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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

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Public Resolution No. 112 

(Seventy-fifth Congress) 


PART 25 


JANUARY 15, 16, 17, 18, AND 19, 1940 

Printed for the use of the Temporary National Economic Committee 

1244S1 WASHINGTON : 1941 



(Created pursuant to Public Res. 113, 75th Cong.) 
JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 
HATTON W. SUMNERS, Representative from Texas, Vice Chairman 
WILLIAM H. KING, Senator from Utah 
WILLIAM E. BORAH, Senator from Idaho 
CLyrtE WILLIAMS, Representative from Missouri 
B. CARROLL REECE, Representative from Tennessee 
THURMAN W. ARNOLD, Assistant Attorney General 
•WENDELL BEROE, 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 
Representing the Federal Trade Commission 
ISADOR LUBIN, Commissioner of Labor Statistics 
•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor ^ OO 

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

•CHARLES L. KADES, Special Assistant to the General Counsel _ ^ 

Representing the Department of the Treasury COj 

CLARENCE AVILDSEN, Special Adviser to the Secretary ^^ 

Representing the Department of Commerce >»'i 

JAMES R. BRACKETT, Executive Secretary 









Testimony of — Page 

Brownell, Francis H., chairman of the board, American Smelting & 

Refining Co., New York City 13154, 13265-13277 

Dickens, Dr. Paul D., economic analyst, Finance Division, Bureau of 

Foreign and Domestic Commerce, Washington, D. C. 13302, 13306-13310 
Kellev, Cornelius F., president, Anaconda Copper Mining Co., New 

York City - _ - 1 3090-1321 7 

Kreps, Dr. Theodore J., economic adviser. Temporary National 

Economic Committee, Washington, D. C 13037-13087 

Notman, Arthur, mining engineer and authority on copper. New York 

City 13279-13301 

Stannard, E. T., president, Kennecott Copper Corporation, New 

York City .- 13219-13265, 13273 

Taylor, Dr. Amos E., Chief, Finance Division, Bureau of Foreign and 

Domestic Commerce, Washington, D. C 13302-13310 

Wilcox, Dr. Clair, Swarthmore College, Swarthmore, Pa 13310-13347 

Statement of — 

Callman, Rudolf, international authority on cartels, Cambridge, 

Mass.i . - 13347-13363 

Definition and functions of cartels 13038 

Cartels in Great Britain 13047 

Growth of cartels in Germany 13051 

Compulsory cartelization in France 13057 

The number and scope of international cartels 13059 

The international rubber agreement. -^ 13063 

Ocean freight rates established by confe ences-- 13069 

Incandescent electric lamp cartel - — 1 3070 

Compulsory cartelization and the growth of international combines 13073 

Benefits and weaknesses of cartels 13081 

Principal copper producers; their integration and organization 13091 

The Copper Producers Committee, 1917-19 13103 

The copper industry's part in securing passage of the Webb-Pomerene 

Act .- 13111 

Copper Export Association, 191^23 ^ 13116 

Pool of refined copper, 1921, and the curtailment of production, 1919-21. 13126 

Shut-down of United States copper industry in 1921 13132 

Price policies of the Copper Export Association 13146 

Relation of export price to domestic price 13155 

Sherman Act criticized 13159 

Copper Exporters, Inc., 1927-31 -. 13166 

Admission of foreign producers to membership in Copper Exporters, Inc.. 13168 

Extraordinary increase in foreign production 13174 

Method of operation of Copper Exporters 13176 

Movement of copper prices under Copper Exporters 131 79 

1929 increase in price of copper 13190 

Conferences with Government officials concerning price of copper 13194 

Copper Institute and statistics 13197 

International shifts in copper production -'-- 13199 

Production curtailments, 1930-32 13206 

Copper and the'London Economic Conference, 1933 13213 

The National Recovery Administration Copper Code 1 322 1 

International agreement on production control, 1935-39 13230 

Current situation in the domestic copper industry 13246 

' See footnote 1 on p. 13346, infra. 



Copper and lead inventories and prices; international lead agreements 13266 

■Profits and costs in the copper industry 13281 

Foreign investment and control in American enterprises 13302 

Trade associations as cartels 13311 

Compulsory cartelization under the N. R. A _. 13319 

Cartels in the United States before and after the N. R. A 13327 

What is a cartel? 13347 

The rule of reason in Germany 13352 

The development in Germany 13353 

Governmental supervision in Germany 13355 

Business self-government 13360 

Conclusion . 13362 

Schedule of exhibits v 

Monday, January 15, 1940 .. 13037 

Tuesday, January 16, 1940 13089 

Wednesday, January 17, 1940 13143 

Thursday, Januarv 18, 1940 13219 

Friday, January 19, 1940 ^- 13279 

Appendix . . _ _ _ _^ _ _ 13365 

Supplemental data - 13576 

Index I 


Number and summary of exhibits 

2076. Outline showing types of international and national 

cartels ■ 

2077. Chart: Cartel types -• 

2078. I'lxcerpt of portion of the table of contents from the 

Legal Position of Cartels and Concerns in Europe, 
by Dr. Heinrich Friedlander 

2079. Table: Examples of international cartels and other 

industrial understandings, by Dr. H. PViedlander 

2080. Agreement between the Governments of France, 

United Kingdom, India, the Netherlands, and Siam, 
to regulate production and export of rubber, Lon- 
don, May 7, 1934 

208 L Plan for the formation of the tanker pool, a cartel of 
shipowners in intercoastal trade 

2082. Text of Franco-German potash accord, signed at Paris, 

December 29, 1926 

2083. Chart: Structure and ramifications of the Great Ger- 

man Chemical ComUine 

20S4. Chart: Coal tar dye manufacturers in producing 
countries of the World, showing cartel participation. 

2085. Chart: Organization of the Interessengemeinschaft 

Farbenindustrie ^_ 

2086. Chart: Organization of Imperial Checmical Indus- 

tries, Ltd . 

2087. Chart: Organization of Compagnie Nationale du 

Matieres Colorantes et Produits Chimiques 

2088. Table: Principal copper producers in the United 

States, Canada, Mexico, and other foreign countries, 
and the disposition of their copper 

2089. Chart and supporting data: United States production 

of primary and secondary copper, 1912-38 

2090. Table: Anaconda Copper Mining Co., principal sub- 

sidiaries classified according to major function, 1937_ 

2091. Table: Kennecott Copper Corporation, principal sub- 

sidiaries classified according to major function, 1937_ 

2092. Table: American Smelting & Refining Co., principal 

subsidiaries classified accorditig to major function, 

2093. Table: Phelps Dodge Corporation, principal subsid- 

iaries classified according to major function, 1937 

2094. Table: The American Metal Co., Ltd., principal sub- 

sidiaries classified according to major function, 1937. 

2095. Chart and supporting data: Concentration of produc- 

tion of copper among three companies in the United 
States, selected years 1915-37 

2096. Table: Principal sellers of copper in the United States. 

2097. Table: Wholesale prices in the United States: all com- 

modities, electrolytic copper, and nonferrous metals, 
1913-38 : 

2098. Letter, dated March 1, 1921, from President Woodrow 

Wilson to Hon. Finis Garrett, Member of Congress, 
regarding attacks made upon Messrs. Bernard Ba- 
ruch and John D. Ryan 

at page 







I 13078/ 


} . 

I 13078/ 





on page 

13111 13393 
















Number and summary of exhibits 

2099. Table: Officers and committees of the Copper Export 

Association, Inc 

2100. Cliart and supporting data: World summary of pro- 

duction, consumption, and stocks of copper, 

2101. Letter, dated January 13, 1919, from Gilbert H. Mon- 

tague, counsel for Copper Export Association, to 
T. W. Gregory, Attorney General of the United 
States, transmitting a letter from John D. Ryan, 
president of that Association 

2102. Table: Copper Export Association, Inc.: names of 

members and nonmembers 

2103. Table: Number of votes cast at annual meetings of 

the stockholders of the Copper Export Association, 










Table: Share of World mine production of copper 
controlled by members of Copper Export Associa- 
tion, Inc., 1919-23 

Certificate of incorporation of Copper Export Associa- 

at page 


Bylaws of Copper Export Association _ 

Agreement between members of the association and 
the Copper Export Association, Inc 

Letter, dated February 3, 1921, from Gilbert H. 
Montague, counsel for Copper Export Association, 
Inc., to A. Mitchell Palmer, Attorney General of the 
United States, describing the activities and pur- 
poses of the association i 

Letter, dated February 9, 1921, from John D." Ryan, 
president. Copper Export Association, Inc., to the 
National City Co. and the Guaranty Co. of New 
York offering $40,000,000, face value, of 8 percent 
secured gold notes; and 

Letter, dated February 9, 1921, from the banks 
accepting the offer 

Table: Crude copper production of principal United 
States copper companiea arranged according to 
their relationship to the Copper Export Associa- 
tion, Inc., monthly, January 1921-June 1922 

Newspaper article, published January 1, 1922, in the 
New York Herald Tribune, written by R. L. 
Agassiz, president, Calumet and Hecla Mining Co., 
"Copper Buying Expected To Be Heavy This Year". 

Notice to the shareholders of Anaconda Copper Min- 
ing Co., dated March 29, 1921, from John D. Ryan, 
chairman of the board of that company 

Table: Share of stocks of refined copper in North and 
South America held in pooling arrangement by 
Copper Export Association, monthly, 1921-23 

Copies of 64 cables sent on various dates in 1919, 1920, 
1921, and 1922, from Joseph Clendenin, chairman 
of the selling committee of the Copper Export 
Association, to his agents abroad . 

Table: Production, export shiprhents, and stocks of 
refined cop^r. North and South America, dis- 
tributed according to quantities controlled by mem- 
bers of Copper Export Association, Inc., and others, 
monthly, 1921-23 

on page 













Number and summary of exhibits 











Interoffice communication between H. M. Brush, vice 
president, and F. H. Brownell, chairman of the 
board, American Smelting & Refining Co., regarding 
copper prices 

Table: Names of members of Copper Exporters, Inc-. 

Chart: Foreign copper production, 1880-1936 

Table: Share of world production of copper controlled 
by members of Copper Exporters, Inc., 1927-31 

Table: Members of New York committee of Copper 
Exporters, Inc 

Table: Members of Brussels committee of Copper 
Exporters, Inc., at organization 

Certificate of incorporation. Copper Exporters, Inc.-. 

Bylaws, Copper Exporters, Inc 

Schedule of working regulations. Copper Exporters, 
Inc - 

Member's agreement. Copper Exporters, Inc 

Foreign associate agreement. Copper Exporters, Inc-. 
Chart: Comparison of copper prices with prices of raw 

materials as a whole 

Chart: Comparison of copper prices with prices of 

other nonf errous metals 

Chart: Index numbers of the price of copper and of 

copper yield per ton of ore mined 

Table: Sales and average prices received by Copper 

Exporters, Inc., monthly, 1926-32 

Chart: Copper statistics, 1928- 

2131-A. Chart: Copper statistics, 1929 

2131-B. Chart: Copper statistics, 1930 i 

2131-C. Chart: Copper statistics, 1931 

2132. Memorandum, dated October 21, 1931, from Copper 

Exporters, Inc., to the Board of Review, Federal 
Trade Commission, regarding the price of copper in 
the export market from April 1929 to April 1930--. 

2133. Membership, officers and executive committee of the 

Copper Institute ^.. 

2134. Table: World production of copper, by major divi- 

sions, 1912-38 

Table: Percentage distribution of world production of 

copper, by major division, 1912-38 . 

Chart: World production of copper, by major divi- 
sion, 1912-38 

2135. Tables and chart: Share of world production of cop- 

per controlled by United States companies and their 
subsidiaries, selected years, 1915-37 ^^- 

2136. Chart: World copper reserves by geographic location, 


2137. Chart: World copper reserves by corporate control, 


2138. Report of W. C. Gorsuch, special agent. Department of 

Justice, on the Copper Institute, November 17, 1930. 
2139rX;Jopies of minutes of meetings of the Copper Institute 
of November 3, 1930, and January 5, 1931 
















on page 

















' On file with the committee. 



Kumber and summary of exhibits 

at page 

on page 

2140. Press release issued by the Copper Institute, Novem- 

ber 14, 1930, in con^nection with the 1930 curtail- 
ment of production 1 . 

2141. Legal opinion on the reduction in the production of 

copper, submitted by William J. Donovan, No- 
vember 13, 1930 

2142. Press release, issued by the Copper Institute, Decem- 

ber 21, 1931 

2143. Report of W. C. Gorsuch, special agent. Department 

of Justice, on the Copper Institute, November 17, 

2144. Report of W. C. Gorsuch, special agent. Department 

of Justice, on the Copper institute, December 18, 
1931 -- 

2145. Newspaper clipping from the New York Times, De- 

cember 9, 1932, "Copper War Likely as Parley 

2146. Newspaper clipping from the New York Times, July 

11, 1932, "Three Big' Units Quit Copper Export- 

2147. Excerpts from a report of the League of Nations, 

Monetary and Economic Conference, London, July 
27, 1933 

2148. Memorandum, dated October 21, 1931, submitted on 

behalf of Copper Exporters, Inc., by William J. 
Donovan, to the Board of Review, Federal Trade 

2149. Table: U. S. Tariff Commission Report, November 

30, 1931 : Cost of producing copper in United States 

2150. Tabic: U. S. Bureau of Labor Statistics, average 

wholesale prices of various commodities, 1929-30, 


2150-A. Report, January 7, 1940, submitted by Cornelius F. 
Kelley, president. Anaconda Copper Mining Co., to 
show the more general uses of copper, proportionate 
weights, price comparisons, and the resulting effect 
of change in the copper base price as affecting the 
average taxpayer or wage earner 

2151. Table and chart: Comparison of domestic prices and 

foreign prices of Copper Export Association, 1919- 

2152. Table and chart: Comparison of domestic prices and 

foreign prices of Copper Exporters, Inc., 1926-31- 

2153. List of copper base prices filed in accordance with 

National Recovery Act, new article VII, sec. 2, 
effective April 26, 1934 

2154. Memorandum, dated June 12, 1934, for the Copper 

Code Authority, relative to a price of 9 cents per 
pound for copper 

2155. Minutes of a meeting of the copper industry, held 

April 16, 1935, at which was resolved that a com- 
mittee be appointed to consult with respect to 
legislation in which the copper industry might be 
Draft of a letter, addressed to the United States 
Senate Committee on Finance, prepared and con- 
sidered at that meeting 

2156. Table: Share of foreign production of copper con- 

trolled by participants in the International Agree- 
ment, 1935-38.- 




























1 3508 


1 352() 





Number and summary of exhibits 








Memorandum, dated March 28, 1935, of provisions 
covering curtailment and production control of 
African, South American, and European producers,. 

Minutes of a meeting of the Copper Control Com- 
mittee, held at London, July 15, 1935 

Table and chart: Foreign copper before and after the 
international agreement of 1935, monthly, 1933-39. . 

2160. Table: United States exports of duty-free copper by 

various classes of exporters, monthly, 1934-39 

2161. Table a,nd 'chart: United States production, refinery 
stocks, and sales of copper, monthly, 1933-39 

Affidavit of H. H. Wanders, McGraw-Hill Publishing 
Co., publishers of the Engineering and Mining 
Journal, concerning the method of securing and 
reporting the price averages on copper published 

by the Engineering and Mining Journal 

Appears in Hearings, Part 23, appendix, p. 12338 

Chart: Number of automobiles and amount of gaso- 
line used reached new peak in 1939 

2165. Table: Trading in copper futures on the Commodity 

Exchange compared with domestic direct sales of 
refined copper by copper producers, 1929-39 

2166. Chart: American Smelting and Refining Co. — -copper 
accumulated in excess of working inventory 

Chart: American Smelting and Refining Co. — ^Dom- 
estic lead accumulated in excess of working inven- 
tory _ 

Chart: Comparison of monthly lead and copper 

2169. Table: Comparison of average price differentials 

between electrolytic copper and cpppfer wire, copper 
sheet, and high brass sheet for the years 1909-12, 
inclusive, and the years 1935-38, inclusive, as 
reported in Metal Statistics Year Book of the 

American Metal Market 

"Economic History of the Copper Industry — ■ 
Estimated World Reserves of Copper," by Arthur 

Notman, consulting geologist 

2169-B. Article, prepared by Arthur Notman, New York 
City, for the 1934 volume of the American Yearbook. 

2170. Table: Foreign direct investments in the United 

States, by industries, 1937 

2171. Table: Foreign direct investments in the • United 

States, by countries, 1937. 

2172. Table: Foreign direct investments in the United 

States, by principal countries and industries, 1937. 

2173. List of industries involved in cases brought before the 

Federal Trade Commission and/or the courts over 
the last ten years in which the members of any 
industry employed a trade association or other 
common agency to deprive individual sellers of 
their freedom to determine their own output and/or 
the prices at which they may sell, or to exclude 
other sellers from the trade •_. 

2174. Sales cartel or syndicate arrangements in the United 


2175. Quota systems operative in N. R. A. codes, by various 



at page 








on page 



















'On file with the committee. 


Number and summary of exhibits 

2176. Public statement released by the Antitrust Division, 

Department of Justice, June 27, 1939, relative to 
the activities of management engineering firms in 
the administration of trade associations 

2177. Table: Percentages of total "Big Four" purchases of 

hogs taken by each of the four firms buying at five 
terminal markets, average 1913-17, by years 1931- 
37, and average 1931-37 




Letter, dated March 6, 1940, from Cornelius F. 
Kelley, president, Anaconda Copper Mining 
Co., to Senator Joseph C. O'Mahoney, chair- 
man of the committee, relative to the testimony 
of Arthur Notman before the committee 

Report of the House Committee on the Judiciary 
on the bill (H. R. 13931) entitled, "A bill to 
authorize association of producers of agricul- 
tural products," subsequently passed as the 
Capper- Volstead Act 




on page 







United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Friday, January 12, 1940, in the Caucus Room, Senate Office Building, 
Senator Joseph C. O'Mahoney, presiding. 

Present: Senators O'Mahoney, chairman, and King, Representa- 
tives Sumners, Wilhams, and Reece; Messrs, O'Connell, Pike, Lubin, 
and Brackett. 

Present also: Willis J. Ballinger Ellen L.. Love, Joseph E, Sheehy, 
and William T. Kelley, Federal Trade Commission; Theodore J. 
Kreps, economic adviser; Samuel Moment, economic analyst; and 
David E. Scoll, counsel to the committee. 

The Chairman. The committee will please come to order. It is 
a presentation on cartels, is it not? 

Mr. Scoll. Yes, sir. 

The Chairman, Will you be good enough to make a preliminary 
statement giving your name and the authority by which you are 
presenting this? 

Mr. Scoll. My name is David E. Scoll. I am counsel for the 
T. N. E. C. in the cartel investigation. 

The Chairman. Let us call it a study instead of an investigation. 
People use the word "investigation" in a sense which this committee 
has never intended. I always try to emphasize that fact, that we 
are studying things and not investigating them. 

Mr. Scoll. I am glad, Senator, that you corrected me on that, 
because this hasn't been an investigation in any sense of the word. 
We have made a study and those who have cooperated with us in 
this have regarded it as a study. 

Our first witness will be Dr. Kreps. Are you ready. Dr. Kreps? 

Dr. Kreps. I am. 

The Chairman. Do you solemnly swear that, the testimony you 
are about to give in this proceeding shall be the truth, the whole 
truth, and nothing by the truth, so help you God? 

Dr. Kreps. I do. 

TON, D. C. 

Mr. Scoll. Will you tell the reporter your name, please? 
Dr. Kreps. Theodore J. Kreps, Graduate School of Business, 
Stanford University, Palo Alto, Calif. 



Mr, ScoLL. What is your position with the committee, Dr. Ejeps? 

Dr. Keeps. I am economic adviser to the committee. 

Mr. ScoLL. And you have made a study of cartels? 

Dr. Kreps. For many years. I started in 1926 when I made an 
intensive investigation of the potash cartel. Those studies led to a 
year's travel in Europe, at which time I made an intensive investiga- 
tion of the dyestuflFe cartel and spent a better part of the time in the 
private library of the Interessen-Gemeinschaft at Hochst-am-Main. 

Mr. ScoLL. Have you prepared some material on cartels especially 
for tliis study? 


Dr. Kreps. I have. There is a good deal of misunderstanding 
about cartels. I uoted, for example, this mornmg the report that 
cartels is the French word for mionopoly. They are, of course, no 
such thing. Cartels, if I may be permitted to go on with the state- 
ment, are a cardinal feature of modern industrialism. 

They appear during periods of distress in those industries in which 
producers are few in number. They bob up especially in those lines 
of enterprise which require advanced machine technology and heavy 
investment in plant and equipment. They crop up wherever patents 
or market outlets or mineral deposits are concentrated in few hands. 
Sometimes their formation follows merely the exclusion or embarrass- 
ment of competitors by tariffs or trade barriers .or high transportation 
costs. Cartels are a manifestation of oligopoly, or in rare instances 

The Chairman. Let's get a common word for that, Dr. Kreps. 

Dr. Kreps. Oligopoly means few sellers, where industries have 
become conceptrated to such an extent tliat there arc relatively only, 
a handful of sellers. Oligopsony means few buyers. 

Cartels exist, or have existed, m every modern industrialized nation 
in the world. The word "cartel" is probably a derivative of the 
Latin word "carta," meaning paper or document. In military 
language it is a document signed by belligerents arranging for the 
mutual exchange of prisoners. The military analogy is highly 
suggestive, for cartels are basically and iu general agreements or 
treaties between warring businesses. They embody terms of economic 
armistice, mitigating the competitive struggle. 

Cartels vary so much in detail that the problem of defining a cartel 
has caused a great deal of controversy. The literature in voluminous. 
One authority. Dr. Kurt Wiedenfeld,- in his article on cartels in the 
Encyclopedia of the Social Sciences, states: 

The term cartel designates an association based upon a contractual agreement 
between enterprises in the same field of business which, while retaining their 
legal independence, associate themselves with a view to exerting a monopolistic 
influence on the market. 

The word "monopolistic" in this definition makes many witnesses 
squirm, even those who remember that Wiedenfeld, Liefmann, and 
other writers on cartels generally use the word "monopolistic" in a 
broad sense which includes restrictive or stabihzing efforts of business. 

Mr. Ballinger. Dr. Kreps, stabilizing efforts would result in price- 
fixing, monopohstic in nature, wouldn't it? 

Dr. Kreps. I am not sure. 


Senator King. Not always, by any means. 

Dr. Keeps. On the other hand, the international cartel experts 
comprising the committee set up by the League of Nations defines 
cartels as follows: 

Cartels are associations of independent undertakings' in the s^ime or similar 
branches of industry established with a view to improving conditions of production 
and sale. 

This definition is obviously broad. Many writers feel that the 
term "cartels" should be reserved exclusively for those combinations 
of independent producers or sellers which are designed to limit the 
individual risks involved in their businesses, particularly during periods 
of over-capacity iind cutthroat competition. This concept underlies 
not onty the oft-quoted statement that "cartels are children of neces- 
sity," but also the observation made by Schoenlank in 1896 that the 
natal hour of Continental European cartels can be definitely estab- 
lished as the black day of the famous crash of 1873. 

Cartels can be classified in many ways, depending on one's purpose 
and convenience. A somewhat detailed classification is shown in 
"Exhibit No. 2077," which is at the back of the mimeographed state- 
ment which has been given to the members of this committee, and in 
"Exhibit No. 2076," which presents merely in tabular form the 
information which is presented here in graphic form. I should like 
to submit the table for the record. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2076" and is 
included in the appendix on p. 13365.) 

Senator King. The cartel system lends itself, or did lend itself, 
more to the German philosophy of government, the authoritative if 
not the authoritarian theory of government, than to democratic 

Dr. Keeps. I think that proposition, too, requires a little investiga- 
tion. I admit that there are some who view cartels in that light, 
and if you define cartels in a very narrow sense it is accurate, but 
obviously cartels as defined in the sense that is given in chart I by 
Dr. Bruno Burn in his book on "Codes, Cartels, National Planning," 
include a nurnber of perfectly innocuous types of organization. You 
will note there that what they call a "Term Cartel," is really an 
agreement on trade practices, from which cartels increase the area of 
their agreement to almost every phase of a business enterprise. 

Senator King. What I had in iiiind was this: following the World 
War I was in Germany for some time upon two occasions and I looked 
into the dye industry there and into the General Electric and into the 
industries, and I found, at least that was the conclusion which I 
reached, that because of thd very unfortunate condition in which the 
German industry found itself following the war, its industrial hfe had 
been shattered, its economic life was at a very low ebb and there was 
an effort of the Government collaborating with industry to resuscitate 
their business and to find outlets for commodities of Germany because 
the scientific and chemical development was competent to create an 

Dr. Keeps. That is correct. After the war there was a terrific 
upsurge of the cartel movement in Germany. 

The Chaieman. What is the common acceptance of the term? 

Dr. Keeps. There isn't any common acceptance. 


The Chairman. Well, when we talk of the European cartel system, 
what do we usually mean? 

Dr. Keeps. It depends in part on one's economic predilections in 
part on one's political convictions. 

The Chairman. Of course, there can be differences of opinion 
theoretically with respect to almost any set of circumstances in human 
existence, but if there is such a thing as a cartel system, then as a 
practical matter it ought to be subject to easy definition, simple 
definition. If you agree with that premise, when you speak of the 
cartel system, and forgetting now the refinements that may be 
developed by an economist or philosopher viewing possibilities of 
agreement and organization, what is the actual fact with regard to 
the cartel system? What is it? 

Dr. Kreps. The essence of the cartel system is an agreement among 
independent producers in a special line of business on some particular 
item, whether it be such a matter as discounts, or whether it be price, 
or production. It is the agreement among independent producers, 
voluntarily arrived at, that is the essence of the cartel system. 

The Chairman. It may begin with a simple subject such as dis- 
counts, of which you speak? 

Dr. Kreps. Correct. 

The Chairman. And it may- extend to what degree? 

Dr. Kreps. To almost every phase of business operation. I shall 
submit some exhibits which will indicate the wide extent to which 
cartel agreements between independent producers are in existence 
at the present time. 

The Chairman. And when these agreements are made to a very 
wide extent among independent producers, what is the result with 
respect to what we call competition, for example? 

Dr. Kreps. Competition is mitigated. 

The Chairman. Or would you go so far as to say eliminated? 

Dr. Kreps. No; because competition is a very stubborn phenome- 
non. If you agree on, we will say, a price, then there are other 
methods of competition that enter into the picture. 

If you agree on production, then they do something with markets 
and go into other lines of enterprise. They attempt to mitigate the 
rigors of competition. Therefore cartels, as I have just indicated, 
tend to be born particularly in periods of distress. 

Mr. Ballinger. Price competition may be eliminated, may it not, 
Dr. Kreps? 

Dr. Kreps. Formally, yes. Practically, as you know, no trans- 
action is merely a transaction in price; it is a transaction in terms of 
delivery, discounts, and a host of other things. There have been 
exercised abroad all the ingenious devices with which we are familiar 
here for getting around the formal quoted price. 

Senator King. The term "cartel," then, is rather fluid and flexible 
in its nature. 

Dr. Kreps. Yes. 

Mr. ScoLL. Dr. Kreps, do you wish to offer the chart now? 

Dr. Kreps. Yes, I would like to offer this chart for the record. 

Mr. ScoLL. I would like to offer the chart showing cartel types. 

The Chairman. It may be received. 

(The chart referred to was, marked "Exhibit No. 2077" and is 
included in the appendix on p. 13366.) 


Dr. Kreps. In terms of their operations, then, cartels show nearly 
every variation in scope from local to national and international, 
from relatively simple control over specified trade practices to detailed 
administrative control over every phase of modern business operations. 
About the simplest and certainly the most commendable type of 
cartel, if indeed it be a cartel, is that established to secure uniformity 
in the terms of sale. 

"Term fixing cartels," according to Dr. Herbert von Beckerath in 
his book on Modern Industrial Organization (I might add paren- 
thetically that Dr. von Beckerath is a German scholar who has written 
a great deal on cartels and studied them for about 40 years. He is 
now in this country at Duke University), 

Term fixing cartels regulate sales terms, that is, conditions of delivery with 
regard to terms of payment, including discounts for early payment; charges on 
arrears; modes of payment (cash, three months' acceptance, etc., domestic or 
foreign money); determination and guaranty of allowances on returns; delivery 
of free goods; and packing. 

This type also concerns itself with options (a buyer's right, within a specified 
term, to place additional orders for the identical kind and amount of goods at 
the old price), with conditions applicable to the delivery of goods ordered only 
by quantity and type, and with reservations as to the execution of the individual 
pieces, for instance, as to the color and design of textiles. 

If term fixing cartels are indeed cartels, then the, term includes even 
such agreements as are embodied in American trade practice con- 
ference codes. 

Somewhat more sophisticated is the price fixing cartel which regu- 
lates sales prices, either by open price lists or by uniform cost account- 
ing systems, in which the cost elements, such as the price of raw 
materials, wages, the allocation for overhead and the gross profit 
margin are not only uniform but determined and revised for the mem- 
bers by the association or cartel. 

Price-fixing cartels give governmental and other purchasers the 
headaches of identical bids. Needless to say, such headaches are un- 
necessary, for when cartels become a little more clever they make 
their own allocation by dividing customers and sales territories. 

One of the interesting devices here used is the bid depository. 

Senator King. You mean here in your discussion. 

Dr. Keeps, Yes; not in the United States. My discussion applies 
to cartels abroad, completely. 

In regulating the bidding on proposed contracts, individual con- 
tractors make known their proposals to competitors through a cartel 
information service, or by a direct exchange. By rotating low bids, 
by complementary bids, and the like, the contract is made to go to 
the producer nominated by the cartel to fill the ordeF. 

The Chairman. That has the effect of maintaining price, does it 
not, above what it might otherwise be if the cartel agreement had not 
been made? 

Dr. Kreps. Sometimes above; sometimes. Senator, in periods of 
prosperity, below. There is that stabilizing influence which we- will 
show later on prices. 

The Chairman. Then are we to understand from your study that 
you find that a bid depository system may result in lower prices to 

Dr. Kreps. Due to inertia, they tend to maintain a price after an 
independent producer or a competitive producer would have raised 
the price. It isn't very long, I will admit that, but it does exist. 


The Vice Chairman. What motive actuates them in these two 
different determinations? 

Dr. Kreps. They frequently form this sort of bid depository as a 
protection against the lying buyer. 

The Vice Chairman. Against what kind of a buyer? 

Dr. Kreps. The lying buyer. 

The Vice Chairman. You mean they are going to cut out every- 
body that lies and won't let them buy at all? 

Dr. Kreps. In certain periods, at any rate, buyers tend not only 
to shop around, but really to misrepresent the conditions under which 
they can get an article from somebody else. 

The Vice Chairman. You mean a buyer actually tries to get it at 
the cheapest price he can buy it? 

Dr. Kreps. Yes, that is true. 

The Chairman. By saying to one seller, "Such-and-such a com- 
pany is willing to sell at such a price. Can you beat that price?" 

Dr. Kreps. That is right. 

The Chairman. And this report may sometimes not be altogether 

Dr. Kreps. That is correct. 

The Vice Chairman. And you only then permit people whose 
statements are absolutely accurate to come under tliis arrangement? 

Dr. Kreps. Under this sort of arrangement you are sure what your 
competitor is doing. 

Senator King. As I understand, you are describing the operations 
of the so-called cartel system abroad, not in the United States. 

Dr. Kreps. Yes. 

Senator King. It has no relevancy, then, to conditions here. 

Dr. Kreps. With that I would not agree. 

Senator King. Except by analogy, perhaps. 

Dr. Kreps. I understand that the bid depository is not uncomm\)n, 
particularly in the building field in the United States. 

The Vice Chairman. You state under this arrangement you are 
sure of what your competitor is doing. 

Dr. Krefs. In that v^aj you know that the buyer was not offered 
a particular article at, say, the low price or under the competitive 
conditions which he stated. It is a way of protecting yourself against 
bargaining exploitation. 

The Vice Chairman. That is the cliief objective of the cartel 
arrangement, to protect people who are caught by statements on the 
part of the buyer? 

Dr. Kheps. No, that isn't the chief objective. The chief objective 
is to protect the industry, particularly in a period of distress, from what 
they regard as the excessive rigors of competition. 

The Vice Chairman. Basing their judgment on when the competi- 
tion gets rigorous? 

Dr. Kreps. Yes. 

The Vice Chairman. That is a good arrangement. 

Dr. Kreps. A variant of the customer-dividing cartel is the zone 
cartel which allots all buyers within a certain region to an individual 
or a group of producers. Zone cartels within national markets are 
found for commodities with a limited technical or economic shipping: 


The Chairman. That is more commonly Known as a division of 
territory, is it not? 

Dr. Kreps. Correct — cement, brick, sand and gravel, and so forth. 

The Chairman. Whereby all competitors except one or two agree 
not to sell their products in a certain area but to leave that area for 
exploitation, or perhaps I had better say development, by those to 
whom the area was assigned. 

Dr. Keeps. Right. Control of output represents even more exten- 
sive interference with individual business operations, for then each 
cartel member engages not to produce substantially more than his 
present share in the total output of the industr^", which share is usually 
determined according to sample years, or on the basis of relative pro- 
ductive capacities or sales. i. 

The Chairman. That is what we call limitation on production. 

Dr. Kreps. Correct. 

The Vice Chairman. Do you control expansion of the instrumen- 
talities of production? 

Dr. Kreps. Yes, there are cartels that do that, that will forbid new 
plants to be established, or new plantings. I shall submit a cartel 
agreement in which such an arrangenient is present. 

The Chairman. How characteristic of the cartel movement is this 
limitation of production? 

Senator King. You are still speaking of abroad? 

Dr. Kreps. Yes. We arc now getting to the essence of the cartel 
movement. Cartels rarely stay within the limits of trade-practice 
agreements. They quicldy become price-fixing cartels, and that 
doesn't work well. They implement their arrangements with pro- 
duction limitation cartels. When that doesn't work any too well they 
begin to limit sales, and as a matter of fact go on beyond that. 

The Vice Chairman. What is the difference between this and an 
ordinary trust combination, a combination in restraint of trade where 
people who are interested in production get together to try to hold 
prices where they have profit? 

Dr. Kreps. That is what we are examining. 

The Vice Chairman. I mean that is what it is. Isn't that the 
thing we are examining? 

Dr. Kreps. I would be interested to hear what Representative 
Sumners would have to say on that on Friday after we have presented 
our cartel story in its entirety. 

The Chairman. What do you say about it now? 

The Vice Chairman. I was trying to" get right down to this thing. 
You know exactly what this thing is, and let's get to it. 

Senator King. As I understand, Dr. Kreps was addressing himself 
to the cartel system abroad, and I expected when he completed that 
he .might elucidate the cartels at home or show their analogy. 

Dr. Kreps. We have a nongovernmental witness, Dr. Claif 
Wilcox, who will point out certain similarities to cartels in the indus- 
trial experience of this country.^ 

The Chairman. Isn't the answer to Judge Sumners' question a 
very simple single word, "none"? There is no difference between the 
manifestations of the cartel system which you have described and the 
or xy practices of the conspiracy in restraint of trade as generally 
bel " ed to be prohibited by the Sherman antitrust law. 

' Dr. Wilcox's testimony appears infra, pp. 13310-13347. 
124491— 41— pt. 25 2 

13044 concp:ntration of economic power 

Dr. KriTps. I agree with that, but- 

The Chairman (interposing). You are testifying and we wanted 
your opinion. Does that answer your question, Judge SumnQrs? 

The Vice Chairman. I guess I sort of thought what we were 
talking about Was a camouflage and not the cartel yet. 

Mr. Ballinger. There is a close similarity, too, between the 
cartel and some of the N. R. A. codes, perhaps. 

Dr. Kreps. Yes. 

Now. to obtain a really effective regulation of output, producers 
sometimes establish central sa^es offices which on occasion may have 
a legal structure different from that of the cartel. This type of cartel 
with a common centralized sales organization is called a syndicate. 
To centralize sales obviously requires an interchangeable, standard- 
ized product. So that customers may get their wares from their 
favored producer, uniform delivered prices are quoted. Basing 
points are established. 

To quote Dr. von Beckerath on page 215 of his work on Modern 
Industrial Organization: 

Freights for the deliveries from all works arc charged from the cartel freight 
base instead of from the actual point of delivery. The so-called "Pittsburgh plus 
plan" of the cooperating United States iron combines was based on this idea. 

The Chairman. Do you take it that Dr. von Beckerath is express- 
ing the opinion that the United States iron combines adopted a 
European idea of economics? 

Dr. Kreps. I think rather in writing this book, which he wrote in 
Germany, he saw in the Pittsburgh plus system an embodiment of a 
familiar device, the cartel. 

The Chairman. Which was the first in time, the European mani- 
festation or the manifestation which we call Pittsburgn plus? 

Dr. Kreps. So far as the iron industry is concerned and so far as 
our records are concerned, the Pittsburgh plus system was first. 
There Were cartels in Europe in other industries, as I shall indicate in 
a moment, somewhat earlier than the period in which the Pittsburgh 
plus system originated. 

The Chairman. I wasn't referring so mudh to the iron industry 
as J was to the use of this method of charging freight from the cartel 
base. Now was that plan used in an}'- other industry in Europe 
before: it was used here in the iron industry? 

Dr. Kreps. I don't know. 

To make sure that individual producers will stick to their quotas, 
profit cartels, that is, pools, are established. Those making excess 
'deliveries are penalized, the profits on such business going to those 
unable to fill their quota. But most complicated of all usually are 
the intematioxial cartels representing agreements betv^een organized 
groups of firms or cartels. 

In essence they are supercartels of cartels (Generalkartelle) or 
cartels of combines. Frequently they cover not only one but a num- 
ber of products (Mantelkartelle). They in turn can be classified in 
the same way that national cartels have just been divided, into (1) 
trade practice cartels (2) price cartels (3) territorial cartels (4) pro- 
duction cartels, and (5) sales cartels or syndicates. 

•In a strict sense only the last three are cartels, the first two types 
being loose associations usually depending for enforcement on mutual 


watchfulness of members rather than on penalty arrangements applied 
by an administrative cartel officer or office. 

The Vice Chairman. Do you deal with how they disciphne a 

Dr. Keeps. I will submit later an agreement which states in detail 
how a member is disciplined.^ 

The Chairman. Am I to understand that the international cartel 
as you now describe it is an organization whereby large cartels operat- 
ing in certain nations enter into an agreement whereby so far as world 
trade is concerned they undertake first to divide territory, second to 
limit or control production, and third to manage sales or distribution 
of the products? 

Dr. Kreps. Correct. 

The Chairman. And that is done from the top? 

Dr. Kreps. Yes. 

The Chairman. And it amounts to a rule imposed by those who 
manage the cartel upon all who endeavor to engage in that business? 

Dr. Kreps. Correct. 

Senator King. Was there any cartel between the German producers 
before and immediately following the war with the producers of similar 
commodities in Sweden or Great Britain or France? 

Dr. Kreps. Yes. 

Senator King. Or Italy? 

Dr. Kreps. Yes. 

Senator King. You will discuss that, will you? 

Dr. Kreps. Yes. 

Senator King. Who took the lead in the formulation and execution 
of any such plan? 

Dr. Kreps. The country of leadership varied: It was usually Ger- 
many, but the French and the Belgian producers and the British 
producers on occasion also furnished leadership. 

Senator King. Was it dealing largely with dyes and with chemicals? 

Dr. Kreps. No; I have a list here that I shall submit in a moment 
which wiU indicate the variety of products covered.^ 

Cartels, while reaching their fullest development in modem Ger- 
many, and while most fully documented there, have by no means 
been unknown in France, England, Italy, Belgium, Poland, and other 
modem industrialized countries, including the Scandinavian. 

In France they are called comptoirs, the oldest being the Comptoir 
de Longwy estabhshed in the iron industry in 1848 and continuing 
though not without a series of transformations until the present time. 
In his book entitled Les Syndicats de Producteurs en France, Jacques 
Lapergue enumerates in addition to the price, territorial, production 
and sales cartels noted above, export comptoirs and purchasing 
comptoirs for the joint purchasmg of raw materials. 

Cartels in France have likewise assumed just as complex forms as 
in Germany. Instead of the simple Comptoir de Longwy and its 
successors there have recently come into existence a number of vertical 
selling organizations of a regional or local character, handling a wide 
range of iron and steel products of a number of concerns, and generally 
controlled by them. 

' See "Exhibit No. 2080," appendix, p. 13369. 
' See "Exhibit No. 2079," appendix, p. 13368. 


Thus there is the "Longovica," handling not only the export trade 
of iron and steel but also tubes ai'd screws ond bolts, rolled products 
and machinery; the "Nortrilor," handling for export iron Qre, iron 
and steel bars, tubes, slags, and lire bricks; the "Columeta," handling 
the products of the two Luxembourg combines, the "Arbed" and the 
Societe Metallurgique des Terres-Rouges. The Comptoir Siderur- 
gique, revived in 1925, is now the most in[iportant association in the 
French steel industry, handling until recently the sales or adminis- 
tration for the international rail cartel, the Continental steel entente, 
the machine-wire cartel, and the recently organized domestic cartel 
for beams and ingots, blooms, and so forth. 

The Vice Chairman. Do you intend to discuss at any time the 
general governmental policy? 

Dr. Kreps. I include an agreement here among governments on 

The Vice Chairman. The governments themselves? 

Dr. Keeps. Yes. 

The Vice Chairman. In these countries where these cartels operate, 
do they have any law or public policy with reference to what we know 
as activities in lestrairt of trade? 

Dr. Kreps. Some do and some do not, ' 

The Vice Chairman. Do those that do have make an exception in 
behalf of these cartels? 

Dr. Kreps. Sometimes. The law is extremely varied and com- 
plicated, as I shall indicate in a moment. . 

The Vice Chairman. Let me ask you, then, are there any prose- 
cutions conducted in any of those countries s eking to prevent the 
character of practice which these cartels engage in? 

Dr. Kreps. In some. In Norway, for example, they have rather 
rigorous price control measures. 

The Vice Chairman. Do they operate under the cartels? 

Dr. Keeps. Yes. 

The Vice Chairman. I hate to ask so many questions, but one 
other question. The prices which the organizations belonging to 
these cartels may charge are to some degree supervised or looked over 
by a governmental agency before those prices are permitted to be put 
into effect? 

Dr. Kreps. In some instances in some countries. 

The Vice Chairman. To what degree is that general among the 
countries where cartels operate? 

Dr. Kreps. At the present time? 

The Vice Chairman. I don't mean since the war, but prior to 
the war.^ 

Dr. Kreps. Prior to the World War it was only true in Germany 
in the. potash industry. Other places the cartel agreement was 
regarded as valid and enforceable without supervision. 

The Vice Chairman. And no general blanket legislative or govern- 
mental restraint -or control which operated over the whole 

Dr. Kreps. Usually not. 

The Vice Chairman. Upon what did they depend? If you discuss 
this later on I v^dll withdraw the question, but otherwise upon what 

' "Exhibit No. 2080," appendix, p. 13369. 
5 World War I. 


do they depend for restraint upon the power accumulated by those 
persons who belong to the cartel controlling prices? 

Dr. Kreps. They used a variety of devices. 

The Vice Chairman. Do you discuss that ia your paper? 

Dr. Kreps. Yes; I do. 

The Vice Chairman. Then I will withdraw the question. 


Dr. Kreps. Now in England the cartel movement has similarly 
swept through a large part of industrial enterprise. A recent observer, 
Dr. Ben W. Lewis, in a pamphlet entitled 'Trice and Production 
Control in British Industry," states: 

For more than a century the typical British industrialist has produced whatever 
and as much as he pleased. Today, as a member in good standing of a "rational- 
ized" industry he is allowed a specific percentage of the total business which hia 
industry has decided to handle during the year (and he will pay into a "pool" if 
he exceeds his quota and will be compensated if he is "short"); he will consult 
the industry schedule before pricing his goods and will not deviate therefrom 
without permission; he will submit his sales contracts to the officials of his indus- 
trial association for advance approval and will throw open his books for industry 
inspection; he will pay a levy to be used by the industry to purchase and destroy 
"redundant" capacity; and he will depos't with the officers of his association a 
substantial amount to be forfeited if he is found guilty of noncompliance." 

Lewds goes on to say. 

The essential condition making it possible for private industry to inaugurate 
effective schemes of control has been provided by the Import Duties Act of 1932 
and the activities of the Import Duties Advisory Committee under the terms of 
the act. 

The Chairman. Do you understand that to be a statement that it 
was law which authorized this arrangement which was described by 
Dr. Lewis? 

Dr. Kreps. No. In one or two instances there have been statutes 
which really bring about in Great Britain the condition which Dr. 
Lewis describes, but in general, as will be brought out a little later, 
free trade in Great Britain meant competition from abroad. 

The Chairman. Let's get this straight. Quoting from Dr. Lewis 
I find this phrase: "He will consult the industry's schedule before 
pricing his goods." Now, who makes the industry's schedule? 

Dr. Kreps. The association for the industry. 

The Chairman. Does it do it by authority of law? 

Dr. Kreps. No. 

The Chairman. Then this whole program which is described by 
Dr. Lewis so succinctly is a program whi-ch is adopted by industry 

Dr. Kreps. Correct. 

The Chairman. In other words, it is what has sometimes been 
called self-government in industry? 

Dr. Kreps. There are similarities between this movement and the 
self-government in industry movement. 

The Chairman. This is a plan of production, pricing, and distri- 
bution which is made effective by those who are interested in the 
production and sale without any part being played in the formulation 
of that plan by those who are primarily interested in purchasing. 

Dr. Kreps. That is usually correct. There are exceptions. 


The Chairman. And it is not a Government-sponsored plan? 

Dr. Keeps. No, but the Government does not oppose it. 

The Chairman. Yes, sometimes because the Government doesn't 
know what is going on, maybe. 

Dr. Keeps. And sometimes because the ma^nagement of industry 
and the management of Government are almost in the same hands. 

The Chairman. Now, then, what about this Import Duties Act of 
1932, to which Dr. Lewis refers? Have you examined that law? 

Dr. Keeps. Yes. 

The Chairman. In what way does that operate? 

Dr. Keeps. That operates, of course, in particular industries, and 
in those industries— — 

The Chaieman (interposing). I haven't made my question clear. 
Dr. Lewis said the essential condition making it possible for private 
industry to organize these schemes was provided by this act of 1932. 
Do you know how? What was the essential condition? 

Dr. Keeps. Because it kept out foreign competition. Prior to that 
time, British official policy looked upon these agreements as being 
substantially unenforceable, as not lasting very long because there was 
always a chance for competition to come in from abroad. 

The Chaieman. There used to be a phrase in this country years ago 
when I was first beginning to take an interest in things that were going 
on, the phrase was the tariff was the mother of the trusts. Is that 
about the same as Dr. Lewis states? 

Dr. Keeps. That is essentially the idea. 

Senator King. Isn't it a fact that the Board of Trade, which is not 
only an industrial but a quasi public organization in Great Britian, 
operates in connection with the Cabinet? 

Dr. Keeps. Yes. 

Senator King. So that the Government itself, through p oper 
instrumentalities; keeps in contact with the business organizations and 
determines in a way largely the policies which are pursued by business? 
That is to say, my recollection is, and my mind is a little vague about 
that, that there is a member of the Cabinet that contacts business and 
has to do with business, watching the interests of the consumer as well 
as watching the interest of those who are seeking to extend the trade 
of the Government with the Empire and the lands beyond the bound- 
aries of ithe Empire. 

Dr. Keeps. There is no formal supervision. You are quite right 
that there is an intimate relationship between members of government 
and ruling members of industry. That intimate relationship un- 
doubtedly results in a give and take, in some modification of industry 
policy at some times, but we have no formal evidence on that point. 

Senator King. My recollection is there was sort of a liaison officer 
with considerable authority between the Government per se and 

Dr. Keeps. You mean definitely with respect to these agreements? 

Senator King. With respect to industry generally and with respect, 
also, to prices, and particularly with respect to seeking markets abroad 
and to watch the imports with a view to determining whether or not 
Great Britain having departed in part from a free- trade policy, 
additional tanff rates would be imposed. 

Dr. Kb^jps. There is no doubt that British Government, like all 
governments, has an extensive organization servicing industry. On 


the other hand, there was no formal supervision or control or even 
registration of these agreements. 

Senator King. I v^asn't speaking so much about agreements as I 
was generally the supervision of industry and a liaison officer between 
the authorities which govern the Empire, the party in power, and 
industry with a view to determining whether the pohcies of industry 
are compatible with policies of the Empire, particularly to Great 

Dr. Kreps. Yes. 

(Representative Sumners assumed the Chair.) 

The Vice Chairman. The explanation which you have just made, 
the amplification of the statement you made a moment ago, that 
often it is so that the control of Government and control of industry 
is in the same hands, practically the same hands — I believe you made 
such a statement. 

Dr. Kreps. Yes. 

Senator King. There is no doubt when the MacDonald government 
came into power in Great Britain, they materially modified the 
internal policies with respect to trade and commerce as well as the 
external policies, much to the regret of the conservatists. 

Dr. Kreps. Yes. 

The Vice Chairman. When you speak of government and industry 
being in the same hands, does that mean the legislative and policy- 
fixing agency of the Government is related, or some bureau in the 
Government that really has exercise of governmental power in refer- 
ence to the matter? 

Dr. Kreps. It usually means that the same group with the same 
pool of knowledge and the same ideas on public policy, and the same 
famihes, even, tend to hold offices, in one case in industry and in the 
other case in government. There is intellectual interchange. For 
example, in Great Britaiii Sir Josiah Stamp, a government clerk and a 
professor, became head of the British Railways. AIL I meant to imply 
by "same" was not that the same person held two offices, but that 
there was a good basic understanding between the leadership of 
government and the leadership of industry. 

The Vice Chairman. From your observation of the working of 
that arrangement where government and industry are largelj^ in the 
same hands, is industry persuaded to modify its poficy in the interest 
of government? 

Dr. Kreps. Yes. 

The Vice Chairman. The Government modifies the policy in the 
interest of industry. 

Dr. Kreps. Frequently. 

The Vice Chairman. Each way about. 

Dr. Kreps. Yes. There is give and take. There is a certain 
code, may I say, particularly in Great Britain. There is a feeling 
that certain things aren't done by men in industry and by men in 
government, according to a rather high code of etliics, of idealism, 
and of trusteeship. That code commands the allegiance both of 
men in industry and men in government. Public poficy as well as 
industrial policy are debated and discussed in terms of such a code. 
In that discussion, modifications both of industry policy or proposed 
industry policy and of proposed governmental policy take place. 


The Vice Chairman. Pardon me for inquiring here, because this 
is the one new aspect that has come to the surface here, and I think 
is very interesting— it is to me, and I beheve to my colleagues. Those 
discussions I assume are to a large degree informal between the heads 
of industry and people in responsibility in the Government. 

Dr. Kreps. Naturally. 

The Vice Chairman. And then you mean there is a sort of feeling 
of loyalty and duty and patriotism as well as, I assume, some coercion 
of pubhc opinion, that the people who engage in industry ought 
not by reason of power acquired by these cartels, attempt to be 
extortionate in their prices or unreasonable in their restraint upon 

Dr. Kreps. Yes. In other words, I would phrase it that their idea 
of what is extortionate and their idea of what is unreasonable is 
likely to be determined by this code of a gentleman, which English- 
men adhere to. 

Senator King. They have a system of taxation, if the profits are 
very large the Government takes them. 

Dr. Kreps. Yes. 

The Vice Chairman. Does that to any degree change the public 
policy? In other words, do they feel that these industries are tax 
gatherers, and the price they charge doesn't make much difference as 
long as the public stands for it? 

Dr. Kreps. I don't think that attitude is common. 

The Vice Chairman. I think I understand what you are saying, 
and it is a very interesting thing. 

Senator King. Our Government, as I understand, takes an interest 
in our domestic as well as in our foreign trade and commerce. For 
instance, Presidents have frequently recommended lowering the 
tariffs and other Presidents have recommended increasmg the tariffs, 
and the heads of the various departments even now, take the agri- 
cultural department, spend no little^ time in making speeches through- 
out the country advocating certain governmental policies and bring 
pressure to bear, more or less important, upon Congress to secure 
legislation in the form of recommeiidations to the executive depart- 
ment of the Government. Isn't that true? 

Pr. Kreps. I understand it is. 

Senator King. I know it is. 

Dr. Kreps. At present the iron and steel industry is completely 
controlled by a supercartel, a federated organization of some 35 
price-fixing and quota associations, together with probably 40 addi- 
tional informal price and output groups, covering practically every 
iron and steel material and product in the British Isles. Agreements 
are enforced by such devices as the deposit of prepaid fines and sub- 
stantial "loyalty discounts" not given to recalcitrants or outsiders. 

Other products characterized by effective cartel controls are tin 
plate, galvanized sheets, sanitary fire-clay products, cables, light 
bulbs, household equipment, radios, generating and transmitting 
equipjnent, matches, soap, glycerin, white lead, various metal 
prod»icts such as fittings, tools, saws, files, drills, cutlery, and cement. 
In the last-named industry there is a quota-and-price association 
which quotes deUvered prices on a common basis and enforces them 
by penalty deposits. Quotas are based on past performance and 
operated through the mechanism of a "put and take" pool. In the 


lead oxide industry a similar compensatory "put and take" arrange^ 
ment is operated, the specific amounts being calculated on the basis 
of the particular markets in which the shortage or excess occurs. 

In Italy cartelization developed after the war in the iron and steel 
industry, in shipbuilding, in cement, cotton, certain chemicals, and 
paper. Cartels were forced upon the marble quarries of Carrera, the 
rolling mills, and the sulfur mines. 

The Vice Chairman. Who forced them, the Government? 

Dr. Keeps. The Government. 

Belgium has a long cartel history. Thus one regional association in 
the coal industry (Comite houiller du Centre) was formed as early as 
1841, although the formal cartel providing for fixing of prices, joint 
selling, and indemnification for dumping was not organized until 1896. 
The coke producers organized a selling.comptoir in 1894, agreeing with 
the Ruhr coke syndicate regarding the division of markets. 

Practically every phase of the iron and steel industry was cartelized 
long before the outbreak of the World War. The cement and plate- 
glass industries are also strongly controlled. The mechanical window- 
glass cartel has a joint selling organization for foreign as well as do- 
mestic markets, the central bureau bilhng all shipments direct to 


Dr. Kreps. Now, concerning Germany little need be said. In the 
late seventies various coal cartels were formed in the Ruhr. But a 
Reichstag cartel investigation in 1906 found that the cartel movement 
developed gradually and comparatively slowly until 1895. Of the 
385 cartels covered by the investigation, a substantial proportion 
came into being after the turn of the century; the industries most 
affected being coal mining, iron and steel, chemical, and brickmaking. 

It was estimated that, leaving out numerous brickworks, the cartels 
covered by the investigation comprised about 12,000 industrial estab- 
lishments. About 200 of the cartels investigated had joint selling 
organizations. During and after the World War the number of cartels 
grew with great rapidity. 

(Senator O'Mahoney resumed the chair.) 

The Vice Chairman. Did the agency of investigation make any 
recommendation after it concluded its investigation? 

Dr. Kreps. It did. 

The Vice Chairman. Were they favorable or unfavorable? 

Dr. Kreps. I would say rather they were puzzled. 

The Vice Chairman. That is nothing new, or old, either. 

Representative Williams. In Germany are there any industries 
outside of the cartels? 

Dr. Kreps. Oh, yes. 

Representative Williams. What percentage are mider the cartels? 

Dr. Kreps. You mean in 1906, or at the present time? 

Representative Williams. Now. I mean before the last war. 
What was the normal situation there with reference to the business 
carried on under the cartel system? 

Dr. Kreps. I wouldn't hazard a guess, but suffice it to say that most 
of the heavy industries, chemicals, machinery products, ceramics, and 
the like were under cartel control. There were even some cartels in 


the wholesale trade, but of course such areas of mdustry as agriculture, 
service enterprises, and the lilce were not cartelized. _ 

Representative Williams. The factory business cdrhnionly known 
as the industries of that country were under the cartel system? 

Dr. Kreps. a large proportion. 

Representative Williams. A great part of that business was con- 
ducted in that manner? 

Dr. Kreps. Yes. 

The Vice Chairman. Is there any distinction in the scope of 
permissible operation between production for domestic consumption 
and that which was either going into foreign trade or competitive 
with foreign trade? 

Dr. Kreps. Yes; they have special cartels dealing with export 

The Vice Chairman. Very often sellmg at a lower price in the 
export market. 

Dr. Kreps. Yes. Germany, suffice it to say, was the traditional 
land of cartels. 

The uninitiated often believe that without governmental participa- 
tion cartels cannot exist. This is, of course, not true. But govern- 
mental policy usually determines whether cartel agreements are made 
matters of public record, or are driven underground. The attitude 
of governments and their concern with cartels, both in Europe and 
in the United States, has varied enormously. 

The Vice Chairman. In Germany have they had • corrective 
legislation, waves of threatened opposition and correction frequently 
in that country with reference to cartels? 

Dr. Kreps. They had one. 

The Vice Chairman. When was that? 

Dr. Kreps. In 1923; right after the inflation a law was passed 
significantly called Decree Against Abuses of Economic Power. In 
the development of that law, however, cartels were not proceeded 

In general, in Europe cartel agreements are deemed valid and 
enforceable, subject to the usual processes of litigation and adjudica- 
tion. I might add here that cartel agreements usually provide that 
no litigation is to occur. They settle their own disputes. 

Mr. Ballinger. In other words, in Germany after they passed the 
Decree Against Abuses of Economic Power, they did nothing about 
concentrated economic power. 

Dr. Kreps. Correct. As a matter of fact, they even went in the 
other direction. 

Most detailed are the regulations in Germany, a summary of which 
is given in this exhibit. 

Mr. ScoLL. I would like to offer at this time an Excerpt of portion 
of Table of Contents from "The Legal Position of Cartels and Con- 
cerns in Europe," by Dr. Heinrich Friedlander. 

The Chairman. Without objection, the exhibit may be received. 

(The document referred to was marked "Exhibit No. 2078" and is 
included in the appendix on p. 13366.) 

The Chairman. Do you have any copies of this? 

Dr. Kreps. There are some typewritten copies. I am not sure 
where they are at present. 


Representative Williams. I notice a statement here that the 
agreements are determined valid and enforceable. Wlio enforces 

Dr. Kreps. As I said, if they want to go to a court of law, the court 
of law in some instances will enforce the agreement, but the cartel 
agreements usually provide that cases are not to be taken to a court 
of law. In other words, they establish their own arbitral tribunal. 

Representative Williams. They are given, then, a kind of quasi- 
governmental position. 

Dr. Kreps. They are given the same position that contracts for 
purchase and delivery and sale in this country have had. When you 
buy an automobile, or what have you, that contract is enforceable in 
the courts. 

Representative Williams. I got t\\e impression a while ago that 
cartels as an organization enforced their own agreements by means of 
fines, penalties, and so on. 

Dr. Kreps. Yes; that is correct. 

The Vice Chairman. What is the procedure — if you discuss it in 
the paper or in your remarks, I withdraw it — but what is the pro- 
cedure under which a new activity may get into an established 

Dr. Kreps. Sometimes the only procedure is that of breaking the 
cartel such as when a new source of supply comes in. When a new 
producer wants to produce something, he breaks the price or disregards 
the cartel obligation, maybe disregards the cartel rule. If he is strong 
enough, ultimately the cartel is compelled to reorganize and include 

The Vice Chairman. Wlien he does fall into the power of the 
cartel, does the cartel then have in its arrangement some power to 
assemble itself, rather to bring its assembled economic strength to 
bear toward crushing him? Is that sort of thing permitted? Is 
that sort of thing legislated against in these governments? 

Dr. Kreps. In some cases it is. In some instances it is not. In 
other words, such occurrences are regarded as part of the general 
business picture. 

The Vice Chairman. Let's get that a little clearer. Do you 
discuss it in your paper? 

Dr. Kreps. I do not. 

The Vice Chairman. Well, then, let's take a little time, if you 
don't mind. Under the operation of a country that is committed 
to the plan of the cartel, practically speaking, it would seem to me 
to be almost impossible for any new industry to enter the field without 
the consent of those already engaged. Those already engaged would 
not be disposed to accept a new competitor in the field, that they felt 
they were pretty fairly taken care of. 

Dr. Kreps. The last part of your statement I agree with, that they 
are not disposed to accept a new competitor. They are sometimes 
compelled to. 

The Vice Chairman. But • that compulsion must come from a 
power and economic strength and business ability that is somewhere 
in the neighborhood equal to the aggregate of the members of the 
cartel, doesn't it? That is a pretty strong statement, but 

Dr. Kreps (interposing). I was going to say, take, for example, a 
price-fixing cartel. Wlien a member, due to one reason or other, is 


dissatisfied and feels that he can get a larger market by quoting at a 
lower price, he may not have an economic power equal to that of the 
cartel, but none the less be rather effective in breaking the price 
cartel and in breaking the price. The jresult is that the cartel, if it 
doesn't have effective measures of economic reprisal, may have to 
call a meeting of all the members of the industry and try to reason 

The Chairman. Ordinarily doesn't a cartel have that means of 
reprisal on its hands by meeting the price reduction or even going 

Dr. Kreps. Yes. 

The Chairman. And thereby driving this rather venturesome 
person out of business completely? 

Dr. Kreps. Yes. 

The Chairman. In other words, what we are dealing with here is 
the relationship between organized business and organized society. 

Dr. Kreps. Yes. 

The Chairman. And the extent to which business organizes without 
the authority of Government, and the effect of that organization upon 
individual flesh-and-blood persons. 

Dr. Kreps. Exactly. 

The Vice Chairman. If I may ask just a couple of more questions, 
I think it is pretty clear, it seems to me rather important, in this 
country, which I can visualize more easily than I can Germany, if a 
new person wanted to enter vompetition with established industry 
in this country, and those established industries were organized, and 
the resources subject to some central control, and that industry was 
not invited and not welcome, had no governmental agency to which 
he could appeal, such as ourselves, that deal with unfair trade practice 
in our trust groups, I don't see how he would get in at all, because' 
if he brought a suit in the courts claiming a violatio'n of his right to 
enter, and that sort of thing, why, the courts would say, "We don't 
entertain that suit; they are doing what they have a right to do," I 
don't see how he could get in. 

Getting right down to it, it seems to me that this cartel arrangement 
is no protection to the individual seeking to enter into competition 
with established persons who constitute the cartel. It seems to me 
that whatever your theory might be, as a matter of fact, he wouldn't 
have a look-in. 

Dr. Kreps. It depends on the mdustry and depends on the time 
and the occasion. If he has a new process or a patent or a low-cost 
measure, he can break in. 

The Vice Chairman. I am not having in mind somebody who has 
patented something who shuts everybody else out. 

Dr. Kreps. It is difficult, but not impossible. 

Mr. Ballinger. You don't know of any cartel broken by the opera- 
. tion of an independent enterprise or outside the cartel? Most cartels 
break down by sizable revolt from the inside. 

