted as though it, too,
considered profits an evil. For example we need look no farther than the steel
industry and the steel construction industry.
I understand that in your industry the period from 1910 to 1929 is accepted
as a period of steady and profitable growth. From 1910 to 1919 you had an
average volume of approximately 1,700,000 tons and by 1919 had built the indus-
try's capacity to 3,190,000tons. In the 1920's growth continued; capacity increased
• to 4,800,000 tons by 1929 with average volumes of 2,600,000 tons for the lO-yea'r
period and 3,150,000 tons for the period from 1925 to 1929. Since 1929 your
industry's capacity has held close to 4,800,000 tons but the volume of business
has sharply contracted-^to such an, extent^ in fact, that the average annual
volume for the past five years has been 300,000 tons less than in the period from
1910 to 1919.
In the steel industry the situation has been roughly parallel, although over
long periods the steel industry has enjoyed better average utilization of capacity
than has been the case in the steel construction industry. However, its operation
from year to year has been extremely spotty, ranging from a high of 93 percent
of capacity in 1916 to a low of 19.5 percent in 1932, ■with, stops at most points
10736 CONCENTRATION OF ECONOMIC POWER
in between.. Despite this seesawing in volume, the steel industry's capacity has
increased almost without interruption and a total of almost 50 percent since
1914, which is the first year from which we have continuous records. Despite
consistent losses by the industry, the increase in capacity continued through the
East ten years, and last year it reached 71,594,000 tons — the highest point in
istory — even though volume was only 39.5 percent of that capacity.
I know I am telling you nothing new when I say that the basic trouble of
your industry and mine is rooted in this discrepancy between capacity and
volume. In your industry, during the past five y^ars, you have had about four
tons of capacity bidding for each ton of available volume. In the steel industry,
during the same period, the capacity-volume ratio was almost two to one. I
think it is a safe generahzation to say that income is related to volume while
expense is related to capacity. In the past ten years, low volume and high
capacity have been prevaihng conditions of business, and under the usual methods
of doing business, the net result has been net loss.
Assuming constant efficiency, I can see only three methods by which our in-
dustries can convert their loss position to a profit position. Increased income
could be realized from increased volume, from reduced costs resulting from
reduced capacity, or from increased return on existing volume. Let us keep the
third method in the back of our minds for a moment and consider the first two
methods.
Increase volume? Unlike many other industries there is little of a practical
nature that our industries can do to increase the demand for our products. No
amount .of "selling" on our part can influence the decisions to buUd skyscrapers
or bridges., or decisions to build them at one time rather than another. Even
the improvement of our products and the reduction of costs and prices through
higher efficiency cannot be made to immediately affect volume. They do increase*
the use of our products and ultimately they expand our markets. But, essentially,
they are long range influences which cannot be exerted as a leverage on volume
at any desired time. The forces that raise or lower our volume are far beyond
the range of our direct control. So, unlike other industries, and particularly
consumer industries, we do not have available to us the means to increase volume
and with it income and profits.
Reduced capacity? This step has been urged by some theorists. Supposing
it to be in accord with the vital needs of our national economy, would it be
economically feasible? Let us postpone consideration of whether there actually
is too much capacity, and ask just how reduction of capacity could be accom-
plished. Would it be arranged by having some companies go out of business?
Or would all companies get together and agree to eliminate capacity on a per-
centage basis? Of course, whatever the method, elimination of capacity is just
another way of saying destruction of capital. Capacity is plant buildings, blast
furnaces, open hearths and blooming mills, or, it is riveters and other fabricating
and erecting equipment. Effective reduction of capacity could mean only
physical destruction of some of these things, and with it destruction of the in-
vestment they represent. I might point out that there is excellent precedent
for this drastic method of establishing temporary balance between supply and
demand. It ,was precisely the method enforced by the New Deal in the slaughter
of little pigs and the plowing under of crops a f^w short years ago, for which
you and I and every other American are still paying the bill.
Yes, capacitycot/W be reduced. It would be possible though painful. But
should it be? Who knows enough to say that capacity is too high and to tell us
to what point it should be reduced? Certainly the construction industry's 1929
capacity was not out of line with its volume of that year and the years just pre-
ceding. The fact that its full capacity was needed then is an indication that it
will be needed again. The past two years in the steel industry afford a vivid
illustration of the problem of capacity. In 1938, less than two-fifths of the steel
industry's capacity was used. In 1939, nine-tenths of its capacity is being drawn
upon and if the present movement continues the steel industry's capacity wUl be
unequal to demand. If steel capacity had been reduced to a level proportionate
to 1938 volume, what would be the position of the steel industry and steel users
today? This points up the whole question of capacity. In your industry and
mine, capacity cannot be shifted according to fluctuations in volume, yet in years
of lowest volume the full capacity must be maintained to meet the highest
demands that may be made upon it at any time.