Dr. Kreps. Usually, yes. 

Mr. Ballinger. Do you know of any case where a person with a 
better manufacturing process, a better idea, was able to come along and 
smash a cartel? 

Dr. Kreps. Yes, there have been a number of instances. 

Mr. BaljLiInger. Will you list some of those? 


Dr. Keeps. I did not list them, but there have been a number, 
particularly in the chemical industry. 

Mr. Ballinger. You mean outside the country that is practicing 

Dr. Kreps. No, inside the country that had a cartel. Usually 
some new device, some new patent or new method of production 
enabled this outsider to break in. 

The Vice Chairman. And the people who had machinery or had 
patents which did not permit them to engage in competition with a 
new process had to yield because of the new process. 

Dr. Kreps. That is right. Often patent pools were estabhshed as 
a result. 

The Vice Chairman. My question wasn't directed to a situation 
where a person entering the field entered with a new gmi. 

Dr. Kreps. Of course, there are disruptive tendencies in the cartel 
itself; in other words, opposition builds up within the cartel, disagree- 
ment concerning quotas, disagreement with respect to territory or sales, 
all the areas of disagreement that are likely to occur when you have a 
group of men together, each, after all, seeking to maximize his own 

Senator King. Isn't it a fact that following the World War, not- 
withstanding the cartels were very strong, especially in the dye and 
chemical industry, in the utiUzation of coal and in the development of 
aUof the coal products, there were a very large number of independent 
organizations started up in competition with existing cartel activities? 

Dr. Kreps. Pecuharly so where you have international cartels 
which, of course, broke up almost completely during the World War 
and have broken up again now. 

Senator King. And isn't it true that during the last 5 or 6 years, 
notwithstanding the dominating power of Mr. *Hitler, there has been 
a very great increase in the number of manufacturing and industrial 
activities within Germany? 

Dr. Kreps. I don't know. 

Senator King. Or companies? 

Dr. Kreps. I don't know. Cartels and economic combines, as 
you notice from this exhibit, were not given a special basic legal status 
there until the decree against the abuse of economic power promulgated 
in 1923. In that decree a cartel court was established as a special 
tribunal attached to the Reichswirtschaftsgericht. Unlike ordinary 
courts of law, its associates include representatives of different eco- 
nomic interests and an expert representing the public. The Minister 
of Economics was given the power of intervening in cases in which the 
public interest was found to be endangered. So far as detail is con- 
cerned, legislation and court decisions in other countries afford little 
of outstanding interest though much of labyrinthine complexity. 

The Chairman. What was the extent of the power of intervention 
granted to the Minister of Economics? 

Dr. Kreps. He could disband the cartel. 

The Chairman. By his owi\,decree? 

Dr. Kreps. By a finding of the court. 

The Chairman. He could intervene as one would intervene in a 
suit'of law and present an argument to the court? 

Dr. Kreps. Correct. 


The Chairman. It would be the court that would issue the decree 
of dissolution? 

Dr. Kreps. Correct. 

Senator King. In other words, they had a judicial body and this 
person to whom the Senator has just referred was rather a prosecuting 
attorney who would assemble the evidence against the practices of the 
cartel and this court would determine whether or not it should be 
dissolved or modifications should be inaugurated in connection with 
its activities. 

Dr. Kreps. Yes; our last witness in this hearing is an expert who 
served in Germany before this court. He will discuss a number of 
the interesting problems that came up.* The cartel court would meet 
and make its decision and this decision would then be referred to the 
Supreme Court, sometimes with reversal, and, indeed, all the other 
accompaniments of appeal with which we are familiar in this country. 

Senator King. So that judicial review, then, was exercised in regard 
to these agreements. 

Dr. Kreps. Yes. 

Senator King. That is, machinery was provided for judicial de- 
termination of the validity or invalidity of these respective agreements. 

Dr. Kreps. Of portions of these agreements. I might say one 
interesting episode they argued about was what is a cartel, the lower 
court holding that a certain arrangement was not a cartel, and the 
upper court holding that it was a cartel. That litigation went on for 
some little time. 

Mr. Ballinger. Were any cartels dissolved? 

Dr. Kreps. My recollection is none. 

Mr. Ballinger. In other words, there was great agitation about 
the abuse of cartels and then they gave the Minister the power to 
intervene in the public interest but no cartel was dissolved? 

Dr. Kreps. No; there "^as section 4 which was designed to be "the 
section when the law was passed that would protect the public interest, 
but the inflation period passed. In 1924 stabilization came into the 
picture, and at chce sections 8 and 9 of the law became prominent, 
which were sections dealing with the enforcement of the cartel decree 
upon cartel members and the difficulties that came about When they 
tried to enforce upon a cartel member the provisions of the cartel 

Senator King. The inflation in Germany following the war, in 
1923, '24, '25, and '26,. (I happened to be in Germany on those occa- 
sions) disrupted the entire economic structure, did it not, and made it 
almost impossible to determine just what were prices? Prices in the 
morning would be much different, than when night came, and the 
next day the prices again would be changed so there was no static 
condition in regard to prices. 

Dr. Kreps. That is correct. 

The Vice Chairman. Would this proceeding to which you have 
just referred, the tribunal, or whatever it is, before which the hearing 
is had, have any jurisdiction over price? 

Dr. Kreps. Yes. 

The Vice Chairman. Price and practices? 

Dr. Kreps. That is correct. 

1 See p. 13347, infra. 


The Vice Chairman. And they were subject to modification by 
the judgment of the court? 

Dr. Kreps. Correct. 

The Vice Chairman. So it was not only dissolution, but it was 
cartel practices generally that were subject to public control? 

Dr. Kreps. Exactly. 

The Vice Chairman. Is tliere any Government where it is required 
that prices be filed with any governmental agency before they become 
effective, any tiling similar to our transportation rates that are required 
to be filed? 

Dr. Kreps. I think the closest approach, Mr. Congressman, to an 
answer to your question is afforded by the experience of Norway, in 
wliich the law requires compulsory registration of cartels. Norway 
initiated this legislation in 1921 and amplified it by the law of 1926 
which has as its main objective a generally continuous control of 

Now all combines and large companies in cartels that are in a position 
to exert an important influence on the prices of goods or services are 
required, upon notification, to register with the office of control which 
was created by the law and invested with the power to require and 
check any information it may deem desirable. Actual dissolution of 
cartels and other measures of enforcement are entrusted to a council 
of control consisting of a president and four members and assisted in 
matters of local or regional importance by communal committees of 
control, successors to the former local price commissions. A similar 
law has been adopted by several other small European countries. 

The Vice Chairman. But it is not required in any of these coun- 
tries with which you are familiar that there shall be filed in advance 
of their going into effect any contemplated modification of prices? 

Dr. Kreps. Not that I am famihar with. 


Dr. Kreps. There is another development in all this intricacy of 
cartel legislation wliich is important, and that is the growing tendency 
toward compulsory carteUzation, not only in Germany and Italy but 
also in France and even in England. The bUi passed by the Chambre 
des Deputes in France in 1935 is a case in point. According to Karl 
Pribram in liis book on cartel problems: 

The bill provides'that, if a group of employers representing, as a rule, two-thirds 
of all concerns and three-quarters of the total sales of the industry, during the 
preceding year has adopted an agreement for the purpose of regulating trade 
conditions for a limited period, such an agreement can be made binding upon all 
members of the industry by gbvernrhental decree. The agreement may include 
a wide variety of measures for adapting production to the situation of the market, 
at home and abroad (including reduction of output, hours of work, and inventories; 
restriction of production to existing plants; conclusion of collective labor agree- 
ments; fixing of minimum standards of quality; asses.sment of contributions; and 
flotations of loans). 

In order to avoid far-reaching governmental interference with economic life, a 
special "Arbitration Committee" composed of the heads of independent industrial, 
commercial, and financial organizations and institutions (including the Governor 
of the Bank of France and the General Secretary of the Trade Union Federation) 
is to be charged with the task of examining the merits of its findings to the govern- 
ment. Unless the Committee's proposal is strictly affirm.ative, the government 
is not to be empowered to declare the agreement binding. Control of the execu- 
tion of the agreement is placed with- the appropriate executive department of the 


The Vice Chairman. Do you know in a general way the reason 
assigned establishing the necessity for the policy? 

Dr. Kreps. For compulsory cartelization? 

The Vice Chairman. I am just speaking now of France; they passed 
a law for compulsory cartelization. Do you know and can you state 
briefly the reasons which actuated or promoted that legislation? 

Dr. Kreps. Yes. In the brief which was filed with this Dill — I 
forget the exact technical name for it — they cited the arguments which 
I have already elaborated this morning: The necessity for French in- 
dustiy to protect itself against cartels in other countries, the necessity 
for French industry to protect itself during periods of excessive com- 
petition from the risks inherent in large investment when price cutting 
is likely to- know no lower limit. 

The Vice Chairman. Was there any claim in support of that bill 
that possibly a few of the well financed and stronger industries were 
about to drive out smaller industries that could not compete with them 
in the scramble for a market? 

Dr. Kreps. I don't know, but possibly in the debates that point 
may have been raised. Of course in the brief for the bill as such it 
would stand to reason that, point would be 

The Vice Chairman (interposing). That is not included among the 
reasons asking for the bill? 

Dr. Kreps. No, 

The Chairman. This first setence is very interesting in your quo-* 
tation from Mr. Pribram: 

The bill provides that if a group of employers representing, as a rule, two-thirds 
of all concerns and three-quarters of the total sales of the industry, during the pre- 
ceding year has adopted an agreement for the purpose of regulating trade condi- 
tions for a limited period, such an agreement can be made binding upon all mem- 
bers of the industry by governmental decree. 

Now what are the circumstances which determine whether or not 
such a decree is issued and by whom it is issued? 

Dr. Kreps. It is issued by the appropriate executive department, 
that is under the system of administrative law in France, the adminis- 
trative decree can be issued by a number of departments, depending 
upon what is affected in the agreement, whether it is labor, conditions 
of labor, whether prices or discounts, or whatever the situation may be. 

The Chairman. What standards control the acts or guide the acts 
of the executive department? 

Dr. Kreps. You mean are supposed to control? 

The Chairman. Yes, surely. 

Dr. Kreps^ The standards supposed to control are those which are 
mentioned in the prelude to the bill, namely, to prevent excessive com- 
petition, to protect French industry against cartels in other countries, 
and the like. 

The Chairman. In other words, it would appear from this sentence 
standing alone that size of itself was the only prerequisite, although 
it is stated there that the decree can be issued, thereby implying that 
it could be withheld as well. 

Dr. Kreps. Yes, that would be subject to the decision of the arbi- 
tration committee. 

The Chairman. Dr. Kreps, it is now after noon and the quorum call 
has just been rung. Suppose we adjourn at this point. 


Representative Williams. May I ask one question? Wkat is the 
difference between this French system and our N. R. A.? 

Dr. Kreps. Well, if you mean in essence 

Representative Williams. Yes. 

Dr. Kreps. Probably the differences aren't, shall I say, vital. 

Representative Williams. Personally I wasn't able to see any, just 
by looking at it. 

Dr. Kreps. Of course, in detaU, in method of enforcement, and 
method of adjudication and the like, the differences are numerous. 

The Chairman. I thought we might pursue that discussion this 
afternoon. Before we take a recess, the Chaif takes note of the fact 
that Secretary Morgenthau has written to the chairman notifying him 
that he has designated Charles L. Kades, special assistant to the 
General Counsel of the Treasury Departinent, as alternate to Mr. 
O'Connell, representative of the Treasury Department upon this 

I have also been advised by Mr. Clarence Avildsen, member of the 
committee, that Mr. Sumner T. Pike has been designated to sit during 
this hearing. We have had the pleasure of Mr. Pike's presence this 

The committee now stands in recess until 2:30. 

(Whereupon, at 12:05 p. m., a recess was taken until 2:30 p. m. of 
the same day.) 

afternoon session 

(The hearing was resumed at 1:45 p. m. upon the expiration of the 
recess, Senator King presiding.) 

Acting Chairman King. The committee will come to order. Pro- 
ceed, Dr. Kreps. 


Dr. Kreps. National cartels almost irresistibly grow in most 
industries into international cartels. For economic forces in modern 
times cannot be held down within the confines of the political frontiers 
which the past has handed down to the modern world. Some frag- 
mentary indication of the wide range of enterprise in which prices, 
production, and/or sales are influenced, if not controlled, by inter- 
national organizations of businessmen is given in "Exhibit No. 2079." 

This exhibit shows as of last year a number of international cartels 
in the mining industries, metal iridustries, chemical industries, 
ceramic industries, electrical industries, textile industries, and certain 
odd manufacturing enterprises. 

Acting Chairman King. Are there copies for the committee? 

Dr. Kreps. There are copies. That is not an exhaustive list. 
As I will note in a moment, there were over 114 such international 
cartels before the World War and at the present time nobody knows 
actually how many are in operation. They change from time to time. 

This is a sample of some that existed in 1938. . ' , 

Acting Chairman King. Those cartels were among European 
nations exclusively? 

Dr. Kreps. Only the European members of such cartels have been 
noted. There may have been and in some cases we have evidence 
that there were non-European members, Asiatic, South Artxerican, 

124491 11 — pt. 25^ — 3 


and North American members, but those have not been noted in that 

Acting Chairman King. Any parties to the cartels residents of the 
United States? 

Dr. Kreps. We have evidence that in some cases such as in the 
aluminum and electrical industries there were at least branches of 
American enterprises abroad which served as members or as observers 
in such cartels. 

Acting Chairman King. Observers or members? 

Dr. Kreps. Both. 

Acting Chairman King. To what extent were they active members 
in the cartel? 

Dr. Kreps. That varies with the cartel concerned. In the olec- 
trical industry there was a good deal of active participation 

Acting Chairman King. Proceed. 

Mr. ScoLL. I would like to offer this for the record. 

(The list referred to was marked "Exhibit No. 2079" and is included 
in the appendix on p. 13368.) 

Acting Chairman King. I presume this was prepared by Mr. Fried- 
lander from sources which he had available in Germany? 
^Dr. Kreps. Correct. 

liCting Chairman King. He was in Germany when he prepared 
t ? 

Dr. Kreps. No; he had just come over here when he prepared it. 

Acting Chairman King. At whose instance did he prepare this? 

Dr. Kreps. At the instance of the committee. 

Acting Chairman King. Recently? 

Dr. Kreps. Within 8 months. 

Acting Chairman King. Is he employed by the committee? 

Dr. Kreps. No. 

Acting Chairman King. Have you checked the sources from which 
he claims to have obtained his information to ascertain the accuracy 
of the same? 

Dr. Krepb. Yes; I have. As a matter of fact, many more could be 
added and many more are quoted in the sources. This is designed to 
be merely a minimum list of the cartels concerning the existence of 
which there was no uncertainty. 

Acting Chairman King. For instance, I notice here International 
Traffic Insurance Association. Where did he obtain the information 
as tO' this association? 

Dr. Kreps. That is in a document of the United States Depart- 
ment of Commerce entitled "Control of Ocean Freight Rates and 
Foreign Trade." We did not list the members because we did not 
know. The existence, however, of the association is known. 

Acting Chairman King. International Tanker Owners Association? 

Dr. I^REPS, I shall submit the agreement which is contained in this 
official document which I hold in my hand, 

Actmg Chairm^ K,ing. International Newsprint Association. 
Was there such a cartel? 

Dr Kreps. There is such a cartel, or was before the outbreak of 
the European war. 

Acting Chairman King. Of recent origin or back many years? 

Dr. Kreps. N'o; there have been cartels of various sorts — local 
cartels, and then an attempt at a national cartel, and then a break-up 


of all cartels — for a long time in the paper and pulp and in the news- 
print industries. 

Acting Chairman King. There has been great competition, has 
there not? 

Dr. Kreps. Oh, quite, and of course, as I tried to emphasize this 
morning, cartels often embrace less than 20 or 30 percent of the total 
output. It is not necessary, in other words, in order to have a cartel, 
for the cartel to embrace 100 percent of the output (in fact that rarely 
occurs), no more than it is necessary to control 100 percent of the 
output to exert controlling influence in a market. 

Acting Chairman King. Has there ever been a cartel with respect 
to newsprint that controlled that great industry? 

Dr. Kreps. No; not a hundred percent. 

International cartels are not new. Many years ago Dr. Robert 
Liefmann in a monograph on International Cartels, Combines, and 
Trusts cited 40 that had come into existence prior to 1896; namely, 
those controlling the production of borax, bicarbonate of ammonia, 
dyestuffs, muriatic acid, soda, caffeine, lactic sugar, alizarin, chloral- 
hydrate, oxalic acid, iodine, strontianite, bromides, cyanide of potas- 
sium, chromates, phosphates, imitation gold leaf, potter's earth, 
fertilizers, saline, products, djmamite, small-arm ammunitions, rails 
(for locomotives), tubes, iron bars, gas piping, rolled wire, needles, 
wooden screws, coke, raw zinc, rolled zinc, bismuth, lead, copper, 
enameled ware, cement, looking-glass, parchment, thread. 

Acting Chairman King. There has been active competition in all 
of those commodities to which you have just referred? 

Dr. Keeps. Yes; there has been in many of them. 

Acting Chairman King. National and international? 

Dr. Kreps. Even though there was an international cartel. 

Prior to the World War 114 were known to be in existence, of 
which 18 were in transportation, 26 in coal, ores and metals, 8 in 
stoneware and porcelain, 5 in electrical manufacturing, 19 in chemi- 
cals, 15 in textiles, 7 in paper, and 16 in miscellaneous industries. 
Most of these, while disrupted during the World War, were revived 
•in the early twenties together with numerous others. 

Acting Chairman King. Those are largely cartels in Germany, 
are they not? 

Dr. Kreps. Those are international cartels I am speaking of, 
which means they included at least two countries and in many 
instances you are quite correct, Germany was one of the men^bcrs. 

Acting Chairman King. Was Germany not the moving or im- 
portant factor in bringing about cartels if cartels were developed? 

Dr. Keeps. In iriost instances; yes. 
on the whole- 
states Dr. von Beckerath, in this volume I have previously cited — 

the number (and importance) of cartels and similar organizations in Germany 
is at least three times as large as it was before the war. The situation is similar 
in most other industrial countries, including the United States, where export 
cartels have been legalized, and an increasing number of cartel-like organizations 
are developing in the domestic market. They are being developed successfully 
in forms which avoid publicity and prosecution by the governmental boards 
enforcing the antitrust laws, and they try to keep their activities within such 
limits as the government is able or willing to permit. 


Acting Chairman King. What knowledge has he of conditions, in 
the United States to generaUze in the manner that that statement 

Dr. Kreps. He was going on the hasis of records of our investi- 
gations back in 1900, and before the World War as well as records 
of the Department of Justice and the Federal Trade Commission 
in cases that have come before them. 

Acting Chairman King. Wliat is the date of that? 

Dr. Kreps. This was published in 1933. 

Acting Chairman King. While he was a resideiit of Germany? 

Dr. Kreps. This was published at the time he came to the United 
States. The foreword is by Professor Taussig, of Harvard University. 

Acting Chairman King. At whose instance did he prepare this? 

Dr. Kreps. This was originally a German book and tries to trace 
the structure of industrial organization in the various countries of the 
world, because as I have tried to indicate, economic structures and 
economic pi'oblems have a great deal of similarity in all modern indus- 
trial nations. In particular, the cartel structure is a concomitant of 
modern industrial development and does not confine itself to national 
lines. So there is a large portion of this book devoted to a discussion 
of cartel problems under the heading, "Eliminating Collisions Between 
Plant and Market Requirements." 

In the chemical industry not a single year goes by in which our De- 
partment of Commerce does not report additional cartel developments. 
In its most recent report, for example, are -found the following state- 


Existing cartels continued to operate successfully during 1938. The Comptoir 
General des Fabricants Beiges de Superphosphates, Brussels, has been established 
as a joint, sale's office for the marketing in Belgium of domestic and French super- 

ghosphate. It is reported that the principal members of the organization are the 
Itablissements Kuhlmann, the Union ChimiqQe Beige, Superphosphate Rosier, 
cie. des Metaux d'Overpelt-Lommel, the Louvain fertilizer company, and Bat- 
taille Freres. The principal purpose of the organization is to establish quotas for 
aach participating firm. 


A price agreement covering chlorine, signed by Danish, British .and German 
firms, fixes a maximum production of chlorine for sale by the Danish company, as 
well as prices, and is irrevocable until the end of 1940. Another agreement be- 
tWeerf Danish and German firms likewise sets the maximum production of potash- 
lye by the Danish eofiapany, sales prices, terms, etc. All the important companies 
in the fertilizer trade are joined in a price agreement under the terms of which the 
parties^maintain t^e prices set by Norsk Hydro, the Nitrate Corporation of Chile, 
and other supoliers. Sales quotas are fixed. 


In most chemicals, both imported and domestic, the Swedish market is governed 
by the same cartels, syndicates, and qutoa arrangements in force in other coun- 
tries, with no changes in 1938. Prominent among the international cartels oper- 
ative in Sweden are the. Zinc White Cartel, Nitrate Cartel (with which StoCkholms 
Superfosfat Fabrike A. B. has an unofficial working agreement). Soda Cartel, 
„j61aiiber's Salt Cartel, Chloride of Lime Cartel, Magnesium Sulfate Cartel, and the 
International Association of Superphosphate Manufacturers. The Swedish 
Match Co. reports that it maintains marketing agreements with its foreign affili- 
ates and with most of its foreign competitors except the United States. 

Or again: 

!Phe International cartel agreement concluded in 1931 between Switzerland, 
Czecho-Slovakia, France, Germany, Italy, and Sweden for the purpose of regulat- 


ing prices, sales, and sales terms in the marketing of sodium chlorate, has been ex- 
tended from time to time and, upon its expiration at the end of October 1938 was 
extended for one year. 

Cartel restriction sclieines are boldly ajiiiounoeil in press releases 
abroad. Thus American consumers of tin are told by the Economist 
in an article entitled "Tin Under Control" (March 4, 1939): 

Few people nowadays are opposed in principle — the Economist is certainly not — 
to the cooperative adjustment of the supplies of raw materials to the demand for 
them at a price yielding a reasonable profit to efficient producers. 

With that principle there might be a little disagreement until 
American Inanufacturers learned that standard tonnages have already 
been set imder the third tin agreement for the period from January 1, 
1937 to December 31, 1941 as follows: Bolivia, 46,490 tons; Malaya, 
71,904 tons; Netherlands East Indies, 36,330; Nigeria, 10,890; Siam, 
l&,t)00; Belgian Congo, 13,200; and French Indo-China, 3,000 tons. 

(Senator O^Mahoney assumed the Chair.) 

Dr. Kreps. These tonnages cause American demand to be of little 
influence. They implement a high-price policy which not only is 
causing the proportion of the world's tin mining and smelting produc- 
tion enjoyed by the British Empire to decline but fails to even out 
fluctuations in production. American consumers may well share the 
opinion of the Economist that 

a control committee representative of producers — whether of the actual companies 
or of Governments of producing companies — finds it difficult to resist the tempta- 
tion to raise prices. 

The restrictions and cartel experience in the rubber industry have 
been quite similar. 


Dr. Kreps. I submit as an exhibit the present agreement of tlie 
rubber producers, and wish to call attention to certain features in. 
tliis agreement. 

The Chairman. This "Exliibit No. 2080" you desire to be printed? 

Dr. Kreps. Yes, sir. 

The Chairman. Without objection it is so ordered. 

(The document referred to'was marked ''Exliibit No. 2080" and is 
included in the appendix on p. 13369.) 

Senator King. What countries are parties to that? All the rubber- 
producing countries in the world? 

Dr. Kreps. Yes; the signatories to this are, for the Government of 
the French Republic, Ch. Corbin; for the Government of the United 
Kingdom of Great Britain and Northern Ireland, John Simon, P. 
Cunliffe-Lister; for the Government of India, B. N: Mitra, subject to 
certain reservation; for the Government of the Kingdom of the Nether- 
lands, R. de Marees van Swinderen; for the Government of the 
Kingdom of Siam, Phya Subarn Sompati. 

The Chairman. This country is dependent upon the countries 
named in this agreement for its rubber supply? 

Dr. Kreps. It is for its entire rubber supply. There are several 
interesting features of this agreement which are, however, quite 
general. In the first place they wanted this agreement ui order to 
adjust the. supply of rubber to the demand for it, and maintain a f&iP 
and equitable price level which would be reasonably remunerative .lo 
eflficient producers. That, I may say, is the general reason for cartels. 


Senator King. Did you examine this sufficiently to determine 
whether there had been any great dedine or any dedine in the price of 
rubber during the past 15 or 20 years? 

Dr. Keeps. There has been since the World War. 

Senator King. Between 1920 and 1933 there was considerable 

Dr. Kreps. Yes. This cartel and agreement did not come into 
force until 1933. This is the successor to the original Stevenson plan 
back in 1926 which broke up mostly because other producers came into 
the picture, notably the Dutch. This is the agreement now in force. 

Senator King. You discovered, did you not, in your researches that 
if prices went rather high competition was developed? 

Dr. Kreps. Supplies come in from almost inconceivable quarters. 

Senator King. When silk became too high we got rayon? 

Dr. Kreps. Well, there isn't quite so much connection between the 
invention of a substitute and its price as there is between finding a new 
source of supply for the same article. That is, invention has other 
reasons than the high price of an article, although the latter stimu- 
lates substitutes, no doubt about that, if they are available. 

Senator King. Take the plastics, they are serving a very important 
purpose, in part a purpose which was prior to the development of the 
plastic, served by other minerals or commodities? 

Dr. Kreps. Although in many instances they serve brand new 
purposes for which nothing was formerly available. 

The Chairman. What are the principal restrictions on the produc- 
tion and distribution of rubber set forth in this exliibit? 

Dr. Kreps. I will indicate some of the features of interest in that 
regard. First is the International Rubber Regulation Committee 
that has been set up under this agreement which fixes from time to 
time for each territory or group of territories a percentage of the basic 

Then they enforce that quota by penalties, particularly on export 
and on import. 

The Chairman. Now each producing country is assigned a specific 

Dr. Kreps. I have the tonnages here. 

The Chairman. What other restriction is there? 

Dr. Kreps. There is restriction on the amount they can export and, 
incidentally, import. That penalty runs as follows: 

Unless such rubber is accompanied by a certificate of origin, duly authenticated 
by an ofiicial, duly empowered for this purpose by the Administration of the terri- 
tory or group, the penalties which may be imposed for this offense shall include 
(a) the destruction, and (b) the confiscation of the rubber. 

In other words if they import or export more than the amount set, 
then the International Regulation Committee may order such excess 
rubber, not having the certificates of exportation and importation, to 
be destroyed or confiscated. 

The Chairman. By whom will they be destroyed? 

Dr. Kreps. The International Regulation Committee will order 
it done. 

The Chairman. But this is an agreement of countries? 

Dr. Kreps. Yes. 

The Chairman. Now, suppose one country should choose to 
disregard the restrictions, how would the restrictions be enforced 
against it? Certainly not by the committee? 


Senator King. Gentlemen's agreement. 

Dr. Keeps. Presumably the government would enforce it upon the 
producers under that government's jurisdiction. Now if the govern- 
ment decides not to play ball, so to speak, then the agreement falls 
and will break up, unless certain penalties can be inflicted on that, 

The Chairman. This committee has no machinery by which it 
may enforce the terms of the agreement, has it? 

Dr. Kreps. None, except that its certificate has to go 

The Chairman (interposing). Might be made efTective by each 
country within its own borders of the excess importations from an 
offending country? 

Dr. Keeps. That is correct. 

The Chairman. I could see how confiscation and destruction might 
take place there, but it would be impossible, I take it, for one country 
or for the committee to attempt to enforce obedience to the agreement 
in another country which was violating. 

Dr. Kreps. This has only the force back of it that treaties have. 

Senator King. And some of those cartels are made by companies 
and individuals rather than by governments? 

Dr. Kreps. Most of them. 

Senator King. So that a cartel might be violated by a producing 
country of rubber and the country itself not be a party to the agree- 
ment, and therefore it would not take cognizance of the violation and 
enforcing of it? 

Dr. Kreps. That happens occasionally, and of course that is why 
in event of war all agreements are broken. The similarly controlled 
stocks of rubber 

Senator King (interposing). Let me ask one question. Isn't it 
true, generally speaking, that the cartels, so-called, are not enforced 
by governments, nor are governments parties to them? There are 
cartels in which the governments are not parties and most of the 
cartels are agreements between individual companies? 

Dr. Kreps. Correct. The number of cartels in which governments 
are participants is a very small percentage of the total number. 
Most of them are cartels between individual, independent business 

Representative Williams. However, the one you are now discussing 
is a governmental agreement? 

Dr. Kreps. That is why I brought it in, as an example of that type 
of agreement. 

The Chairman. Now, this agreement to which you were referring 
before I joined the committee this afternoon, with respect to tin, is 
not a Government agreement, is it? 

Dr. Kreps. The tin control is, that is correct, not entirely a Govern- 
ment agreement. 

The Chairman. So that there are some implications to this quota- 
tion from the Economist — let me read it in order to get your comment 
on it. Apparently under the heading "Tin under control" the Econo- 
mist on March 14, 1939, said: 

Few people nowadays are opposed in principle — 
the Economist certainly is not — 

to the cooperative adjustment of the supplies of raw material to the demand for 
them at a price yielding a reasonable profit to efficient producers. 


Do you interpret that as meaning that the author of that statement 
beheves that producers without any approval or cooperation by the 
governments of all the people should be empowered to place com- 
modities like tin under control? 

Dr. Kreps. I don't think so. I have the article here in its Entirety, 
and the article starts by saying, 

We agree with this in principle — 

and then goes on to make the observations which are made subse- 
quently here, that a control committee, representative of producers — it 


whether of actual companies or of governments of producing companies, finds it 
difficult to resist the temptation to raise prices. 

The Chairman. I see. 

Dr. Kreps. So you see, while in principle they wouldn't be opposed, 
actually the way things work out they find it difficult not to be 
skeptical. - 

The Chairman. There is nothing in the article, in other words, to 
justify the inference that the author believed in control through non- 
public sources? 

Dr. Kreps. No; there is nothing. 

The Chairman. Or nonpublic agents? 

Dr. Kreps. No. This rubber agreement controls not only imports 
and exports but controls stocks. No one can hold stocks of rubber 
exceeding 20 percent of the rubber wholly grown or produced and 
removed from his holding during the preceding 12 months, or alter- 
natively a quantity equivalent to twice the amount he is entitled to 
export during any month. That is the total amount of stocks which 
can be held. Similarly, with regard to planting, in article 12 — 

the planting of rubber plants during the period of the Regulation shall be pro- 
hibited absolutely. 

Similarly with regard to replanting (in the same article): 

An area not exceeding 10 percent of the total planted area of his holding in the 
territory or group of territories shall be allowed for replanting. 

They even go so far in Article 13 as to prohibit the exportation of— 

any leaves, flowers, seeds, buds, twigs, branches, roots, or any living portion of 
a Rubber plant that may be used to propagate rubber. 

The Chairman. Now this agreement, of course, is not different, in 
principle from the agreement to which the United States is a party, 
governing the distribution and production of sugar throughout the 

Dr. Kreps. No; the sugar agreement would be called a cartel, 
abroad at any rate. Competent foreign observers — in fact it would 
be difficult to find a foreign observer that would not call either the 
sugar or rubber agreement a cartel: 

The Chairman. So now we have two kinds of cartel agreements, 
using the word in the sense that you are now using it, namely those 
which arei entered into by pubhc authority, as in the case of sugar and 
rubber, ahd those which are entered into by private authority? 
- Dr. Kreps. And a third group in wfiich private individuals and 
government are united. 

The ChaIrman. But they are all much ahke in purpose and in 
effect? - 


Dr. Kreps. Yes. 

Senator King. But the overwhelming number of cartels, using the 
term as you have used it in your answers to Senator O'Mahoney, are 
formulated by and entered into by individuals or corporations or 

Dr. Kreps. That is correct. 

Representative Williams. You have mentioned sugar and rubber 
as a sample of cartels entered into by governments. What others? 
Have you made a sufficient study to give us a general list of the 
articles that are covered by governmental agreements? 

Dr. Kreps. I have not gone through the complete list to see how 
many governmental agreements there are, but there are some others. 

In tliis list of international cartels, offhand I can say that govern- 
ments are parties in these agreements, potash 

Senator King (interposing). Could you give the governments? 

Dr. Kreps. Potash, the French and German Governments are 
members. Nitrate, the Chilean Government is a member. 

Senator King. With respect to potash, neither the German Gov- 
ernment nor the French Government per se is operating the potash 
plants or developing the industry. The plants are operated and 
owned by private persons, but the government joins in the cartels? 

Dr. Kreps. No; both in Germany and in France some of the plants 
-are dwned by the government. In Germany the State of Prussia and 
the State of Anhalt, for example, own potash mines and are members 
of a large German cartel, a domestic syndicate, which in turn is a 
member of the international cartel, with the government partici- 

Senator King. That is to say, the government compels itself, where 
it is interested, to join the cartel. 

Dr. Kreps. Undoubtedly there are others, but those are the only 
only ones that occur to me offhand in that list. Of course that list 
is by no means exhaustive. 

Returning to the rubber agreement again, we find a typical provi- 
sion in that the vote is based on tonnage produced. In the rubber 
agreement there is one vote for every complete thousand tons for the 
basic quota for the year of the territory or group of territories repre- 
sented by that delegation. This agreement is also typical in that it 
provides for cooperative research on the rubber plant and on rubber 

At the present time, that is, for 1940, the quotas for the various 
districts are: 


Straits Settlements 642, 500 

Netherland India 640, 000 

Ceylon : 107, 500 

India 1 1 7, 750 

Burma 13, 750 

State of North Borneo . 21,000 

Sarawak ^ 43, 700 

Siam 55, 300 

As the exhibit shows, these quotas have been worked out up to 
1943 in terms of basic tonnages to be produced in each of these 

Representative Williams. Are there any restrictions on where 
those quotas shall be sold? 


Dr. Kreps. No. Of course most of this is sold in the United 
States, and in a protocol of last year they suggested that the number 
of representatives of the United States on the advisory panel should 
be increased to two. Thus in this International Rubber Cartel the 
American manufacturing industry, the rubber manufacturers, have a 
membership of two on the advisory panel. 

The renewal of this agreement was supported by the Rubber 
Growers Association, the Internationale Vereeniging voor de Rubber- 
cultuur (Holland), the Union des Planteurs de Caoutchouc en Indo- 
chine (France), and by the Advisory Panel of Manufacturers. 

Senator King. Was there harmony, so far as you could ascertain, 
between the consumers or rubber — they are largely in the United 
States — and the producers of rubber? 

Dr. Kreps. The minutes of the committee are not available for 

Senator King. Do the prices which you have ascertained by investi- 
gation show a decline, a consistent decline, during the years? 

Dr. Kreps. No. As you know, rubber has risen in price since 1932. 

Senator King. Do those agreements have provisions that in the 
event of international conflict, wars, would affect the production or 
prices and the agreements cease to exist or be modified? 

Dr. Kreps. I have no such provisions, but it is true when war 
breaks out that these agreements fall. The period after the war is 
always a period of jockeying between producers in various countries 
to renew the international cartel agreement. 

Senator King. In the case of war, laws are silent as well as 

Representative Williams. To what extent is there uniform price 
on these quotas sold by the different nations? 

Dr. Kreps. They quote the price. 

Representative Williams. They fix the price in the agreement? 

Dr. Kreps. No; the International Rubber Committee, theregula-, 
tion committee, determines the price. 

Representative Williams. That isn't the same the world over, 
is it? 

Dr. Kreps. No; it is the same from the points of shipment, and 
then freight charges are added. 

Representative Williams. It is the same except as to the trans- 
portation costs? 

Dr. Kreps. That is right. There is no delivered price for rubber. 

Representative Williams. And the association fixes that? 

Dr. Kreps. Yes; this regulation committee. 

Representative Williams. Does that remain uniform through 
the years? 

Dr. Kreps. No. 

Representative Williams. They change it how' often? Is there 
any rule about that at all? 

Dr. Kreps. There is no rule about it. 

Representative Williams. Do you know what are the elements that 
enter into their consideration in changing that price? 

Dr. Kreps. I don't know, but I would imagine business conditions, 
items of that nature. 



Dr. Kreps. Turning now to another field of cartelization, and one 
with whicli the counsel for the committee, Mr. Scoll, has had a great 
(hnil of familiarity, ocean freight rates have been customarily estab- 
lished by conferences. 

Ocean freight rates have for more than 50 years been influenced, 
if not determined, by conferences or cartels of shipowners and govern- 
ments. For shipping due to stimulation by governments with nation- 
alistic ambitions and with responsibilities for national defense has 
perennially been characterized by excess capacity and low profits, 
if not losses. Quoting this pamphlet, self-preservation — ' — 

The Chairman (interposing). What is the pamphlet? 

Dr. Kreps. Control of Ocean Freight Ra'tes m Foreign Trade, a 
world survey by Albert E. Sanderson, United States Department of 
Commerce, Trade Promotion Series No. 185. 

Self-preservation has impelled shipowners to organize for the purpose of mini- 
mizing wasteful competition. * * * The depression which began in 1929 was 
so prolonged and devastating to the financial resources of shipowners that they 
were forced to resort to unprecedented measures of cooperation. 

How unprecedented is shown in this exhibit which I offer. 

The Chairman. The exhibit may be received. 

(The document referred to was marked "Exhibit No. 2081" and is 
included in the appendix on p. 13377.) 

Dr. Kreps. I would like to comment on this exhibit, because it 
outlines the plan now in operation of the first international pool ever 
consummated. Thus even that most individualistic of all enterprises, 
the tramp steamer, has been brought under cartel control. 

Senator King. Is the United States a party to that? 

Dr. Kreps. No. 

The Chairman. This is not a Government cartel? 

Dr. Kreps. No, this is not a Government cartel. This is what we 
call a pool. It records the formation of an association, the members 
of which pay into a common pool a percentage of all freights received 
by them on charters made after the plan becomes operative. 

The Chairman. Are American shipowners in that pool? 

Dr. Kreps. No; the members of this committee comprise — I can 
read their names. 

The Chairman. Do. I think it would be interesting. 

Dr. Kreps. Guiseppe Chiarella (" Petroleum" S. A. de Navigazione, 
"Perseveranza" S. A. di Navigazione), Genoa; W. Molyneux Cohan 
(H. E. Moss & Co.), Liverpool; William Davies (Davies & Newman), 
London; W. H. de Monohy (N. V. Phs. Van Ommeren's Scheepvaart- 
bedrijf), Rotterdam; J. T. Essberger, Hamburg; H. Hoogland (Blid- 
berg Metcalfe & Co.), Goteborg; P. LI. Hunting (Hunting & Son, 
Ltd.), Newcastle-on-Tyne; A. P. Moller, Kobenhavn; D. Paust 
(Fearnley & Eger), Oslo; J. Perrachon (Compagnie AuxUiaire de 
Navigation), Paris; A. Rapp (the British Oil Shipping Co., Ltd.), 
London; H. T. Schierwater (the United Molasses Co., Ltd.), London. 

Schierwater was the chairman of this committee. 


This, you see, includes British, French, Swedish, Norwegian, Danish, 
Dutch, ItaUan tanker companies and tanker owners. Here they 
estabhsh the percentage payable into the' pool: 

Although the maximum percentage payable to the pool- on voyage charters has 
been fixed at SSYs per cent of the gross freight, the intention of the committee is 
to recommend that at the commencement of operations a rate of 10 per cent to 
15 per cent be levied. 

For enforcement they not only keep this pool but they keep a register 
of brokers who will cooperate and support the pool in view of the 
benefits which brokers will receive due to the higher freight rates. 
Thereby they cooperate with the brokers and the brokers cooperate 
with them. 

They limit the number' of vessels. Signatory companies will not 
put into service any of their vessels at present laid up, unless under 
repair, except that they will be permitted to substitute individual 
vessels laid up for an approximately equal tonnage of vesssels now 

Representative Williams. What traffic does that represent? 

Dr. I^REPS. That does not represent a large part of ocean traffic 
but does represent all the oil and other commodities that are shipped 
by tankers. 

Representative Williams. From your studies has that had an 
effect on transportation rates? 

Dr. Keeps. That I can't exactly say. I don't know what is cause 
and effect, but I do know that right at the present time we are in a 
vicious circle ; fuel oil prices have risen nearly 50 percent since the out- 
break of the war, which is alleged to be due to the increased tanker 
charter rates. These increased charter rates in turn are said to be 
due to the increased cost of fuel oil. 

Senator King. That has increased prices in securing insurance. 
The charter wouldn't include insurance, would it? 

Dr. Kreps. This happens to be in our own intercoastal trade. 

The Chairman. Of course, under our law none of these foreign 
tankers would engage in the coastal trade. 

Dr. Kreps. None at all, so the question, you see. Congressman 
Williams, is somewhat difficult to answer, but it seems clear that a 
tanker pool of this sort has not been without influence on freight rates. 

Senator King. That tanker pool is not limited to purely coastwise 

Dr. Kreps. It doesn't affect intercoastal trade whatsoever. That 
is too strong. Normally, it would not affect our intercoastal trade. 

incandescent electric lamp cartel 

Dr. Kreps. The manner in which international cartels are required 
to set up international economic parliaments and governments, that 
is their own governments, is excellently illustrated by the present 
international incandescent electric lamp cartel. This cartel has a 
long and interesting history going back nearly 40 years. The present 
convention (and this is the name of the so-called cartel) for the Devel- 
opment and Progress of the Incandescent Electric-Lamp Industry 
was reorganized in 1924 and consisted of 27 producers, including vir- 
tually every large producer in Europe, the most important being the 
Osram, Philips, Compagnie des Lampes, the Italian S. E. C. (Societa 


Edison Clerici) Co. and the largest British producers. The situation 
changed Uttle until the outbreak 6i the war. According to the United 
States Tariff Commission in its document, Incandescent Electric 
Lamps, pubHshed in 1939: 

Under the terms of the agreements now in effect, the companies apportion among 
themselves the principal world markets. The General Electric Co. has granted 
to the foreign companies with which it has agreements exclusive licenses under its 
patents to manufacture and sell electric lamps in specified countries, which are 
described as exclusive territory. In a number of these agreements, the Gteneral 
Electric Co. has granted both exclusive and nonexclusive licenses to the foreign 
companies, whereas other agreements are limited to either exclusive or nonexclu- 
sive licenses, depending upon various considerations. In the territory described 
as exclusive, the companies agree not to compete or to grant licenses to competing 
companies; in nonexclusive territory they may compete or grant licenses to com- 
peting companies, but upori terms usually stipulated in the agreements. 

The licenses prohibit the given foreign licensed company from manufacturing 
or selling lamps outside the territory in which it is licensed. The General Elec- 
tric Co. is prohibited from engaging directly or indirectly in the manufacture of 
lamps in any of the territories assigned exclusively to the foreign companies. 

In return for the grants which it makes to the foreign companies, the General 
Electric Co. receives from each of the companies an exclusive license to make and 
sell lamps in the United States under all patents owned or controlled by these 
companies. It also receives from some of the foreign companies royalties for 
the use of its patents and developments. 

The foreign companies with which the International General Electric Co. has 
agreements and under which exclusive Licenses have been granted by it, are: 

British Thomson-Houston Co., Ltd England. 

Compagnie des Lampes France.' 

N. V. Philips Gloeilampenfabrieken Netherlands. 

Osram G. m. b. H. Kommanditgesellschaft Germany. 

Tokyo Electric Co., Ltd --- Japan. 

Societa Edison Clerici Fabbrica Lampage --. Italy. 

Cia. Mexicana de Lamparas Electricas, S. A Mexico. 

China General Edison Co., Inc-_ . China. 

General Electric S. A .._ Brazil. 

Parenthetically here the fact should be noted that the General 
Electric Co. has a financial interest in nearly all the companies 

The Chairman. The apportionment of the markets is a restraint 
of trade which has been condemned so far as domestic business is 

Dr. Keeps. Yes. 

The Chairman. As a violation of the antitrust law, is it not? 

Dr. Kreps. That is right. 

Quoting again: 

Inasmuch as the exclusive territories of the firms listed above include virtually, 
all of Europe, Jdpan, China, Brazil, and Mexico, together with the colonies, 
protectorates, possessions, and mandates of the countries included in the agree- 
ments^ competition in the United States market from these sources, is largely 
eliminated and conversely the General Electric Co. is prohibited from competing 
in many important foreign markets. 

I)r. LuBiN. Dr. Kreps, for the purpose of the record, referring to 
your answer to the Senator's question, I doubt whether the courts 
have ever held that you couldn't use your patent in that way. In 
other words, restriction of markets within the United States may be 
held to be violation of the Sherman Act, but where a patent was 
involved I personally don't know of any case where it hasn't hap- 
pened, I mean we have had evidence before tliis committee of other 
companies and other kinds of industry using patents in that way and 
no court has ever declared that to be illegal. 


Dr. Krefs. I don't know what difference there would be between 
this and the bathtub case or the international machinery case, but 
there are court records under the antitrust laws of procedures against 
companies that pool patents. 

The Chairman. I was referring to the bare fact that the apportion- 
ment of territory has been generally recognized as a violation of the 
antitrust laws. I was not referrmg at all to any exceptions that 
might come up under the patent law or exceptions that might follow 
under the Pomerene Act which exempts exception from the antitrust 
law so far as foreign trade is concerned. 

Dr. Kreps. The agreements to the convention originally scheduled 
to continue to 1934 were revised and extended to 1935. In order 
that the terms of the convention might be applied, an administrative 
agency known as the Phoebus Co. was formed, with its principal office 
at Geneva. It, acts as intermediary for the exchange of methods of 
manufacture and for the acquisition of patents. All members of the 
convention are partners in it. All obligations are subject to high 
penalties, the payment of which is guaranteed by the deposit of con- 
siderable sums, depending on the business turn-over of the individual 

In addition to a special arbitral tribunal which makes final award in 
all disputes there are several controlling bodies, to wit (1) the general 
assembly meeting once or twice a year, a vote being given for each 
million-unit lamps in a member's share quota during the basic years; 
(2) the administrative board which watches and directs the applica- 
tion of the convention. It has an executive committee of six members 
to\iiake decisions on current, particularly financial, matters; (3) the 
business-development committee; (4) the sales committee which gives 
general directions for the fixing of prices and conditions of sale in 
various territories; (5) the standardization committee, designed to 
bring complete uniformity b,s regards external form, internal structure, 
dimensions, and lighting power of all products of the firms members 
of the convention. 

In each country of manufacture or sale there are national assemblies 
which decide by three-fourths majority upon prices and conditions of 
sale locally. These national economic governments are, of course, 
subject to the International Administrative Board and International 
General Assembly. | 

Dr. LuBiN. Is the General Electric of the United States a member 
of the assembly? Do tbey vote, too? 

Dr. Kreps. Yes. They have -branches abroad. They have a 
financial "interest in companies abroad and usually their interests are 
taken care of through companies — — 

Dr. LuBiN (interposing). They don't vote as General Electric Co. 
of the United States? In other words, their production isn't taken 
into consideration at all? 

Dr. Kreps. No. 

Representative Williams. Do I understand from this agreement 
that all competition from foreign sources is cut out of the United 
States, such as the General Electric? 

Dr. Kreps. Largely so, as the Tariff Commission notes. 

Representative Williams. So far as these agreements go there isn't 
any of those companies that are allowed to compete with General 
Electric in the United States? 


Dr. Kreps. So far as incandescent electric-light bulbs are con- 
cerned. Of course, this is only one of dozens of products put out by 
the General Electric Co. 

Representative Williams. I understand, so far as that agreement 
goes, they have exclusive privilege in this country, so far as foreign 
competition is concerned. 

Dr. Kreps. That is correj^t. 



Dr. Kreps. Now what causes compulsory cartelization? The story 
of cartels in the potash industry provides an instructive example of 
the forces which impel compulsoiy cartelization. 

In 1876 the first potash cartel was consummated between the mine 
owners, the states of Prussia and Anhalt and the refiners. In the next 
30 years numerous agreements on prices and joint selling agencies 
were formed, disrupted, and reformed. In 1909 certain American 
fertilizer companies drove a shrewd bargain with the Schmidtmann 
group which had seceded from and broken up the potash cartel. 
Despite protests from our State Department coupled with tariff 
bargainings, the German Reichstag passed in 1910 the Reichs- 
Kaligesetz, the first compulsory cartelization law in modern Europe. 
It fixed production quotas and provided for the fixing of prices every 
5 years by the Federal council upon consultation with potash pro- 
ducers and consumers. But the number of mines increased from 68 
in 1910 to 168 by the end of 1913, while production increased only 
20 percent. 

The Chairman. How were the consumers consulted in this potash 
agreement, do you know? 

Dr. Kreps. There were certain associations of fertilizer consumers 
and agricultural and industrial consumers who were just brought in. 
There was no official vote given to them. 

The Chairman. They were brought in as a matter of grace? 

Dr. Kreps. As a matter of grace. 

The Chairman. And only those who were invited could come in? 

Dr. Kreps. That is correct. 

Most mines were working at low capacity. The unexplored potash 
area resembled a new gold-mining region or oil dome. New compet- 
itors kept appearing as long as ther^e remained a chance of a "strike." 
Individuals continued to sink new shafts and secure a new allotment 
of the total quota. In 1919 a new. law was passed, establishing a 
Reichskalirat of 30 members to run the industry of which 5 repre- 
sented producers, 3 the state governments, 8 the workmen, 3 the 
directors of the potash-selling syndicate, 1 the technical employees, 
4 the agricultural consumers, 2 the potash dealers, 2 the chemical 
users, and 1 a potash expert. This council controlled praduction, 
consumption, sales, and prices except that the final voice on prices 
could be exercised by the Imperial Government through the Minister 
of Economics. 

By Stillegungsverordnungen of 1921 and 1924 the council was em- 
powered to close down high-cost shafts. Thus in 1928 the number 
of active mines was only 60 as opposed to 175 in 1914, while the 
production per mine jumped from 5,200 to 23,700 metric tons. I 


ought to add that the price of potash dedined below what it had been 
before the World War. 

In the meantime, the combination movement went on apace, the 
potash interests being concentrated in two groups, one the Winter- 
shall group controlling about 39 percent of production, the other the 
Kaliblock controlling about 53 percent. 

But the menace of cutthroat competition now came from the Alsa- 
tian mines which had been returned to French control. - Consequently 
a series of agreements were attempted, the one in force untU recently 
being substantially that adopted in 1926. and reproduced, in "Exhibit 
No. 2082," which I would like to submit for the record. 

Mr. ScoLL. The "Text of Franco-German Potash Accord Signed 
at Paris, December 29, 1926," is offered as an exhibit. 

The Chairman. It may be received. 

(The document referred to was marked "Exhibit No. 2082" and is 
included in the appendix on p. 13380.) 

Dr. Kreps. According to this agreement, annual sales outside of 
Germany and France are divided up to a limit of 840,000 metric tons 
of potassium oxide in the ratio of 70 percent to the Kalisyndicat and 
30 percent to the Societe Commerciale des Potasses d'Alsace. 

Every 10 days mutual notification of orders and deliveries is made. 
Prices are agreed upon. In 1927 a joint sales agency, N. V. Potash 
Export Maatschappij was formed to handle all export sales to the 
United States. 

Thus the American potash industry is faced by an international 
C9,rtel, with foreign governments not only participating but compelhng 
cartelization, depriving American consumers^ of the benefits of com- 
petition. That in certain instances counter-cartels have been formed 
is readily understandable. 

. Now practically all observers agree with Dr. Liefmann, who states 
in the Encyclopedia of the 'Social Sciences in his article on cartels that 
"there has been a marked tendency under the influence of the cartel 
toward the formation of more integrated types of organization such as 
combines and consolidations." These industrial combinations fre- 
quently supplement international cartelization, being the organiza- 
tions which divide markets, make price agreements, and pool patents. 
We find international combines and commlmities of interest in the 
coal and iron industries, the chemical industries, particularly in the 
nitrogen and rayon industries, in the electro technical industry (Amer- 
ican and German General Electric Co,), the European cellulose, paper, 
an^ tobacco industries, the European linoleum and cork industries, 
and in the copper, nickel, zinc, quicksilver, lead, and other metal 

Probably no more illuminating example of the growth of combina- 
tion and international cartelization exists than in the dyestuffs indus- 
try. Even as late as 1912 there were 16 independent firms in Germany 
making coal-tar dyes, with more than 90 percent of the output con- 
trolled by five large firms, namely: (1) Badische Anilin und Sodafabrik 
(B. A. S. F.), Ludwigshafen, (2) Farbenfabriken vorm. Friedrich Bayer 
& Co., Elberfeld-Leverkusen, (3) Farbwerke vorm. Meister, Luqius & 
Briining, Hochst, (4) Leopold Cassella & Co., Frankfurt, (5) Aktien- 
gesellschaft fiir Anilinfabrikation (Agfa), Berlin, but even as between 
one and another of these concerns there were interlocldng interests and 


the position at the outbreak of war was that the German dye industry 
was massed in two great groups, as follows: 

The Hochst-Cassella group, consisting of Meister, Lucius and Briin- 
ing of Hochst and Leopold Cassella and Co. of Frankfurt, wliich was 
formed during 1904. Messrs. Cassella acquired the right to sell artir 
ficial indigo and in return Meister, Lucius and Briining's agents were 
authorized to sell diamine colors on the basis of a conrmion price list. 

The Badische group consisted of the Badische Anilin und Soda- 
fabrik, Friedrich Bayer, and the Aktiengesellschaft fiir Anilinfabrika- 
tion (Agfa). This group was formed toward the end of 1904, when 
an agreement was made to operate for 50 years as from January 1, 
1905. According to this agreement, the members retained their inde- 
pendent organizations, but a central board was formed to have charge 
of matters of mutual interest. The common profits were computed 
annually according to a uniform system and of these profits the 
Badische Anilin und Sodafabrik and the Bayer Co. each received 43 
percent, while the Berlin Aniline Co. received 14 percent. 

The reasons for the formation of these combinations in Germany 
were alleged to be: (a) Increased strength to meet competition, (b) 
joint buying of raw materials, (c) the supplying of certain products 
to each other, (d) joint protection in patent and license matters, and 
(e) joint establishment of factories in foreign countries. 

The general results of the concentration of the industry in Germany 
were that, out of 16 concerns engaged in the industry, two powerful 
groups or rings developed, and these two groups were able largely to 
control the prices of raw materials. One result of the amalgamation 
was, of course, that competition between the various concerns abroad 
was reduced. The mutual exchange of processes of manufacture, busi- 
ness methods, relations with customers, and of experiences in general 
is said to have resulted in the reduction of expenses, and it has been 
asserted that within 2 years after the combines were organized, the 
costs for traveling salesmen and advertising were reduced by one-half. 

Representative Williams. What -about the price? 

Dr. Keeps. The price also went down. 

Representative Williams. Correspondingly? 

Dr. Kreps. No; not correspondingly, but allowing for a change in 
the general price level. 

In 1916 the first community of interests or I. G. was formed which 
united all the dyestuflPs producers of Germany into one organization. 
While still reserving their independent labor force, management, and 
stockholders, the several firms pooled their sales organizations, their 
patents and processes, and their profits, the Badische, Bayer, and 
Hochst concerns each getting 24.82 percent of the total profits, 
Cassella 9.813 percent, Agfa 8.082 percent, Griesheim 6 percent and 
Weiler 1.645 percent. 

A mutual trade of production was effected, concentrating various 
products in the plants of lowest cost. They established a general 
administrative committee to effect coordination of research, financial 
policy, and the like. 

The Chairman. Dr. Kreps, could you amplify the statement with 
respect to the various items of reduced expense which this combina- 
tion resulted in, to which you referred just a moment ago? You 
spoke of the cost of traveling salesmen and the expense ior advertising. 
Were there any other reductions? 

^:i24491— 41— pt. as 4 


Dr. Kreps. By concentrating production of one dyestuff or gro.up 
of dyestufFs in one plant they were able to reduce manufacturing cost 
as well as their selling cost. 

The Chairman. This reduction in the expense of traveling salesmen 
may have been the result of the dismissal of some traveling salesmen, 
do you think? 

Dr. Kreps. Oh, yes; that happened. By establishing joint sales 
agencies and having, say, in the United States, one company which 
would sell all the products of all these German firms, all the dyestuffs, 
they could exhibit any. one of a group of dyestuffs so that the buyer 
could pick the company from which he wanted to buy in one office. 
Obviously they reduced their sales force. 

The Chairman. In other words, contributed to unemployment at 
the same time. 

Dr. Kreps. Yes; that is one result. 

The Chairman. How about the reduction of manufacturing cost, 
did that also involve the dropping of workers in the plants? 

Dr. Kreps. Relatively, that is, they needed fewer workers to pro- 
duce the dyestuffs. However, actually what happened was that the 
industry was expanding in many other lines besides dyestuffs at this 
time so that the industry can show a record of incr^^-^sing employment 
throughout this period. 

In 1925 a complete fusion was effected. The I. G. now made scores 
of products of utmost diversity. 

I wish you would turn to the chart entitled "Colossal Structure and 
Ramifications of the Great German Chemical Combine," which I 
would like to submit as an exhibit. 

The Chairman. The chart may be received. 

(The chart referred to was marked "Exhibit No. 2083" and is 
included in the appendix facing p. 13382.) 

Dr. Kreps. In that chart the middle figure should read Interes- 
sengemeinschaft Farbenindustrie Aktiengesellschaft, which is the long 
technical title for what we call I. G. 

The Chairman. Can you see that that is made more clear for the 

Dr. Kreps. Yes. 

The Chairman. I would identify it on the side, if you can't in the 
diagram itself. 

Mr. ScoLL. We will produce a fresh copy so it will be clear. 

Dr. Kreps. This chart, is submitted, not to study all the details, 
of course, but to show the extent to which already in 1925 the dyestuffs 
concern had branched out far beyond dyestuffs into nitrogen, pharma- 
ceuticals, photostatic and textile chemicals, inorganic chemicals, 
minerals, lignite, petroleum products, explosives, agriculture. They 
began to have interests in mining, coal, iron, and potash, lead, explo- 
sive, and fertilizer companies of all sorts. This is a direct result of 
cartels. If you are limited in one regard, you are not limited in other 
respects, so you take your labor force, or that excess equipment, or 
whatever you have that cannot be used because of the cartel agree- 
ment. You put it to work in areas and in products not covered 
by the cartel. 

It had cartel agreements in dozens of commodities with producers 
in every part of the globe. Nothing shows thJs fact more effectively 
than the series of negotiations which finally brought about the 


international dyestufF cartel. The movement toward national inte- 
gration in the dyestuff industry was not peculiar to Germany. It had 
occurred in almost identical fashion in England, France, Italy, and 
the Un ited States. 

I want to submit here a chart which shows the coal-tar dye manur 
facturers in producing countries of the world, and their cartel partici- 
pation. The cartel members are shown in firm outline, and you will 
notice that the cartel members consisted of firms in Germany, France, 
Poland) Switzerland, and certain branches in the United States, 
because these firms had branch firms in the United States, and the 
United Kingdom, and Italy. 

(The chart referred to was marked "Exhibit No. 2084" and is 
ncluded in the appendix facing p. 13382.) 

Dr. Keeps. All of these firms shown in "Exhibit No. 2084" are 
firms producing one or another type of coal-tar dyestuff. In each 
case you have an agreement somewhat similar to those that I have 
pXit into the record this afternoon. 

The Chairman. Let's get an interpretation of "Exhibit No. 2084." 
The principal countries at the top of the chart are Germany and 

Dr. Keeps. They are the two chief dye producers in the world, 
or were at this time. 

The Chaieman. Let's follow the line with respect to Germany. 
Let us have it described, just what it means. 

Dr. Keeps. Germany has a direct interest in Durand et Huguenin, 
which is a French concern. It has a direct interest in Colori Nazionale 
AflSni, S. A. The General Aniline Works was a branch concern in 
this country. 

The Chaieman. Of course when we speak of Germany, we are 
speaking rather of the German cartel rather than of the Government, 
of course. 

Dr. Keeps. Yes. There is no governmental participation in this 
at all. These are all private producers. 

The Chaieman. Now, then, with respect to the United States, it 
would appear that the General Aniline Works was controlled from 

Dr. Keeps. That is a branch. 

The Chairman. And the Cincinnati Chemical Co. from Switzerland. 

Dr. Keeps. Yes, it is a branch of a Swiss firm. 

The Chaieman. How about the.phemical Foundation? 

Dr. Keeps. The Chemical Foundation has no relationship to 

The Chaieman (interposing). It is outside the cartel, of course. 

Dr. Keeps. Yes,' it was set up during the World War to take over 
certain dyestuff s' patents in this country. 

The Chaieman. Except for the Chemical Foundation and the work 
that was done under the leadership of Mr. Francis P. Garvan, the 
head of the foundation, consumers in the United States were dependent 
upon Germany and Switzerland largely for their dj^estuffs. 

Dr. Keeps. Before the World War entirely so, or nearly entirely so. 
We had a couple of producers, the Schoelkopf Bros., of Buffalo, pro- 
ducing sulfur deep black E. W., for example. But so far as indigo was 
concerned, and a large proportion of other coal-tar dyestuffs, we were 
almost entirely dependent upon Germany and Switzerland. At this 
point, however, we had developed during the World War an indigenous 


dyestuff industry of our own. The du Pont concern, after the war, 
the AlUed Chemical and Dye, and Dow Chemical Cos., among others, 
had made the United States independent. At the present ,time we 
manufacture more than 90 percent of our own coal-tar dyestuffs, only 
importing certain high specialty dyes, notably from Switzerland. 

The Chairman. Until that developed after the World War, we were 
at the mercy of those countries. 

Dr. Kreps. Before the war, we were almost completely at the mercy 
of Germany. 

The Chairman. Most of the German companies and Swiss com- 
panies were protected by the patents issued by the United States 

Dr. Kreps. Yes. 

The Chairman. So we were issuing our patents to a foreign cartel, 
enabling that foreign cartel to control the price to our own people 

Dr. Kreps. Yes. 

Now, it should be understood that this exhibit only shows the coop- 
eration in dyestuffs. The picture for explosives would be different, 
and the picture for rayon would be different, and so on around the 
circle of chemicals there would be different companies. Although on 
the whole these giant combines that I show in the next three ex- 

Mr. ScoLL. Excuse me. I don't know whether that has been 

The Chairman. These three exhibits will be received. 

(The charts referred to were marked "Exhibits Nos. 2085 to 2087" 
and are included in the appendix facing p. 133^2.) 

The Chairman. Before you go on to "Exhibit No. 2085" and the 
others, it would appear from "Exhibit No. 2084" that the condition 
in the United Kingdom was substantially the same as it was in the 
United States before the war. 

Dr. Kreps. That is true. 

The Chairman. And likewise in Italy. 

Dr. Kreps. Likewise in Itaty. 

The Chairman. France and Poland? 