In all modesty, I believe we may say of both our industries that not only have
they maintained the ability to deliver quantity when it was needed, but also
have never 8topi>ed in their efforts to improve quality. May I suggest that in
CONCENTRATION OF ECONOMIC POWER 10737
so doing, our industries have rendered a valuable public service for which they
are entitled to a reward somewhat better than year after year of loss.
In the light of this, let us go back to the first method suggested as a means by
which loss can be converted to profit. That is, to increase the return from the
prevailing volume. This means getting better prices. I realize that this is
what has been condemned as "maintenance of a rigid price structure" by the
long-on-theory, short on-experience economists in the bureaus down in Wash-
ington and in other places. The proposition is a very simple one. It means
only that you must charge a price, under any given condition, which covers all
of your costs — including the cost of carrying unused capacity — and returns a
reasonable profit. If you fail to charge such a price, you must give something
away. And in business, if you continue to give something away for very loag,
you eventually give the business away. No one is justified in asking business to
do this. I can see nothing wrong — morally or economically — in business asking
prices for its products and services that cover costs and yield a reasonable profit.
Yet in many branches of industry, and in the steel industry particularly, the
price policy, if it can be so called, has been a total failure. In the steel industry,
from 1930 to 1939, while the industry was investing $2,100,000,000 of new money
to maintain and improve its plant and equipment and to improve its products,
it was losing a total of $90,000,000. This money came from only one place —
out of the pockets of stockholders. I do not know the details of the construction
industry, but I understand your situation is about the same.
Now there is only one place to put the blame for this. And it is not on gov-
ernment. Government is indirectly but not directly responsible. Government
has increased the costs of business, has added new costs, and has created the
general conditions which have deprived business of satisfactory volume. But
government has not yet assumed the control over prices which would make it
mandatory for business to operate at a loss. No, the direct responsibility for
non-profitable business must be placed squarely on the doorstep of industry's
own management.
Management has not been profit-minded. Instead, it has attempted to con-
duct business on a basis of losing as little as possible. It has resorted to dodges
and stratagems with wtiich v^e are all too familiar — such as deliberate acceptance
of unprofitable business in the hope that the increased volume will cut overhead
costs enough to make it possible to break even or escape with a small loss while
holding an old customer or getting a new one. It has justified acceptance of
business at a loss on the theory that this unprofitable business would pay in the
long run by helping to maintain plant, equipment and personnel. No such
attempts to rationalize acceptance of business at a loss can be right. Losing
business remains losing business. It produces a loss in the first instance and,
human nature being what it is, when one producer gives an unwarranted price,
competitors meet competition. The result is that the concession sets a new
industry-wide price still farther below the level of profits and even of costs.
This procedure has been taking place in industry during the past ten years.
Management, which after all is hired by the stockholders to make profits, has
failed in its principal duty.
Yet the cure for this condition — in your industry, in mine and in all others not
controlled by government — is in the hands of management. Management
simply has to determine now and at all other times that it will not accept business
at a price which does not include costs and a reasonable profit. In saying this,
I am not suggesting that companies in an industry get together and agree on
prices. There are many phases of business on which companies can cooperate
through their trade associations to their own and the public benefit. Price is
not one of them. A price policy is one that must be established by each indi-
vidual company in accordance with cost and other factors peculiar to that com-
pany. The job of each individual company is to see that its prices cover its own
costs, not empirically established av.^rage costs of its industry.
Where this is done, prices inevitably gravitate to the point at which the more
efficient producers can cover costs and make a profit. Lower prices established
by this method are economically sound. Any immediate advantages to more
efficient and disadvantages to less efficient producers soon even out, because less
efficient producers are compelled to increase efficiency at least to the point where
they can stay in business. Lower prices that result from efficiency benefit pro-
ducers and consumers alike, but lower prices that are due to sacrificed profits and
costs rob stockholders, ruin companies, degrade standards of the industry, and
actually threaten existence of the system of private enterprise.
No company has the right to look to anyone but itself for profits. Under
government such as we have today, management may not be able to control all
124491 — 40— pt. 19 19
10738 CONCENTRATION OP ECONOMIC POWER
of its costs nor to influence general conditions of business. But certainly there
is nothing to prevent the top management of any company from deciding that
no one in that company shall accept unprofitable business. That is manage-
ment's job. If it cannot do the job, then it is unworthy of its trust. It should
be and deserves to be replaced. I say with all the emphasis that I can muster,
that our profit problem is our own. Each of' must must find its solution in our
own back yard. Know our costs, see that our efficiency is at least as high as
our competitor's, then determine that regardless of volume, regardless of the
practices of any other companj', we will do business only at prices that include
costs and a reasonable profit.