Dr. Kreps. France had a little more of an indigenous dyestuff 
industry. Not a great deal. Poland was dependeiU. Switzerland 
and Germany between them controlled at least 80 percent of the 
total coal-tar dyestuff trade in the world. 

Now, note that I reproduced here the organization of the Inter- 
essengemeinschaft Farbenindustrie to show the relationships which 
it had in the twenties. Of course these relationships change almost 
from month to month. That should be understood. This is only a 
sample. This would be inaccurate in detail, in certain details, for 
any one year, but it is accurate at this particular time, which was 
1928, at least substantially accurate at that time. 

Every time an agreement is consummated, and agreements are 
being consummated all the time, these relationships are likely to 
change in some detail, but notice that at that time these concerns in 
,the I. G. had arrangements of various sorts not only with firms of the' 
most varied character in Germany itself, but with concerns producing 
the same commodity in all corners of the earth the explosive concerns; 
being listed at the left. Dyestuffs concerns are listed directly undeir 
neath. Certain mining and mineral coiKj'erns are listed at the right,. 


notably, of course, lignite and coal concerns. But they had certain re- 
lationships with other firms in Germany, such as the A. E. G., which is 
the Allgomine Elektricitatsgesellschaft, with the union of the steel 
works, die Vereinigte Stahlwerke, and similarly with Standard Oil, 
with du Pont and with certain photographic firms, with Imperial 
Chemical Industries, Ltd., les Etablissements Kuhlmann, which is a 
French concern, the Ciba group, which is in Switzerland, British 
Celanese, and the Solvay group in Belgium. 

You will note similarly that the chart for Imperial Chemical Indus- 
tries, Ltd., tells an essentially similar story. That is, "Exhibit No. 
2086." Again you will find listed there Nobel Industries, which, of 
course, produces explosives, Brunner Mond, soda alkali, and the 
British Dyestuffs Corporation, which is a member of the Imperial 
Chemical Industries, Ltd. You' again find relationships with metal 
companies and mineral companies, and the like, and with foreign 

Over on the right you will notice relationships there with the 
Interessengemeinschaft and Lee Higginson and with the De Beers 
Diamond Syndicate, with Mond Nickel, which later became part of 
International Nickel, and with other firms. 

A similar chart, "Exhibit No. 2087", tells the same story for the 
French dyestuffs combine. This Compagnie Nationale du Matieres 
Colorantes et Produits Chimiques branches out into the mineral, 
coal, and even the textile industries. It, too, has agreements of 
various kinds, joint ownership, and various other relationships with 
foreign firms. 

I didn't reproduce, although it would have been possible to do so, 
similar charts for certain American firms and Italian concerns. The 
thing I wanted to point out, the thing that seems to me to stand out 
clearly is that nearly every firm mentioned is a huge concern virtually 
embracing an entire national market, each capable of dealing on equal 
terms with the I. G. in Germany. All are chemical giants producing 
hundreds of commodities in scores of plants in every important center 
of chemical production and consumption in the world. 

In short, combination into national monopolies was regarded as 
necessary to hold one's own in international negotiations. I want to 
repeat here the words of a very famous Report on Dyes and Dyestuffs 
prepare'^ by a subcommittee appointed by the standing committee 
on trusi which examined the formation of the British Dyestuffs 
Corporation, which, you remember, was just one of the companies 
listed in Impeiial Chemical Industries, Ltd. 

This report was published in 1921. 

The Chairman. You are reading from what document now? 

Dr. Kreps. I am reading from the document 'called "Dyes and 

The Chairman. Issued by? 

Dr. Kreps. Issued by the British Government, cmd. 1370, pre- 
sented to Parliament. 

The Chairman. Was this a subcommittee of Parliament, or was 
it an executive committee: 

Dr. Kreps. It was a subcommittee of the standmg Committee on 
Trusts of Parliament. 

The Chairman. This was the House of Commons, Standing 
Committee on Trusts, a subcommittee report. 


Dr. Keeps. Correct. 

The Chairman. So they have monopoly committees over there, too. 

Dr. Kreps. Yes. They have had a number of investigations con- 
cerning particularly the impact of these combinations and these 
cartels. In tliis case they were looking into the British Dyestuffs 
Corporation which had become a monopoly, and here is what they say: 

In view of these great and powerful combinations of dye-making concerns in 
Germany, America, and to a lesser degree Switzerland and France, it is a warrant- 
able assumption that the British dyes industry could only be put into a position 
to compete effectively with its foreign rivals, whether in the home or in neutral 
markets, by some financial unification of its principal component firms such as 
that represented by the British Dyestuffs Corporation. 

Holding as we do the view that the giant concern is not necessarily either more 
efficient, enterprising or economical in its operations than the congeries of smaller 
concerns competing one with the other, we are, at the same time impressed, as a 
result of the evidence we have heard, with the degree to which international 
competition in dyes (as also to some extent competition within the national 
frontiers) is a conflict of commercial "Great Powers" exhibiting all the character- 
istics of militant diplomacy carried on with financial and commercial brute force 
in the background, rather than a simple economic matter of striving to ofi'er, in 
competition with others, the most acceptable article at the most favourable price. 

In this "haute politique" of large-scale industry the unassociated group of 
small concerns, though severally and jointly more efficient as regards mere 
production, may be at the mercy of the aggressive and predatory policy of the 
less efficient but financially more powerful rival. 

In other words, national cartels almost are compelled by interna- 
tional cartels. 

The Chairman. I didn't get that. 

Dr. Kreps. They are almost compelled by the tactics of interna- 
tional cartels. In self-defense industry within certain European 
countries has to get together in order to be able to present a united 
front against international competition. 

Dr. LuBiN. Weren't these very large companies members of the 
international cartel them^selves? 

Dr. Kreps. Yes; but the British Dyestuffs Corporation was not 
for sometirce — it wasn't really until the merger between the British 
dyestuffs and the Imperial Chemical Industries, Ltd., became effective, 
that they became members of the cartel and able to hold their own. 

Dr. LuBiN. I don't get the logic of it. Being a member of the 
cartel, why do they have 'to be able to hold their own? They were 
given the privileges that go with membership. Is it that they could 
bargain better and get better terms from the cartel? 

Dr. Kreps. If they can speak with authoritative voice concerning 
their own country; yes. 

Dr. LuBiN. But the fact still remains that they were members of 
the cartel before and having been members they decided to get more 
powerful so as to get a better bargain, so they themselves were partly 
responsible for finding them.selves in a situation that wasn't very 

Dr. Kreps. Yes; there is an element of truth in that. 

Now what are the benefits of cartels? 

The Chairman. Just a moment, let's pursue this matter a little bit 
further. The concluding sentence which you quoted from that report 
on dyes and dyestuffs, as I read it, was: 

In this "haute politique" of large-scale industry the unassociated group of small 
concerns, though severally and jointly more efficient as regards mere production, 
may be at the msrcy of the aggressive and predatory policy of the less efficient but 
financially more powerful rival. 


Now that doesn't seem to say that these smaller and more efficient 
concerns were forced to join the cartel. 

Dr. Kreps. No. 

The Chairman. I understood that to be yeur conclusion. 

Dr. Kreps. No; my conclusion was they were forced to unite, or 
rather that the Committee of Parliament condoned their uniting into 
a nationally organized concern, so that they could hold their own. 

Dr. LuBiN. Their own against whom? 

Dr. Kreps. Against the Interessengemeinschaft; that is, against 
the international cartel. 

Dr. LuBiN. But they were members of the cartel. 

Dr. Kreps. No, no; not before they formed themselves into a 
national organization. 

Dr. LuBiN. In other words, they were forced by cartels to amal- 
gamate, as it were, in Great Britain, and having amalgamated they 
joined the cartel. 

Dr. Kreps. They could get a place in the cartel. 

The Chairman. Of course, side by side with this development of 
the cartels, this highly complex organization of large business enter- 
prise, the condition of the inhabitants of these countries from the 
point of view of employment and social security was not particularly 
improved, was it? 

Dr. Kreps. Well, the post-war period showed improvement pretty 
generally in Europe. I think it is difficult to see a direct connection, 
at any rate a simple one, between the formation of these national 

The Chairman (interposing). I don't know that I wanted to imply 
there was any connection. My feeling has been, and I may be wrong 
about it, that economic conditions in Europe have not been altogether 
satisfactory any more than they have been here. 

Dr. Kreps. That is correct. In other words, the cartelization of 
Europe has not solved European problems. 

The Chairman. Side by side with the growth of this structure and 
the development of this structure, has been this other condition which 
is part of the economic problem of the whole world. 

Dr. Kreps. That is correct. 

benefits and weaknesses of cartels 

Dr. Kreps. The benefits which are sought by producers and govern- 
ments fro.m the formation of cartels have been summarized as follows: 

1. Lower costs of production because — -^ 
(a) Methods of production are standardized through mutual 


(6) Rate of production is kept at a more uniform level. 

(c) Competitive overexpansion is reduced. 

(d) Risk premium is less. Less stock necessary to meet unexpected 

(e) Cartel research institutes are established, patents and processes 

(/) Problems of management are solved in mutual conference. 

2. Lower marketing costs because — 

(a) Advertising is done by cartel (syndicate) rather than individual 


.(b) Terms of trade are made uniform, preventing unfair competition. 

(c) Transportation expenses to uneconomical markets are elimi- 
nated through allocation of markets. 

(d) Exploitation of seller or purchaser of cartel products is avoided 
through conclusion of intercartel agreements. 

• 3. Smoothing out of cyclical ups and downs — 

(a) Greater equilibrium betweeen productive capacity, production 
and consumption is obtained. 

(b) Rate of employment is less subject to severe fluctuations. 

(c) Prices are kept at a more stable level. 

While the desire and attempt to realize the benefits enumerated 
above undoubtedly strongly impel toward the formation of cartels, 
certain other conditions are necessary. It helps greatly if products are 
standard articles of mass consumption, if productive processes are 
highly mechanized, if the sources of supply whether of raw materials, 
labor, or patents are few, and if the minimum and optimum size of 
plants is large. 

Moreover, a tariff is often of material assistance. In the words of 
the organizer of Imperial Chemical Industries, Ltd., who called the 
international cartel "one of the greatest factors toward international 
peace which I have been able to conceive * * * Anyone who has 
had practical experience of bargaining with continental producers 
knows that the first tiling they say is 'you cannot export to our country 
because we have a tariff. How much of your market are you going to 
give us?' " This is Baron Melchett in his book Industry and PoHtics. 
In this he is backed by the overwhelming weight of authoritative 
opinion. Dr. von Beckerath states, in the book I have quoted many 
ti.mep, "By setting stricter limitations on market areas and thus 
promoting national cartels, protective tariffs often created the condi- 
tions for international cartelization. They provided an even greater 
inducement to establish international combines." Dr. Pribram 
similarly states "free trade is a sufficient explanation of the non- 
existence of cartels and trusts in a large section of English industries." 
That, of course, is prior to 1932. Liefmann in his article on cartels in 
the Encyclopedia of the Social Sciences makes a similar point: 

The state is also in a position to exert pressure upon the cartels through the 
application of various measures of economic policy, one of the most effective of 
which is the power to reduce the import duties on raw materials when a caitel 
raises prices excessively. Another practical measure that would have a similar 
effect is the reduction of railway rates to encourage the importation of goods 
competing with the products of the cartel. Reducing the tariff in order to control 
domestic monopolies is a policy that has been applied chiefly by Canada and 
New Zealand. 

In Canada, by virtue of the Combines Investigation Act, 1923, the Governor 
in Council is empowered to direct either that an article be admitted free of duty 
or that the duty thereon be feduced, if, upon due investigation, it appears that 
"there exists any combine to promote unduly the advantage of manufacturers or 
dealers at the expense of the public, and that such disadvantage to the public 
is facilitated by custom duties imposed on the article." 

"Judicious use of customs tariffs" is likewise recommended by the 
League of Nations experts as the most adequate means of state policy 
in exercising its , functions of guardian of the public interest, in the 
book on International Industrial Agreements. 

From all these statements the connection between tariffs and 
cartel arrangements would seem to be reasonably clear. Cooperation, 
revulsion against risk, fear of loss pn heavy investment in plant, 


desire to eliminate the wastes of competition — all of those impel 
producers in all countries, especially during periods of stress, to 
perfect voluntary cooperative arrangements whereby production and 
prices can be stabilized, sales raids prevented and regularity of opera- 
tion promoted. 

. But these arrangements frequently are not strong enough in good 
times with the result that combinations and mergers concentrate 
economic power over production, prices, employment, and investment 
in fewer hands. The growth of big business frequently surpasses 
national boundaries with the result that governments are urged to 
use their power to police those who will not behave, either by levying 
tariffs if the recalcitrants happen to be foreign producers or by com- 
pelling minority domestic factions to fall into line with the cartel 
efforts of majority groups. 

Cartels, in short, may lead to concentration both of economic 
power and of political power. 

Under certain conditions they may become the scaffolding for 
monopolistic structures and gigantic business combines which begin 
by dictating trade practices, prices, production, and sales and culminate 
if unchecked in dictatorial corporate statism. 

Mr. ScoLL. Does that conclude your statement? 

Dr. Kreps. That concludes my statement. 

Mr. Pike. One small correction, doctor. When you were speaking 
of the tanker pool you said that the price of fuel, oil had trebled since 
the war. I think you meant possibly the tanker rates from the 
Gulf instead of the price of the oil; the oil had gone up from about 
a dollar to a dollar and a half, while tanker rates, if I remember 
correctly, had run up about 20 cents to 60 cents. You had that in 

Dr. Kreps. That is correct. 

Mr. O'CoNNELL. I would like to ask a question doctor. You 
deferred to the power vested in the Governor in Council in Canada 
to lower tariffs under certain circumstances. Do you happen to 
have any information as to the extent to which that power has ever 
been used? 

Dr. Kreps. I do not have that information. I know where it can 
be obtained, in a book by Dr. Lloyd Reynolds just issued by the 
Harvard University Press on the control of competition in Canada. 

Mr. O'Connell. I had been under the impression it had been 
used sparingly, if at al|l. 

Dr. Kreps. That is my impression, but in precisely what industries 
or upon what occasions it has been used I don't know. 

Mr. O'Connell. The value of such a sanction cannot be very well 
determined in the abstract. It might look good in the law? 

Dr. Kreps. I agree. 

Dr. LuBiN. Dr. Kreps, would it be fair to conclude from the history 
of cartels that cartels can operate effectively only in those industries 
where there is already an inherent monopolistic tendency, at least to 
the extent that through patents or limited sources of raw materials it 
would have in a sense a natural monopoly significance which is built 
upon — in other words, would you find these cartels operating effec- 
tively in industries where you didn't have these other factors like 
raw materials, patents, or something of that sort? 


Dr. Kreps. I wouldn't use the word "monopolistic." I would 
merely use the word "concentration." Cartels really don't operate 
effectively until, due to various technical situations, control has been 
concentrated in a few hands, where decisions need to be made by 
relatively few people to have an important influence on the market. 

Dr. LuBiN. Well, now those instances that you 'mention in your 
testimony are instances of concentrated control, but that control 
itself arises out of a limitation of sources of raw materials, or limitation 
of finished products due to patents for example. I mean the rubber 
monopoly couldn't be very effective, that is the rubber cartel, if every 
country in the world raised rubber? 

Dr. Kreps. No; and that is the difficulty with efforts to control 
wheat production, for example, contrasted with the relative success 
of efforts to control tin or rubber production. 

Dr. LuBiN. In other words, most of the success of cartels is built orT 
concentration of control, but that concentration of control itself is 
the outgrowth of limitation of supply or artificial factors which make 
it feasible? 

Dr. Kreps. That is why in my first sentence I said cartels are really 
a product or a phase of modern industrialism. 

The Chairman. Well, that is broader than Dr. Lubin indicated, is 
it not? 

Dr. Kreps. Yes. 

The Chairman. Now I find tliis sentence in your printed testimony, 
"We find international combines and communities of interest in the 
coal and iron industries." Are either of those industries dependent 
upon patents, or on actually limited supplies? 

Dr. Kreps. In Europe deposits of coal are concentrated in rela- 
tively few areas, added to which is the circumstance that France or 
rather the Lorraine area and the Ruhr coal area should never be 
separated. They are really economic counterparts. Therefore the 
producers in those two areas have to get together ; there has to be some 
working arrangement so that the minette ores can be combined with 
the good coking ore in the Ruhr. It is that sort of concentration of 
mineral supplies which is most conducive to 

The Chairman (interposing). But in that instance you do have a 
natural limitation of supply? 

Dr. Kreps. Yes. 

Dr. Lubin. But on the other hand, if the steel industry of the 
Ruhr hadn't been controlled and concentrated in a few hands you 
might have had a relatively competitive situation which would make 
it just as easy for that coal to flow back and forth on a competitive 
basis as it [is today? 

Dr. Kreps. You might have had competition at least between 
Great Britain and the Ruhr and Silesia mines. 

Dr. Lubin. You might have had competition within the Ruhr 

Dr. Kreps. Quite, and competition between (jhe producers there in 
the Ruhr and Lorraine. 

The Chairman. Now then, the next industry mentioned was the 
chemical industry, particularly the nitrogen and rayon industries. 
WeU, patents have their application there, of course. In the electro- 
technical industry the same is true. The European cellulose, paper, 
and tobacco industries, what are the characteristics of those industries? 


Dr. Kreps. There you have standardized products, mass pro- 
duction, and a tendency toward concentration in a few large plants. 

The Chairman. To what is that concentration attributable, to 

Dr. Kreps. No; not fundamentally. 

The Chairman. Limitation of source of supply? 

Dr. Kreps. No. Fundamentally, to machine technology. It is 
just a fact that in producing cigarettes, for example, machinery has 
been so developed that the unit of minimum or optimum size is a 
large unit and that only a few such units are required to supply a large 

The Chairman. And we come to the linoleum and cork industries, 
and to copper, nickel, zinc, quicksilver, lead and other metal industries. 

Dr. Kreps. Of course, in the latter industries the dominating 
influence is the fact that supplies are found in relatively few areas. 

The Chairman. Well, now, covering the whole field, what, in your 
opinion, is the most important overall force bringing about carteliza- 

Dr. Kreps. . Historically, I would say it was necessity. Here you 
have these large concerns with heavy capital investment. If they 
try to reduce price down to the level of direct costs, the price would 
go down to almost nothing. They see this risk to their investment. 
There are a few firms, seven or eight or so, and after they have accepted 
a beating from the market for a certain period of time, they say, 
"Well, why don't we sort of live and let live? Why don't we reason 

The Chairman. So the larger the concern gets, the more likely it is 
to avoid the effects of competition, is that the conclusion? 

Dr. Kreps. The more powerful it is to do what Walter Lippmann 
says all businessmen do, have as little competition as they can, or, 
what is that quotation. Dr. Lubin? 

The Chairman. I thought you would be able to quote Walter 
Lippmann without prompting. 

Dr. Kreps. Competition is something of which producers have 
only as much as they cannot eliminate. That is true all the way 
around the circle. We all try to establish some little niche for our- 
selves and hope that nobody else can merchandise the same product. 

Mr. O'CoNNELL. Well, the fact is that the forces which you indicated 
as causing or impelling international cartels are the same forces that 
bring about collusive combinations in restraint of trade in this coun- 
try, aren't they'? 

Dr. Kreps. Yes; I think so, and the major differences I would say 
would be that abroad documentation is much more easily secured 
because these agreements are enforceable, if not contrary to the com- 
mon law in Great Britain or contrary to bonos mores in Prussia and 
Germany. In this country there has been a law on the statute books; 
while I am by no means an authority on the enforcement of that law, 
it is my impression that the majority of competent observers agree 
that the law has been honored in its nonenforcement rather than in 
its complete enforcement. 

The Chairman. Did I understand you to draw the final conclusion 
that this movement led in the last analysis to the establishment of the 
totalitarian government? 

Dr. Kreps. It might. • 


The Chairman. You didn't offer that, then, as a conchision? 

Dr. Keeps. No. The cartel by its very nature tends to break up 
particidarly when a period of prosperity comes along; the emergency 
is past and good old human nature goes to M-ork, Producers want to 
exceed their quota; they want to sell a little more for one reason or 
another. The cartel breaks or the producers say, "Well, I will sell 
out," and you get combination, increasing combination, in order to 
minimize risks and stabilize the industry. But that very process of 
huge combination usually cannot avoid being watched by govern- 
ments without a great deal of care. 

The Chairman. Most of these cartels of wtuch you have testified 
tliis afternoon were privately organized, as we use that phrase, were 
they not? 

Dr. Kreps. That is correct. 

The Chairman. And the Government participation was in only a 
very few? 

Dr. Kreps. That is correct. 

The Chairman. Now, to what extent, by and large, has government 
by law made possible the development of the cartels? You referred 
to one law in England, the Impost Act of 1932, I think, wliich accord- 
ing to one authority, whom you quoted made possible, the development 
of cartelization in Great Britain, and then you referred to some other 
cases in which cartelization was compelled by statute? 

Dr. Kreps. Yes. 

The Chairman. Now, by and large, what is your conclusion? 

Dr. Kreps. There is no simple answer. I would say that govern- 
ments that watch out for the public interest with great care will tend 
to encourage the forces, the rather natural forces, that disrupt cartel 
agreements, and would tend to stay somewhat the process particularly 
of financial combination. 

In other words, then we might get only that size of unit which 
productive efficiency might demand, which is a size somewhat different 
from that which is sometimes financially welded together. 

Governments that are not so alert and particularly governments 
that might be inspired by somewhat different pliilosophy, say oiie hi 
which the leaders believe in economic planning, will welcome this 
type of voluntary economic plannmg, which of course is what a cartel 
is, economic planning by businessmen on a national and international 
scale, and will see in it a device which tliey can utilize effectively to 
increase planning in that society. 

The Chairman. So that actually, so far as scientific fact is concerned 
there is no difference in principle between the economic planning of a 
privately organized cartel and the economic planning under N. R. A., 
for example? 

Dr. Kreps. None. 

Dr. LuBiN. I want to disagree, Mr. Chairman. 

The Chairman. With whom? 

Dr. LuBiN. The v/itness. I tliink the fundamental difference lies 
in the aims you are trying to serve. I tliink your national and your 
international cartel is economic planning for a particular purpose, 
namely, the welfare of the people who control the cartel, as opposed to 
a type of plannmg which may have as its end, lower prices, greater 
distribution of goods, the liigher standard of living for the nation as a 


whole, and I can see where that type of planning would conflict 
definitely with the type of planning that goes with a national or inter- 
national cartel where you arc not concerned with your consumer at 
all, your consumer of the maximum possible under the conditions 
under which you operate. 

Dr. Kreps. I was assuming the Chairman was asking not the motive 
but mechanism wliich is essentially the same. 

The Chairman. You un^^erstood me correctly. Now let's get back 
to the economic planning which is involved in an organization of 
private cartels. It is scientifically the same as economic planning 
wliich is involved in an international agreement like that wliich con- 
trols rubber? 

Dr. Kreps. Yes. As you note the provisions, the penalties, 
methods of enforcement, were in essence the same for the international 
rubber agreement and the tanker pool. 

The Chairman. But the distinction between a cartel or an economic 
plan entered into by private interests in a private cartel, and the 
economic planning of a combination like the rubber agreement, or 
the sugar agreement, or even the N. R. A., is that some spokesman 
for the general public participated in the second, but not in the first, is, 
that correct? 

Dr. Kreps. Sometimes. There have been instances in which there 
was governmental participation and nonetheless no consumer repre- 
sentation. The potash agreement, which I placed in the record, has 
no provision for consumers in the agreement as such, although it does 
in the cartel in Germany. 

The Chairman. But nevertheless the Government spoke for the 
people at large ; whether it actually gave consideration to the interests 
of all groups of people may be another question. 

Dr. Kreps. That is what I wanted to point out. 

The Chairman. Are there any other questions to be asked of the 
witness? It is now 4:30. I think Senator King asked me before he 
went if we would conclude this afternoon with your testimony. Who 
are your witnesses tomorrow? 

Mr. ScoLL. Mr. Kelley of the Anaconda Co. 

The Chairman. Is Mr. Kelley here now? 

Mr. Kelley. Yes. 

The Chairman. If there is no objection the committee will stand 
at recess until 10:30 tomorrow morning. 

(Whereupon, at 4:30 p. m., a recess was taken until Tuesday, 
January 16; 1940, at 10:30 a. m.)^ 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C 

The committee met at 10:40 a. m., pursuant to adjournment on 
Monday, January 15, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator William H. King presiding. 

Present: Senators King, acting chairman, and O'Mahoney; Repre- 
sentative WilHams; Messrs. O'Connell, Pike, and Brackett. 

Present also: Joseph E. Sheehy, Federal Trade Commission; Hugh 
B. Cox, Department of Justice; M. Quinn Shaughnessy, Securities and 
Exchange Commission; Theodore J. Kreps, economic adviser; Samuel 
Moment, economic analyst; and David E. Scoll, counsel to the com- 

Acting Chairman King. The committee will please come to order. 

Who is your first witness? 

Mr. Scoll. Senator, before I introduce the first witness I would like 
10 make a brief statement for the record. To illustrate the coopera- 
tion in industry which Dr. Kreps discussed yesterday the staff of the 
committee will now present a general picture of the copper industry. 
The evidence, which will be introduced through representatives of the 
industry, will review in a general way the various cooperative pro- 
grams by which the industry has endeavored to meet its major prob- 
lems from 1918 until the present. These problems relate to produc- 
tion, prices, and methods of marketing. The programs which will be 
reviewed cover the Copper Export Association, Inc., and Copper 
Exporters, Inc., which were organized under the Webb-Pomerene Act 
of 1918, an act which permits combination in export trade; the curtail- 
ment agreements of 1930 and 1931 ; and the international production- 
control agreement of 1935 to 1939. These programs are interesting 
and important not only because of their effects in the export trade, 
but also because of their indirect effects within the United States on 
prices and production. 

The staff of the committee which has prepared the material for this 
hearing has been fortunate in securing wholehearted cooperation from 
the copper industry. No file searches were made. The material to be 
offered has been assembled from records already in the possession of 
Government agencies and from data which have been voluntarily 
furnished the staff by the copper companies acting through the 
Copper Institute. 

I would like to call Mr. Kelley. 

Acting Chairman King. 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. Kelley. I do. 




Mr. ScoLL. Will you tell the reporter your name? 

Mr. Kelley. My name is Cornelius F. Kelley. 

Mr. ScoLL. And you are president of the Anaconda Copper Mining 

Mr. Kelley. I am. 

Mr. ScoLL. To give a little background for this discussion, Mr. 
Kelley, will you describe in a general way what the Anaconda Copper 
Mining Co. is? 

Mr. Kelley. The Anaconda Copper Mining Co. is a corporation 
organized under the laws of the State of Montana. Originally its 
operations were confined to mining, smelting, and incidental activities 
in that State. A good many years ago it started out on a policy of 
expansion, and finally it became interested in mining properties in 
various parts of the United States. Realizing the necessity for pro- 
viding an adequate supply of raw material, it also acquir^ed properties 
outside the United States, principally in Mexico and the Republic of 

It likewise pursued a policy of integration and acquired fabricating 
facihties in order to secure an outlet for its metal products — fabricat- 
ing facihties in various parts of the United States and in Canada. It 
likewise engaged in export trade. So it is, in fact, an operating com- 
pany and a holding company to the extent that it owns stocks in 
various subsidiaries, probably more than 20 companies that are 

Mr. ScoLL. Your mines, I beheve, are located in Montana and in 
South America? 

Mr. Kelley. The minea of the company are located in this country, 
principally in the State of Montana. 

Mr. ScoLL. And in South America? 

Mr. Kelley. In South America they are located in the Republic 
of Chile. 

Mr. ScoLL. I beheve you mentioned that you also smelt the ore. 
Where are your smelters located? 

Mr. Kelley. We are engaged not only in smelting our own ores, 
but also to a certain extent in the custom smelting business. Our 
smelters are located, the largest in Anaconda, Mont. Through a 
subsidiary, the International Smelting & Refining Co., we operate a 
smelter at Tooele, Utah. We also operate a smelter in Arizona. 
■ Mr. ScoLL. Where do you refine the copper? 

Mr. Kelley. The domestic copper is refined at Great Falls, Mont., 
and at Raritan, N. J. The product of South America, the product of 
the Chile Exploration Co., the Chuquicamata mine, is in a refined 
state when it comes through the primary processes, as that is an 
oxidized ore body and does not need to be smelted. The Andes 
Copper Mining Co. also produces part of its product as electro- 
lytically refined copper. 

Mr. ScoLL- And you mentioned that you also fabricate copper. 
. Mr. Kelley. We do. 

Mr. ScoLL. What products do you manufacture, and where? 

Mr. Kelley. We manufacture, I think, a complete Une of copper 
and brass products through a whoUy owned subsidiary, The American 


Brass Co., and an almost complete line of wire and cable products 
through a not wholly owned subsidiary but an affiliated company, 
the Anaconda Wire & Cable Co. 


Mr. ScoLL. At this time, Senator, I would like to read to the com- 
mittee a list of the principal copper producers of the United States, 
which list appears in the Year Book of the American Bureau of Metal 
Statistics of 1938, and as I read through the list of producers, Mr. 
Kelley, would you be kind enough to tell the committee, from your 
knowledge, which of them are subsidiaries of other companies, as 
far as you know? 

First of all, we have the American Smelting & Refining Co.; Ana- 
conda Copper Mining Co.; Calumet & Hecla Consohdated Co'pper 
Co.; Champion Copper Co. I beheve the last is a subsidiary of one 
of the others, isn't it? 

Mr. Kelley. Not to my knowledge. I think it is a very small 
and comparatively unimportant company. 

Mr. ScoLL. Consolidated Coppermines Corporation ; Copper Range 
Co.; Howe Sound; Inspiration Consolidated Copper Co. 

Mr. Kelley. All of the companies that you have indicated down 
to this I think are wholly independent companies. The Inspiration 
Co. is not a subsidiary of Anaconda, but Anaconda has a stock in- 
terest in the company amounting to about 28 percent of the shares. 

Acting Chairman King. That company operates in Arizona? 

Mr. Kelley. In Arizona, Senator. 

Mr. Scoll. The Keimecott Copper Corporation; Magma Copper 
Co.; Miami Copper Co.; Mountain City Copper Co. 

Mr. Kelley. The Mountain City Copper Co. is a subsidiary, al- 
though not wholly owned, of the International Smelting Co., which 
in turn is a wholly owned subsidiaiy of Anaconda. 

Mr. Scoll. The National Tunnel & Mines Co. 

Mr. Kelley. That likewise is an affiliated company. 

Mr. Scoll. North Butte Mining Co. That is a small mining 

Mr. Kelley. That mining company I think is no longer in active 

Mr. Scoll. Ohio Copper Co. Is that in active operation, do you 

Mr. Kelley. No; that is out. 

Acting Chairman King. That failed a couple of years ago, didn't 

Mr. Kelley. Yes. 

Acting Chairman King. With other mining companies? 

Mr. Kelley. Yes. 

Mr. Scoll. Phelps Dodge Corporation; Quincy Mining Co.; Shat- 
tuck Denn Mining Corporation; Tennessee Copper Co. I believe 
Tennessee and Miami are sometimes referred to as the Lewisohn 
group of mines, are they not? 

Mr. Kelley. That is right. 

Mr. Scoll. And the Walker Mining Co. 

Mr. Kelley. The Walker Mining Co. is an affihated company of 
Anaconda through its stock ownership by the International. 

124491— 41— pt. 25— T-5 


Mr. ScoLL. So that leaves, roughly, between 12 and 13 active 
operating companies today in the United States. 

Mr. Kelley. I haven't counted them, but whatever the list indi- 
cates. Some of these companies have ceased to operate. 

Mr. ScoLL. Now turning to the foreign producers, that is the min- 
ing companies, this list of the American Bureau of Metal Statistics 
of 1938 shows the Andes Copper Mining Co. 

Mr. Kelley. That is a subsidiary of Anaconda. Anaconda owns 
about QSYi percent of the shares of that company. 

Acting Chairman King. Operating in Chile? 

Mr. Kelley. Operating in Chile. 

Mr. ScoLL. The Braden Copper Co. 

Mr. Kelley. The Braden Copper Co. is a subsidiary, I believe, of 
the Kennecott Copper Corporation. 

Mr. Scoll. Cerro de Pasco Copper Corporation. 

Mr. Kelley. It is an independent. 

Mr. Scoll. That is an independent also in Chile? 

Mr. Kelley. Operating in Peru. 

Mr. Scoll. The Chile Exploration Co. 

Mr. Kelley. The Chile Exploration Co. is a subsidiary company 
of the Anaconda. The Chile Exploration Co. is wholly owned by 
the Chile Copper Co., and the Chile Copper Co. is 98K percent 
owned by Anaconda. When I say 98% percent, I mean approxi- 

Mr. Scoll. Union Min. du Haut Katanga. 

Mr. Kelley. That is a Belgian company, the majority of whose 
shares are owned by the Belgian Government nd it operates in the 
Belgian Congo. It is usually referred to as Katanga. 

Mr. Scoll. The Matabambre Mines. 

Mr. Kelley. Matabambre Mines operate in Cuba and the stock 
ownership is held by the American Metal Co., an American corpora- 
tion, although not whoUy owned. 

Mr. Scoll. The Mufulira Copper Mines, Ltd. 

Mr. Kelley. Mufulira is one of the Rhodesian copper mines that 
operate in Northern Rhodesia. 

Mr. ScoLL. Rhokana Corporation. 

Mr. Kelley. Rhokana is lilcewise a Rhodesian mining company. 

Mr. Scoll. Roan Antelope Copper Mines. 

Mr. Kelley. That is a Rhodesian mine. 

Acting Chairman King. Are those English owned? 

Mr. Kelley There is a certain community of interest -between 
aU these companies through the original concessionaires, hut they 
are largely British owned and British controlled and British dominated 

Mr. Scoll. The Otavi Mines & Railway Co. 

Mr. Kelley. That is a small mine in Africa. 

Mr. Scoll. Are there any other foreign producers that you can 
think of at the mopient? 

Mr. Kelley. The Canadian producers you haven't mentioned. 

Mr. ScoLL. Outside of Canada? I was thinking of Bor. 

Mr. Kelley. Bor is a copper company located in Yugoslavia, 
formerly that part of it that was known as Serbia, and is quite an 
important European producer. 

Mr. Scoll. Aod I believe there is also Rio Tin to? 


Mr. Kelley. Rio Tinto is in Spain, an old company that operates 
on a rather limited scale. There is also the Bolidnen Mine in Sweden, 
which is rather an important copper and gold mine. 

Mr. ScoLL. You were going to mention the Canadian producers. 

Mr. Kelley. Mansfield is the other European producer that I, 
recall. That is a very old copper producer located in Germany, 
Saxony, I think, and is largely subsidized by the German Government, 
as its products could not be made otherwise upon an economic basis. 

Mr. ScoLL. It is not much of a factor in the international situation, 
is i^t? 

^Ir. Kelley. No. 

Mr. Scoll. Now you were going to mention the Canadian producers. 

Mr. Kelley, Well you asked me if I knew of any other foreign ones. 
The principal Canadian producers are, of course, the International 
Nickel Co., the Noranda Mining Co., Hudson Bay, Sherritt Gordon, 
and Granby. 

Mr. Scoll. I would like to offer this list of the American Bureau of 
Metal Statistics showing principal copper producers and the disposi- 
tion of their copper for the United States, Canada, Mexico, and other 
foreign countries. 

We omitted Mexico. 

Mr. Kelley. The principal producer in Mexico, I think, is the 
Cananea Consolidated Copper Co., which is a wholly owned sub- 
sidiary of the Greene Cananea Copper Co., which in turn is about 
98)^ percent owned by Anaconda. There are other copper producers 
in Mexico, but that is the most substantial one, and the only one 
which I recall at the moment, of importance. 

Mr. Scoll. I offer the list in evidence. 

Acting Chairman King. It may be received. 

(The list referred to was marked "Exliibit No. 2088" and is included 
in the appendix on p. 13383.) 

Mr. Scoll. Throughout this hearing we will be talking about the 
functions of smelters and refiners and the importance of secondaiy 
copper and the different types of copper, such as elecirolytic, and 
standard, so I wish you would describe briefly the process of con- 
verting copper ore into copper met^al- 

Mr. Kelley. That cpvers quite a field. Usually copper ores as 
found, generally speaking throughout the world, may be divided as 
to their mineralogical character into oxide ores and those that are 
known as sulphide ores. By far the greater production of copper 
comes from the sulphide-ore bodies. The sulphide mines may be 
divided generally iijto what are known as porphyries, or mines where 
the copper mineral is disseminated through the rock in small particles 
and vein mines where the sulphide ore is found in veins or ledges that 
descend from somewhere approximately near the surface of the ground 
down to remote depths. Another type of undergroimd mine is 
where the ore, instead of occurring in veins, occurs in irregular bodies — 
in masses — usually as replacements in Umestone formations. 

The reduction of these ores to metal occurs through three processes. 
Those processes are known as milling or concentrating. This is the 
first step in the recovery of the metal. The ore is taken to concen- 
trators or mills, ground into fine particles, and put through a process of 
water recovery, either by gravity or by flotation. The product of the 
mill is usually taken to the roaster where the sulphur is driven off and 


the product comes out as what is known as a calcine. The calcine is 
taken to the furnace where it is reduced to a. matte, and that is taken 
to a converter where it is blown up into what is known as blister 
copper. That is the crude copper and contains, in addition to the 
copper, whatever bullion values, such as gold and sUver, become 
imprisoned in that process. The bhster copper is taken to a refinery, 
usually an electrolytic refinery, where through a process it is refined 
and comes out as electrolytic copper. 

Mr. ScHOLL. What is commonly meant by the terms "low cost" 
and "high-cost" producers? 

Mr. Kelley. That I wouldn't know. It depends, to my mind, a 
good deal on how the books are kept. By that I mean we have in the 
copper business no standard form of accounting. There is no una- 
nimity of opinion or practice among the larger copper companies as to 
their methods of bookkeeping, and by that I mean their methods of 
charging developments to capital account, charging them against 
operations, writing off the organization cost or the valued cost of the 
ore bodies, so that in order to anive at a low cost or a high cost there 
are a great many factors to be taken into consideration. Generally 
speaking, I should say a low-cost property is one that can make copper 
at a cost lower than a high-cost property. 

(Senator O'Mahoney assumed the Chair.) 

Senator King. There are very few mines that produce exclusively 
copper, arfe there not? Utah Copper is one where you have to mine 
2,000 pounds of waste in order to get just 2 or 3 pounds of copper. 

Mr. Kelley. If I may revert for a moment to this question of cost, 
I would Uke to suggest this to the committee. There have been three 
official determinations of the cost of produciug copper in the United 
States, to my knowledge. In those cases these discrepancies in 
bookkeeping were adjusted so that the governmental agencies which 
investigated the industry endeavored to arrive at a common cost 
based upon a common method of accounting. The first inquiry was 
made by the Federal Trade Commission in 1918. The second was 
made by the Tariff Commission in 1928, I think, and the third was 
made under the direction of N. R. A. in 1933 or 1934. 

Mr. ScoLL. Now, Mr. Kelley, doesn't ore and the manner of its 
occurrence also have some bearing on the cost, of production? 

Mr. Kelley. Very certainly. 

Mr. ScoLL. And the so-called porphyry bodies, at least some of 
them, are commonly referred to as low cost producers, are they not? 

Mr. Kelley. I wouldn't say that that was true. Generally 
speaking, Mr. Scoll, that distinction might be made, but some por- 
phyries are rather high cost properties and some vein mines or under- 
ground mines are low cost. It depends on the character of the par- 
ticular mine. 

Senator King. Is it not true that in most copper producing prop- 
erties, copper is not produced exclusively but there may be a little gold, 
maybe a little silver, a little lead or zinc or a little iron ore, so that it is 
almost impossible to determine just how to allocate the cost of the 
production of an ore? 

Mr. Kelley. That is true, Senator, and it has given rise to a 
considerable controversy among accoimtants themselves as to whether 
the common practice of crediting to the cost of producing copper the 
entire output of metal, whatever it may be from the ore, to the copper 


or whether it should be apportioned among the different metals coming 
out, should be followed. Your statement is likewise true that 
generally speaking, and particularly in the United States and Canada, 
copper is usually accompanied by other metals. 

(Senator King assumed the Chair.) 

Acting Chairman King. Isn't it a fact that many of the mines that 
produce copper, if copper were the only metal in the ore, couldn't 
operate at all? 

Mr. Kelley. That is true. 

Acting Chairman King. The cost would be too gi*eat. 

Mr. Kelley. That is true. 

Acting Chau-man King. I referred to the Utah Copper. My recol- 
lection is that the production of copper is about 1 percent. 

Mr. Kelley. It is about 1 percent, which would be 20 pounds to a 

Acting Chairman King. They have to move a veritable mountain 
in order to extract that small quantity, 1 percent. 

Mr. Kelley. It is a great engineering and technological accom- 

Acting Chairman King. It isn't mining so much as it is an industrial 

Mr. Kelley. That is right. 

Mr. ScoLL. In Africa, Katanga, for instance, is usually referred 
to in the trade as a low cost producer, is it not? 

Mr. Kelley, Yes, the cost of Katanga has been estimated at 
various times; they don't publish cost figures, but undoubtedly they 
could make copper at a low cost from an economic standpoint. 

Mr. ScoLL. Their ore is a porphyry occurrence? 

Mr. Kelley. They have both. They have underground mining 
and open pit mining. 

Mr. ScoLL. Rhokana and Roan? 

Mr. Kelley. In Rhokana and Roan the ore occurs in great ledges 
and those are undergroimd mines, as is also the Mufulira. 

Mr. ScoLL. I don't want to question you too closely about it 
because it is strictly within Mr. Stannard's provtQce, but Kennecott 
is frequently referred to, is it not, as a low cost producer in the trade? 

Mr. Kelley. I would prefer if Mr. Scoll would direct his questions 
regarding Kennecott to Mr. Stannard, the president of Kennecott, 
who is far more intimately acquainted with them than I.^ 

Acting Chairman King. I thinlr it would be well to pass that by. 
Where you have direct evidence we won't take hearsay. 

Mr. Scoll. Who are referred to as the custom smelters? 

Mr. Kelley. The custom smelters, generally speaking, are smelters 
that are owned by corporations that are more particularly engaged in 
smelting and refining than in mining, although some mining companies 
like Anaconda are both diyect miners and operate custom smelters. 

Mr. Scoll. Why are they called custom smelters? 

Mr. Kelley. I don't know where the term originated, but his- 
torically speaking, the art of smelting was one that was little Icnown 
in the early miuing history of this country. 

The cost of erecting smelters was very considerable, and mines 
were usually in those days operated in very small units. In the 
reduction of ores, it is desirable to have a balanced charge, and, 

t For testimony of £. T. Stannard, president of Kennecott Oopper Corporation, see infra, pp. 13210-13266. 


therefore, of necessity and as a matter of convenience, the custom 
grew up in the industry of raising capital to erect smelters that would 
serve a mining district or a number of mines, and the ownership of the 
mines that ship ore to the custom smelter is quite distinct from the 
ownership of the smelter itself. They are called custom smelters 
because the muier ships his ore there, the metal content is bought upon 
a formula, the metal becomes the property of the smelter, and from 
there is taken on, refined, and sold by the smelter. 

Mr. ScoLL. To make it a little more specific, the marketing problems 
of a producer like Anaconda are quite different, are they not, from 
those of an organization like the American Smelting & Refining Co.? 

Mr. Kelley. Yes. 

Mr. ScoLL. As far as copper is concerned. 

Mr. Kelley. Quite different. 

Mr. ScoLL. Would you elaborate that a Httle? 

Mr. Kelley. Very briefly, the situation is this : In the case of a pro- 
ducer carrying his operation through from mining to the finished 
metal, and then selling it, he has the margin between the cost of pro- 
duction and whatever he sells his metal for. In the case of the custom 
smelter, the margin is the difference between what the smelter pays 
the miner for his metal, and what the smelter is able to sell if for, 
and, therefore, this situation which I think you wished explained, 
arises: The custom smelter having a very narrow margin, and buying 
ore from day to day, or metal from day to day, is not in a position to 
carry its metal. They must sell it — or endeavor to sell it— as rapidly 
as they acquire it, irrespective of market conditions; otherwise if they 
went long or short, they would be speculating in the market, and that 
as a general thing they don't desire to do. 

Acting Chairman KiNG. Isn't it a fact that a mine producing one 
ore, for instance, say, copper or silver or lead, no matter how valuable 
the product was, could scarcely afford to construct a smelter unless 
there were immediately a considerable number of mines that pro- 
duced what might be called the byproducts or the necessary fluxing 
material; so that it would justify the treatment of the ores in the 
inunediate vicinity in which they were mined? 

Mr. Kelley. Unless the operation was very large. Senator, that is 

Acting Chainnan King, in the smelters they have to assemble ore 
in order to treat economically from various sections, from mines that 
may be remote in order to get the necessary u-on and fluxing materials, 
Hmestone, and so on, in order to make a proper fluxing product. 

Mr. Kelley. That is right. In some cases, even, the smelter 
pays the miner a premium and smelts his ore for nothing in order 
to get the essential basic elements requii'ed. 

Mr. ScoLL. How many custom smelters are there operating in the 
United States today, to your knowledge? 

Mr. Kelley. I think the custom smelting business in the United 
States is controlled by the American Smelting & Refining Co., the 
Nichols Copper Co., which is a subsidiary of Phelps Dodge, by 
Anaconda and its subsidiaries, and by the American Metal Co. 

Mr. ScoLL. So there are only four. 

Mr. Kelley. Four or five major companies. 

Mr. ScoLL. The next step in the process is refining. How many 
refinery operators are there? 


Mr. Kelley. I think the American Smelting & Refinmg Co., the 
Anaconda Co., the Phelps Dodge Co. — those are the principal refiners, 
and American Metal. 

Mr. ScoLL. One of the factors in determining market conditions 
of copper, I believe, is secondary copper. Isn't tliat true? 

Mr. Kelley. Yes. 

Mr. ScoLL. Now, that includes secondary copper both as metal, and 
secondary copper which is locked up in alloys. 

Mr. Kelley. That is right. 

Mr. ScoLL. Where does secondary copper come from? 

Mr. Kelley. Except to a very limited extent, copper is really 
never destroyed, and ultimately comes back into the market from the 
scrap of buildings, trolley lines, automobiles, and various other appli- 
ances where it is originally put. That product coming back into the 
market is called scrap, or secondary metal, and in this country has 
become a very important factor in the copper industry. 

Before we leave the question of secondary metal, may I suggest that 
in 1932, '33, and '34, the ratio of secondary metal to the total amount 
of metal produced in those years was respectively 35 percent, 42 percent, 
and 41 percent. So you can see what a very important bearing it has, 
particularly in times of depression. 

Mr. ScoLL. I would like at this time to offer a ch^rt and a support- 
ing table, showing the United States production of primary and 
secondary copper, 1912-38. This chart was compiled by the staff of 
the T. N. E. C. from figures of the United States Bureau of Mines. 

Acting Chairman King. Have you seen this chart? 

Mr. Kelley. I think I have. Mr. Scbll has been very courteous 
and given us copies of most of his charts, but I don't know which one 
it is. 

Acting Chairman King. Just examine it and see whether you 
identify it. 

Mr. Kelley. Yes, we have seen that chart. 

Acting Chairman King. Have you any comment to make? 

Mr. Kelley. No, I think it shows graphically what Mr. ScoU has in 

Mr. Scoll. To summarize what is on this chart, it shows that the 
trend of production in scrap has had^n increasing importance, since 
1912, that in 1938 secondary metal was approximately 40 percent of. 
the total pr.oduction. I offer it iii evidence. 

Acting Chairman King. It will he received. 

(The chart referred to was marked "Exhibit No. 2089" and is 
included in the appendix on p. 13385.) 

Mr. Scoll. The process of fabricating the metal is one of convei'trng 
it into shapes, such as bars, ingots, sheets, and so forth, is it not?. 

Mr. Kelley. No, that is called casting. The primary casting of 
copper occurs at the refinery. The various shapes, ingot, cake, and 
wire bar, are then shipped out to mills where the process of fabrication 
or manufacture is undergone. 

Mr. Scoll. And those mills are the ones which produce the copper 
articles of trade? 

Mr. Kelley. Yes. 

Acting Chairman King. Before you leave that, I wish, Mr. KeUey 
you would state the fact — I think it is a fact — that' many of the ores 
which are being mined now could not be mined and were not mined 


several years ago because they did not have the chemical or tech- 
nological or mechanical process by which they could profitably mine 
it. I have in mind a number of developments by reason of which you 
may extract copper now from what might be called ores that they could 
not have done a number of years ago. Show the fact that the mining 
industry has made some progress by reason of the technological, 
chemical, mechanical devices which have been brought into operation 
during the past few years. 

Mr. Kelley. We think that it is a fair statement, perhaps, to say 
that no industry has made a greater technological advance in the last 
30 years than has the copper-mining industry. It is a fair statement 
to say, not only through that process and the advance in the art of 
producing ores have we lowered the cost very much of producing the 
metal, but from a national economic standpoint it is equally interesting 
that there has been added an enormous quantity to the available re- 
serves of the Nation and of the different countries where copper is 

I have a very interesting paper that covers that subject more fully 
than perhaps you wish me to, and it is available if counsel cares to 
introduce it in the record. Generally speaking, the recovery of copper 
metal from ores capable of being beneficiated has during the last 
30 years been increased from approximately 70 to 75 percent of the 
metal content, to 90 to 95 percent, principally through the develop- 
ment of the art of flotation, which is part of the recovery process. 

Acting Chairman King. So that that may get into the record, 
that means by the soap bubble, so to speak, you can arrest those 
infinitesimally small particles of copper that otherwise would go off 
with the waste. 

Mr. Kellhy. That is true. Originally the concentration of ores 
was a gravity process, in which the gangue was washed away from 
the sulphide particle. Through the introduction of flotation into a 
cell that is aerated there is an afl&nity between the sulphide particle 
and various reagents, and by that, the very small particle of sulphide 
ore is carried to the surface with a bubble, and recovered and skimmed 
off as a froth. That has increased, as I say, the recovery from sulphide 
ores approximately 20 percent or more. 

Actmg Chairman King. I wish you would make comments upon 
the processes which were developed by Mr. Jackling and Governor 
Pern, of my State, by reason of which the infinitesimafly small particle 
of gold in ore, which otherwise was barren, have been arrested and 

Mr. Kelley. That is a fact, Senator, but again may I refer you 
to Mr, Stannard. I think he can answer it better. 

Acting Chairman KjNG. All right. Did you finish what you wanted 
to say? 

Mr. Kelley. I think so. I showed that the increase in the recov- 
ery of metal-content from the ore will reduce the cost approximately 
3 cents a pound on the average. Now, the price has not increased; 
on the contrary, the price has likewise on the average decreased, so 
that the consuming public has received the benefit of the technological 

Acting Chairman King. And those technological developments 
have made obsolete smelters. I know in my State quite a number 
that cost in the aggregate miUions of dollars 


Mr. Kelley (interposing). More particularly the concentrators. 
We had a very heavy obsolescence charge which we have written off 
in the industry. 

Mr. ScoLL. Can you state from your knowledge, Mr. Kelley, which 
of the producing companies own interests in fabricator companies? 

Mr. Kelley. In the United States? 

Mr. ScoLL. In the United States. 

Mr. Kelley. Anaconda owns fabricating plants. 

Mr. ScoLL. That is the American Brass? 

Mr. Kelley. American Brass Co., and the ownership of stock 
in the Anaconda Wire & Cable Co.; Phelps Dodge I believe has 
fabricating subsidiaries; Kennecott has a fabricating subsidiary, and 
the American Smelting & Refining Co. has a stock ownership in 
fabricating companies. 

Mr, ScoLL. Perhaps I shouldn't ask you this question, but do you 
have any idea how much of the fabricating capacity of the United 
Spates is owned by producing companies? 

Mr. Kelley. I should say approximately 75 percent of the pri- 
mary fabricating capacity. 

Mr. ScoLL. Do you recall offhand who the so-called independent 
fabricators are? 

Mr. Kelley. There is a very large Ust. 

Mr. ScoLL. The principal ones. 

Mr. Kelley. Scoville, Bridgeport, Mueller — there are a substantial 
number. I will furnish a list if you desire. 

Mr. Scoll. Thank j'^ou. After the hearing, if you wiU furnish a 
Hst we will file it with the committee. May we have permission? 

Acting Chairman King. You may. 

Mr. Scoll. And at this time I suggest that Mr. Kelley be per- 
mitted to file with the committee the paper which he previously pre- 
pared on technological improvements. 

Acting Chairman King. It will be received if he desires to offer it. 

Mr. Kelley. The paper I referred to was prepared by Mr. 
Frederick Laist, who is metallurgical manager of the Anaconda Co., 
and I think covers the subject that j'^ou are interested in very well. 

Mr. Scoll. Will you describe briefly for the record the growth of 
the Anaconda enterprise, including the acquisition of the various 
properties that you have referred to? 

Mr. Kelley. I have a chart, which I do not have with me, that 
would show this very weU, and I will be pleased to submit it. Very 
briefly stated, the Anaconda Co. was organized in 1895 with a capital 
of $30,000,000. It acquired the International Smelting & Refining 
Co. in 1914. It acquired the American Brass Co. in 1921. It secured 
a majority interest in the Chile Copper Co. in 1923, and it controlled 
Andes from the start and developed that property and brought it 
into operation in 1928, and through exchange of stock acquired the 
balance of the outstanding interest up to the extent that I have 
indicated in Chile, Andes, and Greene in 1929. Today we have 
outstanding 8,600,000 shares, about $430,000,000 at par. 

Mr. Scoll. Is it correct to state that the Phelps Dodge Corporation 
and Kennecott similarly acquired mining, smelting, and fabricating 
units from time to time? 

Mr. Kelley. It is true to state that they have expanded and de- 
veloped, but the Kennecott, to a limited extent, only, I beheve, is in 


the smelting and refining business, as they have had that part of their 
operations done under contract with the itmerican Smelting & Re finin g 

Mr. ScoLL. At this time I would hke to introduce a table entitled 
"Anaconda Copper Mining Co., Principal Subsidiaries Classified Ac- 
cording to Major Function, 1937." This was prepared by the staff 
of the committee from the information contained in Moody's Indus- 
trials, 1938, and statements filed with the Securities and Exchange 

Acting Chairman King. Have you seen it, Mr. Kelley? 
Mr. Kelley. I have not, Senator, but I have little doubt of its 
accuracy and no objection to its being introduced subject to our being 
permitted to examine and make corrections, if necessary. 

Acting Chairman King. It will be received with that understanding. 
(The table referred to was marked "Exhibit No. 2090" and is 
included in the appendix' on p. 13387.) 

Mr. ScoLL. Copies were submitted to your counsel several days ago. 
At this time I would also like to introduce a table showing "Kenne- 
cott Copper Corporation, Principal Subsidiaries Classified According 
to Major Function, 1937," from Moody's Industrials, 1938, and state- 
ments filed with the Securities and Exchange Commission. 

Acting Chairman King. I understand that a representative of the 
Kennecott Copper Corporation is here as a witness. 
Mr. ScoLL. And will receive a copy of this. 

Acting Chairman King. It will be submitted to the representative 
of the company, and if he desires to make any correction, the oppor- 
tunity will be afforded. 

(The table referred to was marked "Exhibit No. 2091" and is 
included in the appendix on p. 13387.) 

Mr. ScoLL. Similarly I have a table showing the^ame information 
for the American Smelting & Refining Co. compUed from the same 
sources. A witness from the American Smeltiug & Refuiing Co., Mr. 
Brownell, is going to take the stand, and he will have an opportunity 
to make corrections, if there be any. 

Acting Chairman King. It will be received with the understanding 
it wUl be exhibited to Mr. Brownell, and he may make such comments 
upon the document as he sees fit. 

(The table referred to was marked "Exhibit No. 2092" and is 
included in the appendix on p. 13388.) 

Mr. ScoLL. Now, I have a similar statement for the Phelps Dodge 
Corporation, and one for the American Metal Co.^ Ltd. Neither of 
those two companies is going to be represented here in the hearing, 
but this information is a matter of public record, and all we have done 
is merely to copy from Moody's Industrials. We beUeve it is accurate. 
Acting Chairman King. They wUl be received, and if before the 
hearing any cotnments are desired upon it by representatives of the 
companies, the companies will be given an opportunity to be heard. 
(The tables referred to were marked "Exhibits Nos. 2093 and 2094" 
and are included in the appendix on pp. 13389 and 13390.) 

Mr. ScoLL. At this time I would also like to offer a chart and 
supporting table showing the concentration of production of copper 
among three companies in the United States for selected years from 
1915 to 1937. A copy of this table has already been submitted to 
counsel for Mr. KeUey, and the supporting table with the chart 


likewise. The information on this table, I might explain, is obtained 
from the American Bureau of Metal Statistics, which is a statistical 
agency established by the members of the industry some years ago, 
and I think their figures are entirely reliable. 

Acting Chairman King. Mr. Kelley, have you or your repre- 
sentatives of your company seen this table? 

Mr. Kelley. Yes; we have, Senator, 

Acting Chairman King. Have you any comment to make upon it? 

Mr. Kelley. None. I think it probably accurately represents the 
position of the different companies. 

Acting Chairman King. It may be received. 

(The chart and table referred to were marked "Exhibit No. 2095" 
and are included in the appendix on p. 13390.) 

Mr. ScoLL. I would like to comment by the way of explanation and 
interpretation, if I may. The chart shows concentration of control 
with respect to mine production. In 1915, for instance, we notice 
that approximately 27 percent of the copper produced in the United 
States was produced by Anaconda, Kennecott, and Phelps Dodge. 
The rest of it was produced by independents, so-called. We move 
forward to 1937 and find that the copper produced by Anaconda, 
Kennecott, Phelps Dodge, accounts for approximately 78 percent of 
the total United States mine production, and I should emphasize 
that I am now speaking of mine production only, while roughly 22 
percent is produced by the so-called independents. 

One of the interesting features of this chart is the increase in the 
share of the total United States mine production which Kennecott 
has enjoyed. The chart shows, for instance, that in 1915 Kennecott 
produced a little less than 1 percent of the United States production, 
while in 1937 their share was approximately 36 percent, exceeding 
that of both Anaconda and Phelps Dodge. 

Mr. Kelley. No ; not both. 

Mr. Scoll. I mean of either. 

Acting Chairman King. Mr. Kelley, in order to successfully mine 
copper ores, is it not a fact that there must be not only the highest 
form of technological development, but smelters erected at great cost 
and which must be changed frequently, and furthermore is it not a 
fact that the mines which produce copper are limited and are usually 
in a small area of our country measured by the vast area in which 
there may be found other metals.and minerals? 

Mr. Kelley. Those statements are true. 

Acting Chairman King. A small refiner, that is a mine with limited 
capital, would not be able to develop a large copper mine, particu- 
larly if it was low grade ; the cost would be almost prohibitive, would 
it not, and require, at any rate, great capital? 

Mr, Kelley. Yes; and that is particularly true of the rich mines, 
the mines that paid, as the miner says, from the grass roots where 
the mines were discovered by the pioneer miners in our West and 
were mined successfully from the time they started until they finally 
gave out or are still continuing. The mines that have been developed 
in the latter part of the century, during the last 40 years, have been 
low-grade mines, deposits the existence of which was known, but the 
enormous amount of capital required to develop them in the remote 
places of the earth where they occur made development with any- 


thing but a huge concentration of effort, money, and talent impos- 

Acting Chairman King. Isn't it true that one of the largest copper 
mines in the United States today is the Utah Copper, which, as indi- 
cated heretofore, produces only about 1 percent of copper from each 
ton of ore mined? 

Mr. Kelley. That is true, and it is the largest mine in the United 

Acting Chairman King. Isn't it true that that was laiown many, 
many years ago and efforts made to develop it even by Mr. Holden 
of Ohio 40 years ago, and they failed, and finally through technologi- 
cal developments and flotation processes they have been able to make 
it a producing mine of considerable value? 

Mr. Kelley. Of great value. 

Acting Chairman King. They had to construct a railroad at the 
cost of $25,000,000, did they not, in order to get the ore to the smelter 
or to the mill, and that was one of the initial outlays before the uiine 
could be made productive? 

Mr. Kelley, It took a very large outlay of capital, but even that 
was inconsequential as compared with what it took to develop the 
great mines of South America. These ore bodies occur, roughly, in 
a line about a hundred miles from the seacoast, across a desert, that 
is the Andes, and the Chuquicamata mine is more favorably situated 
in the south. We had to bring water; we not only had to furnish 
transportation in order to reach the mines, but we had to bring pot- 
able water and water for operations as much as a hundred miles back 
in the Andes. Everything that was required to sustain a population 
of a city of 25,000 to 30,000 people in the case of Chuquicamata had 
to be provided. A inan couldn't exist there 24 hours in its natural 

Mr. ScoLL. The actual competition in the copper industry is in 
the sale of refined copper, is it not? 

Mr. Kelley. Well, I should say, generally speaking, that is true, 
although there is very active competition in the sale of other brands 
than electrolytic. 

Mr. Scoll. I wasn't referring only to electrolytic; I meant to 
include all the commercial forms of copper. 

Mr. Kelley. That is right. 

Mr. Scoll. We have here a list entitled "Principal Sellers of 
Copper in the United States." The list gives American Metal Co., 
Ltd., American Smelting & Refining Co., Anaconda Sales Co., Calu- 
met & Hecla Consolidated Copper Co., ConsoHdated Coppermines 
Corporation, Copper Range Co., Kennecott Sales Corporation, 
Adolph Lewdsohn & Sons, Inc., Alagma Copper Sales Corporation, 
Phelps Dodge Corporation, and Quincy Mining Co. Those are 
about all of the principal selling agencies, aren't they? 

Mr. Kelley. They are all, and several of those are of minor 

Mr. Scoll. And I note that their addresses are all 61 Broadway, 
120 Broadway, 25 Broadway, 52 Broadway, H Wall Street, 40 Wall 
Street; in other words they are all located within a radius of half a 
mile in lower New York. 

Mr. Kelley. A half a nule in lower New York when you take the 
perpendicular distatice of some of the buildings is quite a distance. 


Mr. ScoLL. Not as long as the elevators are running. 

Now most of the business among the sellers is done by telephone, 
isn't it? 

JVIr. Kelley. You mean between buyers and sellers? 

Mr. ScoLL. Buyers and sellers. 

Mr. Kelley. Yes. 

Mr. ScoLL. I would like to offer for the record at this time a list of 
the principal sellers of copper of the United States. The source of 
this is the American Bureau of Metal Statistics, 1938, page 23. The 
American Bureau, I believe I stated before, is a statistical agency 
which was set up by the industry. 

Acting Chairman King. Has this exhibit been shown to you? 

Mr. Kelley. No ; but I have no doubt of its accuracy. I am famil- 
iar with the publication referred to. 

Acting Chairman King. It may be received. 

(The list referred to was marked "Exhibit No. 2096" and is in- 
cluded in the appendix on p. 13392.) 