The duty to earn profits is not solely an obligation to stockholders. It is a
duty to employees, to communities in which plants are located, to customers,
and finally, to the country. There is a strong popular belief that profits and
wages are opposed to each other — that one can be increased only at the expense of
the other. Of course, the opposite is true. Records of poor times and prosperous
times in the United States show that wages and profits go up and down together.
Furthermore, the highest wages have been paid consistently in the industries and
companies with the best profit records. All evidence points to an affinity between
profits and wages. It is obvious that a profitable company is under neither
temptation nor necessity to reduce wages or resort to sweatshop practices in the
eflfort to make ends meet. The profitable company not only gives higher and
steadier wages and better working conditions to employees, it also contributes
to the prosperity and progress of the community of which it is a part.
From the standpoint of the customer also, the profitable company is best,
even though it may have inflexible ideas about prices. It is under no pressure to
cut corners on quality. It is able to carry on development work, without hope of
immediate return, which produces an eventual improvement in quality and a
permanent lowering of costs that is of far more importance to customers than any
temporary price concessions. On all counts, profitable business is the only good
business for all concerned.
And there is an even more important aspect of profits. That is, the relation
of profits to the American system. The American system is the profits system.
Free private enterprise is the material foundation which supports the American
system of life. Freedom of enterprise means that the American is free to work
and to earn, to save and to invest. So long as the individual citizen has control
over his savings, can make his own decision to invest or not to invest, it is obvious
that he wiU invest only when he considers investment an advantage. Usually he
will invest only when he has reasonable assurance of preservation of his capital,
an appropriate return, and the possibility of appreciation. Preservation of
capital, return and appreciation all depend on profits. During most of its history,
American industry has been so successful that investment in it has been made not
only willingly but eagerly. The result has been constant growth, improved
methods, expanded employment, higher wages, better standards of living —
all the evidences of a thriving, healthy economy.
There is no need to describe to you the contrast in conditions during the past
ten years, when industry has been operating at a loss. Unprofitable business
does not attract investment and during these years, although we have had our
greatest national hoard of potential capital, it has lain idle. A constant stream of
investment must flow into industry — not only into established industry, but even
more into growing industry and into newly created industry. This is essential to
replace obsolescent industry and industry that has attained maturity, and beyond
replacement, to provide additional employment for a growing population and to
to supply the demands for better standards of living for our entire population.
But when established industry is unable to earn profits, private individuals will
not put their savings into any kind of industry. And when the constant flow of
vitalizing new investment stops, business stagnates, unemployment spreads,
the economic system goes to pieces.
We have witnessed the results of non-profitable business from the beginning
of the depression. People can stand hopelessness and suffering just so long.
They soon demand that something be done about it. And they will listen to the
first demagogue who says he can do something about it. The solution of the
demagogue, of course, is "Let the government do it." The government is now
"doing it" to quite an extent. Take agriculture, for instance. One man in
Washington can tell millions of farmers what to plant and how much to plant,
and he has power to reward those who do as they are told and to punish those
who prefer their own judgment. And if you think the same type of control
over ^•stment is not contemplated, read some of the testimony before the
*^ EC Once government gets control over investment in its hands, there will
CONCENTRATION OF ECONOMIC POWER 10739
be no freedom of private enterprise in any business above the level of a corner
grocery store.
This is why profits have far greater meaning and importance than the satis-
faction they give to management and stockholders, the support they contribute
to wages, employment and improved efficiency, the stimulation they provide to
progress. By failing to earn profits, business men repudiate and endanger the
American system. Without profits you cannot have the profits system, and
without the profit system you cannot have the system of free private enterprise
which is the American economic system. Upon the American economic system
depends the continuance of the American system of political and personal free-
dom— for these three kinds of freedom are inseparable. In no country on earth
have political liberty and personal liberty survived the destruction of the economic
liberty of the people. And if the gentlemen in Washington, who are so intent on
making America over, ever get their hands on the controls they want, we do not
know exactly what will happen. But we may be sure our system of life will not
be the American system — and also that it will not work any better than it has
in other nations where one man or a small group has assumed the power to do the
thinking and directing for an entire people.