Mr. Kelley. I want to make an addition to my answer where Mr. 
Scoll said most of the business of buying and selling is done over the 
telephone; that is true, but it is always followed by written contracts, 
setting up the transaction. 


Mr. Scoll. Now let's turn back to the Copper Producers Com- 
mittee, which I believe was an organization of copper producers 
during the war. Will you describe briefly the Copper Producers 

Mr. Kelley. Just prior to our entry into the World War there was 
set up an agency which, as I remember it, was called the Advisory 
Council of Defense, the function of which was to assist the Govern- 
ment in making preparations for the war that might eventuate. That 
agency, or that committee, subsequent to the declaration of war, 
became the War Industries Board, the Chairman of which was Mr. 
Baruch. The first step in the formulating of the Copper Producers 
Committee was a visit from Mr. Baruch and Mr. Dan Willard, who 
came to New York and told us that the Government wished to make 
substantial purchases of copper for the Army and for the Navy. 
This was in the days of preparation. They interviewed the late Mr. 
John D. Ryan and me. 

Mr. Scoll. Who was Mr. Ryan? 

Mr. Kelley. Mr. Ryan was formerly the president of the Ana- 
conda Copper Mining Co. He resigned that position to become 
Assistant Secretary of War during the war, and returned as chairman 
of the Board and occupied that position until his death. 

You will remember that during the war copper became practically 
a munition. At that time the major production of copper in the world 
was in the United States, and we had produced and shipped tre- 
mendous quantities of copper to the allied nations. Like other com- 
modities, but less — and I wish to emphasize that — than any other 
commodity in its class, the price of copper had increased. At the time 
that Mr. Baruch and Mr. Willard came to New York, copper was sell- 
ing above 30 cents a pound. They wished to know at what price copper 
would be furnished to the United States Government: forty-five million 


pounds, twenty for the Army and twenty-five for the Navy, as I remem- 
ber. Mr. Ryan said he would undertake to canvass the situation and 
he would use his influence — and that was consequential — to furnish 
copper to the Government, our Government, at the average price for 
the preceding 10 years. Mr. Ryan called a meeting of producers, and 
with the exception of one producer they all agreed to take their share, 
and 45,000,000 pounds of copper were sold to the United States Gov- 
ernment at what figured to be 16.67 cents a pound, while the current 
price exceeded 30 cents^SlK, to be exact. Shortly after that trans- 
action we became involved. My recollection is that that was in Febru- 
ary 1917 — that was March 20, 1917, and of course in April we were 
likewise involved. 

In setting up the agencies to handle the situation, the copper pro- 
ducers were requested to form a committee so that the industry could 
act as an entity, and accordingly the Copper Producers Committee, to 
which you refer, was formed to deal directly with the War Industries 
Board, which, in turn, represented not only our Government but the 
Allied Governments, and t(he outside industries requiring copper. 

Mr. ScoLL. The conrnittee, I take it, included most of the United 
States producers, did it not? 

Mr. Kelley. All of the United States copper producers were repre- 

Mr. ScoLL. What were its functions? 

Mr. Kelley. Its functions were principally to allocate and dis- 
tribute according to the instructions of the War Industries Board, the 
production of copper, the entire amount of which was taken over — not 
taken over ia the sense of being bought, as is the case today by the 
British Government, but the control. The price was fixed. This 
committee functioned to spe that production w^as maintained, that 
allocations were made according to the production that was coming 
out, and that the copper was going into the uses designated by the War 
Industries Board. 

(Senator O'Mahoney resumed the Chair.) 

The Chairman. Allocation was made according to production by 
the individual producers? 

Mr. Kelley. Yes, and everybody was getting out the most they 
could; the entire production was taken into consideration. 

The Chairman. So there was no competition among the various 

Mr. Kelley. There vas no competition except one of effort. 

The Chairman. Effort to get out as much as possible. 

Mr. Kelley. Right, sir. 

Senator King. At 16 cents a pound. 

Mr. Kelley. No. I said that the 45,000,000 pounds was furnished 
at 16.7 cents a pound, which was the arithmetical average for the pre- 
ceding 10 years. When the Copper Producers Committee was formed 
and the War Industries Board was formed, naturally the question of 
price arose. It was early announced that it would be the fixed policy 
of our Government to fix prices, and the President was given the au- 
thority to do so. There were a number of interviews or conferences 
between the War Industries Board and the Copper Producers Commit- 
tee and the question of price was debated. The copper producers took 
the position that pending the determination of the question as to what 
the price was, they would furnish all the copper required and it would 


be subject to whatever price should be fixed afterward, and that situa- 
tion prevailed for several months in the early part of the war. 

Senator King. Prices were fixed at that time during the war on 
agricultural products, were they not? My recollection is that wheat 
went up to $2.50 a bushel, perhaps more, and other commodities in- 
creased materially in price, and prices were regulated by the War In- 
dustries Board and such other agencies as were set up caused by reason 
of the war. 

Mr. Kelley. That is right. 

Mr. O'CoNNELL. May I interpose? I am not entirely sure that I 
am correct, but in the interest of accuracy it is my impression that 
the power given to the President to fix prices was a power in effect to 
peg prices if prices went too far out of line, rather than to have a 
permanent policy of fixing prices. 

Mr*. Kelley. I think that is correct. Prices, of course, as well as 
costs, were undergoing very rapid changes, and there was a wide 
fluctuation, of necessity, in the situation. The policy of the Govern- 
ment was to peg prices but to peg prices at a level in the case of 
necessary metals, for instance, that would insure the maximum pro- 
duction. Shall I describe what happened? 

The Chairman. Proceed. 

Mr. Kelley. Following the organization of the Producers Com- 
mittee, conferences were had with a subcommittee of the War Indus- 
tries Board. At that time, the price of copper generally was about 
27 cents per pound. Our wage scales were based on 27-cent copper. 
The Army wished about 60,000,000 pounds in one order. The ques- 
tion was "what should the price be"? The producers in conference 
urged a 25-cent price. The War Industries Board offered a 22-cent 
price. It was finally compromised through the efforts of Mr. Ryan 
upon the basis of 23 K cents for a period of 4 months, during which 
time the Federal Trade Commission was instructed to make a survey 
of the situation, which they did, and my recollection is that in the 
month of September 1918, the Federal Trade Commission filed its 
report. According to the report of the Federal Trade Commission 
at that time, the actual cost of producing copper without interest 
but allowing depletion, was $0.1667 per pound, including foreign 
production. The domestic production we calculate was about 
$0.1626 a pound. 

Senator King. At the mine or at the mill? 

Mr. Kelley. This is the finished metal at the Atlantic seaboard 
or at the refinery, wherever it was located. 

I do not wish, except that it is entirely agreeable to the committee, 
to make any controversial statement, but inasmuch as in the munition 
inquiry where no copper producer was caUed, and in fact we didn't 
know it was going oUj certain statements were made as a result of 
misinformation — not intentionally I think — as to the position of the 
copper producers during the war and the cooperative effort that they 
extended to the Government, and in that inquiry as my own name 
happened to be brought in, I^would very much appreciate it if the 
committee would let me very briefly 

The Chairman (interposing). Controversial matters are usually 
the most interesting. Perhaps we would be glad to hear it. 

Mr. Kelley. They are to me also. I am likewise Irish. 


The attitude of the copper producers as indicated first by a reduc- 
tion in the initial order of the Government from more than 30 cents 
to 16 cents, and in coming immediately upon the organization of the 
War Industries Board to an organization of their industry, was re- 
garded then, and I insist is still, as one of the best, one of -the most 
stimulating things that occurred at that time, because it showed the 
willingness of American industry to cooperate with the Government 
in a time of emergency. And rather than be the eulogist of the 
industry myself, I would like, with your permission, to quote very 
briefly from the official records of the War Industries Board, from the 
book that followed, written by Mr. Baruch as Chairman of the Board, 
and from the work of Professor Taussig, of Harvard, who was the 
economist on the Board and who was one of the members of the 
Price Fixing Committee. 

Mr. Baruch received the following letter on behalf of 26 of the 
principal American-owned copper companies. This is from the record 
of the proceedings: 

Referring to our severial conversations on the subject of supplying copper for 
the Army and Navy, to the letter of the Secretary of the Navy of March 16th 
and the telegram of the Secretary of War of March 17th, both addressed to you, 
on behalf of the principal producers of copper in this country we beg to say that 
of the quantity named for delivery within twelve months, to wit, 

Twenty million (20,000,000) pounds for the Navy, and 

Twenty-five million five hundred and ten thousand (25,510,000) pounds for 
the Army, we will furnish our proportion in approximately equal quantities each 
quarter from April 1917 to April 1918, at the price of 16.6739- cents per pound, 
delivered in regular shapes at Atlantic Seaboard points. 

The price named is the actual average selling price obtained by the United 
Metals Selling Company, the largest seller of copper, over the period of ten years 
1907 to 1916 inclusive, and represents in our opinion the fair average price of all, 
copper sold by American producers during that time. 

' We offer the copper at this price notwithstanding our costs for labor, materials, 
supplies, etc., vary from thirty Jo seventy-five -per cent above the average during 
the ten year period, because we believe it to be our duty to furnish the require- 
ments of the Government in preparing the nation for war with no profit more than 
we receive from our regular production in normal 

This was the letter that Mr. Ryan wrote to Mr. Baruch. 

I quote now from Crowell and Wilson, and from Baruch, in their 
review of the activities of the War Industries Board and the coopera- 
tion of the American industry. 

Coming at a time when the feelings of the country were in a state of tension 
and uncertainty, and when there was anxiety in some quarters as to whether 
capital and industry would in a wholehearted way support the Government in 
case of need, or on the other hand would try to take advantage of its necessity by 
profiteering, the annouhcement of this offer sent a thrill through all who read it 
and had an immediate, twofold effect: it started a country-wide wave of enthu- 
siasm and patriotism which had been accumulating but had not before been 
loosened, and by setting the first example, it virtually gave assurance that, come 
what might, the business interests of the country were solidly behind the Govern- 

There was an impression created that the offer of the copper pro- 
ducers was to furnish ail subsequent requirements hkewise at that 
price, and there was a controversy. There was some criticism that 
all subsequent orders were not filled at that price. 

I would like to quote from Dr. Butler, 

"Copper in 1917," from the official Government pubUcation of the 
United States Geological Survey. 


When further supplies were required, certain members of the Government 
sought to force continued adherence to the 165i-cent price on the ground that the 
producers had already accepted this price voluntarily. 

With respect to this 45,000,000-pomid sale, the 1917 report of the 
governmental bureau had this to say: 

As this transaction was represented through the press, it appears to have 
gained the general impression that all the needs of the Government were to be 
supplied at the same rate. * * * The adverse criticism to which the pro- 
ducers were subjected appears to have been entirely undeserved, as they evidently 
never intended to supply all the requirements of the Government at the price 
named, and indeed it would have been impossible for them to do so if they had so 
desired and intended. 

That is from the Government pubUcation. 

Without reading all of this, I do wish to read what Professor 
Taussig who was one of the price JGuxers himself, had to say. I quote 
now from Taussig, "Price Fixing as Seen by a Price Fixer". 

From all this mass of data, certain things are evident. The lack of any 
uniform standard of price fixing is clearly disclosed ; as one of the Price Fixing Com- 
mittee has said, an opportunist policy was followed. A great disparity as between 
the various commodities resulted. It is clear, also, that the price fixed for copper 
was practically at the bottom of the scale; surely no commodity about whose 
supply the Government was so deeply concerned or on which the success of the 
War program so vitally depended was fixed at so low a price. If iron and steel; 
coal and coke; heavy chemicals; cotton and wool; and wheat, corn, sugar and 
meat be classed along with copper, as the absolute War essentials, it is found that 
the advance in price over pre- War standard allowed to copper was less than half 
the average advance granted to all these other products. After it was aU over, 
Mr. Baruch, in his official report, referred to the fixing of the price for only a short 
pefiod at a time in order that valid objections from producers or consumers 
could be given reasonably prompt effect; and he added: 

"No consumer, public or private, nor official of our own or other Government, 
appeared to object to the (fixed) prices as too high. The fact is the fixed pricte 
of copper represented a smaller advance over pre- War normal than .'that of per- 
haps any other commodity." 

Thank you. 

The Chairman. Mr. Kelley, what was the allegation which you are 
attempting to refute? 

Mr. Kelley. The allegation, Senator, was that the copper pro- 
ducers and the copper industry sought to profiteer during the war, 
that they failed to cooperate with the Government, and that at the 
time the price was fixed by the President at 23% cents, it was done 
imder pressure, under pressure of a threat to withdraw wholehearted 
cooperation to the Government in the conduct of the war. That, sir, 
was the allegation, and the allegation will be found in the hearings of 
the Munitions Investigating Committee about page 6283, particu- 
larly in a memorandum submitted by Senator Clark, of Missouri. 
The question of Mr. Stephen Raushenbush, coimsel for the Munitions 

Mr. ScoLL (interposing). I suggest you read the complete referenpe 
into the record, the volume as well as the page. I believe that is 
volume 22 of fehe Munitions Hearings.* 

Mr. Kelley. It is Part 22, page 6283. 

Mr. ScoLL. The last page? 

Mr. Kelley. Yes; to page 6343.. 

The Chairman. Unless you have some questions that you want to 
propound at this particular time, Mr. Scoll,, I was about to take a 
recess. Is that agreeable? 

' See footnote 1, followliig page. 

124491 — 41— pt 26 6 


Mr. ScoLL. Senator, I think it is agreeable. 

I have one question with reference to the relation of copper prices 
to other commodity prices. 

The Chairman. That you want to ask now? 

Mr. ScoLL. We can defer it. 

The Chairman. Well, then, if there is no objection, the com- 
mittee will stand in recess until 2 o'clock. 

(Whereupon, at 12:05 p. m., the committee recessed until 2 p. m., 
of the same day.) 


(The hearing was resumed at 2 :05 p. m. upon the expiration of the 

The Chairman. Mr. Scoll, are you ready to proceed? 

Mr. Scoll. Yes, sir. 

The Chairman. The committee will please come to order. 

Mr. Scoll. At this time, Senator, I think Dr. Kreps has some mate- 
rial that he would like to insert in the record in connection with the 
discussion about the Copper Producers Committee and the War 
Industries Board. 

The Chairman. Do you propose to ask Mr. Kelley to step aside? 

Mr. Scoll. I would like to ask Mr. Kelley to step down for a 
minute and let Dr. Kreps take the stand. 

The Chairman. Proceed. 


Dr. Kreps. It was apropos of the inquiry of the chairman this 
morning concerning the fundamental controversy upon which Mr. 
Kelley gave us the benefit of his views this morning. In order to 
complete the record, I would like to say that the controversy began 
and centered around the interpretation of two excerpts from the 
printed minutes of the War Industries Board, and without wishing 
to state anything concerning the various interpretations that are pos- 
sible, this at any rate will give the committee the basic and originating 
cause of the controversy. 

I read these two short sentences from a Senate Committee Print 
No. 4, Seventy-fourth Congress, first session, being the minutes of 
the War Industries Board, August 1, 1917, to December 19, 1918. 

The Chairman. When was this printed? 

Dr. Keeps. This was printed in 1935. 

The Chairman. As part of the munitions inquiry * to which Mr. 
Kelley referred? 

Dr. Kreps. Yes. 

The two sentences, the two passages, which have given rise to the 
controversy are as follows: One from the meeting of the War Indus- 
tries Board, hdd Tuesday, September 11, 1917, at 10 a. m. in room 
1945, the Munsey Building, in which, quoting from page 52 of this 
document, it is stated : 

The representatives of the copper interests present gave assurances that they 
would do all they could to assist at whatever price was fixed, but that if a price 

• Special Committee Investigating the Munitions Industry, pursuant to S. Res. 206, 73d Cong. 


below 25 cents per pound were fixed -they felt sure that many mines would refuse 
to sell to the Government, unless forced to do so. 

Then a meeting was held the next day on September 12, 1917, 
and I quote another passage; it appears on the same page of this 

Mr. Ryan stated that if 22 cents per pound were fixed as a price for copper, that 
it would be impossible to obtain "the voluntary cooperation of the majority of 
mine owners. If 25 cents were fixed he assured the War Industries Board that he 
and the other copper producers present would obtain all the copper of the country 
voluntarily from all producers and that he would see to it that the copper was 
properly distributed and the price controlled. 

This would likewise cover the 300,000,000 pounds* produced outside of the 
United States. 

Those are the two passages that gave rise to the controversy. Then 
I wish to amplify or to put into the record a complete statistical 
statement of the price history of copper as opposed to all commodities, 
and as compared with that of nonferrous metals generally, utilizing 
1926 as a base, which is generally utilized as a base at the present 
time. We find that general prices in 1918 reached a level of 131.3, 
whereas electrolytic copper prices were at a level of 178.8. 

I want to point out that Mr. Kelley's statement this morning is 
completely accurate, that the rate of rise from i913 to 1918 was not 
as great for copper as it was for commodities in general. That, of 
course, leaves open to question whether utilizing 1913 as a base is 

The Chairman. The price of copper was grerter in 1917 than it 
was in 1918? 

Dr. Kreps. Yes; that is also true. 

The Chairman. The price was fixed by the War Industries Board 
in September of 1917, was it not? 

Dr. Kreps. Of 1918. 

The Chairman. Of 1918, was it? 

Dr. Kreps. No; September '17, that is right. 

The Chairman. So that the figures which you have just read indi- 
cate that they reflect a reduction in the price; the price of copper was 
higher from the outbreak of the war, or at least gradually rose from 
the outbreak of the war until in September 1917, it was pegged. Isn't 
that right? 

Dr. Kreps. That is right. That gives the complete statistical 

The Chairman. This table which you have in your hand was 
prepared by whom? 

Dr. Kreps. Prepared by the staff of the committee from the figures 
of the United States Bureau of Labor Statistics. 

The Chairman. Have you shown it to Mr. Kelley? 

Dr. Kreps. I am sure Mr. Kelley has seen it. 

Mr. Kelley. I don't think that we have seen this but I don't doubt 
its accuracy. 

The Chairman. These compilations, of course, from the United 
States Bureau of Labor Statistics are generally accurate. The table 
may be entered as part of the record. 

Mr. ScoLL. May it be marked as "Exhibit 2097." 

(The table referred to was marked "Exhibit No. 2097" and is 
included in the appendix on p. 13392). 



The Chairman. Will you proceed with the examination, ^^r'. Scoll? 

Mr. Scoll. One final brief question on the Copper Producers Com- 
mittee. The records of the committee were turned over to the Copper 
Export Association, were they not? 

Mr. Kelley. That I do not know. The Copper Producers Com- 

Mr. Scoll. Yes. 

Mr. Kelley. I have no information, at least I don't recollect. 

Mr. Scoll. In 1918, the Copper Export Association was formed, 
and I would like to ask you some questions about that association. 
It was, I believe, a Webb-Pomerene Corporation. 

Mr. Kelley. That is right. May I, before we close the producers 
part of the story, with the permission 

The Chairman (interposing). Do you mean clearing up the record 
under the old War Industries Board situation? 

Mr. Kelley. I just want one more thing to go into the record, 
which I will read if the committee desires, or if the committee prefers 
I will merely submit it. It is the final testimonial of the President of 
the United States, Woodrow Wilson, written on March 1, 1921 just 
before, as I remember it, his administration terminated. 

The Chairman. If you desire to put it in, it is quite agreeable to us, 
M;-. Kelley. 

Mr. Kelley. May I read it, or just offer it? I would hke to read an 
excerpt from it. 

The Chairman. Very well, do that and print it in whole. The 
truth of the matter is, I think this controversy is just a Uttle bit 
irrelevant to our objectives^ but inasmuch as you have opened it 
I am very glad to have it covered fully, but briefly. 

Mr. Kelley. The summation of this letter, the letter itself, was 
the result of certain attacks that were made after the war in the House 
of Representatives. 

The Chairman. May I interrupt you to s&j, I am cognizant of the 
/act always that the representatives of any mdustry who are called 
before this committee begin by feeling that they are under attack 
from this committee or its agents. From- the very outset of our 
proceeding the chairman and various members of the committee have 
tried to make it plain that they are not attacking anybody or any 
industry, and that they are not investigating anybody with any 
punitive intent, but that the committee is engaged exclusively upon 
an effort to find out more about the economic machine than apparently 
ifi known either by the leaders in government or the leaders in industry. 

Mr. Kelley. Thank you. Senator O'Mahoney, and I want to assure 
yovi that the attitude of yourself and your colleagues has more than 
given me assurance of the sincerity of purpose as stated by you, and 
I want to take this occasion also to say that the gentlemen representing 
the comriiittee who have made the study in cooperation with the 
industry — I refer to Mr. Scoll, Mr. Moment, Mr. Sheehy — couTdn't 
have been more courteous or more cooperative. We have no feeling 
that we are here on trial at all. Our purpose is to do what we can to 
belp you and ourselves. 


The Chairman. We appreciate that fact. Now you may proceed 
to read the extract. 

^ Mr. Kelley. This letter was addressed by Woodrow Wilson to 
Mr. Garrett, who I believe at that time was'a Representative from 
Tennessee and chairman of either the House Rules Committee or the 
Judiciary Committee, and in it the President resented the attacks 
that had been made upon Mr. Baruch, upon Mr. Ryan, who was 
representing the copper industry, and made very clear that it was be 
who, acting upon the recommendations of the War Industries Board, 
had fixed the price of copper, and, as I interpret the letter, which 
speaks for itself, he paid a very high tribute to the patriotism, the 
loyalty of the industry, and these gentlemen, and I think it might 
properly become a part of the record. 

The Chairman. There being no objection, it is so ordered. 

(The letter referred to was marked "Exhibit No. 2098" and is 
included in the appendix on p. 13393.) 

Mr. ScoLL. Now, Mr. Kelley, I show you a list of officers of the 
Copper Export Association, Inc., which I beheve was prepared by 
Mr. Eckert of the Copper Institute. 

Mr. Kelley. This list, according to my recollection, correctly 
states the fact. 

Mr. ScoLL. It shows that the executive committee was composed 
of Mr. Simon Guggenheim of the American Smelting & Refining Co. ; 
Mr. John D. Ryan of the Anaconda Copper Mining Co.; Mr. Walter 
Douglas, Phelps Dodge Corporation; Mr. -R. L. Agassiz of the 
Calumet & Hecla Copper Co. ; Mr. James McLean of the Phelps Dodge 
Corporation; Mr. Murry Guggenheim of the Kennecott Copper 
Corporation; Mr. C. F. Kelley of the Anaconda Copper Mining Co^; 
Mr. James MacNaughton of the Calumet & Heda Copper Co. ; Mr. 
Adolph Lewisohn of the Miami Copper Co.; and Mr. William A. 
Clark of the United Verde Copper Co. 

These gentlemen represented, did they not, the principal copper 
producers at that time? 

Mr. Kelley. Yes, sir. 

Mr. ScoLL. I would like to offer this list for the record. 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2099" and is included 
in the appendix on p. 13394.) 

the coppcr industry's part in securing passage of the webb- 

pomerene act 

Mr. ScoLL. Now, Mr. Kelley, will you tell the committee what 
part the copper people played in securing the passage of the Webb- 
Pomerene Act, and begin, if you will, before the war. 

The Chairman. Let me interrupt to ask the counsel of the commit- 
tee if the Copper Export Association, Inc., was an association organized 
under the Webb-Pomerene Act? 

Mr. ScoLL. It was. 

(The previous question was read.) 

Mr. Kelley. I suppose that your question calls for an explanation 
of the situation that led up to our effort. 

Mr. ScoLL. Yes. 


Mr. Kelley. Well, gentlemen, for many- years, the United States, 
being at that time the principal producer of copper in the world, held 
a very important position in the export markets of the world. For 
many years, the United States had increased its production until 
about 60 percent of the entire copper production of the world was 
made here. 

Mr. ScoLL. What period are you referring to now? 

Mr. Kelley. I am referring to the pre-war period beginning at 
about the beginning of the present century, and continuing down to 
the war. At that time, roughly 50 to 55 percent of the total produc- 
tion of copper went into export markets. At that time, also, the export 
markets, so far as the purchasing of copper was concerned, were largely 
in the hands of very important groups of metal dealers that had grown 
up and become important with the development of the metal industry. 

That situation arose from the fact that there was very Uttle if any 
integration in the mining industry during its early developmeni, and 
the miners in the West knew practically nothing about the commercial 
end of the business. These very large firms that existed in Europe, 
like the Metallgesellschaft, Borsonheimer, Aron Hirsch & Son, and 
Henry Merton, bought the metal in tremendous quantities, and they 
in turn acted as distributors to the consumers and the manufacturers. 
There was httle if any contact between the American production and 
the consumers in Europe, and as Dr. Kreps no doubt can verify, there 
were not only cartels — if you wish to apply the term as broadly as he 
did — in production, selhng, and distribution, but there were also cartels 
or the equivalent of cartels in buying. 

It was the history of the industry that the American producer, due 
to the magnitude and the concentration of foreign buying, was con- 
tinually receiving less for his product when sold in export markets 
than he was realizing at home, and consequently the copper industry 
early took a position 

The Chairman. That is a very interesting statement that you have 
just made, Mr. Kelley, and I am interrupting you in order to em- 
phasize the statement and to get its imphcations clear. As I under- 
stand you, you say that because of the magnitude and the concentra- 
tion of the foreign producers of copper. 

Mr. Kelley. The foreign purchasers. 

The Chairman. The foreign purchasers of copper? 

Mr. Kelley. The buyers. 

The Chairman. The American producer was getting a small price? 

Mr. Kelley, He was getting a lower price. 

The Chairman. A lower price than he felt he was entitled to receive? 

Mr. Kelley. And a lower price than he was receiving at home. 

The Chairman. In other words magnitude and concentration 
among the purchasers had the effect of driving down the price which 
the American producer ielt' he ought to have? 

Mr. Kelley. Right. 

The Chairman. And of course large units like your own in the 
United States were among those who felt that the price was too low? 

Mr. Kelley. We felt that we should receive at least as much 
money for our copper sold abroad, when we were disposing of a natural 
resource of the United States, as our American customers paid us. 

The Chairman. In other words, the Anaconda Co., which itself is 
an institution of some magnitude, was feeling adversely the effect of 
magnitiMie and concentration among European buyers? 


Mr. Kelley. That is right. Consequently an effort was begun 
as early — my recollection is it was during the Taft administration — 
when I discussed this situation with the then Attorney General, Mr. 
Wickersham, and supported it with statistics. About that time, or a 
little later, the Clayton Antitrust Act was before Congress for hearmg, 
and my recollection is that at the hearing of the Clayton Antitrust 
Act, Mr. Ryan, my predecessor, represented the Anaconda Co. and 
other producers of copper, and appeared and testified to the fact 
that I have just stated, in support of the proposition that the restric- 
tions of our Antitrust Act should be so modified as to enable exporters, 
not only of copper, but of all products, to combine in order to match 
the combined buying power that they were up against on the other 

No such exception was made in the Clayton Act and consequently 
the movement started, initiated by an organization of which Mr. 
James A. Farrell has been the head, called the Foreign Trade Council, 
to bring this situation to the attention of Congress and the other 
governmental authorities. The result was an agitation that finally 
resulted in the passage of the so-called Webb-Pomerene Act. 

Mr. ScoLL. May I interrupt for just a moment there, Mr. Kelley? 
Were the copper people the leaders in advocating the passage of the 
Webb-Pomerene ? 

Mr. Kelley. I wouldn't say that they were the leaders; we were 
among the groups. There were other groups than copper that were 
affected; we were one. of the groups. 

Mr. ScoLL. How early did copper become interested? 

Mr. Kelley. Copper became interested, well, I think when Mr. 
Ryan and I got into the business and definitely ascertained what, was 
going on. As a matter of fact, we were the first company, I think, that 
established our own sales agency in Europe. 

Mr. Scoll. That would have been around the turn of the century? 

Mr. Kelley. No; I think that was about 1909 or '10, somewhere 
along there. 

Mr. Scoll. Mr. Ryan, I beUeve you mentioned, appeared before 
various committees, and I would like to supplement what you have 
just stated with some of Mr. Ryan's remarks to these committees, if 
I may. At the hearings before the House Judiciary Committee on 
the Clayton Act, February 9, 1914, Sixty-third Congress, second 
session, which was reported in Trust Legislation, volume I, serial 7, 
part 11, page 435, Mr. Ryan said: 

I tRink that sound, sensible economics will prove to anybody who looks them 
squarely in the face that we want to take off all restraint and absolutely all the 
ties, bonds, and fetters from American producers or manufacturers in jtheir foreign 
trade. I say you should go so far as not only to permit, but to encourage, corn- 
binations, agreements, understandings, or anything else on business that is 
exclusively export business. 

Further along, in the same volume, the same page, Mr. Ryan said: 

We produce in this country 75 per cent of tl" e copper of the world, and we sell 
55 per cent of all we produce in an unmanufactured form to the rest of the world 
to manufacture and put in shape for the markets of the world. When we sell, 
that copper in Europe — to Germany, Engjand, and France — we have to sell it 
to coinbined buyers. Repeatedly and regularly the dealers or consumers of 
Europe have combined to force the American manufacturers of cc^per to unload, 
expecially at times when , business conditions were not good and when a BurpUw 
was accumulating. At those times they have almost named their own price, and 
the result has been that on a business of $850,000,000 in raw copper in 14 years. 


from 1901 to 1913, inclusive, $450,000,000 of it was done with foreign countries, 
mostly in Europe, at a sacrifice of half a cent a pound as against the price secured 
in the sale of the product to domestic manufacturers. I am speaking now of our 
own business. 

For the committee's information, I should like to cite into the record 
certain other testimony of Mr. Ryan to the same general effect. I 
think it is unnecessary to take the time to read the excerpts. That 
testimony was by Mr, Ryan at hearings before the Federal Trade 
Commission, which is reported in Federal Trade Commission hearings 
in re Foreign Trade Extensions, New York, June 3 and 4, 1915, volume 
II, pages 90 to 112. It is interesting to note that when the Federal 
Trade Commission made its report on cooperation in American export 
trade, which I beUeve was at least partly the basip for the Webb- 
Pomerene Act, the Federal Trade Commission stated (and this state^ 
ment may be found in the volume entitled "Report on Cooperation 
in American Export Trade, pt. 1, 1916, p. 7, published by the Federal 
Trade Commisslbn): 

For years the copper trade of the world has been ruled by a vast German 
metal-buying organization centering in the Metallbank und Metallurgische 
Gesellschaft A, G., of Frankfort on the Main. This combination has subsidiary 
and affiliated companies in Germany, England, France, Spain, Switzerland, 
Belgium, Africa, and Australia, controls copper and lead mines and smelters in 
the United States, Mexico, and other countries, and works in agreement with 
other German metal-buying concerns. 

The record, I think, should also note that the Webb-Pomerene Act 
was passed and approved April 10, 1918. 

At this point I should like to introduce a chart entitled "World 
Summary of Copper, 1912-39." 

The Chairman. Before you present that, let me ask Mr. KeUey 
to name some of the other principal groups which cooperated in 
urging the passage of the Webb-Pomerene Act. 

Mr. Kelley. My recollection is the steel industry was one. I 
think the cotton industry was one of the groups that were largely 
interested in exports. 

The Chairman. And did Mr. Ryan correctly summarize the atti- 
tude of the spokesmen for these groups in urging that act? 

Mr. Kelley. I think so, and I think he wasn't the only witness; 
there were many others that appeared, but he accurately summarized 
thiis situation so far as it affected copper. 

The Chairman. In other words, the feeling of the leaders of Ameri- 
can industry who were urging upon Congress the enactment of this 
law was that the restrictions which are contained in the Sherman 
Anti-Trust Law and in the Clayton Act intended to prohibit what 
are called combinations in restraint of trade, or trusts, should be 
ameliorated so far as foreign trade is concerned. 

Mr. Kelley. That is correct. 

The Chairman. In other words, it was the desire of the spokesman 
of the copper industry and of these other industries who urged this 
act upon Congress, that these combinations which are prohibited by 
law within the United States, should be permitted so far as foreign 
export trade is concerned. 

Mr. Kelley. Yes, Senator; within the limitations of the act itself. 

The Chairman. Yes. 

Mr. Kelley. Which provided that there should be no combinations 
or conspiracies whipb would intentionally or artificially affect the 
domestic price. 


The Chairman. Yes; and of course when Congress passed the act 
and when the President signed it, that was a declaration that the 
legislative and executive branches of the Government concurred in 
that opinion. 

Mr. Kelley. Correct. 

Senator King. May I make one observation, having taken some 
little part in the formulation of the Webb-Pomerene Act? There was 
a growing feeling upon the part of the American people — those in au- 
thority, executive and legislative branches of the Government as well 
as those in business — that we were being subjected to a good deal of 
competition in foreign countries by foreign countries so that our trade 
and commerce, our export trade, would be materially reduced unless 
we could in some way counteract the forces which were being mar- 
shaled against us. Therefore it was believed by those in Congress, 
as well as the public generally, that there should be — using the lan- 
guage of my friend, the chairman — some mitigation of the provisions 
of the Sherman antitrust law so far as our foreign trade and commerce 
was concerned, and the formulation of organizations that would engage 
in foreign trade and commerce. 

The Chairman. To summarize it in a different way, perhaps it 
might be proper to say that because American exporters, as iu the case 
of copper, had found that they were not getting the price they felt 
they should get because of the magnitude and concentration of foreign 
purchases, they came to the conclusion that some similar concentration 
should be permitted among our exporters in order to enable them to 
more effectively combat the foreign group. 

Mr. Kelley. May I answer that question by quoting from the 
findings of the Commission itself, with which the Senator from Utah 
is entirely familiar? I remember you had something to do with it. 
The Commission found: 

(1) That other nations have marked advanttiges in foreign trade from superior 
facilities and more effective organizations. 

(2) That doubt and fear as to legal restrictions prevent Americans from devel- 
oping equally effective organizations for overseas business and that the foreign 
trade of American manufacturers and producers, particularly the smaller concerns, 
suffers in consequence. 

The Commission appreciates the importance of foreign trade and realizes the 
need of enabling American exporters to meet foreign competitors on more nearly 
equal terms in international commerce. It therefore recommends as one of the 
necessary steps the clarification of the law so as to permit cooperation among 
Americans for export trade. 

The Chairman. That is the Federal Trade Commission from which 
you are quoting? 

Mr. Kelley. That is the findings of the Federal Trade Commission 
in its report entitled, "Cooperation in American Export Trade." 

The Chairman. Do you remember the date of it? 

Mr. Henry J. Wolff (counsel, Anaconda Copper Mining Co.). 
From the same report from which Mr. Scoll read. 

Mr. Kelley. June 30, 1916. 

The Chairman. Proceed, Mr. Scoll. 

Mr. Scoll. At this time I should like to introduce a chart and sup- 
porting data entitled, "World Summary of Copper, 1912-39." This 
chart was prepared by the staff of the committee on information from 
the Engineering and Mining Journal as to figures for prices; figures 
for production and consumption from the American Bureau of Metal 
Statistics; figures for stocks from the United States Bureau of Mines. 


The Chairman. Without objection, they may be received. 

(The chart and supporting tables referred to were marked "Exhibit 
No. 2100" and are included in the appendix on p. 13394.) 

Mr. ScoLL. I would hke to comment very briefly on it by way of 
interpretation. We are introducing this chart at this time because it 
covers the major episodes of cooperation in the copper industry that 
we are discussing. From time to time it will be referred to as we pro- 
ceed. We have already referred to the episode which is indicated by 
the bracket over 1917 to 1918. 


Mr. Kelley, I believe at the end of the war the copper producers had 
a lot of excess copper on their hands, did they not? 

Mr. Kelley. They did. 

Mr. ScoLL. And when the armistice was declared the industry, 
I believe, was operating at full capacity. 

Mr. Kelley. That is true. 

Mr. Scoll. Now, this excess copper included not only copper in 
the hands of the producers, but it included stocks that were held by 
the Government? 

Mr. Kelley. Correct. 

Mr. Scoll. And an indeterminate amount of copper in the form 
of battlefield scrap. Is that correct? 

Mr. Kelley. Yes, sir. 

Mr. Scoll. So you would say when the Copper Export Association 
was launched there was a tremendous oversupply of copper on hand 
both in this country and abroad? 

Mr. Kelley. That is right. 

Mr. Scoll. Now, is that situation related in any way to the fact 
that there were no quotations of copper prices at the end of 1918? 

Mr. Kelley. That situation was involved in the fact that there were 
no quotations at the end of 1918; but may I explain? 

Mr. Scoll. If you will, briefly. 

Mr. Kelley. Immediately after the armistice, the copper industry 
was called to Washington — the representatives. 

Mr. Scoll. Mr. Kelley, I was going to come to that. 

Mr. Kelley. I would like, if it meets with your approval — I have 
the exact figures on that stock of copper as it existed January 1, 1919, 
which shows a total of 2,278,000,000 pounds on hand January 1. 

Mr. Scoll. What is the source of those statistics? 

Mr. Kelley. The source of the statistics is, I think they were 
compiled from authoritative data. 

Mr. ScoWi. May I see it? 

Mr. Kelley. Surely. 

Mr. Scoll. WiU you submit these statistics as being compiled by 
the Anaconda Copper Co. or the Copper Institute? 

Mr. Kelley. They were compiled in connection with an article 
that I prepared and that was published subsequently, and they em- 
bodied figures that we obtained when we made the investigation 
in Europe immediately after the war. 

Mr. Scoll. I was going to get to the investigation a little later. 
Would you want to introduce it now? 


Mr. Kelley. Just in answer to your question, I would give these 
figures without comment. We estimated that on January 1, 1919, 
which was immediately after the armistice, the producers had in 
crude, process and refined copper about 839,000,000 pounds. The 
governments, which naturally had overbought during the period of 
hostilities, had 630,000,000 pounds, and there was in scrap and 
brass 808,000,000 pounds, or a total of about 2,200,000,000 pounds 
of copper. 

Senator King. So that the Government was a potential vendor — 
seller of copper — in that situation. 

Mr. Kelley. It was, and as you remember, if I may answer 
your question, immediately after the armistice we took up the 
question of the disposal of the stock of copper which the Government 
had acquired with the Council of Defense which consisted of five 
members of the Cabinet; and under the direction of Mr. Baker, 
Secretaiy of War, and Mr. Daniels, Secretary of the Navy, we worked 
out a program of liquidation imder which the Government agreed 
to liquidate its stoclc with the producers' stock. We allocated to all 
sales made, two-fifths to the Government, as I recall, in order that that 
stock might be Uquidated in an orderly manner instead of being 
dumped. We tried to do the same thing with the Governments of 
Great Britain and France, but as those Governments assured us that 
they wished to hold their stocks, we were unsuccessful. 

Senator King. Do you recall we had a similar situation with respect 
to wool stocks, and Great Britain had a very large surplus, as did some 
of the other belligerents, and the result was that the accumulation 
here by the Government and by individuals caused the price of wool 
to go down almost to a vanishing point. We attempted to negotiate 
with Great Britain and other countries with a view to proper liqui- 
dation of the stocks without destroying the market completely. 

Mr. ScoLL. I believe you have before you, Mr. Kelley, a copy of a 
letter to the Attorney General of the United States, dated January 13, 
1919, from Gilbert Montague, which transmits a letter of January 13, 
1919, from the Copper Export Association, to various members of the 
copper iudustry, signed by Mr. John D. Ryan, the president. 

Mr. Kelley. I have such a copy. 

Mr. ScoLL. That was the letter — the Ryan letter — was the letter 
that was sent to various members of the iudustry, was it not? 

Mr. Kelley. That is right. 

Mr. ScoLL. And Mr. Gilbert Montague was counsel for the Copper 
Export Association at that time? 

Mr. Kelley. Correct. 

Mr. ScoLL. I would Uke to read, if the committee will permit me 
to do so, a brief portion of that letter. 

After conference among a number of producers, a plan has been agreed upon, 
resulting in the formation, under the laws of Delaware, of a corporation known 
as Copper Export Association, Inc., which will act as exclusive agent for the sale 
of export copper for such producers or operators who sell or control the sale of 
export copper from the United States as may care to become members. As such 
agent, the Association proposes to procure orders for export copper at prices 
named by the Association, to allot such orders among the members pro rata 
according to the amount of copper each member has available for export, to 
average the prices monthly to each member so that each member will secure for 
his export copper every month the same price as every other member and at the 
same time to leave each member free to sell, ship, and bill his export copper direct 


to the foreign purchaser and to maintain, if he so desires, his own selling repre- 
sentatives abroad, subject always to the foregoing provisions in respect of appor- 
tioning orders and averaging prices. For greater certainty, reference is hereby 
made to the Agency Agreement herewith enclosed. 

We will get to the agency agreement later. 

The portion I read briefly summarizes the form of organization 
which it was proposed to form, does it not? 

Mr. Kelley. It does, I think, except as a matter of fact, a matter of 
practice, joint agencies or agencies acting for all of the members 
actually matured abroad as the result of our trip, instead of a separate 

Mr. ScoLL. What this letter represents is the proposal and the plan 
at that time. 

Mr. Kelley. That is right. 

Mr. ScoLL. It was what was intended at the beginning. 

Mr. Kelley. That is right. 

Mr. ScoLL. May I offer these for the record? 

The Chairman. The letters may be received. . 

(The letters referred to were marked "Exhibit No. 2101" and are 
included in the appendix on p. 13400.) 

Mr. ScoLL. Now, in connection with the formation of the Copper 
Export Association, a committee was sent to Europe, was it not? 

Mr. Kelley. Correct. 

Mr. ScoLL. And you were a member of that committee? 

Mr. Kelley. I was. 

Mr. ScoLL. And the purposes of the committee are contained, I 
believe, in a report to the executive committee, with which you are 
familiar. To save time, I will summarize it. Correct me if I am 
wrong in any detail. 

First, to investigate the form of organization which should be 
adopted by the association for each country. Is that correct? 

Mr. Kelley. Right. 

Mr. ScoLL. Then to ascertain as far as possible the condition of 
industry in each country, the stock of metal on hand, and the prospects 
of the approximate future with reference to metal requirements? 

Mr. Kelley. Yes. 

Mr. ScoLL. And third, to effect some equitable arrangement under 
which existing metal stocks, more particularly in England and France, 
might be pooled either together or separately with stocks held by 
American producers with a view of liquidating the very large existing 
surplus in such a manner as to cause as little loss as possible, and 
under conditions as favorable to a continuation of curtailed current 
production as it might be possible to work out. Those were generally 
the aims of the committee? 

Mr. Kelley. Yes, sir. 

Mr. ScoLL. Now, in other words, the copper producers were con- 
cerned primarily with forming an association to reheve the excess 
copper stock situation, as well as the price differential which you 
talked about before. Is that correct? 

Mr. Kelley. Yes. At that particular time, too, you omit a very 
important thing, and that was the effort which the industry was 
making to continue production and employ as many people as possible 
in the communities that needed it. 

Mr. ScoLL. This was in early 1919? 


Mr. Kelley. This was in early 1919, and I think you intend to 
refer to that. 

Mr. ScoLL. What did the committee learn and what action was 
based on its report? 

Mr. Kelley. Well, summarized very generally, the conmiittee 
learned that the governments, the allied governments, had tremen- 
dously overbought their requirements. They learned that in the 
haste and drive of manufacture for war purposes, scrap had not been 
utilized as it would under ordinary conditions, and that as a result of 
that there was impending over the market a tremendous quantity of 

We afterward estunated that at about two billion — more than two 
biUion — pounds. We also ascertained and recommended to the 
organization the best set-up of the agencies for the different countries 
taking into consideration the laws of each country, and the character 
of organization that would best fit the different nationals. 

Mr. ScoLL. And it was the stock situation that was the reason why 
the committee was considering ways aad means of forming an inter- 
national copper pool, according to this recommendation? 

Mr. Kelley. Yes. 

Mr.ScoLL. What came of that recoinmendation? 

Mr. Kelley. So far as the United States Government is concerned, 
they entered into a cooperative liquidating plan with the producers. 
The British Government assured us that they would not dump their 
copper; they would consume it gradually, but they did not enter into 
any formal plan with us. The French Government, the Ministry of 
Munitions, took the same position as the British; they said they pre- 
ferred to keep a stock of copper for their Government, rather than 
sell it. 

Senator King. The dumping of the copper held in the United 
States by the Government and its agencies as well as by corpora- 
tions — the dumping of those supphes upon the market — would have 
destroyed the market and would have closed many mines and would 
have thrown out of employment a large number of persons engaged 
in the mining industry, would it not? 

Mr. Kelley. That is right. Senator. 

Senator King. And slowed down smelters and mills and mines and 
greatly affected transportation and railroads, and so on? 

Mr. Kelley. That is right. 

Mr. Scoll. If you can recollect, were you thinking of government 
pools or private pools in copper? 

Mr. Kelley. We were thinking about a plan under which the pro- 
ducers of copper could cooperate with the governments which held 
these very large stocks in a plan of liquidation, rather than of dumping. 
So it would have been joint. 

Mr. Scoll. And what came of those proposals? 

Mr. Kelley. Nothing, except as I have indicated. . 

Senator King. However, the proposal not having been fully 
accepted, exercised somewhat of a restraining influence to prevent 

Mr. Kelley. Oh, jes ; there was cooperation, though hot actually 
under a plan, except in the case of otir Government. 


Mr. ScoLL. One of the results of the visit of this committee, how- 
ever, was the appointment of foreign agents for Copper Export Asso- 
ciation, I beheve, was it not? 

Mr. Kelley. That is right. 

Mr. ScoLL. And correct me if I am wrong, but I think the agents 
were as follows: Londoft, England, the British American Metal Co., 
Ltd. ; Paris, France, Societe Franco-Americaine des Metaux. 

Mr. Kelley. That is right. 

Mr. ScoLL. In Germany, the Kupfer Import Gesellschaft, m. b. b. 
m Berlin? 

Mr. Kelley. That is right. 

Mr. Scoll. Now the Copper Export Association, when it was 
finally organized, included most of the copper producers and smelters 
and refiners in the United States, did it not? 

Mr. Kelley. Yes; I think so. 

Mr. Scoll. There were one or two, I believe, outside — American 

Mr. Kelley. American Metal did not come in.. 

Mr. Scoll. And they were the only substantial producers who were 

Mr. Kelley. That is my recollection at this time. 

Mr. Scoll. Now I wUl show you a list of the names of members of 
Copper Export Association, Inc., and nonmembers, which I believe 
was prepared under your direction. I would like to ask you about 
these nonmembers who sold their copper through the members of the 
association. What was their status in the association? 

Mr. Kelley. I beg your pardon, Mr. Scoll, I was looking at this 

(The last sentence of the last above question was read by the 

Mr. Kelley. Well, they- occupied the status of members with the 
exception that instead of being actual members, the selling organiza- 
tions which disposed of their metal represented them. 

Mr. Scoll. So their copper was controlled by the association — the 
sale of their copper was controlled by the association? 

Mr. Kelley. That is right. 

Mr. Scoll. Now were there any foreign producers that were not 
controlled by the United States corporations involved in Copper 
Export Association? 

Mr. Kelley. Well, there are in this list of members whose copper 
was sold, although not rnembers, a.number of foreign companies; not 
many, becaus^. at that time, Mr. Scoll, the number of companies 
producing copper outside the United States was small. 

Mr. Scoll. And that was the reason that they were not in, they 
were not included? 

Mr. Kelley. Yes. 

Mr. Scoll. If for instance Cananea or Boleo were in operation, 
they conceivably would have been members? 

Mr. Kelley. An effort would have been made to bring them in, or 
else the project would have been abandoned. 

(Senator King assumed the Chair.) 

Mr. Scoll. I would like to offer as an exhibit the names of members 
of Copper Export Association, Inc., and nonmembers. 

Acting Chairman King. Have you seen this exhibit? 


Mr. Kelley. Yes. 

Mr. ScoLL. It was prepared under his direction. 

Acting Chairman King. It will be received. 

(The list referred to was marked ''Exhibit No. 2102" and is in- 
cluded in the appendix on p. 13402.) 

Mr. O'CoNNELL. Mr. Kelley, may I ask a question? You indi- 
cated that had any substantial producers not come in that the project 
would have been abandoned. That indicates, I take it, that in the 
absence of substantially 100 percent participation in an international 
agreement of this type, it isn't very effective? 

Mr. Kelley. That is correct, generally speaking. It was as a 
matter of fact one of the very important things that led ultimately 
to the abandonment of the C. E. A. Shall I elaborate on that? 

Mr. O'CoNNELL. I think we had better let them proceed. 

Mr. ScoLL. I have some questions along that line a little later. 

Mr. Kelley. My attention has been called to an error which I 
wish to correct, and I was in error. The production that was con- 
trolled outside the United States by nonmembers was substantial 
at that time. 

Mr. ScoLL. I was planning to go into that question a little later, 
Mr. Kelley. Now the method of determining the voting participation 
in the organization was based, I believe, upon the copper production 
of each member, was it not? 

Mr. Kelley. That was the basis of the formula. 

(Senator O'Mahoney resumed the Chair.) 

Mr. ScoLL. I show you now a list entitled "Copper Export Associa- 
tion, Inc., Number of Votes Cast at Annual Meetings of Stockholders," 
which shows the name of the stockholders and the number of votes 
they cast from 1919 to 1923. I believe that was prepared by Mr. 
Eckert of the Copper Institute, under your direction? 

Mr. Kelley. I think it was. 

Mr. ScoLL. I would like to offer that list. 

The Chairman. May I see a copy of that? It may be received. 

(The list referred to was marked "Exhibit No. 2103" and is included 
in the appendix on p. 13403.) 

Mr. ScoLL. At this time I would like to offer for the record a table 
which was prepared by the members of the staff from figures compiled 
by R. R. Eckert, former manager of Copper Export Association, Inc., 
and submitted by him to the committee. This table is entitled "Share 
of World Mine Production of Copper Controlled by Members of 
Copper Export Association, Inc., 1919-1923." It shows that mem- 
bers of the Copper Export Association, Inc., in 1919 controlled 65.4 
percent of" world production. The percent of total United States 
production controlled by the members of Copper Export Association 
was 89 percent. The percentages subaeauently diminished to the 
end of 1923. 

The Chairman. Now wait a minute. Did I understand- you to 
say that the total amount of the United States production controlled 
by members of the C. E. A., Ijjc, was 89 percent? 

Mr. ScoLL. That is correct — of United States production. 

The Chairman. Now this table also seems to state in the third line 
that the percentage was 50.3 percent. What is the difference between 
those two statements? 


Mr. ScoLL. The 50.3 percent, Senator, represents the amount 
controlled by members of the Copper Export Association in the total 
world production. In other words, they had half of the world produc- 
tion, but 89 percent of the United States production. 

The Chairman. I see. I think that makes it clear. Are you 
offering this exhibit? 

Mr. ScoLL. Yes. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2104" and is 
included in the appendix on p. 13404.) 

Mr. ScoLL. Mr. Kelley, I believe the Copper Export Association 
had an executive committee and a selling committee? 

Mr. Kelley. It did. 

Mr. ScoLL. And those were its functioning committees? 

Mr. Kelley. Right. 

Mr. ScoLL. What were the functions of the executive committee? 

Mr. Kelley. The functions of the executive committee, the mem- 
bers of whom were the executives of the copper companies, were to 
govern generally, fix policies, and direct the general affairs of the asso- 
ciation. The members of the selling committee were composed of the 
officials of the sales organizations and their function was to govern the 
details of selling. 

The Chairman. How often were all of the members of the associa- 
tion called together in meetings? 

Mr. Kelley. I think practically but once a year, at the annual 

The .Chairman. And how many votes would be ordinarily cast at 
an annual meeting? I don't mean how many votes; I mean how 
many ballots. I am using the word "ballot" in that sense. How 
many matters would come up at an annual meeting for decisior^by 

Mr. Kelley. Well, whatever came up. Senator. Practically every 
member attended the meeting and every member was a member of 
or was represented on the executive committee. 

The Chairman. Practically every member of the association was 
represented also on the executive committee? 

Mr. Kelley. Yes. 

The Chairman. How many members were ttere? 

Mr. Kelley. Ten members of the executive committee and I 
should think probably 28 to 30 besides. For instance, to indicate 
what I mean, take Anaconda. The Anaconda organization repre- 
sented Inspiration and all the other properties for which it sold the 

The Chairman. Let's get that straight. Suppose you go through 
this exhibit giving the names of the various members of the Copper 
Export Association and name to us those which were actually asso- 
ciated with Anaconda, as for example the particular one you mention 

Mr. Kelley. Anaconda controlled or at least sold the product 
that is represented there by United Metals Selling Co., Greene 
Cananea Copper Co., Inspiration. 

The Chairman. Let me mark these. 

Mr. Kelley. About the middle of the list; United Metals Selling 
Co. and the Greene Cananea, and Anaconda Copper Mining Co., 


International Smelting Co., North Butte Mining Co., and Utah 
ConsoUdated Mining Co, 

Tlie Chairman. Six of these members, then, were in the Anaconda 

Mr. Kelley. Or represented by it. 

The Chairman. Or represented by it. Now were there any other 
members which were likewise represented on the executive committee 
by some other corporation? For example, did the American Smelt- 
ing & Refining Co. represent any other members beside itself? 

Mr. Kelley. My recollection is that in the beginning of C. E. A. 
the American Smelting & Refining Co. sold the product of certain 
properties that afterward became afiihated with the Kennecott Cop- 
per Corporation, but the Kennecott Copper Corporation had on the 
executive committee, or on the board of directors, representatives of 
Mr, Guggenheim and Mr. Birch. 

The Chairman. How about Phelps Dodge? 

Mr. Kelley. Phelps Dodge was fepresented by Mr. Douglas — Mr. 
Walter Douglas — and Mr. McClain. 

The Chairman. And did it represent any of these other companies? 

Mr. Kelley. I think it did. I think at that time Phelps Dodge 
represented New Cornelia Copper Co. 

The Chairman. Were there any members who were not represented 
on the executive committee? 

Mr. Kelley. None; the sale of whose product was not represented. 

You see these organizations 

* The Chairman (interposing). Well, of course that is a different 
thing from what I stated. The sale of the products might be repre- 
sented by an individual who was not an officer or even a stockholder 
of the corporation. 

Mr. Kelley. I am sorry I didn't get that. 

The Chairman. I say, just as a matter of plain fact, the sale — a 
member might make its agent for the sale of its product a person who 
was not actually associated with that corporation? 

Mr. Kelley. Oh, yes; and frequently did. 

The Chairman. So I am just trying to determine — it may be of no 
special importance — whether there were any members who were not 
actually represented upon the executive committee by officers or 
executives of the member corporations? 

Mr. Kelley. I think there were. 

The Chairman. That was my question, and you have answered it. 

Mr. Kelley. But may I explain? 

The Chairman. Surely. 

Mr. Kelley. That in those cases the universal practice in the selling 
of copper as it was then conducted — for instance if through the 
Anaconda's selling organization we sold the product of other smaller 
units for their account — those contracts of sale provided that these 
independent companies, so called, would receive their exact proportion 
of the sales and at exactly the same price as we sold our own product. 

The Chairman. But the policies of the Association were fixed by the 
executive committee? 

Mr. Kelley. That is right. 

The Chairman. And the dominant figures on the executive com- 
mittee quite i^aturally were the representatives of these larger groups? 

124491 — 41 — pt. 25 7 


Mr. Kelley. That is true. 

Mr. ScoLL. Now briefly, if you will, will you describe what the 
functions of the selling committee were?, 

Mr. Kelley. The selling committee met from day to day or as often 
as conditions required, and fixed the price at which copper would be 
sold in the export markets of the world. 

Mr. ScoLL. The document I am handing you is entitled "Certificate 
of Incorporation." Will you just glance at it and see if yoii recog- 
nize it? 

Mr. Wolff. This is a correct copy of the certificate of the incor- 
poration of the Association. 

Mr. Kelley. May I say that Mr. Wolff is counsel for Anaconda 
and I hope it is all right for him to speak. 

The Chairman. Has Mr. Wolff been sworn for the record? 

Mr. Wolff. No. 

The Chairman. Do you solemnly swear that the testimony you 
may give in these proceedings shall be the truth, the whole truth, and 
nothing but the truth, so help you God? 

Mr. Wolff. I do. 

Mr. ScoLL. I would like to offer the certificate of incorporation of 
the Copper Export Association, Inc., for the record. 

The Chairman. The certificate may be received. 

(The certificate referred to was marked "Exhibit No. 2105" and is 
included in the appendix on p. 13404.) 

Mr. ScoLL. And similarly I would like to offer for the record a copy 
of the bylaws of Copper Export Association, which I believe was 
prepared under your direction? 

Mr. Wolff. That is a correct copy of the bylaws. 

The Chairman. The copy may be received. 

(The copy referred to was marked "Exhibit No. 2106" arid is in- 
cluded in the appendix on p. 13407.) 

Mr. ScoLL. That should be labeled Exhibit No. 2106. 

The Chairman. Proceed. 

Mr. ScoLL. You have before you I believe a copy of the agreement 
between a blank member of the Copper Export Association and the 
Association^ — photostatic copy. Now for the information of the 
committee, to illustrate how the Export Association worked, I would 
Uke to read a brief portion of this agreement, page 3, paragraph 2 
[reading from "Exhibit No. 2107"]. 

Beginning at the date of ttds Agreement and ending December 31, 1940, subject, 
however, to the provisions of paragraph "Tenth" hereof, the Producer stall not 
sellany export copper whatsoever except through the Association in the manner 
hereinafter set forth, and the Association shaU act as the exclusive agent for the 
Producer for the sale of aU the Producer's export copper, and the Producer shall, 
at tte prices contracted for by the Association, but on terms of payment approved 
by the Producer, accept and fully carry but all orders for export copper which the 
Association shall have allotted to the Producer in the manner hereinafter set 
forth. The Producer may, however, at its own expense, maintain its own selling 
representatives, and sell export copper to customers direct, but such sales shall 
only be at prices and on terms approved by the Association, and shall be immedi- 
ately reported by the Producer to the Association, and shall, for aU purposes of 
this Agreement, be deemed to "be orders allotted by the Association to the Producer, 
and, when delivered-as aforesaid, to be export dehveries of the Producer. If the 
Producer's sales of export copper, in any one month, shall exceed its allotment for 
that month, the same shaU'be adjusted to the basis of the allotment made to it for 
that month. 


In other words, Mr. Kelley, the Copper Export Association con- 
trolled the exports of each member and where the copper was not sold 
directly to the Export Association, the Export Association still kept 
control of the price and allotted those sales on the basis of the total 
allotments that were made, is that correct? 

Mr. Kelley. I think so. 

Mr. ScoLL. In other words that was a slight variation from the 
original plan of independent selling agencies? 

Mr. Kelley. Yes; I called your attention to that, I believe. 

Mr. Scoll. And Copper Export Association became the central 
sales agency in foreign trade for the producers? 

Mr. Kelley. Well, Copper Export Association betame the channel 
through which the business was conducted. The actual sales in some 
instances were made directly, to or by, Copper Export Association, 
and others were made by foreign agents. That was a matter of 
setting up the organization to conform to the requirements of in- 
dividual couQtries, 

Mr. Scoll. Now let me refer you to page 4 in this document, where 
it states [Reading from "Exhibit No. 2107"]: 

The Association shall procure orders for export copper upon such terms as it 
shall deem most advantageous, and shall allot its orders among all the members in 
proportion as nearly as possible to, but not in excess of, their respective copper 
available for sale through the Association as theretofore estimated by them as 
aforesaid, and so far as the Association consistently can, in such allotment, it shall 
comply with the reasonable requests of the Producer in respect of allotting to the 
Producer orders from the Producer's former customers. 

Now, was very much copper sold direct by me members through 
their foreign agents, or was most of it sold through the Association? 

Mr. Kelley. WeU, my recollection is that a great deal of copper 
was sold direct but it was reported to the Association and cleared 
through it. May I suggest to Mr. Scoll that Mr. Eckert, who handled 
the detail and who is thoroughly familiar with it, as I am not, having 
not charged my memory or recollection with it, is here; he was secre- 
tary of all these organizations. 

Mr. Scoll. Well, I think it will be unnecessary because what we 
are interested in here only is the general policy of the organization, 
rather than the specific details. 

Mr. Kelley. It is going back a good many years and I haven't 
got quite distinct recollection now as to the difference in the way 
C. E. A. functioned and Copper Exporters, Inc. 

Mr. Scoll. If the committee wishes to call Mr. Eckert. 

Senator King. As far as I am concerned Mr. Kelley's recollection — 
if it is material, any links should be supplied in the chain, we will call 
the other witness 

Mr. Kelley. I think in general Mr. Scoll's questions and my 
answers are, generally speaking, correct, 

Mr. Scoll. I would like to offer at this time a copy of the agreement 
between members of the Association and the Copper Export Associa- 
tion as Exhibit No. 2107. 

The Chairman. It may be received. 

(The agreement referred to was marked "Exhibit No. 2107" and 
is included in the appendix on p.' 13413.) 


TION, 1919-1921 

Mr. ScoLL. Now turning to the so-called copper pool, which was 
set up by the Export Association in 1921, this pool was for the pur- 
pose, was it not, of disposing of some of this excess copper we were 
discussing before, isn't that correct? 

Mr. Kellet. Yes; with this explanation, that it was set up pri- 
marily for the purpose of financing what had become an unliquidatable 
stock of copper and which the mining companies were carrying under 
very burdensome conditions. Its primary purpose was to finance a 
block of copper, set it aside where it could be liquidated in an orderly 
manner, without interfering with the production that at that time was 
still being made. 

Senator King. Some of those companies required some financial 
aid to hold tho^e large blocks of stocks which were on hand? 

Mr. Kelley. Nearly all of them did. Senator. 

Senator King. So the financing transaction in order to prevent 
absolute destruction of the market by proper liquidation was necessary? 

Mr. Kelley. That is correct. Explanatory of that, Counsel, may 
' call your attention to this, that from January 1, 1919, to January 
1, 1921, while the total stock of copper had decreased from 2,278,- 
000-000 pounds to 1,764,000,000 the stocks in the hands of the pro- 
ducers had increased from 839,000,000 to 1,171,000,000. The hquida- 
tion had been out of the Government stocks rather than from the 
producers' stocks. 

Senator King. That is, the Government's had the advantage, 
then, by the earlier liquidation? 

Mr. Kelley. Had the advantage of the earlier liquidation. 

Mr. ScoLL. I show you now a letter from Mr. Gilbert Montague 
to the Attorney General, dated February 3, 1921. 

Mr. Kelley. I am familiar with that letter. 

Mr. Scoll. And I would like to read into the record a brief portion 
of the letter which I think will explain the operation of the pool, and 
make it unnecessary to go into any details on examination. On page 
5, the letter states [reading from "Exhibit No. 2108"] : 

Relative to the cost of production, it is believed that copper has never been 
sold at lower figures than have prevailed during the past two months. Some 
of the AssQciation's members, it may be stated in confidence, are fast approaching 
the breaking point, because of the Association's inability to dispose of the copper 
whicfi they have been offering for export, and unless some mode of relieving 
the strain is found, not only may the Association break up, and the members 
be driven to cut-throat competition with each other in dumping their copper 
into export markets, but some of the members may perhaps be overtaken by 
most serious financial difBculties. Naturally, these facts cannot be made public. 