Apropos of this subject of governmental control, a most significant news-
paper article appeared just yesterday. This article filled two columns of type
and in it anonymous gentlemen who were described as "President Roosevelt's
principal economic advisors" were quoted as threatening dire consequences to the
steel industry if the various companies should advance prices. Now, as I have
said a number of times before, whatever price action is to be taken, is a matter
to be decided by individual companies. And I believe that their decisions must
be based on urgent economic necessity rather thin upon political threats from
Washington.
Recently, as you know, the steel industry has been confronted with a serious
problem created by sharp advances in prices of most raw materials used in the
manufacture of steel. The greatest advance has been that for scrap, which moved
up $8.00 a ton since early August. If the industry produces as much steel in
1940 as it did in 1937, the consumption of purchased scrap would exceed 12,000,000
tons. At the present cost X)f scrap, such a consumption would add at least
$96,000,000, or about $2.40 a ton, to the cost of products made for sale.
Scrap is the outstanding example of cost increase, but it is only one of the mate-
rials essential in steel making in which the price has been soaring in the past two
months. To mention but a few: ferro manganese has advanced 25%; tin, 17%;
zinc, 35%; fuel oil 18% and coal 10%. These are not exceptions; there have been
price increases in all materials used in the making of steel.
Despite such radical increases in costs, increases in the prices of finished steel
for fourth quarter delivery have been made by only a few companies — those
whose raw material needs had not been covered before costs started to go up.
In line with a firm policy of making no price advances that are not strictly war-
ranted by higher costs, no increase in prices was made by the great majority of
steel companies.
J wish to point out that these higher raw material costs have been offset only
in part by the currently increased rate of operation. I do not now foresee any
increase in prices which will fully cover these greater costs. However, I have no
doubt that most mills will at some time find it necessary for their own existence
to recover at least some part of these increases.
The profit experience of the steel industry provides the background against
which this radical increase in the price of raw materials should be considered.
The average net profit of the entire industry, before dividends, in the last three
years has been only $4.07 a ton of products produced for sale. After preferred
dividends which are a fixed charge, net dividends were only $2.14 in this period.
In the first six months of 1939, net profits before perferred dividends were $1.71
per ton, while after dividends, they were 27 cents a ton.
These figures show conclusively that the steel industry has no margin from
which to absorb any large increase in costs. What I have just related is the
economics of the situation. Costs and prices in the steel industry are hard,
unyielding facts which cannot be changed at will to conform to political desires
in Washington.
, I do not say that the earning of profits, in itself, will solve the problems of
America. Many governmental handcuffs and leg irons must be stricken from
business if it is to have the freedom, confidence and courage which we. e the
main-springs of its former drive and accomplishment. Also there are many
internal improvements which business must make to adapt itself to a changing
10740 CONCENTRATION OF ECONOMIC POWER
world. But these things must come slowly if soundly through a process of educa-
tion and legislation. Making proSts is something you can do now — and the
establishment of business on a profit bMis will be a long step in the right direction.
During this talk I have referred a number of times to "reasonable profits."
You might ask, "what-jare reasonable profits?" My answer is that a reasonable
profit is one that is in proportion to the risk to capital and to the costs involved
in a particular business — a profit that is sufficient to attract the necessary con-
tinuous stream of new investment. The percentage, of course, must be deter-
mined by the nature of the particular industry concerned and the prevailing
conditions of business as a whole. In general, we may observe that in the past
ten years, with business in a stalemate, profits averaged only 2.7 percent of in-
vested capital. Judging from results, this is not reasonable. In 1928 and 1929,
which are considered boom years in which the American people enjoyed un-
paralleled prosperity, and the full use of savings was attracted, profits averaged
seven percent. Again judging by results, these profits must have been reasonable.
The thing of present importance is that business men do not confuse profits
that may be earned without too much effort under existing conditions with
profits that must be earned under any conditions. Business men must prepare
now to keep their companies in a profit position in the trying times that await the
cessation of war. What is true of profits is true of unemployment and all our
other problems. At the end of this war, whenever it comes, these problems will
be there waiting, and redoubled in size and in gravity. If this sounds like the
voice of Cassandra, I regret it. but I am convinced it is true. We have a chance
if we don't go soft. , We have a chance, if we keep these problems as fresh in
mind as they were a few short weeks ago — as fresh in mind as they are to the
fellow who is still out of a job. We have a chance if we keep hamm.ering ever-
lastinglj' to see that these problems are met with sound domestic solutions. We
have a chance if America stays out of war.
If America goes into war, I am afraid that none of us here will live to see
again the freedom which we once so calmly regarded as our natural birthright.
War this time places at stake not only American lives and treasure, but the very
principles which have made Americans the world's first real race of freemen.
Our credit structure now strains under a federal debt of about forty-five
billions. Add to these billions the many billions more that would be poured into
a war venture and what would happen? Capitalism would be expected to foot
the bill for this as it is for everything else. When it failed, as it would, what
would be blamed? You know the answer. The capitalistic system, of course.
Out with it! Let's try another! What other? I don't know the answer to that.
But I do know that the coUectivist idea has made deeper inroads in American
government than anyone would have thought possible a few short years ago.
I know that in event of war we can expect a degree of regimentation and control
by government that is now unthinkable, and I know that the conditions that
will follow war will be much less conducive to the return of individual freedom
than they will be to the flowering of collectivism with its inevitable climax —
dictatorship.
The present, imperative duty of any real American is to keep America out
of war. 'The second duty — and it is almost as important — -is to insist that
begining now this country must find American solutions to American problems.
As citizens, we Can do our part toward these ends. As buisness men, we can do
something more. Everyday, in our own oflSces, we can do our part to preserve
the profit system — the system which represents one of the three fundamental
American liberties — by seeing that our own companies earn a profit.
It is my earnest hope that we leave with one thought fixed firmly in mind —
for our own sake, for our employees and communities, for our industries, and
finally, for our country, may we go forth and earn a profit.
CONCENTRATION OF ECONOMIC POWER 10741
SUPPLEMENTAL DATA
The following letter and statement are included at this point in
connection with testimony on p. 10591, supra.
Bethlehem Steel Corporation
Cunard Building, New York, N. Y.
F. A. Shjck In reply refer to
Comptroller BFA-3»-A.
(Stamped:) Received Jan. 23, 1940. Temporary National Economic Coni-
•mittee.
Bethlehem, Pa., Jan. 2G, 1940,
James R. Brackett, Esq.,
Executive Secretary, Temporary National Economic Committee,
281 Apex Building, Washington, D. C.
Dear Sir: In compliance with the request made by Senator King, as Acting
Chairman of the Temporary National Economic Committee, of Mr. Grace when
he was on the witness stand at the hearings before the Temporary National
Economic Committee on November 9, 1939, we are sending to you herewith a
Statement of Consolidated Aggregate Tax Accruals of Bethlehem Steel Cor-
poration and its Subsidiary Companies, including its share of its Subsidiary
Companies not consolidated and of Ore Mining Companies partially owned.
In view of the statement made at the time by Commissioner Henderson to the
effect that a statement similar to the one desired from us had been furnished by.
United States Steel Corporation, we have secured from that Corporation (herein-
after referred to as U. S. Steel) a copy of the statements showing the information
regarding taxes which it filed with the Committee, so that we might be sure to
give the information corresponding to that which it furnished. As you will note,
however, in the enclosed Statement, we have shown a breakdown of Federal taxes
which is a little greater than that shown in the statement furnished by U. S. Steel,
referring particularly to its statement entitled "Taxes U. S. Steel Corporation
and Subsidiaries"; but, assuming as we do that the items in that statement under
the heading entitled "State and Local (Excl. Social Security)" do not include
amounts of taxes such as those payable to the New York Unemployment Insur-
ance Fund, then you wiU readily be able to prepare from the statement which
we are enclosing a statement that will currespond to such statement of i'axes
filed by U. S. Steel.
To be more specific, as we understand the above-mentioned statement of U. S.
Steel, the amounts of taxes which are shown therein for the various years under
the heading "State and Local (Excl. Social Security)" correspond to the amounts
of taxes for the respective years shown against the title which is numbered 1 in
the enclosed statement; the taxes set forth in such statement of U. S. Steel under
the heading "Federal (Excl. Social Security)" correspond to the aggregate for the
respective years of the taxes set forth in the enclosed statement against the titles
which are numbered 2, 3 and 5, respectively; and the taxes set forth in such state-
ment of U. S. Steel under the heading "Social Security" corresponds . to items
against the title which is numbered 4 in the enclosed statement.
Trusting that you will find that the enclosed stp,tement is in satisfactory form,
we are,
Very truly yours,
Bethlehem Steel Corpohation,
Bv (Signed) F. A. Shick, Comptroller.
End.
10742
CONCENTRATION OF ECONOMIC POWER
Bethlehem Steel Corporation and Subsidiary Companies (Including its Share of its
Subsidiary Companies not Consolidated and of Ore Mining Companies Partially
Owned) — Consolidated Aggregate Tax Accruals
(1) state and local taxes (exclusive of State unem-
ployment and other State Social Security
taxes)
(2) Federal capital stock tax- _
(3) Federal excise and miscellaneous taxes
(4) Federal and State unemployment, old age and
railroad retirement taxes
Totftl-
(5) Federal taxes on income.