The Chairman. What was the date of the letter? 

Mr. Scoll. The date of the letter is February 3, 1921. I would 
like to offer it in evidence. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 2108" and is in- 
cluded in the appendix on p. 13416.) 

Mr. Scoll. Now, Mr. Kelley, wouldn't the cutthroat competition 
referred to by Mr. Montague have applied not orJy to the export 
but to the domestic market, as well, unless that copper could have 
been taken care of? 


Mr. Kelley. Will you repeat that question? 

(The reporter read the last question.) 

Mr. Kelley. It would have applied to the copper market, irrespec- 
tive of whether it was domestic or foreign, I would say 

Mr. ScoLL. Now did every member of the Copper Export Associa- 
tion participate in the pool, do you recall? 

Mr. Kelley, I think they (fid. This pool — it hasn't been stated 
just what it was. 

The Chairman. I would like to have you state that, Mr. Kelley. 

Mr. Kelley. Well, there was available at that time in the United 
States a tremendous stock of copper, more than was adequate for 
both the domestic and the foreign requirements. When this financial 
problem came up the certificate of incorporation of the Copper Export 
Association was amended so as to permit it to become the financial 
entity through which, the operation could be conducted. The opera- 
tion itself consisted of the assignment of 200,000 tons of copper, or 
400,000,000 pounds, to the Copper Export Association, which became 
the owner of the copper. The copper was earmarked and through 
proper financial agencies the sum of $40,000,000 was borrowed on this 
block of copper. 

The loan was secured by debentures payable in 1, 2, and 3, years, 
I think at 6 percent interest; these debentures were sold to the pubhc 
by the investment bankers, and in that way the situation was alle- 
viated and the different mining companies, more or less in accordance 
with their stock position and their financial requirements, contributed 
copper to the pooling and received in return the proceeds, at 8 percent. 

Mr. Scoll. I think you have before you a copy of an offering 
letter from the Copper Export Association to the banks which financed 
the pool, setting forth the arrangement. To summarize what is 
contained in this offer, the copper was to be pledged at 10 cents a 
pound, was it not? 

Mr. Kelley. Correct. 

Mr. Scoll. And was to be released from time to time in export 

Mr. Kelley. Right. 

Mr. Scoll. And as it was sold the notes would be retired? 

Mr. Kelley. That is right. 

Mr. Scoll. I offer as exhibits the letter from the Copper Export 
Association, Inc., to the National City Co. and the Guaranty Co. 
of New York and the letter from those banking institutions to the 

The Chairman. The letters may be received. 

(The letters referred to were marked "Exhibit No. 2109" and are 
included in the appendix on p. 13419.) 

Mr. Scoll. Now, Mr. Kelley, lookmg at "Exhibit No. 2100" for 
a moment, the pool was formed in February 1921? * 

Mr. Kelley. Right. 

Mr. Scoll. In your opinion, do you think the price of copper 
would have gone down further than it did in 1921 had it not been for 
the pool? 

Mr. Kelley. Well, in my opinion, one of two eventualities — no, 
to be perfectly frank, yes, I think it would have, without doubt. 

Senator King. Some would have been compelled to sell to liquidate 
pressing indebtedness just the same aa in the wool industry where 

i Appendix, p. 13394. 


many of the stocks were held and banks were pressing for payment 
and wool producers were compelled to sell their wool at greatly 
reduced prices in order to meet their obligations. Is that a parallel? 

Mr. Kelley. I think it is 

Mr. ScoLL. You referred before to the efforts to prevent the 
closing down of the mines in 1918. After the armistice in November 
1918, did Anaconda consider the possibility of shutting down? 

Mr. Kelley. In November 1918, after the armistice? My 
answer is that Anaconda did not consider the shutting down of its 
properties at that time.. On the contrary, if I may be permitted, 
immediately after the armistice, to wit, on November 11, 1918, we 
were summoned to Washington. 

We had a conference with the War Industries Board on the situation 
that American industry was facing. We were told — we knew — that 
an army was returning and that history had shown that the fate of 
every country was largely in the hands of a returning victorious 
army. The situation was reviewed, and we were requested by the 
Government to continue operations, and that they would, on the other 
hand, see that the price quotation was continued. That haitus to 
which you referred this morning as to when there were no E. and 
M. J. quotations was at that period, because nobody bought any 
copper, but the situation is covered in a statement of the War Indus- 
tries Board in th^ minutes of the War Industries Board, if I may read 
it, as f oUows . 

In a statement dated November 15, 1918, regarding a post-armistice meeting 
with the committee representing the copper producers of America, the War 
Industries Board stated: "General industrial conditions to which the uses of copper 
is intimately related were reviewed, the discussion being particularly directed to 
the immediate situation that America and the rest of the world is facing. The 
same spirit of cooperation that characterized the copper producers throughout the 
war in the supply of the metal to America was present." 

Mr. ScoLL. So that you kept going until the end of 1918? 

Mr. Kelley. That is correct. 

Mr. ScoLL. Did you consider curtailing early in 1919? Perhaps I 
can refresh your recollection by reference to an article which appeared 
in the Wall Street Journal March 30, 1921. 

Mr. Kelley. At the moment I have no recollection as to that 
specific time. 

Mr. ScoLL. In that article a press release issued by Mr. John D. 
Ryan reads as follows : 

After January 1, 1919, production was curtailed; in February wages were 
reduced by agreement between the copper producers, their employes and the 
Federal Department of Labor, approximately 15%. Later, in July, living costs 
having continued to increase, and the metal markets having improved, the wage 
scale was restored, and continued in effect until January, 1921, when a reduction 
of approximately 15% was made. During 1919, while the export demand was 
limited, there was a large domestic consumption of copper. Toward the end of 
the year a good buying movement, both domestic and foreign, occurred, which 
carried over' into 1920, and apparently justified the expectation that business for 
the year would show a satisfactory rate of consumption. 

After January 1, 1920, and during the first eight months stocks showed a satis- 
factory decline, when, on account of the general cessation of business activity in 
this country, the "industrial collapse in the Orient and the general unsatisfactory 
business and political situation in Europe, the trade was adversely affected, and 
notwithstanding the general curtailment throughout the industry, with but few 
exceptions, to approximately 40% of normal production, stocks, began to increase, 
and have steadily accumulated. 


That press release seems to give the impiession that there was a 
curtailment in 1919 or 1920. Do your records show that? 

Mr. Kelley. Yes, that is correct. Our misunderstanding was 
between 1919 and 1921. That is correct. 

Mr. ScoLL. To. quote further from this article, there was a cur- 
tailment also by the porphyries in 1921. I quote the article: 

Charles Hayden, speaking for porphyries, says continuation of production which 
cannot be sold at cost would only lead to a demoralization of industry, detriment 
to shareholders and greater loss to employees, 

and he amiounced that Ray and Chino were shutting down. That 
was in March 1921. Did Anaconda also shut down about that time?* 

Mr. Kelley. Anaconda shut down, my recollection is, before the 

Mr. ScoLL. Would you recall whether any of the other mines shut 
down m 1921? 

Mr. Kelley. I think before long practically every important 
producer in the United States wag shut down. 

Mr. ScoLL. Were there any discussions between the Fepresefitatives-^ 
of these companies relative to the situation prior to the shutdowns? 

Mr. Kelley. Well, I have no doubt that the situation was discussed, 
but there were no agreements with reference to a shutdown of which 
I am aware. 

Mr. ScoLL. It was generally discussed and decided that the best*- 
thing to do for all concerned was to shut down? 

Mr. Kelley. No; I wouldn't quite go that far. Whatever action 
was taken regarding shutdown was taken independently. I have 
before me a letter from John D. Ryan to the shareholders of the 
Anaconda Copper, dated March 29, 1921, '^ which was the date of a 
meeting of the board oi directors of the Anaconda, at which the 
decision was reached to shut down so far as that company is concerned, 
and this letter gives very largely, Mr. ScoU, the same information 
that you have read from the press release, only it was addressed 
directly to stockholders. 

Senator King. The proposition to shut down was based upon the 
fact that there had been large accumulations and the demands for 
copper were restricted. 

Mr. Kelley. Yes; you remember we came through a depression 
in '20 and '2 1 , Senator, and in our own instance I know we had carried 
on as long as we felt it was prudent to do so, and we had seen our 
employees through the winter, and we figured that the best time to 
shut down, if it was inevitable, was in the spring of the year, and we 
hoped that the situation would clear up before fall, so we could 
reemploy our people in the winter. 

Mr. ScoLL. At this time I should like to offer a table entitled "Crude 
Copper Production of. Principal United States Copper Companies 
Arranged According to Their Relationship to Copper Export Asso- 
ciation, Inc., Monthly, January 1921 to June 1922." Thia table was 
prepared by members of the staff and the information was obtained 
from the American Bureau of Metal Statistics Year Book for 1921 
and 1922. You are familiar with this material and the table, I 

< Subject resumed on p. 13132, Infra. 

> Subsequently introduced as "Exhibit No. 2112," See appendix," p. 13428. 


Mr. Kelley. I am. 

Mr. ScoLL. I would like to oflfer this as our next exhibit, and make 
a few comments on it. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2110" and is in- 
cluded 'm. the appendix on p. 13424.) 

Mr. ScoLL. The committee will notice from this table that all but 
two of the principal members of the Export Association shut down. 

The Chairman. Where does this appear? 

Mr. ScoLL. That appears in the figures from May 1^921 through to 
the end of the year 1921, to the first of January 1922. You notice a 
number of blanks in the table for the members of the Copper Export 
Association, which signifies that they produced nothing in those 
months with the exception of Mother Lode Coalition and New Cor- 
neUa. Then at the bottom of the page, under the heading, "Non- 
members of Copper Export Association," you find four mines and all 
of them producing right straight through the year 1921 and up to the 
reopening in 1922. 

The Chairman. In the second line in the table itself under the head- 
ing "Members of Copper Export Association, Inc., Total," does that 
represent the total production of all of the members? 

Mr. ScoLL. Of all the principal members. 

The Chairman. That production appears for every month in the 

Mr. ScoLL. Yes; it is the total of the copper that was produced by 
the two mines which did not shut down. 

The Chairman. And it appears that the Mother Lode CoaUti(m 
and the New Cornelia didn't shut down at aU. 

Mr. ScoLL. That is correct. 

The Chairman. They were members of the Export Association. 

Mr. ScoLL. That is correct. 

The Chairman. So they coutuiued to operate in the same manner 
that the nonmembers operated? 

Mr. ScoLL. That is correct. 

Mr. Kelley. The committee will note the comparative unimpor- 
tance of the production that was made during those months. 

Senator King. State it, Mr. Kelley. 

Mr. Kelley. Well, the production of the principal companies— I 
don't know where the definition of "principal companies" rests — was 
approximately 70,000,000 in January, 67,000,000 in February., 
75,000,000 in March, 31,000,000 in April, then it dropped to 12,000,000 
and ran along at about that level until February, wjien the pick-up 
came, 28,000,000, 40,000,000, 57,000,000, 77,000,000, 81,000,000, and 
by May we were back to normal production, whereas, for those com- 
panies that did not shut down the aggregate production was seven or 
eight million pounds all together. 

The Chairman. Yes, but, Mr. Kelley, if you will observe the total 
production for the nonmembers, you will note that the variation was 
but very sHght, 7,295,000 in January of 1921, and in May, when most 
of the membsrs had shut down with the' exception of two as repre- 
sented here, it had increased to 7,683,000, and the lowest figure at 
any time appears to be that for July, when it was 6,748,000. In other 
words, there appears to be very Uttle variation during that time in 
the production of the nonmembers, whereas with respect to the mem- 


bers your production fell from 70,232,000 in January to between nine 
and twelve million during the period from May to the succeeding 
January. Do you attach any significance to that? 

Mr. Kelley.. I have never examined these before, but if you leave 
out the Miami Copper Co., the production of the other three non- 
members is rather inconsequential, Mohawk, East Butte, and 

The Chairman, Well, the production of all four of them is very 
small when conipared with the total for the principal companies, or 
even when compared with the total for the member companies. 

Mr. Kelley. That is right. 

The Chairman. But I am asking hether you attach any sig- 
nificance to the fact that the nonmember companies apparently con- 
tinued to operate upon the same general level, while the member 
companies dropped off precipitously in their production. 

Mr. Kellbt. I attach no especial significance to it, except this: 
From my knowledge of the business I know that those nonmember 
companies were carrying no stocks of copper. 

The Chairman. The small companies were not carrying stocks? 

Mr. Kelley. Two of those companies produced what is known as 
lake copper, and there was an outlet for lake copper. The Miami 
Copper Co. "never carried any stock, and that is one of the reasons 
that led to the break-up of this association. 

The Chairman. The larger companies were carrying stock? 

Mr. Kelley. They were carrying the load. 

The Chairman. So I take it from your testimony that the member 
companies had a surplus on hand out of which they could meet de- 
mand, whereas the nonmember companies had no surplus, and if 
they supphed whatever demand they had, it was to be supplied out 
of production. 

Mr. Kelley. Out of production, and at a price and at a cut price. 

The Cha'irman. At a cut price? 

Mr. Kelley. Yes. 

The Chairman. The nonmember companies, then; were selling at 
a lower rate than the member companies were. 

Mr. Kelley. Shooting right under the umbrella. 

The Chairman. In the United States as well as abroad? 

Mr. Kelley. Abroad I am talking about, but it applied also in 
the United States. 

The Chairman. And they were then underselling in the United 

Mr. Kelley. Always. 

The Chairman. Well, would you say that the effect of your ar- 
rangement through the Export Association was also felt in the United 

Mr. Kelley. I don't think that there is any transaction of pur- 
chase and sale that doesn't affect a market. 

The Chairman. In other words, the world price is bound to be 
reflected in the domestic price. 

Mr. Kelley. Right. 

The Chairman. Then would it not foUow that whatever was done 
by the authority of the Webb-Pomerene Act through the policy of 
the Export Association would i^eyitabl^ have an effect upon the 
domestic market as well as upon the foreign market? 


Mr, Kelley. I think, to speak perfectly franldy, Senator, that you 
can't completely divorce the two markets. 

The Chairman. Of course, when the act was drawn language was 
written into it intending to bring about such a divorcement. 

Mr. Kelley. No; if you will read the Congressional Record you 
will see Senator Pomerene made the exact statement I am maldng now, 
or practically that, and it was made all through the Senate. The 
guardiansliip there, and the restriction, was not that there might not 
be an effect in the domestic market from the foreign market, but that 
the purview of the act would protect that unless it was done intention- 
ally and artificially. Those were the words of limitation that Con- 
gress put in. 

Mr. O'CoNNELL. You mean intentionally and artificially for the 
purpose of affecting the domestic market? 

Mr. Kelley. Right; either by increasing price or decreasing it. 

Mr. O'CoNNELL. Of course, the activities that you were undertaldng 
in the export trade were artificially and intentionally for the purpose 
of affecting the export price. 

Mr, Kelley. No ; and as a matter of fact after this pooling arrange- 
ment went through the price went down. That is correct. 

Mr. O'CoNNELL. That has to do probably with the effectiveness 
of what you hoped to accomplish, hasn't it? The purpose of the 
transactions in the export trade were to maintain price and to control 
the markets of the export trade. Wasn't that the purpose? 

Mr. Kelley, No; the purpose was to realize the equivalent of the 
domestic price, and my recollection is that out of 183 changes in 
price during this period, the export market . followed the domestic 
price; the domestic market did not follow the export price. The 
export price was based upon the f. a. s. price New York plus the c. i. f. 
charges, generally speaking, 

Mr, ScoLL, Mr. O'Connell, I might say at this point we are planning 
to go into that in some detail later on. 

In connection with the loan to facilitate the pool, wasn't there 
some understanding that there would be an effort made to curtail 
production? I refer here to a press release, which I believe you have 
a copy of, in the Wall Street Journal, February 8, 1921, which states: 

It is understood that in the course of the negotiations for this loan, and the 
analysis of underlying conditions, practically all the important copi>er producers 
signified their intention of producing only about 40% of 1918 output during 1921. 

Well, as a matter of fact, of course they produced a great deal less, 
but my point is, wasn't that a factor that was considered by the 
banks before they made the loan, or at the time they were making it? 

Mr. Kelley. Not to my recollection, but it is only fair to state 
that at the time this negotiation was on I was not in New York, 
although I participated in the organization plan. I had no conference 
myself with the bankers, 


Mr. ScoLL. I would like to read to you a part of an article by 
Mr. Agassiz, copy of which you have. Mr. Agassiz was then writing 
in the Sunday Tribune, New York, January 1, 1922. Mr. Agassiz, I 
beheve, was the president of Calinnet & Hecla Mining Co., and presi- 
dent of the Copper & Brass Research Association at that time. 


Mr. KELfiEY. He was. 
Mr. ScoLL. He stated: 

It was no simple matter to close down the copper mines of the country. It 
was a momentous decision, carefully thought out, and carried into efifect with the 
greatest reluctance. It meant loss of employment to thousands of men for an 
indefinite period, a class of men, unfortunately, who are least able to stand up 
against such reverses. Many of the men thus thrown out of employment had 
spent their lives in the copper regions, had built their homes and raised their 
families there. If there had been any possible way to avert the situation it would 
have been followed, but there was not, 

My only point in continuing this discussion is to bring out, if that 
be the case, that these negotiations, the bank loan, the operation of 
the Association, and the curtailment program, were one and all carried 
on by the same people in conferences with one another, if that be the 
case. Will you correct me if I am wrong? 

Mr. Kelley. I have told you I did not actually participate in the 
conferences myself. I know in our own individual instance that our 
decision to close down came as a result of the recommendations which 
I made from Arizona and Montana, and I was in the West when it 
was done. 

Mr. ScoLL. The mines reopened in 1922, I believe. 

Mr. Kelley. Right. 

Mr. ScoLL. From January on. Was that individual action inde- 
pendently taken, or was there general discussion on the situation 
determining whether it was a good time to open? 

Mr. Kelley. There was no general discussion about opening. 
Anaconda led the way on reopening its mines and received criticism 
from most of our colleagues for having done so. 

Mr. Scoll. At that time, do you recall whether Anaconda closed 
down its foreign mines? 

Mr. Kelley. At that time Anaconda did not 

Mr. Scoll (interposing). 1921 and '22. 

Mr. Kelley. We had Greene Cananea, we had a very small inter- 
est, 12 percent, and it was making no production; Andes was not in 
production, and I don't think we had acquired our interest in the 
Chile Copper Co. 

Mr. Scoll. You don't know whether Chile had shut down? 

Mr. Kelley. I think Chile was just coming along; I don't 

Mr. Scoll. I would like to take up with you the selling policies of 
Copper Export Association. 

The Chairman. Before you go into that, may I interrupt to ask 
one or two questions which have been suggested by the article from 
which the attorney read? This article was written by President 
Agassiz of the Calumet and Hecla Co. The quotation read by 
counsel seems to. me to go to the very heart of the whole problem 
that this committee is studying, namely, the effect of our economic 
machinery upon employment for the masses, which in turn means the 
effect of the .economic machinery upon the use of capital. We have 
frequently had the phrase used over and over again, "idle men and idle 
money," and how to use the two. Let me read that again: 

It was no simple matter to close down the copper mines of the country. It 
was a momentous decision, carefully thought out, and carried into effect with the 
greatest reluctance. It meant loss of employment to thousands of men for an 
indefinite period, a class of men, unfortunately, who are least able to stand up 


against such reverses. Many of the men thus thrown out of employment had 
spent their lives in the copper regions, had built their homes and raised their 
families there. If there had been any possible way to avert the situation it would 
have been followed, but there was not. 

Did that represent the attitude also of Anaconda? 

Mr. Kelley. It very distinctly did, Senator, because most of us 
in tnese mining organizations realize exactly what a shut-down means, 
because we have lived in those communities, and it is a very, very 
serious thing. 

The Chairman. You shut down, as you testified a little while ago, 
and probably that was true of this one, because you had the surplus 
stocks on hand from which you could meet your purchase demands? 

Mr. Kelley. Right, May I quote in that connection from a 
paragraph in a document that was referred to by Mr. Scoll. 

Our loss durmg the year, as I recall it, was $17,000,000. That is 
Anaconda alone. Here was the situation , and I know this is a problem 
that you are very much interested in, from the Committee's stand- 

According to the United States Geological Survey, stocks of copper on hand at 
smelters and refineries at the end of 1920 aggregated 436,500 tons as compared 
with 452,000 at the end of 1919. 

I have shown that that stock was largely transferred during that 
period to the producers rather than to the Government. There were 
371,000 tons at the end of 1918. So that after the Association's pur- 
chases of 200,000 tons, that is the copper that went mto the so-called 
pool, there was still left at smelters and refineries within the United 
States available for domestic consumption 236,500 tons, which is more 
than 54 percent of the total stocks on hand at smelters and refineries 
within the United States at the end of 1920, and there was nearly 7 
months' supply — this is pertinent to your question, I think. Senator — 
for all domestic requirements if the latter maintained the average of 
the domestic consumption for 1919 and 1920, and over 8 months' 
supply for all domestic requirements if the latter maintained the 
average of the domestic consumption for the pre-war period from 1909 
to 1914. These figures, however, do not adequately show the supply 
left available for domestic consumption, because they show neither 
the new production nor the enormous quantity of scrap copper, brass, 
and so forth. 

The Chairman. Then you not only had this surplus stock on hand 
to meet your demand, but you were also losing money during that 

Mr. Kelley. Very large sums of money. 

The Chairman. Was that true of all the others? 

Mr. Kelley. Generally I would say that was so. I don't believe 
that during that particular period any of the companies were making 

The Chairman. What was the effect of closing down upon the profit 
and loss situation? 

Mr. Kelley. That would depend upon the condition in each indi- 
vidual company. So far as we were concerned, it involved a very 
heavy expsnse. We have, speaking of Montana, underground mines, 
long levels, tunnels, crosscuts, drifts, that have to be maintained and 
an enormous amount of pumping to do. With the porphvies it is a 
very easy thing to shut down. Our budget at the time of this shut- 


down — on a shut-down basis — we estimated between five and six 
hundred thousand dollars a month. 

The Chairman. Wliat was the condition of the foreign market at 
this time? 

Mr. Kelley. The foreign demand was low, and the market was in 
adjustment with the domestic market. I have a chart which shows 
that very well, if you wish to proceed with that now. 

The Chairman. I don't want to interrupt the continuity of your 
presentation, Mr. Scoll. 

Mr. Scoll. If Mr. Kelley is describing the foreign situation in 
1921, that is quite relevant at this time. 

Mr. Kelley. The foreign consumption of copper had dropped 
I haven't the figures actually separated here (referring to own chart), 
but it shows that the foreign consumption of copper and the total 
consumption of copper had dropped. Have you copies of this? 

Mr. Scoll. No. 

The Chairman. Suppose we use the chart which has already been 
introduced which mav be just as effective for your purpose.^ It is the 
one on -the easle behind you, Mr. Kelley, or do you have a copy of it 
in your hand? Now, it would appear from this chart already intro- 
duced by counsel that consumption both in the United States and 
m the rest of the world for 1921 had dropped far below 1,000,000 short 
tons. In 1920, the consumption had been in excess of a million short 
tons. You see the column to which I am referring? 

Mr. Kelley. Yes, I do. I have it on our own chart here which I 
can follow more easily. 

Mr. Scoll. Senator, may I offer some figures which may be helpful 
from the supporting table which goes with the chart — I don't know 
whether you have the supporting table there or not. 

Mr. Kelley. No, I don't have it before me. 

Mr. Scoll. It shows in 1920 consumption in the rest of the world 
was 483,000 short tons; in the United States it was 668,000 tons. In 
1921, consumption in the rest of the world was 451,000, a very slight 
drop from 483,000 to 451,000, while in the United States it had dropped 
to 327,000. 

The Chairman. That is apparent from the chart itself, and I was 
going to call attention to that. You have designated the amount of 
consumption in the United States and in the rest of the world by a 
different graph in each column. 

Mr. Kelley. Yes, we have substantially the same thing here, and 
as Mr. Scoll has indicated, the enormous drop from 1919 through 
'20 and '21 was in the domestic market rather than in the foreign 

The Chairman. Now, if you look at that chart as a whole, you 
will observe that it appears to indicate — and this to me is a matter of 
striking interest — that consumption of copper is increasing abroad 
far beyond the increase in the United States. 

Mr. Kelley. That unquestionably is true, and it has been main- 
tained clear through the present time. The production of copper 
which used to be in the United States in excess of foreign demand is 
now very much less. 

The Chairman. What contributed to the increase of consumption 
abroad as compared with consumption in the United States? 

1 Exhibit No. 2100, appendix, p. 13394. 


Mr. Kelley. The economic development that has occurred abroad 
during the past 20 years, and the post-war period which very greatly 
outran our own economic advancement in that time. 

The Chairman. What are the principal uses of copper? This is 
getting a little bit aside from your line, Mr. Counsel. 

Mr. Kelley. Primarily copper in quantity goes into the electrical 
industry and its appliances. 

The Chairman. Are we to assume that electrical development 
abroad is exceeding that in the United States now? 

Mr. Kelley. We are to assume that it is, but that is not to say that 
we are not still as a whole far ahead. Let me illustrate it this way, 
Senator: The per capita consumption of copper in the United States 
during the period of our prosperity or prior to the depression averaged 
over a good many years 13 to 15 pounds. Now, that went into 
electric lights, telephones, automobiles, refrigerators, and the various 
things that made this country so far ahead of any other country in the 
world, in the standard of living and the standard of its transportation 
and communicating systems. Now, we reached our peak in 1929, so 
far as the immediate contemporaneous period is concerned, and by 
1932 our consumption of copper had gone back to the equivalent of 
what it had been 25 years before. On the other hand, in Europe, 
western Europe, where the per capita consumption of copper was 4 
pounds to 6 pounds in countries like France — and in England and 
Germany, somewhat higher— they have increased their per capita 

The Chairman, This chart shows just what you say, that beginning 
in 1930 for the first time, but continuously ever since, foreign consump- 
tion has exceeded domestic consumption. In 1930 it may^have been 
just about equal, but ever since it has exceeded it; and why that should 
be so is a matter, I think, of great interest. 

Mr. Kelley. Very great importance. 

Representative Williams. Let me interject this, if I may. As I 
read that chart, the same thing is almost exactly true with reference 
to the production as well as the consumption. 

Mr. Kelley. That is true. 

Representative Williams. There is a strange parallel, it seems to 
me, between the production and the consumption. 

Mr. Kelley. The United States, Congressman, formerly produced 
60 percent of the copper of the world. In 1938 it dropped to 25 
percent. What were the reasons? The enormous development of the 
foreign copper production at cheaper cost upon the whole that can be 
made in the United States. This chart .is upon a somewhat larger 
scale, but is practically the same. 

The Chairman. You were about lo express an opinion with respect 
to the causes for the increase of foreign consumption. 

Mr. Kelley. May I ask Mr. Scoll a question, please? 

The Chairman. Surely. 

Mr. Kelley^ Do you think it would be permissible to use the 
chart (referring to own chart)? 

Mr. Scoll. Go right ahead. 

Mr. Kelley. In answer to the Congressman's question, you have 
before you a chart, a smaller copy of which I have in the memorandum 
book I have in front of me. You will observe that the period covered 
is from 1890 to 1938, and you will observe that beginning with 1890, 


the production of the United States was on a constantly ascending 
line. Taken as a whole there were intermissions, but the trend curve 
was upward, until the twenties. We got up as high as sixty-odd 
percent, you will observe, in 1916, which was during the war period. 
In 1921, you have reflected there the shut-down in the United States. 
We got back to a position about 1924 or 1925 and from that time on, 
we began to lose position until 1934 we dropped to less than 1920. 
In 1938, we came back. ' Now, you will also observe on that chart 
the extent to which production, other than the United States, came 
into the market. In the early days, it was comparatively small. 
The other North American production was small, and that shows the 
manner in which South America, Africa, Europe, Asia, and Australia 
have come in to make up the total production of the world. 

The Chairman. May I just interrupt to make this observation? 
The chart which you have shown us indicates that from 1894 to 1927, 
with the sole exceptions of the years 1921 — that single year, 1921 — 
the production in the United States was in PYf^Rss of 50 percent of the 
entire world production. 

Mr. Kelley. Correct. 

The Chairman. But that since 1927 we have been falling off until 
in 1934, our production amounted to considerably less than 20 percent 
— less than 19 percent of the total — but since that time it has shown an 
increase, although 1938 represented about 22}^ percent as compared 
with 31 percent in 1937. 

Mr. Kelley. Correct. 

The Chairman. Very well, proceed. I just wanted to make clear 
that I understood the summary. 

Mr. Kelley. Now, as to the reason, of course, it must be remem- 
bered that that chart is on a percentage basis. It doesn't mean that 
the actual tonnage has dropped that much of itself, but it does mean 
that the outside tonnage has increased tremendously. You will observe 
from the other chart that the stock of copper was held in the United 
States and it is also a fact beyond contradiction, I'm sorry, that the 
recovery in the United States from the depression has been much 
slower than in the other countries, with the exception of France, and 
as copper consumption is directly a corollary of general industrial 
business and living conditions, it accounts for the drop in the per 
capita consumption in our country. 

The Chairman. What proportion of this world production is con- 
trolled by American producers? 

Mr. Scoll. Senator, the relative shares of world production will 
be brought out in comiection with the study of the situation from 
1930 to 1932. This material was goiog to be brought in at that time. 

The Chairman. Very well, I will withdraw the question at tliis 
time. Let it go until you present it in the regular order 

Mr. Cox. I have a few questions about the 1921 shut-down that 
I would like to ask, if I may. I think you testified that you recom- 
mended to the Board thnt the Anaconda shut down its mines. Is 
that correct?. 

Mr. Kelley. Yes. 

Mr. Cox. Do you recall when you made that recommendation 
whether the other large producers in this country had already shut 
down their mines? 


Mr. Kelley. I don't think they had. 

Mr. Cox. It was after that they shut down their mines. 

Mr. Kelley. It was after Anaconda shut down that the others 
shut down. 

Mr. Cox. Do you recall whether after you made the recommenda- 
tion you gave any consideration at all to the question whether the 
other companies would shut down their mines in the future? 

Mr. Kelley. I did not, although I assumed that the same condi- 
tions that compelled us to do so would likewise compel them to do so. 

Mr. Cox. You assumed, then, that they would without actually 
knowing. Is that correct? 

Mr. Kelley. I made up my mind as to that shut-down at Inspira- 
tion, Ariz., and there was no other copper producer present when I 
think I sent word to Mr. Ryan that a shut down was inevitable. 

Mr. Cox. Of course, you testified a little while ago that you were 
aware at that time that the shut-down would mean hardship to your 
employees and that was a matter of great consideration so far as you 
were concerned. 

Mr. Kelley. Yes, sir. 

Mr. Cox. And is it your recollection now that you were prepared to 
make the recommendation that the mine be shut down and that 
hardship be inflicted upon your employees irrespective of the question 
whether any other copper companies would shut down their mines 
and inflict a similar hardship upon their employees? 

Mr. Kelley. That question, if I understand it, should be answered 
this way. 

In my opinion — I was at Inspiration. Inspiration was producing 
copper. I was going through the plant. I saw where they were build- 
ing a sidetrack out in the yard, a new sidetrack. I asked the purpose 
of the facility. They said, "A place to dump more copper." And 
the yard was filled with copper. They had no more storage room. ^ It 
was costing 8 cents a pound to put that product into copper. The 
finances of the company would have been jeopardized if we had con- 
tinued to produce copper. If a shut-down was inevitable, it was my 
judgment that it should come at a time of year when it would work the 
least hardship upon our employees, and my hope and expectation was 
by making the recommendation to shut down when I did in the spring, 
it would clear the way to renew operations in the fall. 

I went from Inspiration to Tooele, Utah, and found the same situa- 
tion ; went up to Anaconda and found it there, and it wa^ my consid- 
ered judgment that not only from the standpoint of the company but 
from the standpoint of our own employees, a shut-down at that time 
was the best solution to the difficulty, and that would have been done 
irrespective of any other company in the United States shutting down 
or not. 

Mr, Cox. Then if I understand that answer, it is that you recom- 
mended the shut-down irrespective of the question whether the em- 
ployees of any other copper company would have to bear a similar 
burden, is that correct? 

Mr. Kelley. If you wish to put it that way; yes. 

Mr. Cox. Well, I don't wish to put it any way that isn't right. 

Mr. Kelley. The prime consideration to my mind was our own 
employees and our own situation. I did not consider what the 


situation of the employees of other copper companies would be. 
That was the responsibility of their executives. 

Mr. Cox. And you were prepared to shut down, even though the 
others should keep on operating? That was your frame of mind? 

Mr. Kelley. Yes, with the stock of copper we had I believed that 
was inevitable. 

Mr. ScoLL. Mr. Kelley, when did you make the trip as you recall? 

Mr. Kelley. It was about the period when the negotiations with 
the bankers on this pool 

Mr. ScoLL (interposing). That would be January or February of 
1921. Then according to "Exhibit No. 2110," ^ showing the shut- 
downs of the various members of the association, your advice was 
taken in May, because the last month for Anaconda production is 
3,683,846 pounds. I might add that there was a considerable drop 
from March to April. In March it was over 11,000,000 pounds and 
in April it was approximately 3,000,000 pounds, but in May Anaconda 
had shut down. 

Now was it just a coincidence that in May Anaconda, Calumet and 
Arizona, Calumet and Hecla, Chino, Inspiration, which was an 
Anaconda affiliate, Nevada Consolidated, North Butte, Phelps 
Dodge, Ray Consolidated, United Verde, and Utah Copper had shut 
down, when all of those mines, with the exception of North Butte 
and Calumet, had been operating in April and suddenly shut off 
production in May? 

Mr. Kelley, Of course, the premise is wrong. The notice to the 
Anaconda shareholders was sent ojQScially by Mr. Ryan; that was 
dated on March 29, 1921. The copper that was produced subse- 
quently was the inevitable amount that comes out after the shut-down 
occurs, which occurs at the mine. What you are reading is smelter 
production which would follow sometime later. Now as to whether 
or not that is a coincidence, that they all shut down together, I would 
say that the same circumstances that compelled Ananconda was 
known to every other one, and that they shut down certainly as a 
result of conditions that commonly affected every unit in the industry, 
and if there was any concert of action under the conditions that 
prevailed, I am sure that it would be justified as a matter of economic' 
necessity and supported as a matter of law. 

The Chairman. Does that statement carry the inference that 
there may have been a concert of action? 

Mr. Kelley. Senator, vou don't want me to guess about it, 
do you? I note that Charley Hayden, who was the chairman of the 
board of various porphyries companies, gave a statement that was 
published the same day that the statement of Mr. Ryan was published. 
I never interrogated either of the gentlemen and they are both dead. 

The Chairman. They probably knew what was going on. 

Mr. Kelley. I haven't the slightest doubt they did. 

Mr. O'Connell. Mr. Kelley, a little earlier you were good enough 
to tell us that the stock on hand in the various companies which were 
members of the Export Association was probably a very important 
factor in their determination to shut down, and you also indicated 
that the four nonmembers of your Association, which did not shut 
down, did not have such stocks. Is it your understanding that all 

> Appendix, p. 13424. 

121401— 41— pt. 25 8 


of the members of the Export Association which did shut down did 
have substantial stocks? 

Mr. Kelley. It is my understanding because th^ proceeds from 
the sale of the debentures was distributed unequally but* pretty 
generally — my recollection is — throughout the industry, and the 
amount that each company received of those debentures represented 
the amount of copper which it pledged at 10 cents a pound and in 
no case, I think, was it more than half the stock, the other half 
being kept for domestic sale. 

Mr. O'CoNNELL. Why do you suppose it was that the four non- 
members of the Association happened all to be companies that had 
no stocks, and that apparently all the members of the association 
did? Was it because of their membership in the Association that 
they had stocks? 

Mr. Kelley. I will explain that. I think it is a fair question. 
The two very small companies named there — Wolverine and Mo- 
hawk — are very small producers of lake copper. Lake copper is a 
brand of copper which occupies a special position in sales because of 
a quantity of silver that is contained in it. It is imusually adapted 
to certain purposes, and there is, generally speaking, always an outlet, 
particularly for a very small quantity of lake production. I would, 
therefore, assume that neither of those companies had any stock. 
So far as the Miami Copper Co. is concerned, I say without any 
acrimony I don't think in its history it ever had any stock. It with- 
drew from the Copper Export Association because it would not be 
given a frontal position ahead of everybody else. The purpose stated 
by Mr. Lewisohn was that Miami did .not care to accumulate any 
copper, and after it withdrew it sold its production, and it sold it at 
a very small fraction under the official export price. Understand, 
the export price was a public price. Everybody knew it, and anybody 
who wanted to chisel — to use a frank expression — could do so by cut- 
ting that an eighth of a cent a pound. 

Mr. O'CoNNELL. There are two words I would like to get cleared 
up. One /is the use of the word "official" in connection with the 
export price, and the second, the use of the word "chisel." I suppose 
you mean synonymous with someone who would undersell that official 

Mr. Kelley. Yes. The official price was so designated in the 
articles of the Association as the official standard electro price for 
copper of the Copper Export Association, and that was known 
publically all over the world. 

Mr. Scoll. I might say at this time that we are going to go into 
the prices of the Copper Export Association. 

Mr. O'Cqnnell. I will wait. 

The Chairman. I m&j say just before recessing until morning, 
so that we can go into thia question of price with fresh minds, that the 
testimony developed here this afternoon, particularly with respect to 
the effect, upon employment of shut-downs, seems to me to point up 
the central problem before business and government today. Obvi- 
ously the creation of this Export Association was brought about by 
the growth of the foreign organizations which were deaUng in this 
particular commodity. To meet that organization, the business 
executives in the copper industry caijae to Congress and asked for and 
received authoritv to make a big organization itself, and then there 


was the combination. Well, a lot of other circumstances intervened 
with the war. Production was stepped up, your stocks were accu- 
mulated, and then the various producing organizations in the United 
States losing money found it necessary to shut down. 

A large organization cannot be expected, any more than an indi- 
vidual, to continue operations at a loss. Apparently large organiza- 
tions make every effort to prevent losses and to do that they frequently 
engage in practices which might be condemned under the antitrust 

Sometimes they are driven to it as a matter of necessity ; sometimes 
they adopt them for the purpose of preventing losses, if not for making 
profit. But when all is said and done, when the shut-down comes and 
the employee is thrown out of work, he finds himself utterly unable to 
support himself because he has no means of support in this highly 
organized and complicated modem economic society ; and the problem 
before us all is how to stabilize employment so that this distress which 
was so well outlined by Mr. Agassiz may not follow, and so that it 
won't be necessary for industry to shift this burden as it does, to 
government, to be maintained by government in an ineffective and 
uneconomic way as it is under the W. P. A. 

That, of course, is just a voluntary contribution by the chairman. 

Mr. Kelley. I think it is a very excellent summary, and I want 
this gentleman to be under no misapprehension about our solicitude 
for our employees. I came from a miner's cabin, so I know what it 

*Mt. Scoll. I offer in evidence the article by R. L. Agassiz entitled 
"Copper Buying Expected to be Heavy this Year." 

The Chairman. It may be received. 

(The article referred to was marked "Exhibit No. 2111" and is 
included in the appendix on p. 13426.) 

Mr. Wolff. May we offer the letter to the shareholders of the 
Anaconda Copper Mining Co. to which Mr. Kelley referred in his 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 2112" and is 
included in the appendix on p. 13428.) 

The Chairman. The committee will stand in recess until tomorrow 
morning at 10 o'clock. 

(Whereupon, at 4:45 p. m., a recess was taken until Wednesday, 
January 17, 1940, at 10 a. m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Tuesday, Januarj^ 16, 1940, in the Caucus Room, Senate Office Build- 
ing, the chairman. Senator Joseph C. O'Mahoney, presiding. 

Present: Senators O'Mahoney, chairman, and King ; Representative 
WiUiams; Messrs. Pilce, O'Connell, and Brackett. 

^Present also: Representative Compton I. White of Idaho; Walter A. 
Janssen, Department of Commerce; M. Quinn Shaughnessy, Securities 
and Exchange Commission; Joseph E. Sheehy and Ellen L. Love, Fed- 
eral Trade Commission; Theodore J. Kreps, economic adviser; Samuel 
Moment, economic analyst; and David E. Scoll, assistant counsel to 
the committee. 

The Chairman. The committee will please come to order. 

Mr. Scoll, are you ready to proceed? 

Mr. ScoLL. I am, sir. 


Mr. Scoll. Mr. Kelley, just before the session of the committee 
adjourned yesterday we were talking about the situation at the time 
of the shut-down in 1921. Have you any further comment that you 
would like to make in respect to that? 

Mr. Kelley. I would, Mr. Scoll. As soon as the shut-down was 
decided upon, it was, of course, a matter of paramoimt interest to 
look after the welfare of the employees. I went to Butte and pro- 
ceeded to organize there. I first took up the question in Butte with 
the local bankers, and I advised them that to the extent that the mer- 
chants of Butte extended credit to our employees within reasonable 
restriction, we would guarantee the credit of the merchants. I called 
the merchants together and we evolved a plan under which it was 
proposed that ths necessities to the families would be furnished, upon 
our guarantee. This was also done in Anaconda, but in a little diner- 
ent way, because there we had a more dir'^ct contact with th t entire 
population, piactically all of the people in that town being employed 
by our company, and there it was done directly between the merchants 
and the local management. 

A very careful system was worked out covering the necessities of 
the family, from those where there was simply a man and his wife, to 
those families that had a number of children. 

Dependent upon the size of the family, the credits were arranged 
so that during the period of the shut-down there should be as little 



distress as possible. This also was done in Great Falls. The result 
was that we alleviated, as far as we reasonably could, the economic 
consequences of the shut-down, and I was very happy at the result 
because as soon as operations were resumed tne bills that had been 
incurred by the employees from the merchants were paid back by 
them almost without exception, and it cost us very little money in 
the aggregate. 

The same organization pertained as far as medical services and 
hospitalization was concerned. 

Eepresentative Williams. How many employees were there in- 
volved in that shut-down? 

Mr. Kelley. In our case in Montana I should say approxi- 
mately 1,5,000. 

Representative Williams. Did those same employees go back to 
work when the mine opened? 

Mr. Kelley. It was an extraordinary thing. Congressman, that 
almost without exception (and this was particularly true at Great 
Falls and Anaconda) there was almost 100 percent of the men who 
were on the pay roU at the shut-down who resumed when • the 
whistle blew. 

Representative Williams. How long was that shut-down? 
Mr. Kelley: About 9 months. 

Representative Williams. And during that time did these em- 
ployees have no other employment at all? 

Mr. Kelley. Oh, no; in a great many instances the employees 
left, and in the summer months, in Montana, there is usually employ- 
ment outside. As a matter of fact, our miners, irrespective of shut- 
downs, are encouraged by us to seek outside emplojrment during 
the summer as a more healthful occupation than working in the 
mines. There are a great many small farms and ranches; there is a 
very large haying season;, and there was a good deal of roadwork and 
outside construction going on during the summertime; so that we 
watched the savings accounts in the banks and were very much 
surprised at how little diminution occurred in the accounts because 
of the fact that these men were able to secure outside employment. 
Representative Williams. As a result of it there was really no 
serious social or economic problem resulting from that shut-down. 

Mr. Kelley. No serious one. I don't pretend to say that it was 
not felt. It was. The distress was alleviated. 
The Chairman. And there was distress? 

Mr. Kelley. I have no doubt that families felt the pinch of the 
reduced income. 

The Chairman. Do you suppose all of these men who were laid 
off had savings accounts? 

Mr. Kelley. A great many of them did in Anaconda and Great 
FaUs. The employment in those communities is very much more 
stable than in the mining sections. 

The Chairman. The picture that you draw is very -much different 
from that drawn by Mr. Agassiz in this article which was introduced 
in the repord yesterday, isn't it? ^ 

Mr. Kelley. I don't know what the Calumet & Hecla Co. did. 
The picture drawn by Mr. Agassiz is unquestionably a correct general 
statement, but from my knowledge of the management of Calumet 

« "Exhibit N^ 2111," appendix, p. 13428. 


& Hecla, aud its history, I am sure they did something similar. 
There was no program that was adopted "^generally, and I don't know 
what other mining companies did. 

The Chairman. What was done was doner as a matter of grace, 
wasn't it? There was nd obhgation upon any of these companies to 
take care of the men when they were laid off. 

Mr. Kelley. Senator, there was no legal obligation. 

The Chairman. That is what I mean; so it w^s done as a matter 
of grace? 

Mr. Kelley. As a matter of moral obhgation I would say. 

The Chairman. You had a feeling that you would like to do it 
and you did it. 

Mr. Kelley. I would like to distinguish between a matter of 
grace and a sense of responsibihty. 

The Chairman. I wiU accept that distinction but I am trying to 
make clear that there was no obhgation. 

Mr. Kelley. There was no legal obhgation. 

The Chairman. That is right. Have you yourself, as head of the 
Anaconda, or do you know of any other executives who have considered 
the possibihty or the desirabihty of making it a matter of legal obhga- 
tion, or some obhgation of a greater force, to maintain workers, when 
economic disasters or reversals of this kind -come? 

Mr. Kelley. I think we have all given consideration to that 

The Chairman. Do you think it could be worked out? 

Mr. Kelley. I think it would be very difficult to work it out. 

The Chairman. Do you think it would be desirable? 

Mr. Kelley. Extremely so. 

The Chairman. You have heard the discussion about the so-called 
annual wage? 

Mr. Kelley. Yes. 

The Chairman. Would that be a difficult schem6 to foUow? 

Mr. Kelley. It would be very difficult unless you would also be 
assured of annual employment. 

The Chairman. Now, during the shut-down, of course, there is 
no lay-off of certain groups of employees — those in the administrative 

Mr. Kelley. Well, there is never a complete lay-off because tCh 
the greatest extent possible — in our" case, I am only speaking of 
Anaconda — during the periods of the shut-down we not only keep 
on very large maintenance crews, but we endeavor to do as much 
underground development as possible in order that we may keep as 
many people employed and that we may take advantage of a period 
of nonproduction to do prospecting, as it is called. 

The Chairman. The maintenance crew is the crew that maintains 
the property? _ ^> 

Mr. Kelley. Yes, and in the case of underground mines, that is 
a very substantial number of employees. 

The Chairman. And, of course, that is a very necessarv work 
because you find it essential to maintain in the highest possible state 
of efficiency the material possessions and instrumentaUties of the 

Mr. Kelley. Right. 


The Chairman. But so far as the human mstrumentalities are 
concerned, why they may shift for themselves except for this moral 

Mr. Kelley. Well of course — all right, fairly, yes. 

The Chairman. That, to me, is one of the serious problems about 
this industrial question. 

Now I recognize the diflSculty with which you are confronted, 

Senator King. If the ore deposits are worked out there is nothmg 
else there except a shell, as in the case of many mines; there is no 
alternative other than to shut-down. 

Mr. Kelley. No, every mine, no matter how big or little, ulti- 
mately comes to an end. 

Senator King. Isn't it true in Utah, Nevada, Idaho, California, 
there are many so-called ghost cities in which the ores have all been 
extracted and the mines have closed down, the houses indeed have 
been burned up or carried away. There are no houses in towns which 
formerly had three, four or five thousand people? 

Mr. Kelley. The mountains are studded out there with such 

The Chairman. We have them in Wyoming, too 

Senator King. We don't blame the owners of tL^. properiy, many 
of whom worked in the mines, when they shut down because of no 
market for the ore, if it is of such low grade as not to be workable. 

Mr. Kelley. It is a necessary evil of the industry. 

Senator King. The mine owners and operators never close down 
deliberately^; they do it because of the lack of markets or conditions 
beyond their control. 

The Chairman. Or perhaps they have surplus stocks and don't 
have to mine. 

Mr. Kelley. When they have surplus stock it is a result of con- 
tinued employment beyond the point of necessity. 

The Chairman. You may proceed. 


Mr. ScGLL. Before taking up the question of prices under the 
Copper Export Association and the price policies of the association, 
I would like to summarize the influences that affected the domestic 
supply of cooper sold in export trade at that time. 

The sales agreement between members of the association and the 
Copper Export Association, Inc., dated as of June 15, 1920 contains 
the following provision: 

Beginning the date of this agreement and ending December 31, 1930, subject, 
however, to the provisions of Articles 12 and 13 hereof, the producer shall not 
sell any export copper whatsoever except to the Association. 

Am I correct", Mr. Kelley, in interpreting that to mean that from 
that point on the Copper Export Association became the exclusive 
selling agency for the members in the export trade? 

Mr. Kelley. 1 would think that was true. 

Mr. ScoLL, And they would not sell except through the Associa- 

Mr. Kelley. Right. I think that was restricted, Mr. Scoll, to 
the European market. I think the producers continued to sell to the 


Mr. ScoLL. The European market, however, was the principal 

Mr. Kelley. Yes. 

Representative Williams. Right in that connection — it is perhaps 
in the record but I don't recall the figure — what percent of the local 
producers in volume were members of the association — in volume of 
production, I mean? 

Mr. Kelley. I think that a chart was introduced that showed that. 
If not, I would say approximately almost 90 percent at one time. The 
chart showed 85, down to 60. That was the equivalent of 54 percent 
of the world production. 

Mr. Scoll. The staff of the committee has prepared from figures 
compiled by Mr. Eckert, former manager of the Copper Export 
Association, under the direction of Mr. Kelley, a table showing the 
share of stocks of refined copper in North and South America, held in 
the pooling arrangement by Copper Export Association, Inc., monthly, 
1921 to 1923. You have a copy of that, haven't you? 

Mr. Kelley. I think I have. 

Mr. Scoll. Before introducing this table into the record 1 should 
like to point out that as of March 1921, the pool held for sale in the 
export trade 55 percent of the total refined stocks in North and South 
America, and that percentage increased gradually until by July 1922, 
the pool held, roughly, 69 percent of the stocks. Thereafter it dimin- 
ished until August 1923, when the pool had completely disposed of 
all the stocks which it held, and it no longer held any part of the 
excess copper reserve. 

I might add, that according to the testimony already in the record, 
the last debentures were called in February 1923, and the pool finally 
liquidated in 1923. 

I offer this table for the record. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2113" and is in- 
cluded in the appendix on p. 13429.) 

Mr. Kelley. May I say, Mr. Scoll, that I do not follow your inter- 
pretation of this particular exhibit. As I read it, the total refined stock 
is given in the first column and the amount that was actually pooled 
for export trade bears the percentage to the total that you said. 

Mr. Scoll. That is con-ect. 

Mr. Kelley. If there is a correction we will ask leave to make it 

Mr. Scoll. Perhaps I might add by way of further explanation that 
while the -amount of stocks held in the pool decreased, similarly there 
was a decrease in the total of refined stocks; but the decrease in the 
total was not as great as the decrease in the pool, and hence the 
percentage in the pool increased. 

Mr. Kelley. There was a reason for that. When the debentures 
were issued they had a fixed maturity and there was a fixed ratio of 
sales assigned to the payment of the debentures. The idea was 
to pay off the debentures as rapidly as possible, and therefore sales 
were allocated to the pool and it decreased rapidly, so that by the 
month of August 1923, the pooled copper disappeared. 

The Chairman. Mr. Kelley, you may have the table examined and 
submit any corrections that you desire or any criticism of the exhibit. 

Senator King. As I understood your testimony yesterday, that 
pooled stock of copper was owned by a number of corporations and 


companies, and they were heavily involved, and a loan of $40,000,000, 
or a very large sum, was obtained upon the pooled stocks ; and so there 
was an understanding that the stock should be sold in order to meet 
the debentures, and of course with reference to the quantity or per- 
centage that each organization had in the pool, his share would be 
sold and he would receive his share of the proceeds resulting from the 

Mr. Kelley. Right. 

Mr. ScoLL. I believe you have before you now, Mr. Kelley, photo- 
static copies of cables sent to Berlin by the Copper Export Association. 
These copies were taken from the files of the Department of Justice 
and I would like to read certain of them and ask Mr. Kelley to 
comment, and then later supply a certified copy for the record. 

The Chairman. Do you mean a certificate that these are taken 
from the files of the Department of Justice? 

Mr. ScoLL. Yes. 

The Chairman. Does the witness recognize them? 

Mr. Kelley. I never saw these or heard of them until Mr. Scoll was 
good enough to furnish me with a copy of them. They were cables, 
as I understand it — I have no direct knowledge 

The Chairman (interposing). I was merely trying to identify the 
material so that you can testify with respect to it. 

Mr. Kelley. I don't doubt its accuracy, although I have no 
personal knowledge about it. 

The Chairman. You are assuring the committee that they were 
taken from the files of the Department of Justice and you will file 
with the committee a certificate to that effect? 

Mr. Scoll. I will, sir, and I am offering them not to prove the facts 
contained, but merely to question Mr. Kelley with respect to their 
relation to policies of the Association. 

The Chairman. Very well. 

Mr. Scoll. You will notice on page 2, a cable, May 21, 1920, which 
reads [readmg from "Exhibit No. 2114"]: 

We are not very anxious about the present situation Londdn market. It will 
run its course and in due time we shall do business there. Meantime we have 
withdrawn from the market and are not meeting competition. 

The next sentence says: 

We feel differently with regard to your market and authorize you to meet any 
fair competition on a conservative basis — 

and so on — the rest is not material. I presume that that has reference 
to the fact that the conditions in Berlin, London, and other markets 
were somewhat different at that time. 

Mr. Kelley. Well, Mr. Scoll, I reaUy haven't any recollection. 
These cables, may I say, were sent, I am assured, by Joseph Clendenia. 
Joseph Clendenin, God rest his soul, was the chairman of the selling 
committee, and all of the copper men here will recognize the aggressive- 
ness of Joe as a salesman. These are sales telegrams from Mr. 
Clendenin to his agents or his representatives abroad. I wouldn't 
vouch entirely for the accuracy of his statement. 

Mr. Scoll. But as chairman of the sales committee, Mr. Kelley, 
he had the job of carrying out the sales policies of the Association, 
had he not? " 

Mr. Kelley. He had charge of carrying out the sales. I don't 
think he had much to do really with the general policies. 


Mr. ScoLL. And such sales policies as he put into effect were sales 
policies of the organization, were they not? 

Mr. Kelley. They were so far as Mr. Clendenia and his subordi- 
nate agents were concerned; yes. 

Mr. ScoLL. Now these subordinate agents were agents of the Asso- 
ciation in Europe? 

Mr. Kelley. They were the agents through which the Association 
did business in various parts of Europe. 

Mr. ScoLL. And the instructions which he gave the agents were in- 
structions of the association, were they not? 

Mr. Kelley. For their purpose I assume they were. There is one 
interesting comment I would like to make upon these cables. They 
show what might interest particularly the Congressman, and that is 
the intensity of the competition during aU this time abroad, both with 
the dealers in the London metal markets and with the outside copper — 
that is true. 

Mr. ScoLL. Yes, they do; I think that is well brought out, but there 
are also a couple of other points that I think I would like to bring out. 

The Chairman. May I ask at this point whether we are to under- 
stand Mr. Kelley as intimating that too much reliance will not be 
placed upon the statements of sales agents? 

Mr. Kelley. I think that is a fair deduction. Senator. 

Mr. ScoLL. Except in this case Mr. Clendenin was the chairman of 
the sales committee and the carrying out of policies of the association 
was in his hands, unless Mr. KeUey^wishes to contradict me. 

Mr. Kelley. When you say "policies," I say that Clendenin's au- 
thority and the authority of the sales committee was limited to selling; 
they had nothing to do with the general policies. 

Mr. ScoLL. Quite right, but it is only selling I am talking about. 

Mr. Kelley. Then I agree. 

Mr. ScoLL. On page 3 of this list is another cable dated March 15, 
1921 [reading from "Exhibit No. 2114"]: 

Cannot clearly see our way meet competition at the present time. We may if 
it is a business of considerable importance. 

That is a cable dated March 15, 1921. It will be noted that the 
pool was formed in February 1921. 

On page 4 there is a cable dated June 7, 1921, to Berlin. I might 
add that all of these cables were to Berlin. 

Do not care to withdraw from the market entirely. We leave it to you asking 

The rest of it I don't believe is material. 

Mr. Kelley. You know, it shows a valiant rear guard action. Mr. 
Clendenin started with a price of 18%, New York, and after a struggle 
we get down to where this last cable abandoned the effort and said they 
would leave the price to the agent, and it was 12}^. 

Senator King. He didn't impress your selling capacity very much 
on the buyers of copper, then. 

Mr Kelley. He did not. Senator. 

Senator King. The price of copper was according to the demand, 
and if there was the right demand, then the sales were dead and the 
prices would go down as the competition increased from independent 
sources and with pressiu-e to sell the stock that was on hand. 

Mr. Kelley. Right. 


Mr. O'CoNNELL. I might add that that was in spite of and not be- 
cause of the efforts of the association. Isn't it fair to say that? 

Mr. Kelley. Right. 

Mr. ScoLL. And again on February 7, 1922, Mr. Clendeniu cabled, 
"We are not anxious sellers." 

I would like to offer this list of cables at this time, with the privilege 
of substituting a certified copy. 

(Senator Kmg assumed the Chair.) 

Acting Chairman King. No objection. Have you any comment 
further to make upon these cables, Mr. Kelley? 

Mr. Kelley. No, I think not, Senator; I think they speak for 

Acting Chairman King. You can examine them and then when a 
certified copy is produced, or before, if you care to make any com- 
ment from it, I think the committee will give you an opportunity. 

(The list referred to was marked "Exhibit No. 2114" and is 
included in the appendix on p. 13429.) 

Mr. ScoLL. At this time, I would like to read to the committee 
some figures from a table prepared by Mr. Eckert, former manager 
of the Copper Export Association, under the direction of Mr. Kelley, 
and at our request. This table is entitled, "Production, Export 
Shipments, and Stocks of Refined Copper, North and South America, 
Distributed According to Quantities Controlled by Members of 
Copper Export Association, Inc., and Others, Monthly, 1921-23." 

I might add that these are stocks reported by refiners. It shows 
that in June 1921, the Copper Export Association controlled 47 per- 
cent of the exports from North and South- America of refined copper. 
It controlled at that time 55 percent of the production. We move 
ahead to February 1922, and we find Copper Export controlled 39 
percent of the exports, while it controlled 62 percent of the produc- 

Finally, the average for 1923 — Copper Export controlled 54 per- 
cent of the exports to Europe, while it controlled 74 percent of the 

I would like to offer this for the record. 

Acting Chairman King. It will be received. 

(The table referred to was marked "Exhibit No. 2115" and is 
included in the appendix on p. 13437.) 

Mr. Kelley. I should merely like to add to what Mr. Scoll has 

Mr. Scoll. May I summarize first, and then you may comment? 
I would like to ask whether these cables we have read from and this 
table do not indicate that Copper Export Association in trying to 
meet the competitive situation was, as put in the cables, taking the 
position of a reluctant seller — in other words, whether Copper Export 
Association was or was not an anxious seller during this period. 

Mr. Kelley. Well my answer to that would be that Copper Ex- 
port Association was always a very interested seller, and, yes, they 
were anxious sellers. 

Mr. Scoll. But weren't they holding back for better prices? 

Mr. Kelley. They certainly were not dumping their copper, al- 
though, as I said, it was a rear guard fight, and I should like to point 
out, Mr. Scoll, in addition to the figures that you have given for the 
percent of export production and export shipments, that during that 


same time those members of Copper Export Association were holding 
from 85 to 94 percent of the stocks. 

- Acting Chairman King. And during that period the price of copper 
went down to 12 cents, as I understand it. 

Mr. Kelley. The price of copper continued to go down. The 
market was very narrow. 

Mr. ScoLL. That merely emphasizes the point. 

Mr. Kelley. Right; and the people that were running their mines, 
as shown by the exhibit yesterday, were crowding their small produc- 
tion on the market.' 

Acting Chairman King. If you had crowded too much, and the 
efforts to sell had been too great, you would have absolutely destroyed 
the market, would you not? 

Mr. Kelley. It would have collapsed. 

Representative Williams. I would like to ask you a question, 
whether or not the price of copper declined during the period from 
'21 to '23. Is that what I understand? 

Mr. Kelley. Yes. 

Representative Williams. That was not my recollection of what 
the chart showed. I may be mistaken about it. 

Mr. ScoLL. The price declined until the middle of 1921. There- 
after, it rose. 

Representative Williams. That is what I am talking about, the 
period from '21 to '23. 

Mr. Kelley. There were several price movements during that 
period. It isn't fair, I think, to say it did one thing. It fluctuated. 
I have a chart which shows here the price of copper daily over the en- 
tire period we are discussing, f. a. s. refinery, Atlantic seaboard, which 
is the domestic price, and the price of the copper exported, and the 
relation between the two.^ 

Mr. Scoll. If I may interrupt, the, relation between the two is 
what we axe going to ^et to now. If you were going to discuss that, 
perhaps we can best discuss it in order. 

Mr. Kelley. All right. 

Representative Williams. The reason I asked that question, I 
was under the impression from what the chart showed there was a 
general trend upward from the middle of '21 until perhaps '31, a 
general trepd. 

Mr. Kelley. In the beginning, the highest price in 1921 was reached 
in June. Let me modify that this way. May I give you the price 
trend during the year '21 ? We start the year with a price of between 
12 and 13 cents. The price declined until the month of March, at 
11%. It then began to go up, and by the end of the year — that was 
rather constantly from August up to the end of the year — the price 
reached 13K cents. It then decHned during the year 1922 — until 
April — there was a steady decline — then the price rose somewhat and 
leveled off to the end of the year. 

You are going to ask me about this chart? ' 

Mr. Scoll. I was going to ask you about the relation of prices; yes. 

Mr. Kelley. Have you any objection to looking at this chart? 

Acting Chairman King. Could it be placed in the record without 
too much cost? 

' "Exhibit No. 2110," appendix, p. 13424. 

' This chart is on file with the committee and the data It represented appear »» "Exhibit No. 2181,' 
appendix, p. 13610. 


Mr. Kelley. I simply wanted to give you a graphic picture of two 
things. One was that during this period there was no fixed price, 
the price was a fluctuating price. Second, there was no artificial 
difference between the domestic market and the foreign market. 

(Sanator O'Mahoney resumed the Chair.) 

The Chairman. How does this compare with the chart that was 
put in the record yesterday? ^ 

Mr. Kelley. That chart is very useful. I haven't had an oppor- 
tunity to discuss it with Mr, Scoll. I don't know just what Mr. 
ScoU's purpose was in introducing that chart, but the comparison is 
not correct as showing the difference between the f. a. s. market, New 
York, and the electrolytic price in London. 

Mr. Scoll. In what respects is it in error? 

Mr. Kelley. It is in error because the dotted Hne which shows the 
London market is standard copper and not electrolytic. 

Mr. Scoll. Well, now, there is a more or less constant difference 
between standard and electrolytic represented by the cost of refining, 
isn't there? 