Grand total
Total for
6 years
1924-1928
inclusive
, 153, 087
646, 523
187, 322
28, 986, 932
9, 454, 587
S, 441, 519
Total for
6 years
1929-1933
inclusive
$30, 768, 356
204, 303
151,907
31, 124, 566
7, 309, 093
$38, 433, 659
Year 1934
$5,428,009
203, 351
60, 696
5, 692, 056
432, 218
, 124, 274
Year 1935
6, 101, 483
369, 297
120, 193
6, 590, 973
921, 978
$7, 512, 951
Year 1936
Year 1937
Year 1938
Total for
5 years
1934-1938
inclusive
(1) State and local taxes (exclusive of State unem-
ployment and other State Social Security
taxes)
(2) Federal capital stock tax
(3) Federal excise and miscellaneous taxes
(4) Federal and State unemployment, old age and
railroad retirement taxes
Total _,.-
(5) Federal taxes on income
Grand total
$6, 726, 414
439, 760
501, 885
1,317,812
$7, 796, 440
606, 208
102, 074
4, 994, 791
$7, 360, 341
229, 699
64, 170
4, 574, 090
8, 985, 871
3, 047, 475
13, 499, 513
6, 187, 612
12, 228, 300
954, 848
$12, 033, 346
$19, 687, 125
$13, 183, 148
$33, 412, 687
1, 848, 315
849, 018
10, 886, 693
46, 996, 713
11, 544, 131
$58, 540, 844
1/20/40.
INDEX
Page
Acme Steel Co 10724
Adams, Avery C 10565-10567, 10621-10622, 10624, 10730
Administered prices in steel industry 10473-10476
Allegheny Steel Co 10690^10691
American Bridge Co 10483, 10524
American Can Co 10625, 10628, 10681-10683
American Institute of Steel Construction 10476, 10645, 10734
American Iron arid Steel Institute 10463,
10469, 10476, 10560, 10629, 10643, 10674, 10734
Annual Statistical Report of 10477
American Rolling Mill Co. 10479-
10480, 10688-10689, 10694, 10697, 10704, 10724, 10726
American Sheet and Tii;i Plate Co . 10732
American Steel & Wire Co 10483-10484, 10500, 10502, 10714, 10724
Apollo Steel Co J 10724, 10726
Atlantic Steel Co 10724
Australia 1 0539
Baker, Dr. H. A 10626, 10668
Bancroft, G. H , 10507-10509
Basing points, new, establishment of by Bethlehem Steel Corporation 10611-
10620
Belgium . . 10469-10470
Bessemer Rolling Mill . 10552
Bessemer Wires 10501
Bethlehem Shipbuilding Co 10584
Bethlehem Steel Co 10479-10480,
10581-10582, 10584-10585, 10600-10601, 10619, 10621, 10628,
10629, 10647, 10683, 10692, 10724, 10726, 10581-10585, 10589,
10591, 10598, 10608, 10611, 10690, 10741-10742.
Corporate structure of 10582-10584
Management of business of 10586
Price announcement policy of 10601-10603
Bids, government 10594-10597
Birmingham price differential 10541-10554, 10603-10610
Blackmer, C. F 10501, 10714-10715
Block, P. D 10627, 10629, 10668
Brandeis, Justice Louis D 10666
British Iron & Steel Federation 10469
British Isles 10694
Campbell Soup Co ,_ 10668
Canada 10469, 10477
Carnegie-Illinois Steel Corporation , l 10483-10484,
10492, 10494, 10499-10500, 10505, 10507-10508, 10516-10518,
10536, 10542, 10544, 10555, 10558, 10565, 10571, 10578, 10621,
10625, 10628, 10637-10638, 10681-10683, 10711, 10713, 10715,
10724-10726, 10729, 10732.
Cassandra 10740
Chartering of corporations 10584-10585
Chile 105S3, 10589, 10591
Clayton Act 10630-10(131
Columbia Steel Co 10483-10484, 10496, 10549, 10555, 10724, 10726
Commerce, United States Department of 10467, 10561
Congress of the United States. _ 10690
Continental Can Co . 10625, 10683
II INDEX
Page
Continental Steel Corporation 10627, 10724, 10726
Continuous rolling mill:
Development of 10688-10690
License agreements 10690-10708
Abroad 10694-10695
Conway, Carl C 10683
Cor-Ten 10499-10500, 10713-10714
Uses of 10499-10500
Cravath, de Gersdorff, Swaine & Wood 10585
Crucible Steel Co 10480
Cuba --- 10583, 10589, 10591
de Chazeau, Dr. Melvin G 10456
Demand for steel:
Domestic 10471
Foreign - 10467-10471
Present 10465-10571
"Dun's Review" 10465
du Pont, E. I. de Nemours & Co .__- 10677
Earnings of steel companies 10479-10480
Eastern Rolling Mills Co., The 10724
Ebbw Vale, South, Wales 10694
"Economics of the Iron and Steel Industry" 10456, 10481
Ethiooian War 10458
Extras 10459-10465, 10557-10580, 10609-10610, 10621-10625, 10674
Change in, in May 1938 10565-10580
Definition of - 10459, 10558-10559
United States Steel Corporation book of . 1 10558
Fairfield Steel Works 10551
Fairless, Benjamin F 10482, 10523, 10587,
10590, 10621, 10623, 10630, 10631, 10633, 10687, 10711, 10712
Federal Reserve Board 10528
Federal Trade Commission 10460-10461, 10663, 10692
Firth-Sterling Steel Co 10724
Ford, Henrv 10475
France "- 10457, 10469
Frick, H. C, Coke Co 10483, 10582
General Electric Co 10696
Germany 10408-10470, 10694
Golden Gate Bridge 10637
.Government bids 10594-10597
Grace Eugene G 10581,10647,10048,10663,10674,10733,10741
Granite Citv Steel Co 10690-10691, 10724, 10726
Great Britain 10457
Great Lakes Steel Co 10690-10691
Great Lakes Steel Corporation , 10643
Greer Steel Co 10724
Gregg, Robert 10482, 10491-10493, 10496, 10523, 10606, 10711, 10713
Guffev, Senator Joseph F 10681
Gulf States Steel Co 10690-10691, 10693
Banna, M. A., Co 10643
Hilliard, Thomas J 10730
History of prices during the war 10456
H<;nman, A. C 10683
Hook, Charles R 10688
Hughes, H. L ^ 10482, 10501, 10523, 10714
Hungary -- -• 10469
India 10469
Inland Steel Co... 10479-10480, 10628, 10668, 10683, 10690-10691, 10724, 10720
Iron Age _ 10477,10533,10540,10550,10718-10719,10721,10731,10732
Irvington Steel & Iron Works 10597, 10733
Japan 10478
Johnson, Gen. Hugh 10665, 106G6
Jones & Laughlin Steel Co 10479-10480, 10690-10691, 10724, 10726
Justice, United States Department of 10455-10456,
10458, 10467, 10485, 10515, 10540, 10684, 10724
INDEX III
Page
Katchen, A -. 10697-10598, 10733
Letter of, to Eugene Grace advocating price reduction to stimulate
business 10597-10598
Keystone Steel & Wire Co 10724
King, Senator William H 10741
Konkle, Creighton M 10722
Labor rates in the industry. ____ 10491, 10496-10497, 10527-10528, 10587-10589
Labor Statistics, United States Bureau of 10460,
10527, 10529-10531, 10533, 10537
Lucas, Fred H ia558
Luxemburg 10469
Mackall, Paul 10581
Man-Ten . 10714
Maritime Commission, United States 10524
McClintic-Marshall Construction Corporation 10582, 10584
McEwen, W. B - 10722
McKaig, Clement V 10505, 10507
McKown, J. H - 10499, 10713
Merriman , 107 15
"Minerals Year Book" 10477
Moore, Hovt A 10585, 10631
Morgan & Cie . 10516, 10715
National Association of Manufacturers 10688
National Industrial Conference Board '. 10705
National Steel Corporation ^ 10479-10480,
10643, 10644, 10659-10660, 10672, 10674, 10683-10685, 10734
operations of ._. 10643-10645
National Tul)e Co. 10483
Nations, production bv various, of iron and steel 10467
Navy, United States. ^ . i 10524, 10637
Netherlands . 10469
New York Unemployment Insurance Fund 10741
New Zealand ... 10539
N. R. A .-- 10631, 10638, 10667, 10676, 10712, 10725, 10728
Old-, Irving S 10472
Oliver, Iron Mining Co 10473, 10483, 10582
Otis Steel Co 10479-10480, 10690, 10693, 10724, 10726
Pacific Coast steel prices 10554-10557
Pacific Steel Co 10582
Pfeltz, A. R 10626-10627, 10629-10630, 10668, 10674
Pig iron, advance in price of 10495-10496
Poland •- 10469, 10703
Price changes in steel products 10485-10522
Prices, steel 10485-10580, 10586-10593, 10597-10603, 10681-10688
Administered nature of 10473-10476
Average vearlv base, 1924^39 10539-10540
Birmingham differential 10541-10554, 10603-10610
Comparison of ,1929 and 1937 •_ . 10529-10537
Finished composite, 1926-39 10485-10487
Increases and decreases, 1936-38 10487-10522
Pacific Coast 10554-10557
"Reasonable" 10525-10530, 10538-10539
Prices, tin plate.