Mr. Kelley. No; this chart admirably shows one of the vices that 
Copper Export Association was endeavoring to get rid of and that 
again we undertook to get rid of in Copper Exporters, Inc. It shows 
that notwithstanding — well, I ought to say this perhaps in a prelimi- 
nary way: The sohd line on that chart, Mr. ScoU, shows the electro- 
lytic price at New York. The dotted line shows the movement of 
standard copper on the London Metal Exchange. 

The Chairman. Let me interrupt, Mr. Kelley. For the purpose of 
the record, Mr. Scoll, will you state the number of this exhibit so that 
it will be clear from the printed record what chart we are discussing? 

Mr. Scoll. We are discussing "Exhibit No. 2100." 

Senator King. I think he ought to be permitted to make an ex- 
planation of the chart, because if it is not quite accurate 

Mr. Kelley (interposing). I am not questioning its accuracy; it 
does accurately represent what it purports to, the difference between 
the New York electrolytic price and the standard market, but what 
I want to point out is, standard copper is sold on the London Metal 
Exchange and is the basis of the speculation in copper there*. Stand- 
ard copper usually is not a merchantable copper. Anything that 
meets the requirement of 96 percent copper is standard for what is 
caUed G. M. B. warrants. G. M. B. warrants are the warrants that are 
traded in on the exchange. 

Now, the price of standard depends upon the relative impurity of 
the copper, and as I say, for most purposes that copper is not available 
at all. 

The Chairman. In other words, standard copper must be subjected 
to some additional process before it can be commercially used. 

Mr. Kelley. Right; it is merel;^ the chips that they play poker 
with on the exchange. Now, notwithstanding that, you will observe 
on that chart that at times the standard copper price exceeded the 
price of electrolytic copper, and conversely, so that while theoretically 
there should be a fixed difference which would represent the cost of 
transportation to a refinery and back after refining, in order to put it 

3 "Exhibit No. 2100," appendix, p. 13394. 


in shape to deliver, that by no means follows at some places — there 
you see that there is a contango.^ 

The Chairman. Electrolytic copper, on the other hand, is the com- 
mercial copper. 

Mr. Kelley. Yes. 

The Chairman. Now, I imderstand you to say that you have no 
criticism whatsoever of the accuracy of these two lines. The solid 
line represents the New York electrolytic price, but the dotted line 
represents the standard London price, and the comparison between 
the two is not the comparison which you think to be significant. 

Mr. Kelley. It is not a comparison based upon a commercial dif- 

Mr. ScoLL. Senator, we did not offer it for a comparison between 
the two ; we offered it to show the New York market and the London 
market. Now, the standard price in London represents what stand- 
ard copper was sold for in London. There was a market of standard 
copper. It went up and down. It may have gone up and down in 
relation to the New York electrolytic price or in opposite directions, 
hut the only purpose was to show the trend of the New York market 
and the trend of the London market in relation to these episodes that 
we are discussing — Copper Export Association, Copper Exporters, Inc., 
and subsequent periods. 

The Chairman. The only reason we are discussing this exhibit now 
is in relation to the large exhibit or proposed exhibit which Mr. Kelley 
was discussing, and I was merely trying to determine whether this 
chart ^ would serve his purpose. What difference would it make, Mr. 
Kelley, in the representation on "Exhibit 2100", if a line were placed 
there showing the London electrolytic price? 

Mr. Kelley. It would make a very substantial difference. 

The Chairman. What kind of a difference? Can you describe 

Mr. Kelley. May I show you? You have seen this chart, Mr. 
Scoll (referring to own chart) .^ 

Mr. Scoll. Yes; I have seen the chart. 

Mr. Kelley. That chart shows the actual daily quoted price for 
copper, f. a. s. New York refinery. It also shows the daily quoted 
price for electrolytic copper delivered abroad by Copper Export 
Association. It is interesting to observe two things from that chart, 
if I may say so. One is that the fluctuations occurred practically 
daily. My recollection is that during the period of the existence of 
Copper Export Association, there were \8S changes in the price of 
copper; that 84 percent of those changes occurred first in the domestic 
market; and that the association's price, instead of being a fictitious 
or artificial price, was a sound price, based upon the f. a. s. New York 
price, plus the c. i. f. carrying charges to European ports. 

Senator King. Could this chart which you have exhibited, Mr. 
Kelley, be reduced in size and then reproduced so it could assume 
something of the size of 2100? 

Mr. Kelley. We could split it up in different periods, but the 
scale would really mean nothing if you compressed it too much. 

' Referring to "Exhibit No. 2100," see appendix, p. 13394. 
« Ibid. 

• Mr. Kelley's chart was filed with the committee and the data represented appear as "Exhibit No. 2151," 
appendix, p. 13510. ' 


The Chairman. I was going to suggest, Mr. Kelley, that your 
assistants and the members of the staff confer during the recess this 
noon, and I have no doubt we can either prepare a new chart which 
shall show not only what is on "Exhibit No. 2100," but also what is on 
yours, and get the two together. 

Mr. Kelley. We can certainly prepare a chart that will show the 
standard line there, also. 

The Chairman. I think that can bo done very well during the 
recess, and then we can discuss it more intelligently later.' 

Mr. Kelley. The thing I want to emphasize is that these two lines 
on our chart show the actual difference in the price of electrolytic 
copper as delivered to the consumers. The dotted line on Mr. Scoll's 
chart shows the speculative influences of the London market. They 
use a term called "contango." "Contango" represents the difference 
between the spot and the future price of copper, where the future price 
is higher than the spot. In the normal course of events the higher 
price of future represents the cost of carrying the copper over to a 
future position, but if you introduce into it the gambling instinct 
where the fellow feels by buying futures or selling futures he is either 
buying or selling against the rise or the fall of the future market, and 
when that spread gets, as it frequently does, either way beyond the 
theoretical cost of carrying copper forward, the speculator is either 
selling short or buying long, and that is the reason that on that chart 
you will see at times this crude copper — this unmerchantable copper — 
actually sold at a higher price than the commercial product. The 
speculation was toward a rising price. 

Mr. ScoLL. Now, if we may, Mr. Kelley, let's get to a comparison 
of the New York electrolytic and the London electrolytic price. In 
other words, let's compare the commercial copper both ^ti tv^^w Tm-k 
and in London, and at this time, if I may, Senator, I would like to ask 
Mr. Kelley to step down for just a moment and ask Mr. Brownell 
to take the stand. I would like to identify a document. 

The Chairman. Do you solemnly swear the evidence you will give 
in this hearing shall be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Brownell. I do. 

N. Y. 

Mr. Scoll. I show you now a letter dated New York, May 26, 
1921, addressed to you by Mr. H. M. Brush. Are you familiar with 
the contents of that letter? 

Mr. Brownell. I was shown this letter yesterday. I have no 
doubt of its authenticity. Previously I had no recollection whatever 
of it. 

Mr. Scoll. So far as you know, and as far as you recollect the 
facts at that time, the information that is contained here is probably 

Mr. Brownell. I would assume that it is accurate without recol- 

Mr. Scoll. Thank you very much. 

(Mr. Brownell was excused.) 

> See footnote 3, p. 13163 




Mr. ScoLL. I would like to read a paragraph from that letter- 
You have it before you, I believe, Mr. Kelley. It is on the first page, 
the first full paragraph after the indented paragraph [reading from 
"Exhibit No. 2116"!: 

You will note from the attached that the Export Association have realized 
constant and substantial premiums over the prices quoted by the Engineering 
and Mining Journal. The E. and M. Journal prices although possibly influenced 
bv the foreign prices represent primarily domestic prices of copper. 

The Engineering and Mining Journal price, Mr. Kelley, is the price 
that is recognized as a going price in the trade in New York, is it not? 

Mr. Kelley. It is. Yes and no. I mean you may have three 
prices on the same day but it is a recognized authority. 

Mr. ScoLL. I am planning to go into that in further detail later. 
I would like to offer this letter in evidence. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 2116" and is 
included in the appendix on p. 13439.) 

Mr. Kelley. May I comment? 

The Chairman. Certainly. 

Mr. ScoLL. Before you comment, Mr. Kelley, may I ask a question 
or two? 

"Mr. Kelley. I mean on this letter. 

Mr. ScoLL. Well, I would like to ask you a couple of questions 
and then you may comment later. 

Senator King. Before this letti i is offered, who was Mr. Brush? 

Mr. Kelley. Mr. Brush was vice president of the American Smelt- 
ing & Refining Co., and I believe in charge of sales. 

Mr. ScoLL. Now the copper market at this time was a world 
market, was it not? 

Mr. Kelley. Yes. 

Mr. ScoLL. So that in the absence of any special circumstances, 
copper prices would ordinarily tend to seek a common level; is that 

Mr. Kelley. Tlmt is true, generally speaking. 

Mr, Scoll. So that if there were any material differences in domes- 
tic and export prices there were dealers in New York and London who 
would arbitrage? 

Mr. Kelley. Yes. 

Mr. Scoll. Now then, in view of that fact, if Copper Export 
Association could materially control the supply of copper for export, 
it could get more for export than domestic sale, even allowing for 
freight and insurance ; is tlmt ri^ht? 

Mr. Kelley. Theoretically it might, but practically it could not 
over a continued period. 

Mr. Scoll. That letter shows that at certain times it did; if I may 
refer you back, the prices quoted there show that the price reahzed by 
Copper Export Association on an f. o. b. basis in New York exceeded 
the E. and M. Journal price by a constant differential. I am sorry 
it is not constant; it varies; but in all but 2 months for 191-9, aiid 
1920 and tliroygh April 1921, you notice that there was a differential 

124491— 41— pt. 25 9 


in favor of Export Association over and above the cost of freight and 

Mr. Kelley. There was, of course, as shown by this letter, a 
difTerential that varied from a very shght differential of an eightli in 
September to 1.39.^ At that time I don't know exactly what the 
situation of the copper market was but I think the conclusion that 
Brush drew in this letter is not substantiated by the fact, because you 
will observe that where he gives the highest differential over the E. 
and M. Journal price in the month of August 1919 the prices were 
practically together ^ and the reverse is true. Now that error, in my 
opinion, comes in and the possibility of it, was recognized by Mr. 
Brush in this letter. He was dealing with monthly averages and 
monthly averages are apt to be in error as against daily averages, 
dependent upon whether you are dealing with a rising or a declining 
price and whether that rise or decline comes at a time of active selling 
contemporaneous during the period of the month, because you will 
observe that Mr. Brush says in this letter to Mr. Brownell: 

The only way to prove conclusively the facts of the situation would be to have 
the Export Association make a daily record of their net prices from day to day 
since the organization of the Association and then have the various agencies each 
make ap a similar record of their net prices for domestic sales on the same days, 
and submit it either as a joint statement through the Manager of the Export 
Association or individually, for comparative purposes, 

and that is exactly what we have done there (referring to own chart). 

Mr, ScoLL. You don't think there was anything wrong in the policy 
of trying to get more than just the freight and insurance do you? 

Mr. Kelley. I do not. I think it would have been entirely proper, 
provided we observed and kept within the limitation of the Webb- 
Pomerene Act so far as affecting the domestic price. 

Mr. ScoLL. Now, the foreign price was based on the domestic price? 

Mr. Kelley. Very largely. 

Mr. Scoll. Is there any qualification to that? 

Mr. Kelley. I think there were a few instances in which the 
export price led the domestic price, but very few — less than 20 percent. 

Mr. Scoll. When you say domestic price, what domestic price are 
you referring to — E. and M. Journal price or f. a. s. price of a non- 
member or competitor? 

Mr. Kelley. I was thinking generally from the standpoint of the 
producer's price, which may or may not be the E. and M. Journal 
price over a short period. 

Mr. Scoll. How did you determine the producer's price? 

Mr. Kelley. I do not think that was determined because I think 
the only standard price recognized was E. and M. Journal price. 

The Chairman. That is the only one with which we can make any 
accurate comparison? 

Mr. Kelley. That is right. 

Mr. Scoll. The E. and M. J. price was the reported price. Is that 

Mr. Kelley. Yes. 

Mr. Scoll. So if you had to make a quotation at 11 o'clock in the 
morning you didn't have the current E. and M. J. price in front of you. 

Mr. Kelley. No; it might or might not affect our price. The E. 
flj^d M. J. never affects prices, nobody seUs the product except perhaps 

' The diflereutial of an eighth In September was negative. 
> S«e Exbtbit I 161. appendix, p. 13510. 


imder a written contra^ based upon the E. and M. J. price. Th*^ 
E. and M. J. reports the prices that have been made in the industry. 
For instance, Anaconda's price might not be the E. and M. J. price. 
If any producer was well sold and didn't need to sell any more copper, 
he would withdraw from sale, leaving the market undoubtedly to 
others. During a period he might not record any sale at all; yet the 
E. and M. J. might record the sales that had been made. 

The Chairman. In other words, the export price was not determined 
by the E. and M. J. price because that was merely a reporting system. 

Mr. Kellet. Right, that is just for a record. 

The Chairman. It tells us after the fact what has happened. 

Mr. Kelley. Right. 

The Chairman. What Mr. Scoll is trying to develop, I believe, is 
how did you guide yourself before the fact. 

Mr. Kelley The way the Export Association did it — the sales 
committee met from day to day, or as often as was necessary. They 
had the advices, thev knew what the domestic market was. Every 
sales agency in New York knows what the other fellow is selling copper 
for 5 minutes after he does it, because it is reported on the ticker — it 
is an open commodity price. They knew what the domestic situation 
was; they had the benefit of the cables from abroad, and in looking 
at their domestic situation, plus the information regarding their foreign 
situation, they fixed the price, and that price might not at aU times 
have been exactly the same in all the different countries of Europe. 
There was a question of where there was buying and where there 
w^n't buying; it was a question of market conditions. Do I make 
that clear? It was a price arrived at considering the domestic situa- 
tion, the foreign situation, and all of the facts that entered into making 
a price for the next day or for the next succeeding days. 

Mr. Scoll. Now you say that the sales committee met regularly 
and fixed the export price. 

Mr. Kelley. That is right, in connection with the Brussels Com- 

Mr. Scoll. The Brussels Committee was a part of Copper Ex- 
porters, a later oi^anization, was it not? 

Mr. Kelley. Oh, yes; that was Copper Exporters, Inc. You are 

Mr. Scoll. So the sales committee of Copper Export Association 
had before them fill the current quotations up to the time of the day 
when they were sitting? 

Mr. Kelley. Right, usuaUy late in the afternoon, so that the price 
could be cabled over for business in Europe in the morning. 

Mr. Scoll. Did, in your opinion, the fact that they were sitting 
together and discussing foreign prices in relation to domestic prices 
have any influence in changing the intensity of the domestic copper 

Mr. Kelley. Not a bit. 

Mr. Scoll. You mean these men who were all working together 
each day and talking over prices to determine what the foreign price 
would be, never gave each other any idea of what the domestic price 
ought to be? 

Mr. Kelley. They knew what the domestic price was and that 
chart will show you just how intense the competition was. ' You had 
an open, free market in America, a competitive market, an inleu3ely 


competitive market. That fixed your base price. The theoretical 
difference at which your export price was fixed was the carrying freight 
and insurance across the ocean. If you could sell more advantageously 
at that in Europe, through some European agency, unquestionably 
your agent would get the best price he could. 

The Chairman. You don't want the committee to understand that 
the members of this price fixing committee of the Export Association 
were able to go into conference with themselves as managers of the 
export market and determine a price for the export market and then 
as private individuals, so to speak, representing their respective domes- 
tic corporations, divest themselves of all of the knowledge that they 
had acquired or all of the conclusions that they had reached in their 
price fixing agreement for the foreign market when they were deter- 
mining what they would sell for in the local market. 

Mr. Kelley. Incredible as it may seem, I mean to say that the 
selling organizations representing the different units were absolutely 
in competition and that the price upon which they built the export 
price was a price that already had been arrived at in a competitive 

The Chairman. In other words, you draw the picture to my mind 
of the interior construction of a submarine which can sliut out the 
flood of water that comes in. 

Mr. Kelley. Let's be reasonable about it. It may have affected 
it to some extent, but the point I want to emphasize is that there was 
the most intense competition aU the time. 

The Chairman. You are telling the committee that so far as the 
domestic market was concerned, the heads of these various copper 
organizations were in active competition with one another but that 
so far as the foreign market was concerned they were cooperating. 

Mr. Kelley. That is right. 

The Chairman. And that that cooperation in fixing price for the 
foreign market did not in any way affect their judgment with respect 
to the domestic price? 

Mr. Kelley. I wouldn't say that, but I would point out this to 
you, Senator, if I may: the domestic sales that they made for their 
own companies were their own sales. The sales that they participated 
in in a foreign market were for the joint account of everybody, so that 
they had a far greater interest, as far as disposing of their product, 
to sell it in the domestic market rather than to sell it in the foreign 

The Chairman. I am not even implying that so far as the domestic 
market was concerned there was any intention to violate the Sherman 
Act or the Clayton Act or to do any of the things prohibited so far as 
operations in the United States are concerned; but I should like to 
have your opinion as to whether or not an export organization of this 
kind can operate to fix prices in the world market without at the same 
time affecting the prices in the domestic market. 

Mr. Kelley. I ^on't think it could. 

Mr. O'Connell. May I ask a question? 

Mr. Kelley. I beg your pardon, just a moment. Mr. Eckert has 
sent a note to me, and this is undoubtedly the fact, that this Sales 
Committee did not meet every day ; the Chairman of the Sales Com- 
mittee communicated to Mr. Eckert, Mr. Eckert communicated to 
the others, mostly by telephone, and they only met when there was a 
substantial change in the situation. 



Mr. O'CoNNELL. Mr. Kelley, as I understand it (I may exaggerate 
a bit), it seems to me that you describe a situation which is in the 
nature of a dual personahty, in which you have a group which can 
operate generally having a price-fixing function for the foreign trade, 
and at the same time are able to substantially divest themselves of 
any similar intention or result insofar as the domestic market is 
concerned. I am interested in getting your view as to whether that 
is a result of the Sherman Act or a result of a state of mind on the part 
of the people who participate in that arrangement, quite apart from 
the Sherman Act. 

Mr. Kelley. I should unquestionably say it is the result of the 
Sherman Act. 

Mr. O'Connell. That is the only thing that would prevent it, is it? 

Mr, Kelley. I don't know that that is the only thing that would 
prevent it, but these sales agencies were under the constant govern- 
ing hand of the executives of the companies and had been admonished 
repeatedly about the situation, and it was hard enough, as you will 
see from Mr. Clendenin's cables, to keep them within proper re- 
straint; and not only that, Mr. O'Connell, but we were constantly 
under the supervision of the Federal Trade Commission and the 
Department of Justice. There was scarcely — I don't know that there 
was any time that we didn't have a representative of the Depart- 
ment of Justice or the Federal Trade Commission sitting on our door- 
step. As a matter of fact, it was that constant supervision and 
annoyance that was one of the principal causes that led to the aban- 
donment of the association. 

IMr. O'Connell. Frankly, not speaking at all of the copper indus- 
try, I have never been impressed with the effectiveness of the activi- 
ties of either the Federal Trade Commission or the Department of 
Justice in preventing combinations in restraint of trade. 

Mr. Kelley. We were. 

Mr. O'Connell. And they may have caused you people some 
annoyance — I have no doubt that you have been annoyed about 
things like that from time to time — but that doesn't seem to me to 
answer the question that I pose. My question relates generally to 
the nature of competition. Everyone speaks of competition as though 
it were something that just existed. Competition, as I would under- 
stand it, in your industry in the domestic trade exists by virtue of the 
Sherman Act. Is that correct? 

Mr. Kelley. Well, I would say there is a better chance to get a 
more stable situation if the Sherman Act didn't exist, and I have 
very definite views about the competitive system to the extent to 
which we carry it in the United States under the restrictive provision 
of those laws. But answering your question fairly, I haven't any 
doubt if it hadn't been for the Sherman law we would have been able 
to cooperate to better advantage on price in the domestic market. 

Mr. O'Connell. Or, as I would put it, you wouJo^ave felt your- 
selves not only in a position to, but you would have thought it desir- 
able to fix prices for the domestic market. 

Mr. Kelley. I wouldn't say fix prices — fix ceiling prices. 

Mr. O'Connell. I don't think the difference is substantial. 
People talk about cooperating on price, making a proper basis of 
price, but aren't we talking about price fixing in general? 


Mr. Kelley. Excepting what I think you define the term to be; 

The Chairman. Just what did you mean by that, "excepting" 
what you^ think Mr. O'Connell would define the term to be? That 
is a qualification which is pretty broad. 

Mr. Kelley. Well, I do not think that necessarily any organized 
effort in industry to bring about a stabilization of prices mea^s nec- 
essarily a fixed price. I do think that it would be infinitely better 
from the standpoint of employment, from the standpoint of the 
ownership, stockholders, management, and everybody concerned, if 
we had some means of protecting the public and at the same time 
enabling industry to self -regulate itself to the extent that it didn't 
interfere or conflict 

The Chairman (interposing). Would you like to have a system 
imder which industry could stabihze the price without this annoyance 
to which you refer from the Federal Trade Commission and the 
Department of Justice? 

Mr. Kelley. Not necessarily that, because I am not only interested 
in price; I am equally interested in cost, and I am aware of the vice 
of the too wide fluctuations that occur not only in the price of our 
product, but in the price of products in general through the inability 
of those who are engaged in the industry to properly cooperate to 
appraise the factors as far as they can be ascertained. 

The Chairman. Do you beUeve that that cooperation should be 
carried on by industry without the intervention of Government at all? 

Mr. Kelley. Absolutely no. I believe that that cooperation should 
be subject to regulation but not be regulated by. 

The Chairman. What do yea mean by "subject to regulation but 
not be regulated by"? 

Mr. Kelley. I mean exactly the sort of cooperation that is ac- 
corded the agricultural interests of our country under the Capper- 
Volstead law,^ where it is perfectly legitimate to cooperate in the pro- 
duction, the distribution, and the sale of agricultural products, but 
upon complaint of anybody made to the Secretary of Agriculture, an 
investigation is ordered, a cease and desist — if the pubhc interest is 
involved — is issued, and disobedience of that means prosecution. 

I would take that as a model and I would follow it through and 
I would enable industry, instead of facing a criminal court and a jail 
sentence, to sit down and intelligently discuss its problems; I would 
permit that to be done. I would require the minutes, and the agree- 
ments if any, to be filed with a Government body like the Federal 
Trade Commission or the Secretary of Commerce, and I would have 
Government authorized to investigate, to regulate, and to compel 
industry to conform, but I would not have industry regulated until 
the public interest was involved in the conduct of business. 

The Chairman. In other words, you would permit the leaders of 
various competing concerns to assemble together and to determine for 
themselves, without any representation on the part of the consimaer, 
what the price should be of a particular commodity? 

Mr. Kelley. No, I think perhaps the consumer — I am not 

The Chairman (interposing). This is all very vague; I am just 
trying to develop the idea; it is of most importance. 

■ For text of Capper- Volstead Aot see infra, p. 13579 et seqi 


Mr. Kelley. Sure, I think it is; I think it is the ultimate objective 
of this committee to evolve something of that kind, if I understand its 
purpose; but, Senator, I wish, if I may suggest, that we could get away 
from the idea that price is the sole objective of industry. It isn't. 
It is employment, it is keeping our mills and our mines open and our 
smelters going, it is relating the supply and demand, in other words. 

^he Chairman. I think that is generally understood, but in any 
disv^ission it is necessary to go at it piecemeal and to take one factor 
at a time. We just happened this morning to be discussing price and 
the relationship between the price which was agreed upon abroad 
without the prohibitions of the anti-trust laws, and the price which 
developed within the United States where the anti-trust laws were in 
full force and effect. Would you permit, then, the executives of 
competing concerns to agree upon the price without representation 
by the consumer? 

Mr. Kelley. I think, to answer your question fairly, if we could 
have the consumers represented it would be infinitely better. My 
experience is that consumers, within reasonable limitations, are not 
nearly so much concerned with the actual price as fchey are with the 
fluctuations of the price which jeopardize their business and their 

The Chairman. Then would you have this operation of the execu- 
tives of competing concerns carried on publicly or privately? 

Mr. Kelley. I wouldn't care if you had a Government representa- 
tive — as a matter of fact we invited Government representatives 
into our organization and asked them to assign them. I wouldn't 
care if you had representation by Government, and I would require 
the minutes of every meeting, every minute, every account of such a 
trade association, to be filed with the United States Government in 
a properly designated place. It would be open to the press, it would 
be open to the scrutiny of anybody. The time has come when if we 
are going to do something constructive in industry,' in my opinion, if 
I may say so, you have got to get away from the narrow prohibitory 
restrictions of a statute that was passed nearly 50 years ago. 

The Chairman. Your suggestion is not unlike that which was made 
by Assistant Attorney General Thurman Arnold a few months ago 
with respect to what should be done in industry. Are you aware of 

Mr. Kelley. No; I am not. 

The Chairman. I suspect that many business executives would 
regard it as being a rather extraordinary thing that the Assistant 
Attorney General, Mr. Ai-nold, should make a suggestion so closely 
akin to one that you have made. 

Mr. Kelley. I don't want to impose upon the committee. 

The Chairman. You are not imposing upon us; we are imposing 
upon you, maybe. 

Mr. Kelley. You will find my -view's, for whatever they are worth, 
exactly along this line, set forth in an address I made before a sym- 
posium of lawyers, educators, and industrialists, that was called by ■ 
New York University. I think it was in 1931. In that I made this 
criticism of our Sherman law. 

The Chairman. That was in 1931? 

Mr. Kelley. That was in 1931. 


The Chairman. By the way, may I interject at this point that as 
long ago as that, as a matter of fact, throughout the existence of this 
Export Association, you were being subjected to what you call annoy- 
ance by representatives of the Government? 

Mr. Kelley. It threatened to be more than annoyance. 

The Chairman. I mean it wasn't a new manifestation by any 
maimer of means. 

Mr. Kelley. Oh, no. It didn't start in '32; that was back in 1922 
or '23. 

The Chairman. That is right; that is what I was trying to develop. 

Mr. Kelley. I want to point this out. I thmk it illustrates one 
fundamental reason why businessmen criticize our antitrust laws. 
If I may read it: 

No proper criticism lies against the Court 

I am referring to the Supreme Court of the United States 

for its decisions upon this law, but rather against the Congress which has placed 
upon the Court the impossible duty of giving effect and consistent interpretation 
to the law. That such a condition exists is demonstrated by an examination of 
decisions of the Court. Out of 95 cases involving a construction of the Sherman 
Anti-Trust Act, Clayton Act and Acts of the Federal Trade Commission, the 
Supreme Court was unanimous in its decision 53 times; it differed, 5 to 4, six 
times; dissenting opinions by three judges were reported 19 times, by two judges 
6 times, and by one judge 1 1 times, a total of 42 cases, or more than 44 per cent, 
in which dissents existed. Of the 95 cases referred to, the decisions of the lower 
court were either reversed or modified in 48 cases. 

I think that is a commentary that is more convincing as to the 
imcertainty, the impossibility, of construction in interpretation of 
those laws than any statement that anybody could make. 

The Chairman. Well, then, your feeling is that the Sherman 
antitrust law is so uncertain that it ought to be repealed or amended? 

Mr. Kelley. Yes; frankly, but I don't believe that you will ever 
repeal or amend the Sherman antitrust law, and I don't think it 
should be without setting up proper regulatory authority in the 
Government; but I draw the distinction that I did in the beginning. 
In my opinion, respectfully, industry should be subject to regulation 
whenever the public interest requires. It should not be constantly 
regulated by Government, because the functions of the two are 
completely independent. 

The Chairman, I have had occasion to state many times my own 
belief, which may not altogether be relevant here, that while industry 
should be regulated in the public interest it should not be subject to 
control by Government. Is that the distinction you have in mind? 

Mr. Kelley. Possibly not. We would have to ^ive a good deal 
of thought to elaborate those distinctions, and I didn't know they 
were coming in. I would be very glad to discuss it with you. 

Senator King. Having wandered so far afield in projecting other 
questions into consideration in this matter, were you aware of a 
measure which was presented several years ago, 3 or 4 years ago, to the 
Chief Executive and others, which sought, as I interpreted it, to carry 
out nedi only the lett€r but the spirit of the Federal Trade Commission 
Acty which was followed by another one, and that measure provided 
that businessmen ifi ^y industry might meet together with the repre- 
sentatives of the Federal Trade Commission in sort of a forum to pre- 
sent their problems, discuss what their activities were to be, and discuss 
the questions of prices and of cooperation, and the Federal Trade Com- 


mission then, having all of the views of a given industry, the copper 
industry or any other industry, would chart a course which might be 
pursued by the industry without being charged with violation of law. 
In other words, the Federal Trade Commission would be a sort of 
court that would pass upon the questions presented, and then give a 
green light for them to follow so long as they were within that court. 
I have thought that a measure of that kind would have more clearly 
carried into effect the purpose of the Federal Trade Coromission Act, 
as it was conceived by Woodrow Wilson, than any measure that 
might be suggested. 

Mr. Kelley. I don't doubt it. Of course, it was originally, as 
you suggest, the whole conception of Wilson and the Federal Trade 
Commission not only to have a regulatory body, but also to provide a 
place to which industry could go for advice, to provide a Government 
body that would throw a shield around the contemplated action of 
businessmen and not leave them to the uncertainty of doing something 
and then finding out that they incurred a penalty. 

Senator King. I suggest we move along. 

Mr. O'CoNNELL. May I also say something that is slightly irrele- 
vant? While we are going so far afield it seems to me proper for me 
to remark that your suggestion, while it may have a great deal of 
force, is essentially a very radical change from the type of industrial 
organization that the Sherman Act is intended to create and continue, 
because there isn't a shadow of a doubt but what the type of coopera- 
tion between industry, between competitives, so-called, of an industry 
that you envisage and that you think is proper and should be per- 
mitted, could not be done under the Sherman Act. Isn't that pretty 

Mr. Kelley. No; it couldn't be. 

Mr. O'CoNNELL. So_ that your view is that the Sherman Act, 
which is intended to implement a competitive system between in- 
dependent enterprises in the same hne of endeavor, has become 
obsolete, if it ever was any good, and that it should be repealed and 
should have substituted for it some other type of Government inter- 
pretation or control, whatever you want to call it. Frankly, I think 
you are the first witness that we have had before tliis committee that 
was willing to go that far, ^he first one that I can recall. A number of 
witnesses pointed to the system as it exists in England and other 
coim tries and impHed that they thought mutual cooperation between 
competitors should be permitted, but when they were asked the specific 
question as to whether they would repeal the Sherman Act, thej^ all 
said no. You are inclined to think that it should be repealed? 

Mr. Kelley. I would repeal or amend it and substitute something 
else. Now you are never going to get a situation where man is not 
going to have the instinctive desire to be protected against iftonopoly 
and against unfair aggression on the part of anybody. 

Mr. O'CoNNELL. May I also interject there that you are never 
going to get away from possibly an equally important desire to con- 
spire and to combine. 

Mr. Kelley. I am not so sure about that; I have found that in my 
business experience 

The Chairman (interposing). You recall, of course, the famous 
quotation from Adam Smith, who said that business executives nevBr 
get together but that they try to fix the price. 


Mr. Kelley, I regard Adam Smith with great reverence. 

The Chairman. I thought probably you did. 

Senator King. Following the World War, all industries, the copper 
industry and the mining industry, wool, and agriculture, all the 
manufacturing industries, were in sort of a chaotic condition, were 
they not? 

Mr. Kelley.' Completely. 

Senator King. Stocks had been accumulated in some industries 
far in excess of any immediate d.emand and, therefore, a situation was 
presented which would prevent sort of a uniform course and which 
would residt in fluctuation in prices, and it was considered wise and 
proper, I know in the wool industry, for efforts to be made to arrest a 
movement that would destroy the market absolutely, and I know that 
our Government conferred with Great Britain. I was in a conference 
for the purpose of regulating or stabihzing the price of wool so that the 
wool industry would not be completely destroyed, or at least the sheep 
men would not be destroyed by reason of the demands of the banks 
that they meet their obligations. Using that as sort of a basis, was 
it not almost impossible to conduct business without great variation 
in prices and some attempt to stabilize the market, so that there would 
be a bottom somewhere and all industry w^ould not be destroyed, or at 
least so injured as to make it difficult to recover. 

Mr. Kelley. Well, I say ''yes." 

Senator King. And that is the situation in which the mining 
industry with respect to lead, zinc, and copper and the metals generally 
found itself. 

Mr. Kelley. More particularly that industry because it had been 
more overexpanded as a matter of necessity than others during the 
period of the war. 

Senator King. So that that led in part at least to the forming of 
the Copper Export Association. Many of the copper mines and copper 
producers were heavily involved by reason of the production to meet 
the demands of the Government during the war. They had incurred 
obligations, and it became necessary that something be done in order 
to prevent a collapse of the industry, or some branches of the mming 

Mr. Kelley. That is right. It was a very difficult situation. 

Mr. ScoLL. I have just one more question on the Copper Export 
Association. What happened to the Copper Export Association, 
Mr. Kelley? 

Mr. Kelley. The Copper Export Association finally broke up due 
to two causes. One was the withdi'awal of certain members, led bj'^ 
the Miami Copper Co., who was one of the producers who continued 
operating during the period subsequent to the pool, as shown on the 
chart yesterday. There was a change, I believe, in the seUing organi- 
zation of the American Smelting & Refining Co. under which the 
American Smelting & Refining Co.'s activities became reduced, so far 
as selhng was concerned, largely to those of a custom smelter. There 
was an increase in competition from nonmembers abroad. There was 
a constant undercutting of price, and certain members felt that they 
were holding the umbrella, and it was more desirable to have freedom, 
and so gradually by withdrawals it lost its importance. And, as 1 
s&id before, the second tiling at that time was that we were under a 
very severe scrutiny by the Federal Government. Our files had been 


examined and taken, we had all been subjected to any number of oral 
examinations, and some of the producers felt that it wasn't worth 

Mr, ScoLL. The principal factor of break-up, however, was the 
competitive situation? 

Mr. Kelley. I think that is true. 

Mr. ScoLL. It was no longer profitable to the members to work 
together in the Export Association? 

Mr, Kelley. Against the outside competition. 

Mr. ScoLL. Copper Export Association was absorbed by Anaconda, 

1 believe. Isn't that correct? 

Mr. Kelley. Well, Copper Export Association was a nonprofit- 
making company. It was financed to a very hmited extent by a sale 
of preferred shares to the larger producers, or to all the producers 
who were interested, and then the common shares were the member- 
ship shares that exercised the voting power. As these members 
withdrew, we took over their preferred stock and after it ceased its 
activity as a joint selling organization we amended the articles of 
incorporation and made it the subsidiary company of Anaconda which 
handled our export business, so that the name was perpetuated and 
exists today. Is that what you want? 

Mr. ScoLL. Yes. 

The Chairman. But it no longer represents 

Mr. Kelley (interposing). It represents nothing but Anaconda 

The Chairman. What position do the American producers now 
occupy with respect to world trade in copper? 

Mr. Kelley. We have got to draw a distinction between American 
producers with production within the United States and American 
production controlled without the United States, and American-owned 

They occupy a very formidable position in the for j:n market due 
to their ownership and control of great producing units outside the 
United States; but American producers within the United States, 
so far as United States production is concerned, are not a significant 
factor in export markets. 

The Chairman. And American producing companies do control 
large sources of copper abroad. 

Mr. Kelley. Yes. 

The Chairman. And they ought to occupy a dominant position 
abroad in the ownership? 

Mr. Kelley. A very important position. 

The Chairman. Mr. Scoll, what is your plan now? 

Mr. Scoll. If it please the committee, I think we might recess at 
this time and then continue this afternoon, unless the committee 
prefers to sit longer. 

The Chairman. Mr. Kelley will be on the stand this afternoon? 

Mr. Scoll. Yes. 

The Chairman. Do any members of the committee desire to ask 
any questions at this time? If not, the committee shall adjourn until 

2 o'clock. 

Mr. Scoll. That will be fine. 

(Whereupon at 12:05 p. m., a recess was taken until 2 p. m., of 
the same (lay.) 



(The hearing was resumed at 2:05 p. m., upon the expiration of 
the recess.) 

The Chairman. The committee will please come to order. Are 
you ready to proceed, Mr. Scoll? 

Mr. ScoLL. Yes, Senator. 


Mr. ScoLL. Mr. Kelley, I would like to take up with you now the 
export association formed by the copper producers which was known 
as Copper Exporters, Inc. It was formed I believe in October 1926? 

Mr. Kelley. That is right. 

Mr. ScoLL. You were the president of Copper Exporters, Inc., 
were you not? 

Mr. Kelley. I was. 

Mr. Scoll. And that too was a Webb-Pomerene corporation? 

Mr. Kelley. Right. 

Mr. ScoLL. Now, unlike the previous association we were discussing, 
that is, Copper Export Association, this new one included both United 
States producers and foreign producers, isn't that correct? 

Mr. Kelley. Yes. 

Mr. ScoLL. I would like to offer at this time a list entitled "Names 
of Members of Copper Exporters, Inc.," which was prepared by Mr. 
Eckert, the former manager of Copper Exporters, Inc., under your 
direction, I believe. Before I offer it, hov/ever, I would like you to 
explain one point. In addition to the names of the members who are 
on this list, there is shown a list of producers whose production was 
sold to or by members or associates. Now were those producers of 
copper controlled by members of the Exporters, Inc.? That is, was 
the sale of their copper controlled? 

Mr. Kelley. Yes. For the most part they were either controlled 
as subsidiaries or smaller producers, whose production would not 
warrant their maintaining their own selling organizations. 

Mr. ScoLL. I tlunlc for the information of the committee I might 
just read the names of the foreign producers who were included in 
this association. 

The Chairman. May I have a copy of it? 

Mr. Scoll. The Andes Copper Mining Co. Now that was a 
subsidiary of Anaconda? 

Mr. Kelley. Right. 

Mr. Scoll. The Chile Exploration Co. — that also was a subsidiary 
of Anaconda? 

Mr. Kelley. Yes. 

Mr. Scoll. Henry Gardner — who was Henry Gardner? 

Mr. Kelley. Henry Gardner is a metal dealer in London who 
formerly was connected with the old Metallgesellschaft and who acts 
as a selling agent for a number of producers outside of the United 

The Chairman. Is he incorporated? 

Mr. Kelley. It originally was a partnership. I think he became 
incorporated about some years ago when he became affiliated with the 
British Metal Corporation. 


The Chairman. So that actually it is not a person now but a legal 

Mr. Kelley. Legal entity. 

Mr. ScoLL. Aron Hu'sch & Son; who were they? 

Mr. Kelley. Aron Hirsch & Son was an old German metal dealing 
firm, and that I am sure was a partnership. 

Mr. ScoLL. They were sellers, probably. 

Mr. Kelley. They were buyers and sellers. 

Mr. Scoll. In other words, dealers? 

Mr. Kelley. Dealers. 

Mr. ScoLL. Then Mansfeld & Mansfeldscher; that is the old Mans- 
feld producer, isn't it? 

Mr. Kelley. In Germany. 

Mr. Scoll. Been in operation over a thousand years, I believe? 

Mr. Kelley. Very long. 

Mr. Scoll. And not very important? 

Mr. Kelley. No. 

Mr. Scoll, Metallgesellschaft — they were dealers or producers? 

Mr. Kelley. Dealers. 

Mr. Scoll. Haut Katanga? 

Mr. Kelley. Haut Katanga was the very large Belgian producer. 

Mr. Scoll. Hoboken? 

Mr. Kelley. Hoboken is an affiliate of Katanga, engaged in the 
custom smelting and refining business at Hoboken in Belgium. 

Mr. Scoll. And the South American Products Corporation — 
what connection did that have with any of the others? 

Mr. Kelley. Really, I don't know; it is a very small entitity. 

Mr. Scoll. Unimportant? 

Mr. Kelley. Unimportant. 

Mr. ScoLL. Rio Tiuto? 

Mr. Kelley. I withdraw my answer as to the Soutli American 
Products, because I just don't know. 

Mr. ScoLL. Now, Rio Tinto, can you identify them? 

Mr. Kelley. Rio Tinto is a very old British controlled company 
operating in Spain. 

Mr. ScoLL. Then we have American Metal, Canada. 

Mr. Kelley. That was an organization affiliated \\dth the Inter- 
national Nickel Co. in the refining business and I think acted as the 
sales agency for the International Nickel Co. 

Mr. Scoll. The British Metal Corporation? 

Mr. Kelley. The British Metal Corporation was a corporation that 
was formed under the auspices of the British Government during the 
late war — I mean the first World War — and they handled very largely 
the product, the metal product, of Empire producers at that time. 

Mr. Scoll. They were dealers, were they not? 

Mr. Kelley. They were dealers and selling agents. 

Mr. Scoll. Roan Antelope? 

Mr. Kelley. Is a Rhodesian producer. 

Mr. Scoll. They didn't come in until sometime later, I observe. 

Mr. Kelley. After 1931. 

Mr. Scoll. And Bor? 

Mr. Kelley. Bor is a copper producer in what was formerly Serbia, 
now part of Yugoslavia and is an important European producer. 

Mr. Scoll. Boleo? 


Mr. Kelley. Boleo is a small copper producer in Lower California, 
the product of which is sold, I think, through the American Smelting 
& Refining Co. 

Mr. ScoLL. Now Greene Cananea, which I mentioned before, is an 
Anaconda subsidiary? 

Mr. Kelley. Subsidiary. 

Mr. ScoLL. So that the Copper Exporters, Inc., comprised virtually 
the entire important copper producers and dealers in the world? 

Mr. Kelley. Very largely. 

The Chaikman. How many of them were subsidiaries of Anacon- 
da, these members? 

Mr. Kelley. I should say four or five. 

The Chairman. Four or five. 

Mr. Kelley. International which didn't hold membership; Inter- 
national, Chile, Andes and Greene. 

The Chairman. Of course there are other subsidiaries of Anaconda 
which were not members of the association? 

Mr. Kelley. Oh, yes. 

The Chairman. Axe they producers? 

Mr. Kelley. Some are producers that are aflSliated with Anaconda, 
but are not strictly subsidiaries, like Walker, Mountain City, Inspira- 
tion; but we represented all of them in the organization. 

Mr. Scoll. May I offer this as an exhibit? 

The Chairman. Without objection the exhibit is received. 

(The Hst referred to was marked "Exhibit No. 2117" and is included 
in the appendix on p. 13441.) 

admission of foreign producers to membership in copper 
exporters, inc. 

Mr. Kelley. There was an interesting difference, if I may suggest, 
in this set-up between that of the old Copper Export Association. In 
the old Copper Export Association we did not have foreign associates. 
About the time that there was a terrific slump in the silver market. 
We were urged by government authorities, Senator Pittman and others, 
to form a Webb-Pomerene corporation to handle silver as^n offset 
to the London metal dealers in that matter, and in that situation, 
we took the matter up with our Department of Commerce. As I 
recall it, Mr. Hoover — Secretary Hoover — got a ruling from the De- 
partment of Justice that under the Webb-Pomerene Act we did not 
need to be an association exclusively of American exporters but 
might have foreign associates. 

The Chairman. Such a ruling was handed down by the Department 
of Justice? 

Mr. Kelley. To the Department of Commerce. 

Mr. Scoll. Do you know approximately when that occurred? 

Mr. Kelley. I can't recall the date, it was preceding this organiza- 

Mr. Scoll. It was before October 1926? 

Mr. Kelley. I think so. After a very thorough study of tht. situa- 
tion, we felt that it was an impractical thing to attempt to organize a 
sUver association for the reason that sUver was not so much affected 
by current production as by the great bulk of silver that had been 
accumulated over the centuries and was locked up in the monetary 


reserves of various nations, and silver was not a commercial thing 
but rather dependent upon its function as a money. But it was in part 
the idea that we explored at that time. That was the genesis for 
setting up the Copper Exporters as it subsequently came to be. 

The Chairman. How did you come about to seek this ruling from 
the Department of Justice that membership of foreign producers and 
dealers would not be prohibited by the Webb-Pomerene Act? 

Mr. Kelley. It was because we reahzed the utter futility in the 
silver situation of endeavoring to do anything unless we had the 
cooperation of silver producers outside the United States. 

The Chairman. And was it in connection "with the silver program 
rather than in connection Nvith the copper program that you obtained 
that ruling? 

Mr. Kelley. Yes; at that time it was. 

The Chairman. But that was prior to the organization of this 
particular corporation? 

Mr. Kelley. Right. 

The Chairman. And because of that ruling, you brought in the 
foreign producers? 

Mr. Kelley. That was a factor in the situation, but Senator, it 
was the very fact that the foreign production had increased so very 
much during the twenties that we reahzed that an export association 
without the inclusion of foreign producers would be futile. 

Mr. ScoLL. You stated that that memorandum was from the De- 
partment of Justice. Are you sure it was the Department of Justice 
or was it the Federal Trade Commission? 

Mr. Kelley. My recollection is it was the Department of Justice. 
It may have been the Federal Trade Commission. There was a 
governmental ruling. 

Mr. O'Connell. May I inquire, do you know? 

Mr, ScoLL. The reason I asked the question was that in our re- 
searches for this hearing we ran across a reference to the fact that a 
Dr. Notz of the Federal Trade Commission was interested in this 
question and had given his opinion that the membership of foreign 
organizations in Copper Exporters, Inc., was within the purview of the 
Webb-PomerMie Act. 

Mr. Kelley. That is right. I recall it was taken up with Dr. Notz 
in regard to this particular organization. I am not sure where the 
previous ruling came from. 

Mr. O'Connell. I presume it was taken up with Dr. Notz, or 
whoever it was taken up with, because in the opinion of your counsel 
there was some doubt as to the legahty? 

Mr. Kelley. The law was not entirely clear, and as I recall the 
language of the Webb-Pomerene Act it referred to American producers 
engaged in export trade. I think that is the language. We didn't 
know whether that was broad enough to cover an association with 
producers outside the United States or not, and we sought advice. 

Mr. O'Connell. I would be quite interested if we could get a 
copy of whatever opinion was written, because that is, as I imder- 
stand it, the type of situation that doesn't often arise, or if it does 
arise is not dealt with in that way. I do not imderstand that it is 
now considered proper for the Department of Justice or the Federal 
Trade Commission to, in effect, give advisory opinions and render 
declaratory rulings. 


Mr, Kblley. Please understand, I didn't say that the Depart- 
ment of Justice gave us an opinion, because we know that is not 
true; but I think the matter was taken up with the Department of 
Commerce and I think the Department of Justice advised the De- 
partment of Commerce as a coordinated branch of the Government. 
They did not advise us, and I don't know that Dr. Notz advised us 
other than not entering opposition. We never did get direct advice. 
Mr. O'CoNNELL. As you know, there has been quite a bit of dis- 
cussion in recent years about the advisabiUty of having some agency 
of Government empowered to, in effect; render declaratory rulings or 
advisory rulings to people in your position. 
Mr. Kelley. Correct. 

The Chairman. This was quite obviously a declaratory ruhng of 
that character. Did you receive a copy of it? 

Mr. Kelley. No; I can't recall that I received it. Our counsel 
went to the Federal Trade Commission, I know, and consulted Dr. 
Notz, and T think I had some consultations with him myself. They 
were fully advised of the plan. 

The Chairman. Did you ever receive any written communication 
from the Department of Justice or the Department of Commerce with 
respect to this? 
Mr. Kelley. No. 

The Chairman. How did you know that that ruling was made? 
Mr. Kelley. We inferred that it was made from the fact that there 
was no opposition. Counsel advises me that the opinion of the 
Department of Justice was published by the Department of Com- 
merce and circulated publicly. It was not addressed to me or any- 
body in particular. 

The Chairman. Does your counsel have a copy of it? 
Mr. Kelley. He is trying to find it. 
The Chairman. Proceed, Mr. Scoll. 

Mr. O'CoNNBLL. I think it is of some general interest that you 
could have subsequently been prosecuted or legal proceedings could 
have been brought by the Department of Justice or the Federal Trade 
Commission in a strictly legal sense, in spite of that pubUshed opinion 
or ruling. 

Mr. Kelley. That issue was not involved; that issue was never 
raised by the Government that we had foreign associates. 

Mr. O'CoNNELL. I understand that, but I was merely illustrating 
what I understand to be the fact, and that is that such rulings as are 
made informally under existing law are not binding on the Govern- 
ment and do not, strictly speaking, protect anyone who rehes upon 

Mr. Kelley. I so understand. 

Mr. O'CoNNELL. And that also was one of the things that has been 
discussed in connection with the problem of rendering declaratory 
rulings, in that if such a technique were devised it would afford legal 
protection to persons who rely on it which is not now available. 

Mr. ScoLL. In the Wall Street Journal, Tuesday morning, October 
12, 1926, there was published a press release which purported to be 
issued by you, which reads in part as follows: 

Copper Exporters, Inc., is an organization of American copper'producers asso- 
ciated with whom are certain foreign producers and sellers of copper. The pur- 
pose of the organization is to endeavor to eliminate in foreign countries the harm- 
ful speculation that causes wide fluctuations in price, unwarranted by industrial 


factors in European markets, and tends to destroy confidence in the integrity of 
such price and the stability of the business. 

Further along the statement says: 

The need for such an organization must be manifest to anybody who has 
followed the trend of the foreign copper market, especially since the war. Wide 
fluctuations in prices, working hardshipt; on producers and consumers alike, 
speculative movements engineered by foreign dealers who have no financial inter- 
est in the production of the metal, have produced a situation in foreign markets 
intolerable from the producers' point of view. 

That in general states the pnrposes of the organization of Copper 
Exporters, Inc., does it not? 

Mr. Kelley. It does. 

Mr. ScoLL. Now, if you will, will you refer to the chart which is 
"Exhibit No. 2100" ^ and look at the period from 1921 to 1926? 
Except for the rise in 1922 and '23, which I believe was caused by the 
stock situation in 1921 and '22, having been liquidated through the 
pool — a demand having been created which Copper Exporters Asso- 
ciation filled — except for that interlude would you say that the price 
fluctuations from 1921 to '26 were wide fluctuations? 

Mr. Kelley. Comparatively; yes. You must realize, Mr. Scoll, 
that what you show here in a very small scale of probably three- 
quarters of an inch covers the transactions of the year and imdoubtedly 
has been worked out to an average trend over that year. It doesn't 
show the day-to-day transactions. It does show, however, that in 
that period, contrary to normal commercial tendencies, in '21 you had 
the price of standard in midyear above the price of electro, and if you 
will look at the difference in the spread as indicated by this chart, 
you will see that there was no uniformity of difference between 
electro and standard. Now that lack of uniformity was due entirely 
to speculative influences. It was due to the fact that when the 
standard market advanced to or above the electro, the speculators 
were buying forward positions upon the futures, as we call it, upon the 
basis that the price would go up, and when that spread widens imduly 
it is because they are speculating on the short side in the belief that 
the price is going to fall. It is the future market rather than the spot 
market that controls. 

Mr. Scoll. I beheve that one of the intolerable aspects of this situa- 
tion that you are referring to arises from the fact that these specula- 
tions in the London market affect the domestic prices. Isn't that right? 

Mr. Kelley. They undoubtedly do; yes. 

Mr. Scoll. Well, then, I would like to refer you to the table which 
accompanies "Exhibit No. 2100." Have you a copy of that table there? 

Mr. Kelley. Yes. 

Mr. Scoll. The domestic f. o. b. refinery price of New York elec- 
trolytic, monthly, in 1924 varied from 12.40 to 14.26. That is ap- 
proximately 2 cents. The 1925 monthly average varied from 13.34 
to 14.49. That is a httle over a cent. At the beginning of 1926, up 
to October when the Copper Exporters, Inc., was formed, the price 
ranged from 13.59 as high as 14.17, less than a cent. Those, to my 
way of thinking, were not very wide fluctuation?. Am I correct in 
that assumption? 

' Mr. Kelley. I would differ with you as a matter of opinion. I 
would say this in explanation. What we are concerned with in the 

' Appendix, p. 13394. 

124491 — 4l7-pt. 25 10 


business is the daily jQuctuation. I myself have sat in the ijondon 
Metal Exchauge at the close of 'Change, as they call it, and seen 
somebody come in and oflfer 50 tons of standard, but if there jv^as no 
buyer immediately there to take it, standard would close weak. That 
close of the London market would be telegraphed or cabled to New 
York and the copper market in New York would be affected to some 
extent adversely by a sale of 50 tons of copper. 

Mr. ScoLL. At that time weren't you also concerned with the in- 
creasing production of your foreign competitors? 

Mr. Kelley. Very much. 

Mr. ScoLL. So that it would be correct to say that the fluctuations 
in price alone were not the cause for the formation of Copper Ex- 
porters, but it was a combination of factors including the threat of 
competition that had come into being? 

Mr. Kelley. That is right. 

Mr. ScOLL. You mentioned a while ago that the fluctuations of the 
London price had their effect on the domestic price. Will you explain 
just how that occurs? 

Mr. Kelley. Well, for instance, ta,ke the first 4 months of a rep- 
resentative year. 

Mr. ScOLL. Excuse me for interrupting you. Maj^be I can ask 
you a question or two that will help. If a domestic buyer was looking 
for the best price possible to obtain, he would, I presume, look at the 
London market and see what was happening over there, would he not? 

Mr. Kelley. He would. 

Mr. Scoll. And similarly the sellers in order to obtain the best 
price from their side would not sell below what the price was in 

Mr. Kelley. We might. 

Mr. Scoll, So that if Copper Exporters, Inc., could remove the 
influence of the London speculators from the world market. Copper 
Exporters would stabilize not only foreign prices but United States 
prices as well. 

Mr. Kelley. There would be bound to be an interrelation betwe^a 
the prices; you can't avoid that, I think. 

Mr. Scoll. If I may pursue that just one step further, the price 
of fabricated copper products is geared to the price of electrolytic 
copper. Isn't that so? 

Mr. Kelley. Correct. 

Mr. Scoll. So that fluctuations — speculation in London — would 
indirectly affect the price of fabricated articles? 

Mr. Kelley. I think so. 

Senator King. Isn't it true that forei^ prices of commodities which 
are used in foreign countries as well as in the United States determine 
in a measure domestic prices; that is to say, they influence domestic 
prices and domestic prices might influence foreign prices? 

Mr. Kelley. True. 

Senator. King. TUftt was true in silver, lead, zinc, and wool. 

Mr. Kelley. I can't answer al)out wool, but in worid-wide ma,rkets 
of metals and particularly before there was a restrictive tariff or 
excise tax on copper coming into the United States, you had one 
market practicially, and that was a world-wide market. You might 
have a fluctuation temporarily on a speculative situation, but the 


markets normally would settle down to the respective differences of 
transportation, carriage, and insurance. 

The Chairman. This was an effort, in other words, to stabilize the 
world price. 

Mr. Kelley. Yes^ without using — remember, always — the power 
of the export association to artificially or intentionally affect the 
domestic markets. 

The Chairman. Well, then, just .how did you go about attaining 
the objective you had in mind? 

Mr. Kelley. We never did attain it. 
■ The Chairman. You didn't attain it at all? 

Mr. Kelley. No. We may have helped, but it was never perfect, 
because we not only had our competitive situation at home, but — 
remember — we were up against the most intensive competitive situa- 
tion on the other side as well, and really, what it amounted to was to 
prevent the American producers, largely, from cutting each other's 
t a?oats in foreign businesSj and that is what we had been doing. 

The Chairman. Wliat part did the foreign producers who were 
oiembers of this organization play in that, in preventing the American 
producers from cutting one another's throats? 

Mr. Kelley. Before the formation of the export association, they 
played a very important part. 

The Chairman. Oh, yes. 

Mr. Kelley. But we never had in the export association a complete 
control of copper. There was always outside competition. 

The Chairman. But you had a certain objective in bringing these 
fo/eign producers into the association. 

Mr. Kelley. Right. 

The Chairman. That objective was the stabilization of price, and 
you say it was not made effective. Am I right? 
' Mr. Kelley. Not completely. 

The Chairman. Well, now, to what extent was it made effective, 
and what part did the foreign producers play in helping you to make 
it effective? 

Mr. Kelley. Of course, that is a matter of conjecture. 

The Chairman. I know of nobody better to conjecture about it 
than you. 

Mr. Kelley. You see, Senator, how far we were successful we don't 
know, because we don't know what the result might have been if we 
had not made the effort; but I think it helped. 

The Chairman. Very well. Now, what part did the foreign pro- 
ducers play in helping to bring about this partially successful result? 

Mr. Kelley. Those who came into the first association, let me say, 
geared their price to the same price as our copper delivered on the 
other side, and took an allocation based upon their production, but in 
this association, it differed from the old association. There was no 
joint seller. Everybody who had them sold his copper through his 
own organizations. 

The Chairman. You see, Mr. Kelley, this is a picture that is shapmg 
up in my mind. Remembering your testimony of yesterday, you spoke 
about the magnitude of the foreign buyers of copper, and the concen- 
tration of control which had been perfected abroad over the action of 
these buyers. Then you said that American producers sought to meet 


the adverse results of that concentration in Europe among the pur- 
chasers upon their selling price. To meet that you sought authority 
from Congress and received it to establish under the Wobb-Pomerene 
Act an organization authorized by that act for the particular purpose 
of aiding American corporations in the world market in competition 
with concentrated agencies abroad. That is correct so far as we have 

Mr. Kelley. Correct. 

The Chairman. Now, that copper association went out of existence 
and a few years passed in which there was no such organization, and 
then this new cQrporation was formed and in this new corporation 
you brought foreign producers. In the first instance under the Webb- 
Pomerene Act you were setting up a combination of American pro- 
ducers to fight the foreign. Now, under the new organization, you 
have brought in the foreign producers as well. Now, why did you 
bring them in, and what part did they play, and were they helping 
you to protect American producers, or were you helping them to 
protect their interests? 


Mr. Kelley. The reason that impelled us to bring them in was 
the extraordinary increase that occurred in the production of foreign 
copper. If you look at the production 

The Chairman (interposmg). That is shown on "Exhibit No. 2100."^ 

Mr. KteLLEY. So that by the mid-twenties — if I may ask you Mr. 
Chairman, to look at this chart,* you will see 

Senator King (interposing). Has that been identified? 

The Chairman. This is a chart I understand prepared by your 

Mr. Kelley. The chart was prepared by our organization, but 
the data was taken from Government bulletins. 

The Chairman. Yes, and it shows foreign copper production year 
by year from 1880 to 1936, approximately. 

Mr. ScoLL. Shall we give it an exhibit number as 2118? 

The Chairman. I was going to suggest that. This is "Exhibit 
No. 2118" offered by the witness Mr. Kelley and it may be accepted. 

(The chart referred to was marked "Exhibit No. 2118" and is 
included in the appendix on p. 13442.) 

Mr. Kelley. If you look at that chart you wUl see that during 
the war period, foreign production went down. That was due to 
transportation diflSculties, largely. Right after the war period, 
beginning along in the early twenties, you will see that the foreign 
production began to increase very rapidly. By the mid-twenties, 
about the time this organization ' was perfected, it had increased on 
the chart that I have — which is a composite chart of what you are 
looking at — from a maximum before the war of about a biUion poimds 
to about a billion eight hundred million pounds. It was in that period 
that Katanga came into large production, that Canada came into 
large production, and also that Chile very largely increased its produc- 
tion. And the result was, of course, wp had an oversupply for any 
potential demand. 

1 Appendix, p. 13394. 

» "Exhibit No. 2118," appendix, p. 13442. 

• Copper Exporters, Inc. 


The Chairman. Now, then, this chart would indicate, if I have 
correctly followed your testimony and the indications of the chart 
itself, that beginning with 1920, or shortly thereafter, production 
began to increase very markedly in Chile arfd to quite an extent in 
Canada. Is that right? 

Mr. Kelley. That is right. 

The Chairman. Very materially in Katanga, also in Europe. 

Mr. Kelley. Right. 

The Chairman. And in Japan it seemed to maintain practically 
the same level. It increased somewhat in Russia, somewhat in Mex- 
ico, somewhat in Peru, and in the others it was practically unchanged. 
The big production in Rhodesia did not come in untU after 1930. 
That is the correct picture, is it not? 

Mr. Kelley. That is right. 

The Chairman. Now, looking at "Exhibit No. 2100," I am impres- 
sed by the fact that during practically this same period, particularly 
when the Copper Export Association, Inc. was operating, and Copper 
Exporters, Inc. were operating — this increase of production was 
apparently accompanied by an increase in price. 

Mr. Kelley. I think not. 

The Chairman. Well, now the Copper Export Association was in 
operation from 1919 through 1923. During that period in 1919, the 
latter part of that year, the price went from 15 cents to about 23K, 

Mr. Kelley. I will get that before me in just a moment. 

The Chairman. I was looking at "Exhibit No. 2100." 

Mr. Scoll. Senator, I was going to take up that point. 

The Chairman. I beg your pardon. 

Mr. Scoll. I will introduce the tables. 

The Chairman. Very well. I am sorry for interrupting the orderly 
presentation of your case. 

Senator King, And in presenting it I wish you would ask, if you 
care to, that with the revival in business along in 1922, 1923, and up 
to 1929 there was an increased demand for copper and for all 

Mr. Scoll. Before we discuss the matter of prices, I would like to 
introduce this table showing the production controlled by the members 
and then proceed to a brief discussion and outline of how it worked. 

The Chairman. What is this table and by whom prepared? 

Mr. Scoll. This table that I am offering is a table entitled "Share 
of World Production of Copper Controlled by Members. of Copper 
Exporters, Inc., 1927-1931." It was prepared by the staff of the 
T. N. E. C. from figures compiled by Mr. R. R. Eckert, former manager 
of the Copper Exporters, Inc. The original figures which Mr. Eckert 
compiled came from the American Bureau of Metal Statistics, a 
statistical organization which is maintained by the producers ; and were 
submitted to us at our request under the direction of Mr. Kelley. 

The Chairman. Have you examined this exhibit Mr. Kelley? 

Mr. Kelley. I am not sure whether I have seen it but we have 
a copy. 

The Chairman. Without objection the exhibit may be accepted. 

Mr. Scoll. I would like to make just one brief comment to explain 
the exhibit. It shows that in 1927, the members of Copper Exporters, 
Inc., controlled 93.8 percent of the United States production and that 


in the same year they controlled 84.8 percent or 85 percent of the 
world production. Those figures varied slightly fronj time to time 
through the effective life of the organization to 1931. Generally 
speakmg, the percentages were roughly from 91 percent to 93 percent 
of United States production and from 77 percent to 85 percent of the 
world production. 

The Chairman. Is that substantially correct Mr. Kelley? 

Mr. Kelley. I believe so, yes. 

The Chairman. The exhibit may be received. 

(The table referred to was marked "Exhibit No. 2119" and is 
included in the appendix on p. 13443.) 

The Chairman. Now, it would appear from this exhibit that this 
control just described by Mr. ScoU is to be observed in all the years 
covered, namely '27, '28, '29, '30, and '31. In those years, the Copper 
Exporters, Inc., controlled in excess of 90 percent of the United States 
pit^uction of copper and between 77.7 and 85.8 percent of the 
world production. 

Mr. Kelley. I would modify that, Senator, only by saying that it 
is incorrect to say that Copper Exporters, Inc., controlled that per- 
centage of production. 

The Chairman. Members of the Copper Exporters? 

Mr. KJELLBY. Copper Exporters itseW exercised no control. 

The Chairman. I didn't mean to leave that implication and I am 
glad you corrected it. 

method of operation of copper exporters 

Mr. ScoLL. What you meant to emphasize, I beheve, Mr. Kelley, 
was that Copper Exporters, Inc., was primarily and solely a pnce- 
determining agency for fixing the foreign price, the export price of 

Mr. Kelley. And clearing foreign transactions. It was a clearing- 

Mr. Scoll. It had no control, for instance, over the production 
policies of the members? 

Mr. Kelley. None whatsoever. 

Mr. Scoll. Or their sales? 

Senator King. You answer that affirmatively, "or their sales"? 

Mr. Kelley. Or their sales, except as they followed the rules. I 
think it is only fair to say tins: In Copper Exporters, Inc., there was 
no such thing as a fixed price necessarily. Under the rules a price 
was fixed or set at which the members were willing to sell copper. If 
any memj[»er didn't wish to sell at that price there was no compulsion 
upon him. to do so. On the contrary, if he wished to hold for a higher 
price he'l^d a perfect right to do it. If, on the other hand, he wished 
to sell at a lower price he had a perfect right to do it. If one member 
decided that he preferred to sell at a lower price, he could do so. It 
was then the privilege of the other members to modify the previous 
price and participate in busmess at the lower price or not, as they 
saw fit. It was. a perfectly flexible situation. 

The thing that was eliminated in the foreign markets was the in- 
tense competition between one another. 


The Chairman. Just how was that eliminated? If you say that 
the members were at liberty to disregard the price 

Mr. Kelley. It was eliminated principally because the seller knew 
the truth. You referred the other day, I think, and I am sure Dr. 
Ivreps did, about the inaccuracy of statement, to say the least, of the 
buyer as to what the other fellow is willing to sell for, and there was 
no place in the world where an industry suffered more from that than 
we did in European markets. The big purchasers of copper would 
play one selling agent against the other; nobody ever knew what the 
other fellow's price was. Going through the back door was a favorite 
occupation to cut the other fellow's price by an eighth of a cent in 
order to book the business. Now what this did, it brought out into 
the open at least what the price was of those who were participating 
in the business. 

Mr. O'CoNNELL. Well, Mr. Kelley, wasn't there in effect an agree- 
ment between the members of the Copper Exporters that they would 
seU at the price determined by it? 

Mr, Kelley. They would sell at that price unless they indicated to 
the association that they wouldn't, and they made that plain, you see. 

Mr. O'CoNNELL. But the freedom to which you refer was not an 
absolute freedom in the sense that you think of the ordinary competitor 
going out and selling his goods at whatever price he thinks proper? 

Mr. Kelley. That is right. 

Mr. O'Connell. Quite different? 

Ml-. Kelley. Tbat is right. 

Mr. ScoLL. In other words, if one of the members chose to close at a 
figure which was less tha,n the so-called official price at the time, the 
others had a right to participate in the allocation of sales based on their 
production at that price? 

Mr. Kelley. If they indicated that they wished to do so. 

Mr. Scoll. Otherwise they had the option of either selling or par- 
ticipating at that price or staying out of the market? 

Mr. Kelley. Right. Staying out of the maitet until it was cleared. 
If it was a very inconsequential amount that was offered at a lower 
price, naturally the other members wouldn't all rush in to participate 
in it. In other words if a member said, "I want to seU. 500 tons of 
6opper that is in distress, and I want <^o cut the price for 500 tons," 
I should think it would not have been generally good poUcy for every- 
body to come in and say, "No; I want to get a share of that 500 tons." 
I don't think they did. 

Mr. Scoll. If I may use perhaps an inept analogy, it was like an 
elevator; they could get on and go up or down, or stay off? 

Mr. Kelley. Sure; a good analogy. 

Mr. Scoll. Now the working committees of the Copper Exporters, 
Inc., consisted of a New fork committee, I believe, and a Belgian 
committee, isn't that correct? 

Mr. Kelley. A committee the headquarters of which was in 
Brussels. It was not a Belgian committee. It was an international 
foreign committee. 

Mr. Scoll. Sometimes referred to as the Belgian committee, or the 
Brussels committee? 

Mr. Kelley. The Brussels committee. Yes; that is right. 


Mr. ScoLL. I show you a list of members of the New York com- 
mittee, and ask you if that is a correct list. 

Mr. Kelley. Yes; I beUeve it to be. 

Mi\ ScoLL. I would like to offer this list entitled "Members of New 
York Committee of Copper Exporters, Inc.," as "Exhibit No. 2120." 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2120" and is included 
in the appendix on p. 13444.) 

Mr. ScoLL. Similarly I show you a list of the members of the Brus- 
sels committee. 

Mr. Kelley. Yes; I think that is right. 

Mr. ScoLL. I would Uke to offer that as "Exhibit No. 2121." 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2121" and is included 
in the appendix on p. 13444.) 

Mr. ScoLL. Now, incidentally, the members of the New York com- 
mittee were the heads of the respective selling agencies which they 
represented, were they not? 

Mr. Kelley. Yes; I think they had alternate members who might 
sit for them if the heads weren't there. 

Mr. ScoLL. And therefore they were dealing not only in the foreign 
sales of their agencies but in the domestic sales as well — generally^ 

Mr. Kelley. Yes. 

The Chairman. Mr. Scoll, before you go on with that m.ay I ask 
Mr. Kelley who the directors of Copper Exporters, Inc., were, and who 
the officers were who represented the foreign associates? 

Mr. Kelley. They did not have any directors, as I recall it, in the 
domestic organization. They had an agreement which was entered 
into between the foreign associates and the United States organization, 
but they were not members of it. 

The Chairman. Nor were they officers? 

Mr. Kelley. Nor were they officers. 

The Chairman. What was the type of the agreement? 

Mr. Kelley. I think Mr. Scoll has it. It was the agreement gen- 
erally to observe the same rules as bound the domestic members. 

/Mr. SdoLL. In order to save time, Senator, I would lilce to offer 
several documents concerning the association which I will read into 
the record and offer them for the file. They are rather voluminous, 
and I think that unless the committee wishes to put them in the 
record I will na,me them. 

Senator King. You will have them identified as exhibits, but not 
inserted in the record? 

The Chairman. I think that will be quite satisfactory. The coiri- 
mittee will accept your judgment on that. Just give us the Ust and 
names of the document. 

Mr. ScK)LL. Certificate of incorporation, Copper Exporters, Inc.; 
Bylaws,' Copper Exporters, Inc.; Schedule of Working Regulations, 
Copper Exporters, Inc. 

(The documents referred to were marked "Exhibits Nos. 2122 to 
2124" and are on file' with the committee.) 

Mr. Scoll. My previous remark does not apply to the members' 
agreement, which I wish to offer for the record ; nlao the foreign 
associate agreement. 


The Chairman. They may be received. 

(The documents referred to were marked "Exhibits Nos. 2125 and 
2126" and are included in the appendix on pp. 13444 and 13449.) 

Mr. ScoLL. Do you recall what the distinction was, Mr. Kelley, 
what the important distinction was between the member's agreement 
and the foreign associate agreement? 

Mr. Kelley. I am afraid I do not. 

Mr. ScoLL. Very well. The agreements will speak for themselves. 
Now, the New York committee, I believe, was the committee which 
originated the prices and then referred them to the Brussels committee, 
is that correct? 

Mr. Kelley. As a matter of routine I should say that is correct, 
although the New York conunittee was receiving constant advices, 
I suppose, from the Belgian or Brussels committee. 

Mr. ScoLL. And the New York committee based the export prices 
on the domestic prices? 

Mr. Kelley. Very largely. 

Mr. ScoLL. Now why was electrolytic copper taken as the standard 
for price quotations? 

Mr. Kelley. Because electrolytic copper particularly at that time 
was the standard commercial brand of copper. 

Mr. Scoll. But later arrangements were made for the quotation of 
prices for other types of copper? 

Mr. Kelley. That is right. 

Mr. Scoll. Including standard copper? 

Mr. Kelley. Right. 


Mr. Scoll. Will you take the chart, "Exhibit 2100,"^ if you have 
it there, and the table that goes along with it? Looking at the table 
you will notice that in the period from 1924 to 1926 the New York 
electrolytic price of copper reached a low of 12.39 in July 1924, and a 
high of 14.70 in Januaiy 1925. In other words, a fluctuation of 2.32 
cents approximately, in a period from July 1924 to January 1925? 

Mr. Kelley. Yes. 

Mr. Scoll. That was the period after the break-up of Copper 
Export Association. Now turning forward to 1927 and 1928 you wiU 
notice that the New York electrolytic price was at a low in June 1927 
of 12.37? 

Mr. Kelley. Yes. 

Mr. Scoll. That it rose in December 1928 to 15.84; in other words, 
a fluctuation of 3.47 cents during the 1927-28 period? 

Mr. Kelley. That wasn't a fluctuation; it was all in one direction. 

Mr. Scoll. All in one direction. Then in other words the record 
seems to^indicate that there was a greater fluctuation in the price that 
C. E. I. Was formed to stabilize after C. E. I. was formed than in the 
3 years which preceded C. E. I. Is that conclusion correct? 

Mr. Kelley. No; not without taking into consideration what was 
happening in the world. Coming into the period to which we are 
addressing ourselves, from 1926 on began the terrific expansion, not 
only in the copper industry but in all industry, that culminated in the 
peak year of 1929. that preceded the collapse. I think you have 
a copy of this chart, haven't you, Mr. Scoll? 

> Appendix p. 13394. 


Mr. ScoLL. No, Mr. Kelley, I have seen it in your possession, but 
I have never had a chance to examine it closely. Do you have a 
copy of it? 

Mr. Kelley. I wish to submit that chart to the inspection of the 
conmiittee for the purpose of showing the corresponding relationships 
between the price of copper and other basic materials. 

The Chairman. Now what is this chart? It is labeled "Index 
numbers of price of electrolytic copper, wholesale price of raw materials 
and wholesale prices of all commodities, with 1913 as the base." 

Mr. Kelley. Right. 

The Chairman. And the source is electrolytic copper prices 
quoted in Engineering and Mining"* Journal, wholesale prices of raw 
materials and of all commodities represent United States Bureau of 
Labor statistics index adjusted to 1913 base? 

Mr. Kelley. That is right. 

The Chairman. Prepared by your staff? 

Mr. Kelley. The chart itself is prepared by our staff but the 
information is direct from the Bureau of Labor Statistics. Now, the 
index there will show you that going back to 1913 as a base, because 
that was before prices had been affected by the war situation and which, 
with due deference, Dr. Kreps, I think still forms a better base than 

Dr. Kreps. Not for copper. 

Mr. Kelley, Well, for anything, in my opinion. You wiU observe 
the great fluctuation that occurred during the war period in the price 
of copper, in the price of all commodities based upon the labor index, 
and in the price of raw materials; and following that chart through 
you will see the dechne that came after the war and then you will see 
that in the period to which coimsel has just referred, '26, '27, '28, '29, 
not only did copper go up but it never reached proportionately the 
height of the prices of other materials, and you will also see from that 
chart that copper on a relative basis never sold as high as either the 
Bureau index for all commodities or the index for raw materials. I 
would like in this connection to show a chart which compares copper 
with other comparable metals, to wit 

The Chairman (interposing) . Pardon me ; if you desire we will admit 
this as an exhibit. 

(The chart referred to was marked "Exhibit No. 2127" and is 
on file with the committee.) 

The Chairman. May I make this comment before we leave this 
chart? This, as you have pointed out, is based upon an index price. 
"Exhibit No. 2100",* introduced by counsel, shows the fluctuations 
in the price of copper in cents, the actual price? 

Mr. Kelley. Yes. 

The Chairman. And this is the index of price? 

Mr. Kelley. That is right. 
"^Mr. ScoLL. And I may add by way of further explanation that the 
point of my que^ion related only to a comparison of copper prices 
under C. E". I. and copper prices before C. E. I., and that we naturally 
would concede the truth, as well as the relevancy,' of your contention 
that copper prices behaved in a certain relation to the prices of other 
wholesale commodities. 

> See appendix, p. 13304. 


Mr. Kellet. Yes. In other words, I didn't want the inference 
that copper was an isolated example of a rise in price during the period 
in question. 

The Chairman. But, Mr. Kelley, examining your chart again, 
"Exhibit No. 2127," for the years '28, '27, '28, and '29 it is obvious 
from that chart that during this period the price of copper rose very 
markedly between '27 and '29 while the prices of raw materials and 
the prices of all commodities did not show any such rise. 

Mr. Kelley. It rose greater in proportion. 

The Chairman. Copper rose much greater in proportion than the 

Mr. Kelley. Because it started from a much lower position. 

The Chairman. And that was during the operation of Copper 
Exporters, Inc.? 

Mr. Kelley. Right. 

The Chairman. So that perhaps you may be in a position to claim 
credit for that advance of copper price for the C. E. I.? 

Mr. Kelley. If we take a look at this chart 

The Chairman (interposing). Would you take the credit for that? 

Mr. Kellet. No; my modesty forbids. Because you had almost, 
I think, a comparable situation in lead and zinc and other nonferrous 
metals. Now in that period one other thing occurred. By that time 
the accumulated war stocks and the big surplus had entirely dis- 
appeared and the copper busiaess was back upon a basis of current 
supply and demand. 

Senator King. And was there not a very increased demand then 
and for several years thereafter for use in the constructioij. of the 
electric light plants? Didn't they use a great deal of copper for the 
transmission of electric energy? 

Mr. Kelley. I think you have a copy of this chart? * 

Mr. Scoll. Before we get to that chart may I ask you one more 

Mr. Kelley. I thought it was pertinent to what the Senator asked. 

Mr. Scoll. You will excuse me. Senator. 

The Chairman. You may proceed and answer Senator King's 

Mr. Scoll. Please; and use the chart. 

Mr. Kelley. Senator King's question was directed to the increased 
demand for copper and copper products in this particular period, and 
I win answer, "Yes"; that was a factor, but I wiU let the detailed 
explanation go with your permission, because I think counsel intends 
to ask me that. 

Mr. Scoll. Yes. 

Senator King. All right. 

Mr. O'Connell. I would like to ask a question. I would like to 
ask, in answer to the question that Mr. ScoU asked sometime ago. (I 
think we rather lost it.) Now, as I understood him, he asked if it 
were not the fact that the price of copper fluctuated to a greater 
extent in the 2 or 3 years following the creation of Copper Exporters, 
Inc., than it did during the 3 years prior to that; and I take it that the 
aaaswer to that is, "yes", is it not? 

Mr. Kelley. No. It is a question of definition of fluctuation. 
My idea of fluctuation is up and down ; it increased. 

« "Exhibit No. 21»." 


Mr. O'CoNNELL. The range in price in tliat period? 

Mr. Kelley. Increased. 

Mr. O'CoNNELL. Was greater and it was definitely on the increase, 
too, during that period? 

Mr. Kelley. That is right. 

Mr. O'CoNNELL. It is also a fact, is it not, looking at the chart that 
you submit, that the price beha^'ior of copper during the period of 
1926 to 1929 was quite different from the behavior of the all-commodity 
index or raw-material index? 

Mr. Kelley. It was more accentuated, but I think it was relatively 
not more accentuated than the price of other nonferrous metals. 

Mr. O'CoNNELL. That may be so. I was merely pointing out the 
difference in price behavior of the things shown on that particular 

Mr. Kelley. That is correct. 

Mr. O'CoNNELL. Now, would you say that there was a close rela- 
tionship or any relationship between the existence of the Copper 
Exporters, Inc., and that price behavior? 

Mr. Kelley. I would say that unquestionably there was some 
relation, but I don't think it was the principal factor; and that is the 
subject I would like to explain. 

Mr. O'CoNNELL. Of coiu-se, the main purpose of the Copper 
Exporters, Inc., was such influence as it could have upon the price 
structure. Don't you think so? 

Mr. Kelley. No ; not to the extent of raising the price, and I will 
show at the proper time that Copper Exporters was the only organ- 
ization that I know of that came out in 1928 and warned buyers 
against continued purchases because the price would get out of hand, 
and we assured them of a sufficient supply. 

Mr. O'Connell. Assuming it would be legal, do you think there 
would be anything improper about an organization of businessmen 
attempting to get as high a price as they could for a commodity? 

Mr. Kelley. I think it would be decidedly immoral, except as 
that high price was related to the cost of their product and to its 
value to the consumer and was within reasonable limits. 

Mr. O'Connell. What kind of a test would you apply? 

Mr. Kelley. I would apply a test that took the cost factor into 
consideration, that took the price, and that resulted in paying a fair 
return upon the capital invested. 

Mr. O'Connell. Now, let me say, I understood you to say yester- 
day that cost was almost impossible of ascertainment in the copper 

Mr. Kelley. No; I didn't say that. 

Mr. O'Connell. At least you couldn't tell us what a low cost and 
high cost producer was. There were so many differences in ways 
of accounting. 

Mr. Kelley. That is a matter of comparison; yes. 

Mr. O'Connell. That is a rather difficult factor, apparently, but 
one that bothers me is the reasonable element of retm-n. What 
would you say was reasonable return? 

Mr. Kelley. That has been a factor of a great deal of discussion 
in the copper business and elsewhere. The question of cost 1 would 
say is that cost which gives that producer whose product is necessary 
for the industry — in the conduct of the industry — a place. There 


are great differences in costs between copper mines due to various 
factors. Now that mine or that company whose product is required 
for the economic conduct of the industry is entitled to a place. The 
cost as decided by the Federal Trade Commission, the Federal Tariff 
Commission, (when the tariff was under investigation), and the 
NRA, all come within a^ very small fraction of difference. It has 
been held generally by utility companies and companies that are 
regulated that 6 percent 6n the" invested capital is not an unreasonable 
return. The profit then for the risk involved in the mining venture 
should be something tnore or less than that. As a matter of fact, 
over any period in recent history the copper industry has never 
returned 6 percent on the capital invested, and if we take 1937, which 
was the most prosperous year since 1929, in the entire industry, and 
if we compute depletion at the rate provided, at the rate used by the 
Tariff Conmiission — I am not saying that is the correct rate — in 1937 
we get only thirty-two one-hundredths of 1 percent profit. In the 
period that you are talking about and we are talking about, the period 
between 1926 and 1938, the industry as a whole showed a deficit, 
my recollection is, of $25,000,000. The industry was operating at a 
loss in the years 1920, 1921, and 1922, when this pool was arranged. 
I told you tliis morning that during 1921 Anaconda showed a loss of 
$17,000,000 before depletion. The aggregate loss of the industry in 
that year was $47,000,000. 

Mr. O'CoNNELL. Mr. Kelley, you indicated a moment ago there 
were quite wide differences in cost. 

Mr. Kelley. Right. 

Mr. O'CoNNELL. Whose costs are we going to use for the purpose 
of determining what a fair price is? 

Mr. Kellet. I am talking about the average cost of producing 
copper in the United States, 

Mr. O'CoNNELL. That sounds something like I think Mr. Weir 
said, representing the steel industry. His idea was that all the people 
in the steel industry, practically, were entitled as almost a matter of 
right to a reasonable return, which I think he fixed at about 10 percent, 
but it seems to me a little inconsistent with the system under which 
we are supposed to be operating. I was under the impression we 
were supposed to be operating under what is known as a profit and 
loss sytem under which the less efiicient units are constantly being 

Mr. Kelley. You are perfectly right. 

Mr. O'CoNNELL. But you would like to change that to some extent, 
wouldn't you? 

Mr. Kelley. No ; let me point this out to you, that the productive 
capacity of the United States in copper does not exceed 90,000 tons 
a month, that outside copper is shut off from coming in by a 4-cent 
tariff or excise tax. There isn't a time when business in the United 
States regains a normal status that we don't need" a minimum of 
90,000 tons of copper in the United States, and in 1937, when we got 
back to a somewhat normal rate of production and consumption, 
there was an actual deficit of copper in the United States. Now if 
you shut out these so-called uneconomic units — there will be some- 
thing said, I imagine, about that later — it is not like a crop that 
grows. There are so many tons of copper in the United States, there 
is so much that can be produced, and any time this country gets to 


the point of a nonjial business cycle every ton of copper that we can 
produce will be required. 

Mr. O'CoNNELL. That you can. produce? Do you mean that this 
country couldn't produce more than 90,000 tons a month? 

Mr. Kellky. That is absolutely what I mean — the potentialities — 
because there is no property in the United States that I know of that 
would justify further capital investment. 

The Chairman. You are not desirous particularly of a high tariff 
upon copper? 

Mr. Kbllbt. I? 

The Chairman. Yes. 

Mr. Kellbt. I have been absolutely neutral on that. 

Senator King. Isn't it a fact, Mr. Kelley, that in determining costs 
over several years, you have got to take into account not only obso- 
lescence of machinery, the remarkable technological developments 
which compel the scrapping of property, which would cost millions 
of dollars, but you have got to take into account what you call deple- 
tion, the exhausting of the ore supply, so that you are eating up your 
capital every day that you stick a ^ovel into the ground to remove 
some of the copper ore. Many of the deposits have been exhausted, 
thus depleting your capital, and those facts have to be taken into 
account in determining prices and in determining profit and loss. 
They should be taken into consideration, and moreover, if I may be 
permitted to say so, I think the national interest is decidedly involved, 
and the tables that we have available and that will be submitted, or 
can be, show that in periods of low prices the metal content of the 
ores that are beneficiated goes up. What does that mean? It means 
that the lower the price, in order to get by the necessity exists for 
selective mining, or picking the eyes out of the mine. You have got 
to do it in order to get by. When prices go up, costs go up likewise, 
because then you drop down to your lower grade ores. But a lo#er 
price for copper — make no mistake about it — means that this national 
asset, of whioA there is already a paucity in this country, is being 
exhausted without a proper return. 

Mr. ScoLL. Have you a chart or table on that point that you can 
introduce now? 
. Mr. Kellet. Yes. 

Mr. ScoLL. I think it would be a good point to introduce it to show 
the effects of selective mining. 

Senator King. Before doing that, on the point of the importance 
of taking into account the destruction of your capital, Gk)venior Dem 
of my State developed a gold mine, and he thought and I thought (I 
visited it many times and had a little stock in it) that it was almost 
inexhaustible. I don't know how many milKons of dollars were 
expended in the construction of machinery, the building of houses to 
take care of the people who worked there— nearly 3,000 population 
were employed or cared for — and in about 6 or 7 years the ore deposit 
was exhiiusted, the houses were removed and the people thrown out 
of emplojrment. Now the whole capital that was mvested there was 
gone. Those things must be taken into account, because the loss in 
mining operations is tremendous, and it has become quite a proverb 
that where you get $1 out of a mine you put 50 or 100 in; that is to 
say, where there is 1 mine that is profitable you get a hundred that 


are not. There are hundreds of millions that have been lost in Tnini rig 
operations that didn't pay. 

Mr. Shaughnessy. I would like to ask Mr. Kelley if he takes deple- 
tion on the Anaconda books. 

Mr. Kelley. For what purpose? 

Mr. Shaughnessy. For the purpose of securities sales, reports to, 

Mr. Kelley. No. 

Mr. Shaughnessy. Why not? 

Mr. Kelley. Because it is not the law nor accounting practice in 
the nonferrous metal business and never has been to show depletion 
as a charge against income. 

Mr. Shaughnessy. I am wondering whether that is consistent with 
y^our statements on cost. As I imderstand it you figured the cost 
mcluding depletion. 

Mr. Kelley. It is entirely consistent with it, in my opinion, be- 
cause the question of depletion — may I ask you to define what you 
mean by depletion on a balance sheet? 

Mr. Shaughnessy. I don't profess to be an accountant, but I 
assmne it is the amount based upon the available reserves which in 
dollars is removed in each year of operation. 

Mr. Kelley. That might or might not, if I may say so, be the case. 
The question of depletion 

Mr. Wolff.* I might say this. The question of depletion, so far 
as the deduction is concerned on the books of the corporation, has been 
covered in various decisions of courts of the United States and it has 
also been the law for many years in England, that it is not necessary 
to deduct depletion in determining the income of nonferrous proper- 
ties, and I believe that the majority of the companies interested or 
engaged iii> this industry in the United States have followed that prac- 
tice consistently and the reports issued to the public show that that 
practice is followed. 

Mr. Shaughnessy. I am not questioning the practice, but I am 
wondering whether it is what we have heard in respect to use of deple- 
tion in determining whether the price on a cost basis is reasonable. 

Mr. Kelley. As a practical proposition, you have an infinite 
variety of situations. For instance, when all of these mines were 
purchased by the original owners or locaters, they were bought from 
the Federal Government. They were on the public domam. The 
price was two and a half dollars an acre, or $5 an acre. Then these 
mines were developed. They changed hands repeatedly, and there 
are very few instances where the actual dollar cost of the mine repre- 
sents the original investment. Depletion as taken by the Federal 
Tariff Coromission unquestionably was set up upon a basis of all the 
known reserves against the valuation which occurred on the balance 
sheets of the companies, but we have another depletion filing that has 
been the subject of some criticism, and that is the depletion allowed 
under the revenue law, but that was based upon the appraised valua- 
tion on March 1, 1913, irrespective of what was shown on your tooks, 
because that was the first time that an income tax law could be con- 
stitutionally applied. 

Mr, ScoLL. If I may return briefly to the question which I asked 
before about the fluctuation, your answer was that the fluctuations. 

• Henry J. Wolff, counsel, Anaconda Copper Mining Corporation. 


after C. E. I., during the period I specified, were not as great as the 
fluctuations before. Now your answer, I 'beheve, is based on the 
fact that the price continued to rise in one direction for that period 
of C. E. I., but if you look at "Exhibit 2100" you wiU see that during 
the whole period of Cooper Exporters, Inc., the price started at 13 
cents in 1926 and went up to 24 cents in 1929, and it finished about 
5 cents in 1932. 

Mr. Kelley. Right. 

Mr, ScoLL. Would that change your answer to my question? 

Mr, Kelley. No; I und'erstood you to confine yourself to '26, '27, 
'28, and '29; those were the years you mentioned because I marked 
them down. 

Mr. ScoLL. I will change my question to cover the whole period. 

Mr. Kelley. No; after the party started in 1929 and the world 
went to pieces, everything went down and copper went down with 
it, probably more than anything else. We woimd up with a 5-cent 

Mr, Scoll. Before we get into that 5-cent price I would like to 
introduce at this time a table which shows the sales and average 
prices received by Copper Exporters, Inc., monthly, 1926 to 1932. 
This was prepared by the staff of the T. N. E. C. from figures compiled 
by Mr. Eckert, former manager of Copper Exporters, Inc. 

Mr. Wolff. Before that table of Mr, Scoll's is introduced may we 
offer in evidence the chart submitted by Mr. Kelley in comparing 
copper prices with prices of other nonferrous metals? 

Mr. Kelley. The chart that I submitted before was a comparison. 

The Chairman. This is "Exhibit No. 2128." It may be received, 

(The chart referred to was marked "Exhibit No. 2128" and is 
on file with the committee.) 

Mr. Kelley. "Exhibit No. 2128" is a comparison with other non- 
ferrous metals. "Exhibit No. 2127" was a comparison with a com- 
modity index of raw materials as a whole, i^~ 

Mr, O'CoNNELL, May I make a remark on this? This chart seems 
to me to represent the same type of price behavior — the contrast 
between the price behavior of copper and the other nonferrous metals, 
I understood you to say earlier that they behaved somewhat "the same 
during this period, 

Mr. Kelley. There was a general price rise. 

Mr. 0'CoN]S[ELL. That is not very well borne out by the chart. 
The rise in copper prices was much more precipitous, 

Mr, Kelley, It was very much more, and I explained the reason 
for it. By that period we had Uquidated the enormous stock of 
copper that had hung over the market. We got to a point where the 
buying was upon a current basis against current production, and I 
don't dispute it at all — it was a higher price. The point I made was 
that it never got as high proportionately as the others. 

Mr. O'CoNNELL. I see. I was going to see if I couldn't persuade 
you to give some credit to Copper Exporters, Inc. 

Mr. Kelley, I refer to the fact that in periods of low prices we 
were obliged to selectively mine, or, as the miner calls it, pick the 
eyes out of the mine. This chart illustrates the increased yield in 
copper per ton as the price declined. In other words, you are driven 
to mine richer ores, and I think the Bureau of Mines bulletins show 


that during the period of the depression we mine ore, generally speak- 
ing, about 1 percent above the average of all the ore in the United 

Mr. ScoLL. Do you wish to oflFer this chart. Index Numbers of the 
Price of Copper and of Copper Yield Per Ton of Ore Mined? 

Mr. Kelley. I think it is pertinent to the inquiry. 

The Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2129" and is 
on file with the committee.) 

The Chairman. What does this chart show with respect to the 
price of copper during this period? 

Mr. Kelley. That is not a price. It shows that as the price went 
up the yield per ton went down. As the price went down the yield 
per ton went up. 

Senator King. That was from picking those parts of the mine 
where the ore was the richest. 

Mr. Kelley. Correct. 

Senator King. You got out of the lean part of the mine into the 
richer part. 

The Chairman. For this same period, 1927-29, while the price was 
going up the yield per ton remained substantially stable? 

Mr. Kelley. Yes ; because at that time we were mining everything 
that we could put our hands on. 

The Chairman. Do you still want to deny credit to Copper Ex- 
porters, Inc., for that very satisfactory condition, Mr. Kelley, from 
yoi^r point of view? 

Mr. Kelley. Senator, I wUl leave the conclusion to you, if I may. 

The Chairman. Well, of course, quite seriously speaking, the situa- 
tion that you described seems to be this: The Copper Exporters was 
organized, and after its organization the price went up, but that 
increase of price was due not to what the new corporation did but 
to altogether extraneous facts like the exhaustion of the surplus sup- 
ply. I am at a loss, therefore, to know just exactly what was accom- 
plished by Copper Exporters, Inc. 

Mr. Kelley. It is very hard to measure that afterwards, but 
Copper Exporters, Inc., was organized at a particularly favorable 
time. It was oiganized at a time when the world was in a very big 
wave of prosperity. It went along with it up to 1929, but Copper 
Exporters also Was functioning when the price of copper dropped to 
5 cents a pound. 

The Chairman. Yes; but of course that came at a period which 
upset all the calculations of everybody. 

Mr. Kelley. Right; we had an upswing and a downswing. 

The Chairman. Now the upswing was coincident with the organiza- 
tion of this corporation. 

Mr. Kelley. We were lucky. 

The Chairman. The downswing came when the depression struck 
everybody, so we can disregard the latter, can we not, in attempting to 
assess the efiFectiveness of this organization. I come back now toJLhe 
question that I originally asked you and which has not been particu- 
larly clearly developed as yet, as to what exacUy was accomplished 
by this new organization whicn included foreign associates as well as 
domestic associates in attempting to stabilize.-tliB price. 

124491 — 41— pt 25 ^11 


Mr. Kellet. The results were entirely satisfactory as long as busi- 
ness was good. They became exceedingly disappointing when it g6t 
bad. We went a long way up and we came down. 

The Chairman. Then they were satisfactory in this: That uAtil the 
depression you succeeded, through this organization, in stabilizing 
world prices on a rising level. 

Mr. Kellby. Yes; and — well, let's leave it that way. 

Senator King. And there would have been a rising level without 
this organization? 

Mr. Kblley. There might have been. Copper would have risen 
in price in 1928 and '29 upon the facts of the industry itself. 

The Chairman. Then what good was this organization and why 
was it brought into existence? 

Mr. Kellet. It was brought into existence because we weren't 
prophets and we didn't know what was going to happen, and if the 
thing hadn't happened the way it did it might have been a desirable 
organization to help us if we got into bad times. 

The Chairman. Of course^ a few moments ago you said it had a 
very desirable effect, and now in response to Senator King you teU 
us it was practically a useless organization. 

Mr: Kellet. I don't say it was useless. I do say it isn't fair to 
draw the inference that the rise in the price of copper during a period 
when every commodity in the world and every security and every 
security market was rising, was due entirely to Copper Exporters. 

The Chairman. Mr. Kelley, these charts you yourself have pre- 
sented here indicate in each instance that the increase in the price of 
copper was out of all proportion to the increase in other commodities. 

Mr. Kellet. That is an interpretation. It shows that the price 
of copper never reached the pre-war level that other commodities did. 
I agree that the rise at that particular time was more rapid because 
all stocks had been exhausted; the production charts and the con- 
stmiption charts and the increase, in production and consumption 
verify it. 

Senator King. It was subject to a more precipitous rise than other 
commodities because of the fact that all the other stocks had been 
exhausted and there was a great demand by reason of the techno- 
logical development in various industries which were short of copper. 

The Chairman. Mr. Kelley, let me hand you your "Exhibit No. 
2128," and ask you to refer on that exhibit to the three lines which 
you have drawn there for the years '27, '28, and '29, and compare the 
mcrease in the price of copper as shown on that chart with the in- 
crease in the price of pig iron. 

Mr. Kellet. In that particular time the price of copper went on 
the index from a subnormal level of 82, I should say, to 120. 

The Chairman. From 82 to 120? 

Mr. Kellet. That is right. 

The Chairman. That is a difference of how many points? 

Mr. Kellet. It js a difference of 38 points. Pig iron, which was 
already at a level of 120, which was never reached by copper, went 
up to 128. 

The Chaihman. What was that increase? 

Mr. Kellet. E^ht points 


The Chairman. And while copper was going up 38 points, pig 
iron went up 8? 

Mr. Kelley. Yes. 

The Chairman. What does the other line show? 

Mr. Kelley. The other line is Bessemer steel. Bessemer steel in 
that period went from 129 to 135. 

The Chairman. And how many points is that? 

Mr. Kelley. About six points. 

The Chairman. So that while copper was going up 38 points, 
Bessemer steel went up 6 points? 

Mr. Kelley. Yes. 

The Chairman. And now do you still want to deny any credit to 
Copper Exporters, Inc., for the very splendid showing of the copper 

Mr. Kelley. Senator, I want to try to make myself clear and to 
do it frankly. Copper started from a subnormal level. It increased 
more precipitiously, I have frankly said; the reason it was at a sub- 
normal level was because of the stock situation that up to that time 
had hung over the market, in my opinion. 

Senator King. There was no evidence that pig iron had to start 
from the cellar, normal level. 

Mr. Kelley. There is never, as far as my information goes, a 
surplus of pig iron. I mean they don't melt up the ore until they 
require the iron. May I just suggest this: If we look at zinc in the 
same period, and lead, they likewise show more rapid increases than 
the general commodity index. 

The Chairman. Zinc and lead were more like copper in their 

Mr. Kelley. Yes. 

Mr. O'CoNNELL. Do you happen to know whether there was an 
international a^eement, international cartel, in connection with 
those commodities? 

Mr, Kelley. I don't. I think I am safe in saying there was no 
international cartel in zinc, because we are handling zinc; we are not 
consequential factors in lead, and I don't know anything about it. 

The Chairman. Proceed, Mr. Scoll. 

Mr. Scoll. I now offer this table referred to before, entitled 
"Sales and Average Prices Received by Copper Exporters, Inc., 
Monthly, 1926-32." 

The Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2130" and is 
included in the appendix on p. 13454.) 

Mr. Kelley. May I ask Mr. Scoll a question? I want to ask Mr. 
Scoll if he intended to interrogate me with reference to the stock 
situation, the production, and the consumption during the period that 
we have been discussing. 

Mr. Scoll. That is what I was getting to right now. 

Mr. Kelley. I would like to have these introduced ' as a verifi- 
cation of the testimony I have given with reference to "Exhibit No. 

The Chairman. At the proper. time that may be done. 

< Roferring to "Exblblts Nos. 2131, 2131-A, 2131-B and 2131-C." 



Mr. ScoLL. I will ask you now, Mr. Kelley, if you will explain the 
rise in the price of copper from an average of 15.2 cents in October 
1928, to an average of 21.2 cents in March 1929. You have some 
charts there. You may read from them and I will give the chairman 

Mr. Kellbt. I will try to summarize — ^ 

Mr. ScoLL. Mr. Kelley, first will you explain the long column which 
is marked in yellow, and brown (representing, respectively, refined 
and unrefined stocks). 

The Chairman. Let's get this chart identified. This will be 
"Exhibit No. 2131"; it is entitled "Copper Statistics, Record by 
Months of World Stocks, Production and Consumption, 1928-1931". 
By whom was this prepared Mr. Kelley? 

Mr. Kelley. • These charts were prepared by our organization from 
figures of the American Bureau of Metal Statistics, and were currently 
kept in my office for my personal guidance in trying to handle the 

The Chairman. The charts may be received. Now you may 
proceed in your explanation. 

(The charts referred to were marked "Exhibits Nos. 2131 , 2131-A, 
2131-B and 2131-C" and are included in the appendix facing p. 13455.) 

Mr. Kelley. What chart have you before you, 1928? 

Mr. Scoll. The record should show I believe that there are four 
pages to this chart. 

Mr. Kelley. 1928, 1929, 1930, and 1931 up to October when 
statistics ceased. 

The Chairman. There are four exhibits to be entered as Nos. 
2131-A, B, C and D. 

Mr. Kelley. These charts, which as I say were kept currently, 
show, first, the large column to the left among the three columns 
shows the producers' stock on the first of the month as reported by 
the same authority. The red column to the right shows the actual 
deliveries made by the industry during that month. Now, you will 

Mr. Scoll (interposing). Before you explain that, Mr. Kelley, the 
green column in the middle, which is labeled "Production during the 
month"— that production includes what? 

Mr. Kelley. It Includes all the production of primary copper 
reported through the American Bureau of Metal Statistics. 

Mr. Scoll. So it would include both bUster copper and refined 
copper. Is that correct? 

Mr. Kelley. As I understand this chart, it is on the smelter basis, 
it would include one or the other as it came "through. 

Mr. Scoll. Can you answer my question as to whether it includes 
refined copper as well as blister copper.^ 

Mr. Kelley. I tjiink it does.^ 

If you will observe, at the beginning of the year 1928, there was a 
total stock of copper of about 700,000,000 pounds. Production was 
running currently a little short of 300,000,000 pounds a month, and 
consumption was running a little in excess of 300,000,000 pounds a 
month. Now, following through January, February, March, April, 

> Tba production was on a blister basis to eliminate dnpllcatlon. 


and May, in each of those months, the deUveries of copper exceeded 
the production. The result was a constant diminution in the amounts 
of copper shown in the stock column. So that by June the stock had 
gotten down to 600,000,000 poimds. On the contrary, production 
had gotten up to 318,000,000 pounds, just balancing deliveries. The 
situation was in balance. 

Following that in July, production exceeded dehveries a little bit. 
From that time on, notwi^hstandiug the constant ijicrease in produc- 
tion up until December — no really up until November — the deUveries 
exceeded the production, resulting in a diminution of stock. In- 
October, the stock position had gotten down to 600,000,000. 

The Chairman. In October of 1928? 

Mr. Kelley. 1928, and that was the time that we became very 
much concerned about the situation. 

The Chairman. When the stocks on hand were reduced to 

Mr. Kelley. Tes. 

The Chairman. Then you became concerned? 

Mr. Kelley. About a run-away price. That is the time the price 
began to get out of anybody's control. To meet that situation, on 
October 29, 1928, Copper Exporters issued a statement in which we 
advised the buyers to cease buying. It had almost assumed panic 
proportions, and We said : 

The urgent demand for copper has forced the Copper Exporters Inc. to raise 
the price of copper for export to 16% cents c. i f. European ports. In the opin» 
ion of the producers and refiners forming the membership of Copper Exporters 
Inc., consumers are buying in excess of actual requirements, thereby creating the 
danger of a run-away market. They believe that the increased mine produc- 
tion — September, 7,000 tons over August, and 20,000 tons over January — will 
be sufficient to satisfy any reasonable demand. Unfilled orders on the books of 
producers and refiners as shown by available statistics were 353,000 tons at the 
end of September as compared with 257,000 tons at the end of August, and have 
undoubtedly been further increased during the month. It is believed that if 
buyers will confine their purchases to actual requirements, the situation should 
be relieved by increased mine production coming upon the market. 

That was the best advice that we could give to prevent a run-away 

The Chairman. What was the price in January 1928, at the 
beginning of this charts 

Mr. ScoLL. I think I can answer that from the table attached to 
"Exhibit No. 2100." ^ 

Mr. Kelley. The average price of copper in January 1938 was 
13.85 cents a pound. 

The Chairman. Inp'ebruary what was it? 

Mr. Kelley. In February it was slightly lower, 13.82. 

The Chairman. March? 

Mr. Kelley. 13.84. 

The Chairman. April? 

Mr. Kelley. 13.98. 

The Chairman. May? 

Mr. Kelley. 14.2. 

The Chairman. June? 

Mr. Kelley. 14.5. 

The Chairman. July? 

Mr. Kelley. Exactly the same. 

> Appendix, p. 13304. 


The Chaieman. August? 

Mr.KELLBT. The same, 14.2. 

The Chairman. September? 

Mr. Kelley. 14.7. 

The Chairman. October? 

Mr. Kelley. October, 15.2. 

The Chairman. So that it was this increase in October that caused 
you to fear a run-away market. 

Mr. Kelley. It was the decrease in stocks that continued over 
deliveries as against production and the volume of buying that was 
coming in which was in excess, we believed, of normal requirements. 

The Chairman. According to this chart, the stocks on hand in 
October were 612,000,000 as compared with 699,000,000 in: January, 
or a decrease of only 87,000,000 pounds. 

Mr. Kelley. Yes; but look at the decrease in the refined stock, 
and that is the stock that was available for delivery. That is the 
hghter color at the top. 

Mr. ScoLL. May I interrupt there, Mr. Kelley? A part of the 
production represented in the green colunm was also available, was 
it not, insofar as they were refined stocks? 

Mr. Kelley. No; whatever was delivered is reflected in this other 

Mr. ScoLL. But the deUveries came out of aU stocks that were 
available and they might have been refined during that month or 
previously, and if previously refined, were on hand the first of the 

Mr. Kelley. Yes. 

The Chairman. Of course, that is clear because taking the first 
column of January, the deliveries amounted to 307,000,000 pounds, 
plus, and the refined stock on hand that month was only 229,000,000 

Mr. Kelley. Yes. 

The Chairman. The 307,000,000 pounds delivered had to be taken 
both from the refined stocks on hand, and the copper produced during 
that month. 

Mr. Kelley. Yes; that is right. The tall colunm (stocks) repre- 
sents the net result after the reduction of delivery figures had been 
calculated, but if you look at the refined stock position, that had de- 
creased from 229,000,000 pounds to 134,000,000. 

The Chairman. But the amount produced had increased from 
287,000,000 pounds to 353,000,000 pounds. 

Mr. Kelley. Right; and the deliveries had increased from 307,- 
000,000 to 3.55,000,000, so there was scarcely 2 weeks of refined copper 
in the world. That is what we were afraid of. It takes approximately 
90 days to bring it through. 

Senator King. It is evident you were not seeking to increase the 
price of copper to the consumer. 

Mr. Kelley. Not at that time. 

Senator King. You were seeking to prevent a run-away market 
which would cause an unprecedented and undesirable price in copper? 

Mr. Kelley. That is right. 

Now, if I may continue, briefly, that situation reached, I think, its 
apex in March. Production was increasing, deliveries were increas- 
ing — that was the world condition that I referred to, and stocks were 


aot being built up adequately. The producers in that situation sold 
forward copper that was in the ground as far as they dared ; the market 
was left to the custom smelters, which necessarily couldn't go in a 
forward position with the small producers, and that is what forced the 
price up on bids, not "asks," to 24 cents a pound. 

Mr. ScoLL. Mr. Kelley, were any of the copper producers to your 
knowledge speculating in copper during that period? 

Mr. Kelley. No; not to my knowledge. What do you mean? 

Mr. ScoLL. I mean speculatmg on further advances in price and 
accumulating stocks with the idea of unloading them at a higher figure. 

Mr. Kelley. No. 

Mr. ScoLL. I think. Senator, we may proceed. Have you anything 
more to say? 

Mr. Kelley. This whole situation was covered completely in a 
memorandum that was prepared for the Board of Review of the 
Federal Trade Commission under date of October 21, 1931, as was 
the subsequent 1930 situation, and sometime I think it might be 

Mr. ScoLL (interposing). I suggest that you offer it to the com- 

The Chairman. It may be received, Mr. Kelley. You would like 
to have it appear in the record? 

Mr. Kelley. I think it is the most succinct statement of what 
occurred through that entbe cycle that has been prepared anywhere. 

Mr. ScQLL. It bears "Exhibit No. 2132." 

(The memorandum referred to was marked "Exhibit No. 2132" 
and is included in the appendix on p. 13456.) 

Mr. ScoLL, You referred to the statement that was issued by 
Copper Exporters, I believe it was in October 1928. Now, subsequent 
to October 1928, the price kept on rising? 

Mr. Kelley. Right. 

Mr. ScoLL. And that rise in price naturally stiinulated, or did it 
stimulate buying? 

Mr. Kelley. That is a good deal like whether the chicken followed 
the egg or the egg the chicken. They always go together. You get 
a situation of the rise in prices, you get panicky buying, you get an 
uicrease in price, and you get a situation 

Senator King (interposing). Stimulated speculation, too. 

Mr. Kelley. Right. 

Mr. ScoLL. Copper Exporters controlled roughly 95 percent of the 
United States production and 86 percent of the foreign production at 
that time? 

Mr. Kelley. The members sold the copper. I don't want to b 

Mr. Scoll. The members acting through the Copper Exporters, 
Inc., could they have kept the price down? 

Mr. Kelley. No. Mr. Brownell, who assisted in the preparation 
of this statement, is here, and he will testify that we were so concerned 
about the situation we did everythiug we could, and we contemplated 
coming over and putting the situation up to the Department of Justice, 
or to somebody, and asking permission to allocate copper because we 
knew copper was being bought speculatively. We knew we were in 
a run-away market, and we were helpless to stop it. We had sold ft 
billion pounds of copper khead a little later against a total stock above 


ground of 600,000,000 pounds. We had sold copper, several hundred 
million pounds of it, that was still in the mines. That is the best we 
could do. 



Mr. ScoLL. I believe that the price of copper was stablilized at 18 
cents about May 1929. Isn't that correct? 

Mr. Kelley. Well, the price of copper was 18 cents. 

Mr. ScoLL. Was 18 cents? 

Mr. Kelley. About. 

Mr. ScoLL. And thereafter it was held at 18 cents, according to the 

Mr. Kelley. That price prevailed. 

Mr. Scoll. What persons were instrumental in holding the price 
at 18 cents? 

Will the reporter read that question? 

(The question was read by the reporter.) 

Mr. Scoll. What class of persons, rather than individuals? 

Mr. Kelley. Well, I should say that that was the price of copper 
that prevailed in the industry. 

Mr. Scoll. Wellj now^ I believe you referred to the fact that you 
had some consultation with Federal officials some time after March 1 
and before August 1929, with respect to methods and ways and means 
of checking the run-away market. Is that correct? 

Mr. Kelley. No. No; I iaaid we considered it. We did not come 

Mr. Scoll. Well, now, did the amount of inventories of refined cop- 
per that were bought above 18 cents— and that was before Ma^ 1929 — 
and held by the fabricatiug companies including the fabricating sub- 
sidiaries of the producers, have any influence in the decision to 
maintain the price at 18 cents? 

Mr. Kelley. Well, I don't want to quibble, but I must object 
to the term "decision to hold the price at 18 cents," because imtil 
after the panic there was no such decision. 

^Mr. Scoll. Let me change the question slightly and change the 
word "decision" to efforts to maintam the price? , 

Mr. Kelley. WeU, let me tell you what happened, may I? This 
tremendous buying wave that started in the fall of 1928 continued 
through the balance of the year, and in January my chart shows in 
the firat week we sold 76,900 tons of copper. The sales in the second 
and third week were not so great, but to summarize it, as you can see — 
have you a copy of this? ^ 

Mr. Scoll. No, but that is all right. I have seen it and I think 
I can foUow your discussion. 

Mr. Kelley. Here it is. The sales by April — forward sales — 
amounted to more than 1,000,000,000 pounds of coi)per; and if you 
will look at the othet chart for 1929 you will see that in April, for the 
first time, production exceeded deliveries. The price naturally was 
due for a break; there was very little copper sold above 20 cents. 
. The average price of all the sales that were on the books was about 
18 cents. The price receded to 18 cents. The producers had been 

I BaiBrrliig to "Exhibit l^o. 2131," appendix, facing p. 1346S. 


sold out, as I hstve explained, months in advance. The custom 
smelters and the small producers took the market. We were digging 
the copper that was necessary to deUver, and while it may not be 
important, niy expectation was the situation would be completely 
liquidated; but if you will look on the chart you wiH see what hap- 
pened in July and August. 

As I recall, in the first week of September 142,000 tons of copper 
were sold, and we Were again in a tremendous forward position, which 
if permitted to collapse would unquestionably have precipitated the 
panic that came later, and that situation we did not — the producers 
did not want — there was no agreement about it. As a matter of 
business poUcy, having been sold out we did not force our copper on 
the market; we were endeavoring to see that the situation was liqui- 
dated and that is what happened up to the time of the panic, which 
occurred in October 1929. 

Mr. ScoLL. And I beUeve you made reference to the fact that you 
were forced into the position of holding the umbrella over some of the 
others that were selling at that time, some of the custom smelters 
and smaU producers? 

Mr. Kelley. Well, that appHed more i>articularly during the 
period of Copper Export Association. All right, we were. 

Mr. ScoLL. Now, in order to maintain the price at 18 cents through 
the panic, did any of the producers make stabilizing purchases of 

Mr. Kelley. That I do not know. 

Mr. ScoLL. Now, following the panic of 1929, will you describe the 
conferences that took place in Washington, telling who took the initia- 
tive and who particii)ated? 

Senator King. While you are getting that, may I make an off-the- 
record statement? (Statement ojff the record.) 

Mr. ScoLL. Before you answer my last question, Mr. Kelley, I 
asked you whether any of the producers had made stabilizing pur- 
cases in the late sumnier of 1929 and through the panic, in order to 
hold the price, and you said you didn't know of any. Now, how was 
the price maintained at 18 cents during that period? 

Mr. Kelley. WeU, if you will look at the chart that has been intro- 
duced in evidence * you will see that business was going through the 
summer of 1929 at fuU tUt. You will see that production was prac- 
tically maintained and deliveries were more than taking care of pro- 
duction as late as October 1929. Look at the picture. In September 
our production was 348,000,000 pounds 

Mr. ScoLL. Let the record show that Mr. Kelley is referring to 
"Exhibit No. 2131." 

Mr. Kelley. Our deliveries were 346,000,000; we were within 
2,000,000 pounds of a complete balance. In October our production 
was 350,000,000; our deliveries were 364,000,000. Now during that 
situation, and with that picture in front of you, no one, I take it, 
would go out and deUberately cut price; there would be no necessity 
for doing it. We were delivering the copper that we had sold during 
the spring and that situation continued until November, when the 
panic occurred, and then look what happened. Our production kept 
up to 341,000,000 and our deliveries dropped to 260,000,000, a drop 
of over 80,000,000 pounds in the month of November. 

•"Exhibit No. 2131." 


That is when the situation was collapsing. 

Mr. ScoLL. But I believe the conferences in Washington did not 
take place until sometime later? 

Mr. Kelley. That is right. 

Mr. ScoLL. Then how was the price maintained from the time 
October until it was decided in conference with Federal officials to 
hold the price? 

Mr. Kelley. WeU, how much of that? 

Mr. ScoLL. It covers a couple of months. 

Mr. Kelxey. The situation, and I will try to describe it very briefly, 
was as you described it, Senator King (in off-the-record statement). 
There was a state of panic. Everybody was trying to hold — this was 
after October, during the months of November, December, and 
January. The stock market had collapsed, and we all felt that it was 
a temporary thing, that with the close of the year there would be a 
resumption where we left off. 

The President of the United States had called a meeting of execu- 
tives, representing various lines of business. Mr. Brownell was there; 
and out of that came the appointment of a committee of business 
survey, I think it was designated, 20 men who represented the different 
industries in the United States, including myself. 

We had numerous conferences here as to what could be done. It 
was generally thought that the best program to be adopted was to 
try to maintain prices through a difficult period in order to prevent a 
collapse in the business structure which would result in tremendous 
imemployment, and up to that time we had not come into the cycle 
of imemployment, you see. 

That was the situation in January and it was the situation in March. 
In the latter part of March I became concerned over the situation. 
I felt that we were holding copper at a fictitious price. I felt that it 
couldn't survive. The panic — the depression had started and we were 
going into a deeper and wider depression than we had visuaHzed. I 
came to Washington — Mr. Brownell and I came to Washington; we 
consulted with responsible governmental officers who urged us to hold 
the price. We felt that it was our duty to cooperate. We did. That 
was a period of fictitious price, of artificial price, if you please. I 
enjoyed the general responsibility for it, and got the criticism that 
went for doing it, but it was my deliberate judgment the price should 
have been cut before it was, and it wasn't only because we felt it 
was our duty to cooperate with the Government in maintaining it 
that we did so. 

That situation prevailed until the month of April 1930 when we 
advised the Government that it was impossible to continue any longer, 
and even then against the request of the Government, through re- 
sponsible agencies, we let the price go. 

Mr. ScoLL. Well, now through this period that we have just been 
discussing, Mr. KeUey, late '29 and early '30, the custom smelters 
were, I beheve, in a rather critical position in that they had to unload 
their daUy intake as it came in, isn't that correct? 

Mr. Kelley. That is correct. 

Mr. ScoLL. And so that in order to carry out the wishes of the 
Federal officials that you spoke to and try to hold the situation in 
check, some arrangements had to be made with the custom smelters 



SO that they wouldn't lose out and be forced to cut the price — isn't 
that correct? 

Mr. Kellet. No; it is not correct to this extent: I don't want to 
place any responsibility prior to the pauic upon anything that was 
suggested by Government oflEicials, and the arrangement was initiated 
prior to that time. 

Mr. ScoLL. It was initiated prior to that time? Well, will you 
describe the arrangement briefly? 

Mr. Kelley. Well, don't you think Mr. Brownell had better do 

Mr. ScoLL. Very well. 

Mr. Kelley. It is his particular business. 

Mr. ScoLL. One further question on Copper Exporters, Inc. After 
the break of the 18-cent price and the price started down the toboggan, 
the Copper Exporters, Inc., tried to hold the custom smelters with 
special quotations under the official price, did they not? Will the 
reporter read that question? 

(The question was read by the reporter.) ^ 

Mr. ScoLL. I am referring to the allowance of the special partici- 
pations, preferred participations. 

Mr. Kelley. My recollection is that after the break of the 18-cent 
price the party was over, but that during the continuance of the 18- 
cent price the producers waived sales and allowed a transfer of par- 

Mr. ScoLL. Were any concessions made to the European Associates 
to hold them in line? 

Mr. Kelley. Not that I recall. 

Mr. ScoLL. Does the phrase "the extra-special quotations" recall 
anything to your mind? 

Mr. Kelley. It really doesn't. 

copper institute and statistics 

, Mr. Scoll. I would Uke to ask you a few questions about the Copper 

Mr. Kelley. Yes. 

Mr. Scoll. Shall we proceed? 

The Chairman. Let's proceed. 

Mr. Scoll. You, I believe, are the president of the Copper Institute. 

Mr. Kelley. I am. 

Mr. Scoll. What is the function of the Copper Institute? 

Mr. Kelley. The Copper Institute is purely a statistical organiza- 
tion, functioning in the gathering and distribution of pertinent statis- 
tics with reference to the production, consumption, and distribution 
of copper. 

Mr. Scoll. I would like to oiffer at this time a list entitled "Organi- 
zation of Copper Institute," which includes the membership of the 
Institute, its officers, and executive committee, of which Mr, Kelley 
is the chairman. This Ust was prepared by the Copper Institute. 

The Chairman. It may be received. 

(The Ust referred to was marked "Exhibit No. 2133" and is included 
in the appendix on p. 13460.) 

Mr, Scoll. This hst must have been the officers and personnel at 
the time of organization of the Institute. 


The Chairman. In what year was that? 
Mr. ScoLL. ' 1^26, I beUeVe. 
Mr. Kellbt. 1926 I think is right. 
The Chairman. And it has been changed since then? 
Mr. Wolff. In 1927. 
Mr. Kelley. Yes. 

Mr. ScoLL. I would like to read into the record article 4 of the 
constitution of the Copper Institute dated as of November 3, 1927: 

Article 4. The books and records of the Institute shall be open at all times to the 
inspection of the departments or bureaus of government interested and all reports 
distributed to members shall be furnished to any official public body or insti- 
tution desiring to receive them. The information compUed by the Institute, 
in essential particulars, shall be available to the public through trade journals or 
the general press. . 

Ha^ the institute made its information readily available to the 
trade journals or to the press? 

Mr. Kelley. Generally speaking, it is my understanding that it 
has. I believe there are some particular matters that people who 
furnish them prefer not to be published, but on the whole I would say 
that whether or not they have all been given to the press, they have 
all been filed with the governmental bodies. 

Mr. ScoLL. What has been the general attitude of leading members 
of the Institute toward publication of statistics? 

Mr. Kelley. Well, I think generally they have all been in favor 
of it. 

Mr. Scoll. But the Institute has from time to time suspended the 
publication of statistics, has it not? 

Mr. Kelley. Only in exceptional cases and imder exceptional 
circumstances. Do you refer to what occurred just recently? 

Mr. Scoll. I didn't want you to go into it, merely to answer 
whether or not such suspensions had occurred. 

Mr. Kelley. Generally speaking, when the information has been 
available it has been published. 

Mr. Scoll. You are aware, of course, that the American Petroleum 
Institute and other trade associations — 7- 

Mr. Kelley (interposing) . I know they exist. 

Mr. Scoll. Have over a period of time made their statistics 
public. Has the attitude of the Institute on this matter of statis- 
tics been conditioned by the attitude that keeping control over the 
use of its figures discourages the activities of the speculator? 

Mr. Kelley. Well, I don't think it has kept control. 

Mr. Scoll. WeU, those periods when statistics have been sus- 
pended — does that have some relation to the activities of speculators? 

Mr. Kelley. That I couldn't say. I know what Mr. ScoU wants. 

Mr. Scoll. Why don't you tell me? 

Mr. Kelley. Frankly, the situation is that when the war came, 
I mean our current war, statistics were unavailable from Germany, 
they were unavailable from the Empire producers, which included 
the Canadians and the South Africans, because their production had 
been taken over by the British Government, and at that time it 
seemed as though that was something that the British Gov eminent 
quite naturally might not wish to be made pubhc, and in that situation, 
from September on until the end of the year, no statistics were pub- 
lished because they were incomplete. Now what further purpose any 


individual or corporation might have had for taking the position that 
they didn't want the statistics compiled, I am not in a position to 
discuss. The fact is that general, complete statistics were not 

Mr. ScoLL. I believe the Institute recently announced that it was 
going to resume pubhcation of statistics. Is that a fact? 

Mr. Kelley. We have been urging our foreign associates to tiy 
and get the statistics released. They were not compiled during this 
period. It was my understanding that they will be forthcoming 
and we hope that while we may not be able to pubUsh the statistics 
monthly, we wiU cover the period from September to the end of 
the year in a block, so that the yearly statistics will be complete. 

Mr. ScoLL. It helps the consumers of copper more if the statistics 
are pubhshed than'if they are not, doesn't it? 

Mr. Kelley. Surely. 

Mr. O'CoNNELL. May I ask a question there? Before you sus- 
pended the pubhcation of statistics, did you prepare and pubhsh 
statistics on such specific questions as domestic production and 
domestic consumption, or were the statistics pm-ely on a world basis? 

Mr. Kelley. It was both. We pubhshed domestic and the 
world — domestic, foreign, and combined statistics. 

Mr. O'CoNNELL. At the time you suspended publication, you 
indicated that your statistics were incomplete? 

Mr. Kelley. The world statistics. 

Mr. O'CoNNELL. You' did have the same type of figures as far as 
domestic production and consumption were concerned, did you not? 

Mr. Kelley. No, we didn't, because some of the members — 
some of the producers — took the position that if. they couldn't get 
complete information they wouldn't furnish theirs; and we did not 
have them — I mean speaking for the Institute. 

Mr. ScoLL. To your knowledge, were any of the domestic statistics 
made available to any large consumers of copper who were on the 
inside, so to speak? 

Mr. Kelley. Not that I know of. 


Mr. ScoLL. At this time I would like to offer for the record a 
chart and two tables entitled "World Production of Copper, 1912- 
1938," a chart that was prepared by the T. N. E. C. from figures of 
the American Bureau of Metal Statistics. It shows the relative 
positions from 1912 to 1938 of Asia, Europe, Africa, Latin America, 
and Canada, Newfoundland, and the United States. Copies have 
been furnished to you, I beheve. 

The Chairman. They may be received. 

(The chart referred to was marked "Exhibit No. 2134" and appears 
on p. 13462. The statistical data on which this chart is based are 
included in the appendix on pp. 13460 and 13461.) 

The Chairman. The spaces on this chart are not cumulative, are 
thej, Mr. Scoll? In other words, the space labeled "United States" 
indicates the production of copper in the United States. Then the 
space above that, which is labeled "Canada and Newfoundland," 
~ represents the production in Canada and Newf oimdland but does not 
include the space below already in the United States? 


Mr. ScoLL. That is correct. 

The Chairman. So that in interpreting this chart we must take 
into consideration only that area which is designated for each different 

Mr. ScoLL. That is correct. 

Mr. Kelley. Pardon me, Mr. Scoll, do you mean that? It is 
cumulative in the sense that, for instance, Canada and Newfoundland 
are added onto the total production of the United States, so that you 
get a cumulative figure going up to two and a half million short tons 
of copper. Isn't that right? 

The Chairman. I think you misunderstood me, Mr. Kelley. My 
thought was this: I wanted to be clear that the production of Canada 
and Newfoundland does not amount to more than the production 
in the United States. It is the difference above each one. Proceed, 
Mr. Scoll. 

Mr. Scoll. Beginning with 1930, an increasing share of world 
production went to Africa and Canada. Isn't that correct? 

Mr. Kelley. That is right. 

Mr. Scoll. I would like to offer at this time a chart and supporting 
table showing the share of world production of copper controlled by 
United States companies, 1916-1937. 

The Chairman. What is the source of this? 

Mr, Scoll. This was preparediby the T. N. E. C. staff from figures 
of the American Biu-eau of Metal Statistics. It shows very graphi- 
cally how the foreign share of world production has increased since 
1930 and how the United States share has decreased. 

The Chairman. The exhibit may be received. 

(The chart referred to was marked "Exhibit No. 2135" and appears 
on p. 13464. The statistical data on which this chart is based are 
included in the appendix on p. 13463.) 

Mr. Scoll. Mr. Kelley, in spite of the decline in total world prb- 
duction by the United States, the amount of world production con- 
trolled by the United States companies which was produced outside 
of the United States increased considerably, did it not? 