See Tin plate prices.
Production, iron and steel, bv various nations 10467
Quaker Oats 1 10538
"Reasonable" prices 10525-10530, 1 0538-10539
Republic Steel Corporation 10479-10480, 10690-10691, 10693
Robinson-Patman Act - 10627
Rolling mill, continuous. (See Continuous rolling mill.)
Ross, W. A 10495-10496, 10713
Russia. (Sec U. S. S. R.)
Schwab, Charles M 10603, 10632
Scrap iron, importations of by foreign countries. _ 10469-10470, 10478
ScuUy Steel Products Co . - 10483
Securities and Exchange Commission 10584, 10660, 10680
IV INDEX
Page
Sharon Steel Corporation ^ 10724
Sheffield Steel Corporation 10724
Sherman Act 10630-10631
Shick, F. A 10591, 10611, 10741
Shotton, England _ _ . 10694
Sil-Ten 10714
Smith, Adam _. 10568
Social Security . 10741
South Africa 10539
Spanish Civil War ^_ 10458
Stabilization, question of 10634-10640
Stanley Works, The 10724
Steel:
Demand for. (See Demand for steel.)
Prices. (See Prices, steel.)
Production. (See Production, iron and steel.)
Steel Code 10631, 10712
"Steel Facts" 10469
Stettinius, Edward R 10516
Sumners, John, & Sons Co. of England 10694
Superior Steel Corporation 10724
Supply conditions : 10472
Supreme Court, United States 10691-10692, 10696
Sweden 10469
Sweets' Steel Co 10724
Taft, Chief Justice William Howard . 10696
Taiiff Commission, United States 10468
Taxes in the industry 10591-10592
Taylor, Myron 10516, 10715
Temporary National Economic Committee 10724, 10741
Tennessee Coal, Iron & Railroad Co 10482-10484,
10495, 10517, 10523, 10542, 10544^10545, 10547-10549, 10551-
10553, 10715, 10723-10724, 10726.
Thomas, Richard & Co., Ltd., of London, England 10694
Tin plate prices 10625-10630
Tytus, J. B ■_ 10698
United Kingdom . 10469
United States Government 10596-10597, 10560
United States, importance of, declining, in iron and steel 10467-10468
United States Steel Corporation 10470,
10473, 10479-10480, 10482-10485, 10488, 10491-10492, 10495,
10498, 10500-10502, 10504-10507, 10514, 10520, 10523, 10525,
10529, 10534, 10540-10541, 10547, 10550-10553, 10558-10559,
10564, 10565, 10572, 10580, 10582, 10584, 10587-10590, 10592-
10593, 10598, 10601, 10607, 10611, 10612, 10614, 10619-10621,
10625, 10630-10631, 10640, 10647-10648, 10655, 10657-10659,
10663, 10667, 10681-10682, 10684-10685, 10687, 10690-10691,
10694, 10711, 10712-10717, 10720-10722, 10729-10730, 10732,
10741.
Corporate structure of . 10482-10485
Ratio of earnings to net assets 10537
United States Steel Corporation of Delaware 10482-10485
United States Steel Export Co . 10483, 10582
University of Chicago 10516, 10520
University of Virginia 1 10456
U. S. S. R . 10468-10469
Vereinigte Stahlwerke 10694
Vogt, A. W __...._ 10492, 10495, 10711
Voorhees, E. M 10722
Waldorf Astoria Hotel 10734
W^r Industries Board 10456, 10459, 10464
"War-Time Profits and Costs of the Steel Industry" 10461
Warren, A. H., Jr - 10499, 10713
Weir, Ernest T 10476, 10643, 10674, 107,34
Price polic}' of steel industry suggested by in address before American
Institute of Steel Construction 10645-10680
INDEX V
Page
Weirton Steel Co... 10627, 10643, 10644, 10659, 10660, 10673, 10690
Wheeling Steel Corporation 10479-10480, 10690-10691, 10724
Wickwire Spencer Steel Co 10724
Willys-Overland Motors, Inc ^ 10505, 10507-10508
World War I 10456-10457, 10459, 10464, 10468, 10470, 10561
Steel demand and prices during 10456-10465
World War II, preparation for by belligerents 10467-10471
Yntema, Dr. Theodore 1 . 10516, 10520
Yoder Mill 10714
Youngstown Sheet & Tube Co 10479-10480, 10690-10691, 10724
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