Mr. Kelley. That is true. 

Mr. Scoll. And it was greater than it had ever been before? 
. Mr. Kelley. Right. This chart (referring to "Exhibit No. 2136") 
shows the geographic distribution of the ore reserves of the world by 
countries; this chart (referring to "Exhibit No. 2137") shows the dis- 
tribution of reserves by corporate control by nationality. 

The Chairman. Please number them and we will get them in the 

Mr. Scoll. The two charts referred to, World Copper Reserves by 
Geographic Location, and World Copper Reserves by Corporate Con- 
trol, introduced by Mr. Kelley, will bear the numbers 2136 and 2137. 

The Chairman. The exhibits may be received. 

(The charts referred to were marked "Exhibits Nos. 2136 and 2137" 
and are included in the appendix on pp. 13465 and 13466.) 

Mr. Kelley. The corporate control referred to is by nationality 
and not individually by companies. 

The Chairman. Let's see what you mean by that. 

Mr. Kelley. American. 

The Chairman. American? 


Mr. Kelley. American created corporations. If you look at the 
bottom of that chart,^ that refers to the nationality of the corporations. 

The Chairman. You have (a) United States, and under that, 
Canada 0.19 percent, Mexico 0.29 percent, Cuba and Nicaragua 0.09 
percent, and Cyprus 0.43 percent. Is that right? 

Mr. Kelley. Yes; that is right. 

The Chairman. Does that mean that United States corporations 
are operating in these five areas? 

Mr. Kelley. No; that is forty-three one hundredths of 1 percent 
in those particular places. 

The Chairman. Oh, I see. That (a) refers to that segment of the 
big circle which is labeled (a). 

Mr. Kelley. Yes; United States corporations in there. 

The Chairman. In that segment the United States corporations 
operate. That represents 1 percent of the entire world reserves. Is 
that it? 

Mr. Kelley. Yes; that is the miscellaneous production that was 
too small to allocate to different countries — ore reserves, not produc- 

The Chairman. I see. It stUl isn't clear to me. Let's go to the 
circle itself. Here it is divided into various segments wliich are 
labeled "United States Domestic," "U. S.-Chile," "Canadian," 
"British-Africa," "Belgian," "Russian," with three segments which 
are not labeled. One is indicated by the letter (a) and one by the 
letter (b) and one by the letter (c). Let us take the United States 
Domestic segment, which is apparently 23.62 percent of the total 
circle. What does the chart represent with respect to that segment? 

Mr. Kelley. That section, 23.62 percent, represents the amount 
of the ore reserves of the world within the United States and con- 
trolled by United States corporations. 

The (chairman. All right. Now the next segment above that is 
Chile; 24.56 percent of the copper reserves of the world are in Chile 
and controlled by United States corporations? 

Mr. Kelley. Right. 

The Chairman. Now, then, with respect to segment (a), that 
means that United States corporations control the various amounts 
set forth below in these various countries. Is that correct? 

Mr. Kelley. That is right. 

The Chairman. Why does Canada appear both in segment (a) and 
have a segment all to itself? 

Mr. Kelley. It is because there is a small American ownership in 
Canadian ore reserves. The balance of it is owned by Canadian 

The Chairman. Then isn't this 7.68 percent labeled Canadian 
owned by United States corporations? 

Mr. Kelley. I don't see where that is. 

The Chairman. Can you give me from this chart the total amount 
of copper reserves of the world owned or controlled by corporations 
of the United States? 

Mr. Kelley. Yes. According to the tabulation which we have 
prepared, we have 56,000,000 tons, or 49 percent of the ore resorvea 
of the world are controlled by American companies. 

' "Exhibit No. 2137" appendix, p. 13466. 


Mr. Pike. That is in tons of copper, not ore? 

Mr. Kelley. Yes; copper. 

The Chairman. The United States corporations have no part in 
this Russian percentage of 15.46 percent? 

Mr. Kelley. I think not. 

The Chairman. Nor in the Belgian percentage of 5.25? 

Mr. Kelley. No. 

The Chairman. Nor in the British-Africa 17.86? 

Mr. Kelley. No. 

The Chairman. Not in the Canadian of 7.68? 

Mr. KTelley. Some may own stock in them. 

The Chairman. Is there any other world organization which 
operates in the copper industry besides the Copper Exporters of 
which we were speaking a little while ago? 

Mr. Kelley. That is not operating now. 

The Chairman. No; but is there any other that has been operating? 

Mr. Kelley. Not that I Imow of. 

The Chairman. That was the only international organization of 
which you know? 

Mr. Kelley. Except the Institute, which is merely a statistical 

The Chairman. None other? 

Mr. Kelley. None other. 

The Chairman. And so far as you know there has been no other 
association of foreign producers with American producers except 

Mr. Kelley (interposing). Oh, yes; there is a group of copper 
producers operating outside the United States that entered into a 
production agreement, but I think it is intended that Mr. Stannard 
shall handle that. 

The Chairman. That did not include any United States corpora- 

Mr. Kelley. It included United States corporations but not 
United States production. 

The Chairman. United States corporations operating in 

Mr. Kelley (interposing). Operating abroad. 

The Chairman. Do I imderstand that American corporfCtions do 
not produce copper in Europe? 

' Mr. Kelley. I know of no American corporation that produces 
copper in Europe. 

The Chairman. Nor in Asia? 

Mr. Kelley. Nor in Asia. 

The Chairman. American corporations are confined, then, to North 
and South America in their development? 

Mr. Kelley. I think that is true. They may have a small interest — . 
my assistant tells me there is one American corporation that is oper- 
ating on the Isle of Cyprus. 

The (Chairman. That is a very insignificant amount? 

Mr. Kelley. It is a small operation, comparatively. 

Mr. ScoLL. The new foreign producers, or should I say the foreign 
producers which began to develop production during this period, were 
Rhokana, International Nickel of Canada, Roan Antelope and Mufu- 
lira, were they not? 

Mr. Kelley. Those were the most important ones who increased 
their production during that period. 


Mr. ScoLL. And Rhokana, Roan Antelope, and Mufulira have b&en 
referred to as the low-cost producers? 

Mr. Kelley. I never heard them so referred to. 

Mr. ScoLL. Are they? 

Mr. Kelley. They are Rhodesians. Their costs are published. It 
depends a great deal upon what currency you use as a denominator. 
If you translate it into cents, it is one thing; if you keep it in shillings, 
it is another thing. 

The Chairman. Now, money is just a measure of value. 

Mr. Kelley. But it makes a great deal of difference if your rate of 
exchange is $4.86 or if it is down to $3.50. I mean they are economic 
producers; they pay their bUls in sterling. Their costs are kept in 
sterling, but the cost to them, if you transliate it into cents per pound, 
varies with the rate of exchange. 

The Chairman. What is the real difficulty of coming to an under- 
standing as to what is a low-cost producer or a high-cost producer? 

Mr. Kelley. I think the best answer to that would be if I could 
have access to one of these Government reports. They classify copper 
costs say below 8 cents, bracket it between 8 and 10 cents, bracket it 
between 10 and 12 cents, 12 and 14 cents, 14 and 16 cents. Now, low 
and high are comparative terms. It depends on where you draw the 

Mr. ScoLL. Which ones are below 8 cents, Mr. Kelley, if you can 

Mr. Kelley. Well, in this report of the Federal Trade Commis- 
sion — I want to be very frank about it, I am not trying to evade. 

Mr. ScoLL. What is the date of that? 

Mr, Kelley. This is the report of the Federal Trade Commission 
in 1919 and gives the cost in 1918. 

Mr. ScoLL. That wouldn't give us much information on these 
Rhodesian producers would it? 

Mr. Kelley. No. You asked if they were high or low cost. I will 
say they are competitive producers but there is plenty of copper that 
is cheaper and a' great deal that is higher. 

The Chairman. Of course it is comiojon knowledge in mining regions 
that ore varies in content, that you hav^ high-grade ore and low-grade 
ore, that ordinarily the high-grade ore may be produced at a low cost, 
and the low-grade ore is produced at a higher cost. That is true, is 
it not? 

Mr. Kelley. No, sir. 

The Chairman. It is not? What is the fact? 

Mr. Kelley. The fact is that the cheapest ^copper in the world is 
produced from the lower grade ores where the character of the opera- 
tion is such that it lends itself to great volume and mechanization. 
Those factors more than overcome a much higher grade ore that has 
to be mined from a depth, transported imderground and hoisted to the 
surface. Generally speaking. Senator, the lowest-cost copper is being 
produced from the lowest-grade ore. 

The Chairman. By reason of mechanization? 

Mr. Kelley. And the character of the operation. 

The Chairman. But where you need to go to great depths to get' 
the high-grade ore or to employ a larger number of miners to get it 
out — that naturally increases the cost. 

Mr. Kelley. Right. 

124491 — 41-;rPt- 25 12 


The Chairman. Since you can distingaish between high-grade ore 
and low-grade ore, why is there any difficulty in distinguishing 
between low cost operations and high cost operations? 

Mr. Kelley. Well, if you define the term, I can tell you how much 
copper can be produced relative 

The Chairman (interposing). You and coimsel did not seem to be 
able to get to an understanding on this and I am just trying to clear 
it up in my own mind as to why you seem to be 

Mr. Kelley (interposing). What I am trying to say is we say hot 
or cold, but when we come to measure hot or cold you ask me if it is 
a hot day or cold day. We have a measure, that is, a thermometer. 
When you say high or low cost, those are comparative terms that are 
just as indefinite to my mind as hot or cold. But if you sa^* how much 
copper, if any, can be produced under 6 cents a pound or under 8 cents 
a pound, or under 10 cents — that means something. Now, the lowest 
bracketed copper here is given at under 12 cents. We have made 
studies of the thing and I think we could bracket within reasonable 
levels copper costs within certain levels. The Rhodesians are com- 
parable in cost to some of the best mines in the world. They are not 
the cheapest cost producers by any means, measured in sterling or 
measured in cents. 

The Chairman. Then, by and large, the Rhodesians are low-cost 

Mr. Kelley. Yes they are, they are lower than the higher. 

The Chairman. In other words, when you come to Washington in 
the summertime you know it is hot though you may not be able to 
determine just exactly what the thermometer would show, 

Mr, Kelley. But I have been in places where it was hotter. 

Mr. Pike. You wouldn't have any trouble, Mr. Kelley, in putting 
the Rhodesians and the Chileans in the bracket under 8 cents? 

Mr. Kelley. I think that is right. 

Mr. Pike. Or a lot of them — and they are all new— that came in 
since 1920; the Chileans since '20 and the Rhodesians since '30. They 
are all on the low side of the average cost? 

Mr. Kelley. Yes, although it varies between one and the other. 

Mr. ScoLL. Which domestic United States proaucers were most 
affected in foreign markets by the increase in low-cost competition we 
have been referring to? 

Mr. Kelley. The higher cost producers, unquestionably. 

Mr. Scoll. Would you care to name any of them? 

Mr. Kelley. No. I would not care to because I don't know. 
I could estimate. 

Mr. Scoll. What happened to their share of the export market? 

Mr. Kelley. Where? 

Mr. Scoll. My point is when did the coming in of the low-cost 
producers cause some of the American producers to lose out in th6 
export trade? 

Mr. Kelley. Unquestionably it was the tremendous increase in 
foreign production which could be made at a cheaper cost than the 
average of American production, plus the tariff. 

Mr. Scoll. We are getting a little ahead of ourselves on the tariff. 
We are still at 1930. 

Mr. Kelley. Oh. 


Mr. ScoLL. I want to ask you one question. In your opinion, did 
the 18 cent price have anything to do with the African mines coming 
into production sooner? 

Mr. Kelley. It did not because the plans for the development 
and finance of the African mines had been fully completed although 
the work itself had not been completed prior to the 18 cent price. 
That is my recollection. 

Mr. ScoLL. Let's go back a little further. 

Mr. Pike. Possibly I can help on that particular point. I was 
working on the Africans at the time. Plans had been completed 
and part of the financing done at that time — not the final financing. 
Plans for the Mufulira had been made but were delayed. It was 2 
or 3 years— I will put it this way, they were delayed by the break 
after the 18 cent price, but they were not far enough along to be 
affected either way. In the case of the N'Kana the plans had been 
made and I don't think there was any change. They were done by 
a British group and it took them about 2 years longer, possibly, to 
get into production than the comparable mines that were being 
developed by the Americans. The N'Changa was stopped at the 
break and never has gone into production as yet. 

Mr. Kelley. Because of physical conditions there. 

Mr. ScoLL. The prices of copper after the formation of Copper 
Exporters until the break in the 18 cent price must have stimulated 
exploration and development of mines in Africa and elsewhere, did 
they not? 

Mr. Kelley. These great mines in Africa had been prospected. for, 
wer'e known, and were of such a grade of ore that under all of the 
circumstances that had ever applied in the industry, they would have 
been developed at an average price for copper. 

Let me put it that way. The 18-cent price which lasted approxi- 
mately a year was reached after — as Mr. Pike suggests — long after 
the discovery of the ore bodies when the plans were under way and 
had nothing to do with the price. 

Mr. Pike. It may be interesting there that the Roan, which after- 
ward became the Roan Antelope was patented in 1902. Those 
bodies were aU known in the first half of the first decade of the century 
and they were not developed because the Bwana, which looked like 
the best one of them, turned out to be a very bad mine. 

Mr. Kelley. It turned out in the 20's to be no good. 

Mr. O'Connell. It would be reasonable to assume, would it not, 
that the rising price structure and the more favorable position of the 
industry in the period between 1926 and 1930 plus the stability of 
price during that year — beginning early in 1929 — would have stimu- 
lated the development of properties already known to exist? 

Mr. Kelley. Right, but I understood counsel to fix it to the 18- 
cent price. 

Mr. Scoll. I was making a question of my own. 

Mr. Kelley. You are right. 

Mr. Scoll. Some of these producers were brought in to Copper 
Exporters, Inc., I believe. Roan Antelope joined in 1932, did they 

Mr. Kelley. In the Copper Exporters? 

Mr. Scoll. Copper Exporters, Inc. 


Mr. Kelley. Really, I don't know. 

Mr. ScoLL. It isn't important; I believe that is right; 

The Chairman. It is a fact, isn't it? Did I understand your assist- 
ant to say that? 

Mr. Kelley. Yes. I had forgotten. 

Mr. ScoLL. Were any concessions made to get them into Copper 
Exporters Inc., or did they come in on the same basis as everybody 

Mr. Kelley. If you will ask me just what you have in mind I can 

Mr. ScoLL. I mean in the matter of preference as to sales allocations. 

Mr. Kelley. Not that I recall. 

Mr. ScoLL. Were there any concessions of any kind? 

Mr. Kelley. Not that I recall. 

PRODUCTION curtailments, 1930-1932 

Mr. ScoLL. Now will you turn back to "Exhibit No. 2100," the 
World Summary of Copper? * That shows, does it not, that the 
accumulation of stock, copper above the ground, was fairly close to 
United States production for the whole year, does it not? 

Mr. Kelley. When are you inquiring? 

Mr. SdOLL. I am inquiring about 1930. 

Mr. Kelley. In 1930? 

Mr. ScoLL. I can give you the figures. In 1929 the production was 
1,026,000 short tons; stocks at the end of the year were 403,000 short 
tons. In- other words, 40 percent of production. In 1930 production 
had dropped to 711,000 short tons; stocks on hand at the end of the 
year were 533,000 short tons. In other words, 75 percent of produc- 
tion. I am referring, of course, to the United States only. 

Mr, Kelley. Go ahead. Those figures I have no doubt are correct. 

Mr. ScoLL. At that current rate of demand, 533,000 tons would have 
lasted quite a long while, wouldn't it? 

Mr. Kelley. The stocks? 

Mr. ScoLL. Yes. 

Mr. Kelley. Yes; you have given the figures. 

Mr. Scoll. So that that was really the background, was it not, 
for the discussions of curtailment that took place in the Copper 
Institute in November 1930? 

Mr. Kelley. Right, except this, the Copper Institute was the 
only organization in the industry, and the first meeting that was held 
was called under its auspices, but inasmuch as the question of pro- 
duction was foreign to its purpose — if I remember, I think we simply 
recited something and then adjourned. Then we met informally as 
copper producers rather than members of the Institute. 

The Chairman. When you took a recess you changed your func- 

Mr. Kelley. No, we canvassed the situation. Senator. A number 
at least of the important people did not attend the meeting of the 
Institute, and we informally said, "we will meet uptown at a different 
date entirely." I merely say that because we did want to keep the 
Copper Institute clean as a statistical organization. 

i Appendix, p. 13304. 


The Chaipman. You wanted to keep it clear of any involvement 
in any discussion among the producers of the problem of curtailment? 

Mr. Kelley. Right. 

The Chairman. But the same persons whb discussed curtailment 
as producers were also members of the Institute? 

Mr. Kelley. Practically the same, except that we have foreign 
people in the Institute, too. 

The Chairman. Here again we have the same situation as was 
revealed in the export trade. 

Mr. Kelley. It is the same crowd. 

Mr. Scoll. I have here a summary in the form of a report of the 
investigator of the Department of Justice on those meetings which 
Mr. Kelley and his counsel has received, and I think it would save 
a lot of time if I could just insert this into the record, (and of course 
substitute a certified copy for it later), rather than go into a discussion 
of those meetings. 

The Chairman. That may be, but let me insert in the record before 
the interruption my comment upon the condition just described by 
Mr. Kelley, where he said it was the same crowd. The same actors 
in different costumes. 

Mr. Kelley. Perhaps that is. a good way to put it. 

The Chairman. The exhibit may be received. 

Mr. Scoll. I will offer, then, as the next exhibit, a report of an 
investigator, W. C. Gorsuch, dated November 18, 1930, and I ask 
the privilege of withdrawing it and substituting a certified copy at a 
later date. 

(The report referred to was marked "Exhibit No. 2138" and is 
included in the appendix on p. 13467.) 

Mr. Scoll. There were some discussions, were there not, concern- 
ing the legality of any general curtailment by the industiy? 

Mr. Kelley. Yes; there were. 

Mr. Scoll. And I believe the Department of Justice inquired into 

Mr. Kelley. It did. 

Mr. Scoll. Investigated and asked questions? 

Mr. Kelley. It did. 

Mr. Scoll. And pursuant to those inquiries the Copper Institute, 
or shall I say under the imprint of the Copper Institute 

Mr. Kelley. All right. 

Mr. Scoll. A memorandum was prepared dated January 9, en- 
closing copies of minutes of the Copper Institute meetings of Novem- 
ber 3, 1930, and January 5, 1931, covering the whole situation, telling 
who was there, and what generally took place. I believe you are 
familiar with that? 

Mr. Kelley. I am familiar, but I would like this comment, if I 
may be permitted to have it appear in the record. If you will look 
at the chart ^ showing the stocks of production and consumption of 
copper during the period you wiU see the perfectly extraordinary 
increase that had occurred in stocks, the over-production that had 
continued in the face of a diminishing demand. The stock that we 
referred to this afternoon as 612,000,000 pounds grew to a maximum 
of 1,412,000,000 pounds. 

The Chairman. In what month was that? 

1 "Exhibit No. ai31-C", appendix, fadng p. 13466. 


Mr. Kblley. That was later. 

The Chaikman. The first one was in October 1928, and this one? 

Mr. Kblley. October 1931. 

The Chairman. In October 1931 the stocks had increased to 
1,00? 000,000 what? 

Mr. Kelley. 1,412,000,000 pounds. 

Mr. O'Connell. Have you a figure showing the stocks as they 
existed at about the time these meetings were taking place? That 
was in the latter part of 1930? 

Mr. Kelley. In the latter part of 1930, the stocks had increased 
to a total of 1,230,000,000 pounds; the refined stock alone was 
757,000,000 pounds. On the other hand the deliveries had dropped to 
around 280 to 290 million pounds. So it was apparent that something 
had to be done about the situation. 

The Chairman. Too much copper? 

Mr. Kelley. Too much copper; too little business; a disordered 
world and a crumbling price. 

Mr. O'Connell. Too much competition? 

Mr. Kelley. Too much production and too much competition, 
maybe. At any rate, the industry was facing a crisis, and we held 
these meetings. We kept minutes of the proceedings; in the resolu- 
tions we recited the facts; in addition to our own counsel for the 
respective companies we had Colonel Donovan, who was employed by 
the industry — by the association or the group. We were advised that 
under those circumstances when an emergency existed, that the 
purpose of a curtailment program was not to fix or increase the price 
but to save an industry from insolvency. 

Under those conditions and within those limitations there was 
nothing in the law that compelled us to go on producing until bank- 
ruptcy resulted. The complete file was taken by the Colonel and, I 
believe, presented to the Government — the Federal Trade Com- 
mission — for an investigation ; every fact in detail was given to it and 
to the Department of Justice, and that curtailment was not sufficient, 
so that subsequently in 1931, I think, and finally 1932, we held more 
successive curtailments until the industry was down practically"l3n 
its back. 

The Chairman. Curtailment of production? 

Mr. Kelley. Right. 

The Chairman. You were setting the example for the A. A. A., in 
other words? 

Mr. Kelley. We hadn't had the benefit, I think, of that example at 
that time. That was prior to 1933. 

Mr. Scoll. May I introduce at this time the minutes of meetings of 
Copper Institute, November 3 and January 5, 1931? 

The Chairman. Have the minutes been identified? Are these the 
minutes, Mr. Kelley? 

Mr. Scoll. These are copies from the files. 

Mr. Wolff. They are. 

The Chairman. They may be admitted. 

(The ininutes referred to were marked "Exhibit No. 2139" and are 
included in the anpendix on p. 13473.) 

Mr. O'Conne*. j. May I ask whether you obtained a formal opinion 
from your counsel? 


Mr. ScoLL. I was just getting to that. May I offer also at this 
time a press release dated November 14, 1930? First of all I would 
like to show it to Mr. Kelley and ask him if he recalls the press release 
that was issued in connection with the 1930 curtailment? 

Mr. Kelley. Yes, that is right. 

The Chairman. The exhibit may be received 

(The press release was marked "Exhibit No. 2140" and is included 
in the appendix on p. 13478.) 

Mr. ScoLL. Mr. O'Connell asked you whether you had obtained 
opinion of counsel in connection with this. You did obtain such 
opinion, didn't you? 

Mr. Kelley. We did obtain a considered written opinion of counsel. 
That is embodied in the minutes of the meeting as part of the record 
and exhibited to the proper governmental authorities. Now you 
asked me also, did we receive advice from the Government? 

Mr. O'Connell. That wasn't my last question. I take it the 
opinion is generally to the effect that what you proposed to do could be 
done within the framework of the law? 

Mr. Kelley. Right, under the emergency conditions that prevailfirl. 

Mr. Scoiji. I was going to introduce the full opinion in the record, 
but I think it would be well to quote a short part at this point. The 
opinion is the opinion of William J. Donovan, dated November 13, 
1930, entitled "Opinion in re Legahty of Reduction in the Production 
of Copper" [reading from "Exhibit No. 2141"]: 

A final meeting was beld on Nqvember 13, 1930. The opinion was then gen- 
erally expressed that in order to safeguard the industry and to insure the protec- 
tion of its employees, it was essential to recognize the danger resulting from over- 
production and that this danger could be met only by each producer's making such 
reduction as he felt the interest of his stockholders, his employees, and his situa- 
tion would permit him to make. It was pointed out that curtailment was inevit- 
able because unless the present situation was corrected, such curtailment would 
come by the shutting down of plants during the period of subnormal demand or 
by the closing of plants due to insolvency. It was stated that rather than have 
curtailment come by this disorderly method, it was advisa-ile that it shotdd come 
by the intelligent and prudent action of each individual prt^ducer. Each of the 
representatives of the various copper companies represented at the meeting stated 
its current production of copper and what decrease, if any, thev expected to make 
in that production. * * * Xhe amount of reducMon vvhich the various 
producers of copper stated they expected to make totaled in the aggregate 
approximately 23,000 tons per month. Of this total the companies producing 
copper outside the United States indiqated that they expected to reduce their out- 
put approximately 13,991 tons per month. Those in the United States stated 
that they intended reducing their production 6,075 tons per month, and 
those companies operating both within and without the United States approxi- 
mately 3,500 tons per month. 

The last two referred to I believe were Kennecott and Anaconda, 
the two United States producers producing outside the United States? 
Mr. Kelley. Yes. 
Mr. ScoLL (reading further) : 

It is estimated that if each producer curtails ^is output as indicated, the pro- 
duction of copper will b.e approximately equal to the present demand for copper. 

There was no common* date fixed for the beginning of this curtailment and no 
formal agreement written or oral as to the amount or the period of curtailment. 
There was no promise by or obligation upon any producer that would prevent 
his taking any action which he might see fit to take at any time. There was no 
penalty or criticism for the failure of a producer to decrease his production 
although it was felt that the recognition of the problems facing the industry and 
the sense of responsibility on the part of the individual producer would guide him 
Jin carrying out his stated reduction if the period of subnormal demand for copper 
'continued and in increasing his production when conditions warranted it. 


I offer this opinion now for the record. 

The. Chairman. It may be received. 

(The opinion referred to was marked "Exhibit No. 2141" and is 
included m the appendix on p. 13479.) 

Mr. ScoLL. As a result of that meeting and the arrangement that 
was undertaken, each producer was allotted a share of the general 
curtailment, is that correct? That is, each producer was called upon 
to decrease his production by a certain percentage? 

Mr. Kellet. That is not quite in accord with my recollection. 
My recollection is that each producer, knowing his current produc- 
tion, knowing the amount of the "kitty" that was required, knowing 
what he ought to do and probably what he did do, would put down 
on a piece of paper the tonnage he would reduce and Mr. Eckert 
passed the hat and collected it and told us the aggregate. Is that 

Mr. ScoLL. That is aU right. 

The Chairman. In other words, there wasn't an agreement but you 
came to a common understanding? 

Mr. Kelley. It was an informal understanding. 

The Chairman. As a practical situation you wanted to curtail 
production and at the same time you didn't want to be put in the 
position of violating the law, so that there was no written agreement 
and there was no actual oral agreement, as we put it, but you reached 
the objective just the same? 

Mr. Kelley. That is correct. 

The Chairman. Because you felt it was necessary to do that in order 
to preserve the industry? 

Mr. Kelley. Absolutely. 

Mr. O'Connell. This legal opinion — as I read this one paragraph — 
would indicate that the writer of the opinion assumed a legal agree- 
ment existed, but came to the conclusion that under all the circum- 
stances it did not constitute a combination in restraint of trade. 

Mr. Kelley. A question of whether or not there was an agree- 
ment? The Senator has really stated. Yes and no — there was an 
understanding, and as far as I was concerned, I felt boimd. 

The Chairman. And here there were certain producers in foreign 
cpuntries who had to curtail a certain amount, if all were to bear the 
burden equitably, and th«Q there were producers in the United States 
who had to bear a certain share of the curtaUment if it was to be 
equitable, and then there were other producers operating both in the 
United States and in foreign countries under a like burden, and all 
three classes operated together, the curtailment was made, and 
everybody was satisfied. 

Mr. Kelley. It was the best that could be done under the circum- 
stances, we felt. 

Mr. ScoLL. Was any arrangement made to hold the adherence of 
each producer to his quota? 

Mr. Kelley. None; one thing should be added — that at the time 
that occurred the price of copper was at the lowest point on record. 
I think it got down to 5 cents a pound. 

Mr. ScoLL. Following the 1930 reduction, I believe you already 
mentioned the fact that the situation got worse instead of better, 
from '30 on? 

Mr. Kelley. Yes. 


Mr. ScoLL. So that by the end of 1931 the producers were again 
considering a further curtailment? 

Mr. Kelley. That is right. 

Mr. ScoLL. And I hand you now a press release dated December 
21, 1931. That is a press release which announced the reduction to 
2Q% percent of estimated capacity by the producers? 

Mr. Kelley. That is right. 

Mr. ScoLL. Is that the release that you agreed on? 

Mr. Kelley. I think it is. 

Mr. ScoLL. May I offer that for the record? 

The Chairman. It may be received, 

(The press release referred to was marked "Exhibit No. 2142" and 
is included in the appendix on p. 13485.) 

Mr. Kelley. My recollection is at each successive step we filed the 
minutes of the meeting immediately with the Federal Trade Com- 

Mr. ScoLL. And all the producers participated? 

Mr. Kelley. The minutes will show. 

Mr. ScoLL. What was the attitude of Katanga toward a reduction 
in 1931? 

Mr. Kelley. In '31, Katanga, I think, was favorable to a reduction. 
We always had difficulty with Katanga because the Belgium Govern- 
ment owned a majority of the shares and they looked upon the opera- 
tion in the Belgian Congo as a colonization scheme. They were more 
interested in the whole situation out there than they were in the price 
of copper or the production of copper. 

The Chairman. Were there any other producers in which foreign 
governments held ownership? 

Mr. Kelley. I know of none in which they hold direct participation. 

Mr. ScoLL. But indirectly? 

Mr. Kelley. In the general set-up of the Rhodesian situation the 
chartered company has some sort of a concession from the Rhodesian 
Government and pays a leasehold fee and so forth, to it — not an 

Mr. ScoLL. That is an independent arrangement. I would like to 
offer at this time, Senator, a report of an investigation by W. C. Gor- 
such, of the Department of Justice, which contains a general summary 
of the discussions, meetings,, and details concerning the further curtail- 
ment in 1931. I will later withdraw it and substitute a certified copy. 
The date is November 17, 1931. 

The Chairman. It may be received. 

(The report referred to was marked "Exhibit No. 2143" and is 
included in the appendix on p. 13|[86.j 

The Chairman. You are familiar with this material? 

Mr. Kelley. Yes. 

Mr. ScoLL. I offer at this time a report of an investigator, Depart- 
ment of Justice, dated December 18, 1931. 

The Chairman. It may be received. It will be authenticated? 

Mr. ScoLL. A substitute certified copy will be filed. 

(The report referred to was marked "Exhibit No. 2144" and is 
included in the appendix on p. 13491.) 

Mr. ScoLL. Mr. Kelley, do you recall at any time during these 
discussions of curtailment whether certain American producers used 


the throat of tlie tarili' as a means to induce the foreigners to cooperate 
with them? 

Mr. Kelley. No, 1 wouldn't say that they used a threat of a tariff. 
They were perfectly open about it; that is certain groups felt in order 
to protect the industry of the United States from this great flow of 
cheap copper from abroad it was necessary to have a tariff, and they 
pursued that policy; and, as you know, fmally the Senate adopted a 
resolution, mstructed the TarM Commission to make an investigation, 
and it was made, and following that the excise tax of 4 cents a pound 
was passed. 

Mr. O'CoNNELL. Do you know whether the Tariff Commission 
recommended a 4-cent tariff? 

Mr. Kelley. The Tariff Commission, according to my recollec- 
tion — may I refer to it? 

Mr. O'Connell. Surely. 

Mr. Kelley. The Tariff Commission foimd the difference in the 
cost of production within the United States and without, and my 
recollection is they recommended a lesser amount. They didn't 
make a recommendation but there was something in here. I am 
really confused between this and the debate in Congress. 

Mr. O'Connell. We can clear it up maybe tomorrow. 

Mr. Scoll. Was the passage of the excise tax in any way related 
to the failure of the curtailment programs? 

Mr. Kelley. No. If it was I don't see the correlation. 

The Chairman. Did the curtailment program fail? 

Mr. Kelley. No. It failed to the extent. Senator, that — as I said 
this afternoon — the depression kept getting deeper and wider and 
broader and finally we got down to where we were selling copper :..r 
5 cents a pound, and then 

The Chairman (interposing). But production had been cut . vn? 

Mr. Kelley. Yes; production was cut down. 

Mr. Scoll. Was the European price depressed as a result of the 
excise tax, or was Copper Exporters able to hold the price in spite 
of the tax? 

Mr. Kelley. Oh, no; it all went together. 

Mr. Scoll. You recall, do you not, that late in 1932, about Novem- 
ber, a final meeting was held by world producers in an effort t^ try 
to meet the situation. I would like to ask you what was discussed 
at that meeting — what happened? 

Mr. Kelley. In 1932, in December, the situation was quite chaotic, 
and some gentlemen representing copper producers without the United 
States came over and we had a discussion. At that time the Rho- 
desian producers had not completed their development and there was 
a difference of opinion that was serious, principally between those 
groups, as to their relative positions, and also as to their relative 
positions in reference to Katanga. The result was there was no 
agreement on anything, as I recall it. We never even had a con- 
ference. We didn't get as far as that. We had talks. There was 
no use calling a conference unless you felt something could be done. 

Mr. O'Connell. You could have a conference without having your 
expectations reaHzed . 

Mr. Kelley. We had mdividual talks. 

Mr. Scoll. Prior to the November meetings m 1932, International 
Nickel, Cerro de Pasco, and Chile Copper Co., the Anaconda sub- 
sidiary, resigned from Copper Exporters. Is that correct? 


Mr. Kelley. I think it is. 

Mr. ScoLL. And thereafter Copper Exporters ceased to be a factor 
in the export trade? 

Mr. Kelley. Right, and was subsequently dissolved, as I recall it. 

Mr. ScoLL. I would like to offer at this time two clippings covering 
the meetings at the end of November and the break-up of Copper 
Exporters, Inc. The first clipping is, "Copper War Likely as Parley 
Cracks," from the JS^ew York Times, December 9, 1932. 

The Chairman. It will be received. 

(The clipping referred to was marked "Exhibit No. 2145" and is 
included in the appendix on p. 13495.) 

Mr. ScoLL. The next one is a clipping dated July 11, 1932, from the 
New York Times, "Three big units quit copper export body." 

The Chairman. It may be received. 

(The clipping referred to was marked "Exhibit No. 2146" and is 
included in the appendix on p. 13496.) 

Mr. ScoLL. First of all, before we leave this period of curtailment 
programs from 1930 to 1932, you mentioned, I beheve, that the De- 
partment of Justice investigated you on these various programs. As 
far as you know, no action was ever taken, was there? 

Mr. Kelley. No; no action other than the investigation. 


Mr. Scoll. Did you participate in any discussions early in 1933 
with respect to having copper placed on the agenda of the London 
Economic Conference? 

Mr, Kelley. I knew that it was being considered and I discussed 
the matter; yes. 

Mr. Scoll. At whose suggestion was the discussion started? 

Mr. Kelley. I really don't know. I had nothing more to do with 
it than this. I can tell it very briefly. I came over here and met Mr. 
Raymond Moley and Mr. Warburg and Dr. Feis. 

Mr. Scoll. Who arranged the conference? 

Mr. Kelley. My recollection is that Frank Walker did. _We 
discussed the matfer and the question was whether or not — I might 
say that I think the Administration was sympathetic to the copper 
situation at the time and manifested a deep interest in it, and the 
question was whether or not copper should be placed upon the official 
agenda at the-— then — coming London Economic Conference. 

Mr. Scoll. Wliat decisions were made or what proposals were 
considered, do you recall? 

]VIr. Kelley. I don't know personally what happened to it after 
that. We discussed the matter. 

The Chairman. Did it get on the agenda? 

Mr. Scoll. I was just going to introduce for the record now excerpts 
from a report of the League of Nations, Monetary and Economic 
Conference, London, 1933. May I read a brief paragraph from it? 
On page 27 of the report occurs this paragraph [reading from "Exhibit 
No. 2147"1: 

Copper: Resolution Adopted by the Sub-Commission. 

This was a subcpmmission of the Monetary and Economic Confer- 
ence held in London. [Reading furtherl : 

Tlie delegation of the United States of America calls attention to the desirability 
of considering plana for the coordination bv international agremeent of the pro- 


duction and marketing of copper, which was included among the products 
mentioned in the proposal made by the French delegation on June 19th (document 
Conf. M. E./C. E. 8). In order to provide the basis for the future discussion 
of plans for the coordination of production and marketing of copper, further 
preliminary studies should be made. Accordingly, it is proposed that the 
Governments of the copper producing countries submit to the Secretary-General 
of the Monetary and Economic Conference, before September 15th, 1933, their 
views and proposals concerning the organization of the production of copper and 
of the international trade in this product, with a view to the summoning of a 
suitable meeting to examine whether it is possible and expedient to conclude 
an agreement. 

There is" a further note in this document on page 46 which I will 

The Governments of the copper producing countries are invited to submit 
before September 15th, to the Secretary-General of the Conference, their views 
and proposals concerning the organization of the production and international 
trade in copper with a view to the summoning of a meeting of experts qualified 
to examine if it is possible and expedient to conclude an agreement. 

You don't happen to know personally what happened to that, 
do you? 

Mr. Kelley. No; I don't. 

Mr. ScOLL. I would like to offer as an exhibit, excerpts from the 
report of the subcommittee of the Monetary and Economic Conference. 

The Chairman. It may be received. 

(The excerpts referred to were marked "Exhibit No. 2147" and are 
included in the appendix on p. 1349G.) 

Mr. ScoLL. That concludes what I have, Senator. I would suggest 
that we put into the record a communication from Mr. Kelley 
dated October 21, 1931, to the Board. of Review, Federal Trade 
Commission, Washington, D. C 

Mr. Wolff. That communication is from Colonel Donovan, not 
from Mr. Kelley, to the Board of Review. 

Mr. Kelley. It wasn't signed. 

Mr. ScoLL. It was at Mr. Kelley 's request. 

The Chairman. Have you any comment on that to make, Mr. 

Mr. Kelley. No. 

Mr. Wolff. I think it should be accompanied with the Colonel's 
memorandum of the law. 

The Chairman. The memorandum may be received. 

(The memorandum referred to was marked "Exhibit No. 2148" and 
is included in the appendix on p. 13500.) 

The Chairman. Is there anything else, Mr. Scoll? 

Mr. Wolff. Here is the e:dubit of the costs found by the Tariff 

Mr. Scoll. We can put that in now. 

The Chairman. You offer it at the request of Mr. Kelley? 

Mr. Scoll. Yes. 

The Chairman. It will be inserted in the record. 

(The table referred to was marked "Exhibit No. 2149" and is in- 
cluded in the appendix on p. 13506.) 

The Chairman. It is quite evident, Mr. KeUey, that we have been 
dealing and you have particularly been dealing with a world problem 
in the production and distribution of copper, the production and dis- 
tribution in aU cases being carried on by large organizations. The 

I Previously entered as "Exhibit No. 2132," appendix, p. 13456. 


trade is one which overflows all geographical boundaries and involves 
the activity not only of individuals, but more importantly of corpora- 
tions and sometimes of governments. Is that not correct? 

Mr. Kelley. That is correct. 

The Chairman. And of course the interrelation of these various 
entities with one another and the eflFect of that interrelation upon the 
inhabitants of the various countries and particularly of the employees 
is one of very great moment. 

Mr. Kelley. Very. 

The Chairman. Do you have any comment to make now? We 
have kept you here for a long time. Is there anything further that 
you would like to add? . 

Mr. Kelley. I wonder if you would have the patience to let me 
comment for just a moment in summation? I don't know why it is 
that the copper industry, should excite as much curiosity as it does, 
nor why its problems should be commented upon as much as they are. 
Volumes have been written and treatises — almost — have been for- 
mulated upon the fact that copper maintamed a price of 18 cents for 
a year. There is nothing unusual about it. I have stated frankly 
to the committee that for a period that price was a fictitious price 
and the reason why we endeavored to hold it in a cooperative effort. 
I would like to call attention to the fact that according to the United 
States Bureau of Labor Statistics, sulfur, nickel, aluminum, quick- 
silver, oil, crude petroleum, fuel oil, iron ore Bessemer, pig iron, pipe, 
cast-iron pipe, steel rails, and an infinite number of commodities held 
the same price that prevailed in April 1929, or advanced above that 
level, and that it was not a situation that was confined to copper alone, 
and I think as a matter of information we should offer that for the 

The Chairman. They may be received. 

(The documents referred to were marked "Exhibit No. 2150" and 
are included in the appendix on p. 13506.) 

The Chairman. Of course, the interest may be due to some extent 
to the fact that a great many people use copper, that a great many 
manufacturers use it, and it may also be due to the fact that a great 
many people own copper stocks. I thinlc most people have very lively 
recollection of some active campaigns that were undertaken before 
the crash of 1929 to distribute the stocks of various copper companies 
among the people. 

Mr. Kelley. There is no doubt about that. 

The Chairman. How many stockholders are there, for example, 
in the Anaconda Corporation? 

Mr. Kelley. About 112,000. 

The Chairman. How many of those own less than 100 shares each? 

Mr. Kelley. That I couldn't say; but I would be glad to furnish 
a list. 

The Chairman. What would you think? 

Mr. Kelley. I would say the great majority. 

The Chairman. The great majority own less than 100 shares? 

Mr. Kelley. Oh yes; undoubtedly. 

The Chairman. How about the subsidiaries? 

Mr. Kelley. The subsidiaries are owned by the company. 

The Chairman. How many subsidiaries does Anaconda have? 

Mr. Kelley. About 30. 


The Chairman. Where are fchey mcorporated? 

Mr. Kelley. In various States. 

The Chairman. P'oreign nations? 

Mr. Kelley. Some. 

The Chairman. How many foreign corporations? 

Mr. Kelley. Only one that I can remember. 

The Chairman. What is that? 

Mr. Kelley. The Cananea ConsoHdated Copper Co., S. A., of 

The Chairman. Doesn't that indicate why there would be a good 
deal of interest in copper? 

Mr. Kelley. Oh yes; but I think the interest is perfectly natural, 
but what I tried to point out is that we were not alone as a com- 
modity that maintained a price level over that period. 

The Chairman. Do you think that it would be reasonable to say 
that there was a greater degree of concentration in the ownership of 
copper deposits than in the ownership of deposits of zinc, for example? 

Mr. Kelley. Yes; I think there is. 

The Chairman. There is a greater degree of concentration? 

Mr. Kelley. Yes. 

The Chairman. That also might be an explanation of the greater 

Mr. Kelley. It might be. You referred to one other thing. 
Senator, that I think might be helpful, just as a matter of information. 
We have prepared a compendium regarding the uses of copper, where 
it goes, how much of the cost of structure is represented by copper in 
various types of buildings and transmission hnes and things of that 
kind, and I don't know whether it should be introduced in the record 
or should be filed. 

The Chairman. That is a rather formidable looking document. 
I would be very glad to have it filed, but perhaps not made a part Of 
the record. 

Mr. Kelley. I think I would hke to have it filed for record. 

The Chairman. If you have any charts that would indicate in a 
brief way the use of copper, we woiild be very glad to have them in. 

Mr. Kelley. I think it is all contained in there. 

The Chairman. Or if you oare to have a summary of this prepared 
to be printed in the record. 

Mr. Kelley. It is not as formidable as it looks. It gives various 
illustrations of how much copper costs in a modern six-room house 
and a typical farm building with outbuildings — the Government is 
interested in that — in transmission lines, rural and urban distributing 
lines, the telephone industry, and in household appliances. It shows 
what an infinitesimal amount of the cost of construction is applicable 
to the quantity of copper used. That is the purpose. 

The Chairman. The committee will be very glad indeed to have it 
available, Mr. Kelley. Is there any other comment you care to make? 

Mr. Kelley. None. 

The Chairman. Let me on behalf of the committee thank you for 
your great patience and the very great frankness with which you have 
discussed the matters which have come before us. We are all indebted 
to you and your testimony will be very helpful. 


(The documents referred to were marked "Exhibit No. 2150-A and 
are included in the appendix on pp. 13508-13509 and facing p. 13509.) 

Mr. Kelley. Thank you, Senator. May I express my apprecia- 
tion of the courtesy of yourself, your colleagues on the committee, and 
of counsel and his assistants. 

The Chairman. The committee will stand in recess until 10:30 
tomorrow morning. 

(Whereupon at 5:50 p. m. the committee recessed until 10:30 
Thursday morning.) 



United States 1:5enate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a, m., pursuant to adjournment on 
Wednesday, January 17, 1940, in the Caucus Room, Senate Office 
Building, the chairman, Senator Joseph C. O'Mahoney, presiding. 

Present: Senators O'Mahoney (chairman) and King; Representa- 
tive Williams; Messrs. Pike, 0'Connell,Lubin, and Brackett. 

Present also: Joseph E. Sheehy and Ellen L. Love, Federal Trade 
Commission; W. A. Janssen, Department of Commerce; Theodore 
J. Kreps, economic advisor; Samuel Moment, economic analyst; and 
David E. Scoll, counsel to the committee. 

The Chairman. The committee will please come to order. 

Are you ready to proceed, Mr. Scoll? 

Mr. Scoll. Yes; I am. Senator. Before we proceed with the 
next witness, I have here two charts that were prepared by officers 
of Copper Exporters, Inc.: One shows a comparison of domestic 
prices and foreign prices of the Copper Export Association, 1919 to 

The Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2151" and appears 
in the appendix facing p. 13510. The statistical data on which this 
chart is based are included in the appendix on p. 13510.) 

Mr. Scoll. The next, chart shows the export prices of Copper 
Exporters, Inc., and domestic price,- deUvered Connecticut Valley, 
1926 to 1931. I should like to be permitted to withdraw these charts 
for the purpose of substituting copies of more convenient size for the 

The Chairman. That will be satisfactory. 

(The chart referred to was marked "Exhibit No. 2152" and appears 
in the appendix facing p. 13518. The statistical data on which this 
chart is based are included in the appendix on p. 13518.) 

Mr. Scoll. Our witness today is Mr. E. T. Stannard. 

The Chairman. 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. Stannaiid. I do. 


Mr. Scoll. Will you tell the reporter your name? 

Mr. Stannard. E. T. Stannard. 

Mr. ScoLL. And what is your occupation? 

124491 — 41— jpt. 25 13 > 13219 


Mr. Stannard. I am president of Kennecott Copper Corporation. 

Mr. ScoLL. How long have you been in the copper business? 

Mr. Stannard. Since 1911, 29 years. 

Mr. ScoLL. Most of that time with Kennecott? 

Mr. Stannard. All of that time with Kennecott. 

Mr. ScoLL. Will you give a brief description of the Kennecott 
properties and their operation? 

Mr. Stannard. We have at the present time four copper proper- 
ties in the United States and one property in Chile. Kennecott also 
owns the Chase Brass & Copper Co., a brass fabricating concern, 
and the Kennecott Wire & Cable Co., a smalt wire concern. 

Mr. ScoLL. I beUeve you stated you are the president of Kenne- 

Mr. Stannard. I am the president of Kennecott Copper. I am 
also the president of Braden Copper Co. which operates a property 
in Chile. 

Mr. ScoLL. Did you mention the Utah Copper Co.? 

Mr. Stannard. Kennecott owns the entire stock of the Utah 
Copper Co. The Utah Copper Co., as it exists today, is a company 
organized purely for operating purposes at the property in Utah. 
Kennecott also owns the stock of the Nevada Consolidated Copper 
Corporation, which operates the properties in Nevada, Arizona, and 
New Mexico, for Kennecott. 

Mr. ScoLL. Now, the Utah property consists of a considerable 
quantity of copper ore reserves, does it not? 

Mr. Stannard. It does. 
° Mr. ScoLL. And it is what is known in geology as a porphyry. 

Mr. Stannard. That is right. 

Mr. ScoLL. Is Utah fully utilizing its productive capacity at the 
present time? 

Mr. Stannard. Practically so. 

Mr. ScoLL. Is that usual or is that occasional? 

Mr. Stannard. It is occasional. I might say that over a period of 
years, we are not able to operate at better than about 60 percent to 
65 percent of our installed capacity. 

Mr. ScoLL. Is Braden operating at capacity? 

Mr. Stannard. Braden is not operating at capacity today. 

Mr. ScoLL. Is BTaden a porphyry? 

Mr. Stannard. It is a low grade property. It is not exactly a 
porphyry, it is half porphyry and half andesite. 

Mr. ScoLL. Is it a surface operation? 

Mr. Stannard. No; it. is an underground operation. In that 
property a tunnel is run into the mountain. The ore body is above 
this tunnel so that the ore is all dropped down to the haulage level 
instead of being hoisted. 

Mr. ScoLL. And Utah is a surface operation? 

Mr. Stannard. Utah is a surface operation and also the properties 
m New Mexico and, in Nevada are surface operations. The one in 
Arizona is- an underground operation. 

Mr. ScoLL. Are there any other surface operations that are oper- 
ated by other mining companies in the United States today? 

Mr. Stannard. Phelps Dodge has a surface operation at Ajo, 
Anz. — the old New Cornelia property — and it is now developing 


an open-pit property at Morenci, Ariz. The Chile Copper Co. oper- 
ation in Cliile is also an open-pit operation at this time. 

Mr. ScoLL. How long do you estimate that the ore reserves of Utah 
will last at present, assuming even capacity operation? 

Mr. Stannard. That is something I can't say but it would be over 
20 years. 

Mr. ScoLL. Considerably over 20 years? 

Mr. Stannard. I can't say. 

Mr. ScoLL. And what about Braden, their reserves? 

Mr. Stannard. Braden has very large reserves and I think that the 
Braden mine will probably be operating after our mines in the United 
States are exhausted. 

Mr. ScoLL. Do you have any other operations, mining operations 
outside the United States besides Braden? 

Mr. Stannard. No, we haven't. We have a small prospecting 
company, operating in Canada, but nothing in the way of mining 

Mr. ScoLL. Who smelts the Kennecott ores? 

Mr. Stannard. At the plants in Nevada, New Mexico, and Chile 
we smelt our own ores. In Arizona and in Utah we contract the 
smelting with the American Smelting & Refining Co. 

Mr. ScoLL. What is the relationship between Kennecott and A. S. 
& R. in terms of stock ownership? 

Mr. Stannard. There is no stock ownership of one in the other. 

Mr. ScoLL. There are, however, persons who hold stock in both 
corporations are there not? 

Mr. Stannard. There may be. 

Mr. ScoLL, Can you state from your knowledge whether such per- 
sons own considerable stock in both corporations? 

Mr. Stannard. Well, I know of one man in the American Smelting 
& Refining Co. who holds a very large block of Kennecott stock. I 
do not know of anyone in the Kennecott Co. who holds A. S. & R. 
stock, although there may be some who do. 

Mr. ScoLL. I believe you mentioned Chase Brass as a fabricating 
unit; that is a subsidiary of Kennecott? 

Mr. Stannard. Yes. 

Mr. ScoLL. Where is that located? 

Mr. Stannard. We have plants in Waterbury, Coiin. and in 
Cleveland, Ohio. 

Mr. ScoLL. Does Kennecott supply the total of Chase's copper 
needs from its own mines? 

Mr. Stannard. Not entirely. Chase buys some Michigan copper 
from Calumet & Hecla required for special purposes. I cannot say 
just how much per annum — it might be four or five thousand tons. 


Mr. ScoLL. I would like to ask you a few questions about the 
N. R. A. You were the chairman of the Copper Code Authority, 
were you not? 

Mr. Stannard. I was. 

Mr. ScoLL. Was it easy or was it difficult for the copper people to 
agree on a code under N. R. A.? 


Mr. Stannard. It was impossible. 

Mr. ScoLL. How long did it take for you to get a code? 

Mr. Stannard. As I remember it now, we started meetings in 
June 1933. We worked about 7 days a week and many times' until 
1 or 2 o'clock in the morning, and were pressed all the time by the 
Deputy Administrator lq Washington to hurry up a code. Finally 
after having worked strenuously for 6 or 7 weeks, we came to Wash- 
ington — I believe it was the 17th of August 1933. We had a meeting 
with the Deputy Administrator and told him that we had not been 
able to get anything like complete agreement. He listened to the 
positions taken by the various ones, and 

Mr. ScoLL (interposing). May I interrupt you just for a moment 
aiid ask you what were these different positions? 

Mr. Stannard. There were many of them. The customs smelters 
wanted priority in the market. They said they had to take in second- 
ary copper, and had to sell it at the market, and they wanted a pre- 
ferred position. Then there was the producer holding stocks of 
copper versus the producer who did not have any stocks; the producer 
without any stocks of copper felt that he should have the right to 
go ahead producing, while the producer with stocks should shut down 
until he liquidated his stocks. There was also the position of the 
company with a fabricating outlet versus the company with no fabri- 
cating outlet, and then there was the intermediate position of com- 
panies with a partial outlet. Those without any fabricating outlet 
felt that during a period of depression they should be permitted to 
share in the fabricating outlet of the larger companies, and of course 
the larger companies took the position that they had paid a great 
deal of money for those outlets, and when it came to a time of depres- 
sion that they should have the benefit of these outlets. 

Mr. ScoLL. Finally, of course, there was a difference of opinion over 

Mr. Stannard. A very decided difference of opinion over quotas. 

Mr. ScoLL. Correct me if I am wrong, but the producers who op- 
erate more than one mining unit had to make concessions to those 
who operated only one? 

Mr, Stannard. That was true. 

Mr. ScoLL. Do you happen to have before you a copy of the pro- 
posed code of fair competition for the copper industry? 

Mr. Stannard. I do. This was the proposal dated February 27, 

Mr. ScoLL. I refer you to article VII which I believe was printed 
the same way in the various proposals. 

Mr. Stannard. To which one are you referring? 

Mr. ScoLL. I am referring to article VII in the proposed code as 
approved on April 26, 1935. I have before me a draft of April 21, 
1934, but I think the proposed article VII is the same in all the drafts. 

That proposed article VII was the one which was submitted by the 
industry to the N. R. A., was it not? 

Mr. Stannard. It was. 

Mr. ScoLL. And it represented what was finally distilled out of the 
various pros and cons and positions? 

Mr. Stannard. That is correct. 

Mr. ScoLL. To sunynarize briefly, that article proposed that the 
industry should enter into voluntary agreements with blanket au- 


thority to withhold surplus stocks from the market during emergency 
periods, to regulate, curtail, and allot production, and to provide a 
minimum sales price, and a plan for the regulation and allocation 
of sales. 

I believe that correctly summarizes it, does it not? 

Mr. Stannard. It does. 

Mr. ScoLL. Can you recall whether at that time, at the time of the 
proposal, the industry had any specific plan they wanted to put into 
operation under article VII? 

Mr. Stannard. It did not have any specific plan. At the time, I 
think most of us felt that we had to balance production with con- 
sumption, and we thought the most advisable program would be to 
regulate production to consumption. 

Mr. ScoLL. And to provide a minimum sales price? 

Mr. Stannard. Well, we did have that in mind to a certain extent, 
but there was no unanimity of agreement on that. 

Mr. ScoLL. Now you may recall that the code, which was approved 
by the N. R. A. on April 21, 1934, substituted for the proposed article 
VII a rather detailed market and price filing plan with sales quotas 
and allocations. 

Mr. Stannard. That is correct. 

Mr. ScoLL. What was the attitude of the industry toward the 
approved code? 

Mr. Stannard. I do not think anyone ui the industry liked it. All 
of us were for voluntary cooperation in preference to involuntary 
control. I think each one felt that he got the worst of the deal under 
the code imposed by the N. R. A. 

Mr. ScoLL. Did Kennecott file a protest with the N. R. A.? 

Mr. Stannard. No; we did not file a protest with the N. R. A. 
At the time this was imposed, April 21, 1934, the N. R. A. Act was to 
continue until sometime in June 1935, a period of some 14 months. 
While we were very much opposed to the code and thought we did not 
get a fair allocation of sales, nevertheless, if we were to take it to the 
courts we felt it would be in the courts for the full 14 months and 
therefore decided to accept and go along in the interest of harmony 
until the N. R. A. Act expired. 

Mr. ScoLL. Do you know from your knowledge whether any of the 
others protested? 

Mr. Stannard. I think one or two of them did protest in writing. 

Mr. ScoLL. As a matter of fact, most of them did, didn't they? 

Mr. Stannard. Perhaps they did. I have forgotten that detail. 

Senator King. There were many protests from various industries 
against the N. R. A. 

Mr. ScoLL. But the protest in the case of the copper industry was 
almost unanimous. 

Senator King. I protested; I said the law was unconstitutional and 
voted against it and the Supreme Court accepted that view. 

Mr. O'CoNNELL. May I ask a question? Mr. Stannard, the pro- 
test you are referring to was a protest to particular provisions in the 
code as approved or as imposed by N. R. A. rather than opposition 
to N. R. A. as such, wasn't it? 

Mr. Stannard. It was in opposition to this code as imposed on the 
copper industry. We particularly objected to that. 


Mr. ScoLL. The code provided for the liliiig of prices, I believe, 
rather than the actual fixing of minimum prices, did it not? 

Mr. Stannard. It did, and during the period of the code, as I 
recall, there were two price filings; for a period of about 2 months 
after the effective date the price was 8)2 cents per pound, and then 
beginning sometime in July the price was increased to 9 cents. 

Mr. ScoLL. At this time, to corroborate your remarks on that, Mr. 
Stannard, I would like to introduce mto the record the list of the 
prices filed on April 25, 1934, which I believe you have in your hand. 

The Chairman. The exhibit may be received. 

(The list referred to was marked "Exhibit No. 2153" and is in- 
cluded in the appendix on p. 13526.) 

Mr. ScoLL. I would also like to insert a memorandum for the Code 
Authority dated June 12, 1934, which reads as follows [reading from 
"Exhibit No. 2154"]: 

A price of 90 per pound, delivered Connecticut Valley, subject to existing dif- 
ferentials, was filed in the afternoon of June 11th by the following members, 
such price to be effective at the beginning of business June 12th. 

And then follows a list of the members who filed a price of 9 cents 
on that day. 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2154" and is im- 
cluded in the appendix on p. 13526.) 

Senator King. Is it your position, Mr. Counsel, that those who 
accepted the code and tried to carry it out in their business activities 
or in their industries were violating any law? 

Mr. ScoLL. Not at all. Senator. I have no interpretation or inten- 
tion to add to those facts. I merely insert them into the record for 
what they are worth. 

The Chairman. In order that we may see what was done and how 
this industry operated and what efforts were being made to adjust 
the problem of distribution and of price and production to the cir- 
cumstances existing generally at the time? 

Mr. ScoLL. Thank you, Senator. 

Senator King. I may add that the Finance Committee went into 
all of these code activities, so we have hundreds of pages, if it is 
important to go ihto the activities of the Code Authority, and the 
proceedings under the code would be indefinite. 

Mr. ScoLL. I have no further documents on the matter. Senator. 
That concludes that part of the presentation. 

I believe, Mr. Stannard, that one of the purposes of the sales plan, 
in fact the principal purpose of the sales plan, under the code was to 
provide, as far as possible, a first place in sales for current production. 
Is that correct? 

Mr. Stannard. That is correct. 

Mr. ScoLL. What provision was made for controUmg production 
of metal from scrap? 

Mr. Stannard. The total sales book, as we called it, amomited to 
30,500 tons per month. Of that, 9,500 tons were allocated to scrap, 
1,500 tons to custom producers, and, I think, 19,500 tons to primary 

Mr. ScoLL. Was some copper which had been bought by buyers 
and speculators prior to the code outlawed? 

Mr. Stannard. It was. 


Mr. ScoLL. Will you explain, that briefly? 

Mr. Stannard. You had to have so-called Blue Eagle copper to 
have it permissible. The copper which had been bought by dealers 
and speculators could not get a Blue Eagle fag, and therefore fabri- 
cators generally could not use that copper. 

Mr. ScoLL. How was that copper finally disposed of, do you know? 

Mr. Stannard. I think most of that copper went into the foreign 
market, or was held until after the N. R. A. expired. 

Senator King. The Blue Eagle, however, was not applied exclu- 
sively to the copper industry, was it? 

Mr. Stannard. It was not. 

Mr. ScoLL. Would you say that the success of the code was demon- 
strated by the fact that the domestic price remained at 9 cents while 
London prices and the New York export prices went considerably 

Mr. Stannard. Well, I think during that particular period it is 
quite possible that the code did some good over a period of 6 or 8 
months, because there was a good deal of chaos, and I think it helped 
temporarily to stabilize the industry. 

Mr. ScoLL. Just perhaps to give you a clear picture of what I 
mean, I show you "Exhibit No. 2100'V and you will notice that dur- 
ing the code period, the New York price — domestic price that is — 
was stable at 9 cents, while the export price and foreign price dropped 
considerably under that. 

Mr. Stannard. The foreign price a great deal of that time was 
under 7 cents per pound. 

Dr. LuBiN. Mr. Stannard, what do you think would have happened 
to the domestic price of copper if it had been impossible to dispose of 
this surplus, in other words, if we hadn't artificially created a surplus 
by labeling some copper Blue Eagle copper and some copper illegal? 

Mr. Stannard. Do you mean what would have happened in the 
United States? 

Dr. LuBiN. Yes. 

Mr. Stannard. During that period I believe many of the domestic 
producers would have kept on producing copper, and the price prob- 
ably would have been considerably lower in the United States. And 
it might have been somewhat lower in the European market as well. 

Dr. Lubin. Would it be fair to conclude that during that period 
the American consumer was subsidizing the foreign consumer? 

Mr. Stannard. Well, I wouldn't think so. 

Dr. Lubin. He was paying more than the foreigner was paying. 

Mr, Stannard. He was paying more than the foreigner was paying, 
but when you consider that the cost of production in this country was 
higher than the cost of production abroad, I can't believe that the 
American consumer was penalized in any way. 

Dr. Lubin. Perhaps I misunderstood you. I thought you had said 
liad it not been for this artificial control the American consumer 
vould have paid less for his copper. 

Mr. Stannard. He probably would have paid less for his copper 
than he did pay, but at the same time I do not feel that^when the 
American consumer paid a price for copper which was probably less 
than the cost of production at that time, that he Vas being imposed 

> Appendtz, p. 13394. 


Senator King. Isn't it a fact that during that period when copper 
got down to 7 or 8 cents, even 9 cents, that a good many producers of 
copper were in the red? 

Mr. Stannard. A great many of them were in the red. 

Dr. LuBiN. Isn't it true that there are producers of every com- 
modity of every industry who are in the red sometime or other while 
others are making money? 

Mr. Stannard. That is probably true. 

Dr. LuBiN. It never was intended that price levels for any com- 
modity should be set to give profit to every possible producer, the 
eflBcient and inefficient alike. 

Mr. Stannard. I think that is correct. 

The Chairman. The point of this testimony, as I see it, is very 
simploi The effect of N. R. A. was to raise the price to the domestic 
consumer while the price abroad was lowered. That is correct, 
isn't it? 

Mr. Stannard. That is correct. 

The Chairman. And that was also true, at least for a time, while 
the Copper Exporters, Inc., was operating, was it not, if you look at 
"Exhibit No. 2100".' 

Mr. Stannard. That is true, but it is also true, according to this 
chart, Senator, that during one period when the Copper Exporters, 
Inc., was operating, for example, the year 1927, the price was lower 
than it was in the previous 2 years, that is during 1925 and 1926 when 
Copper Exporters was not operating. 

The Chairman. That may well be, and I don't know that it is 
altogether relevant to the significant point here, as I see it. In other 
words, this testimony seems to indicate to me that the effect of the 
organization which was perfected by the copper industry itself — 
without the intervention of Government, save that the Federal 
Trade Commission and the Department of Justice were apprized that 
such an organization was to be made — and the effect of the organiza- 
tion of the industry under the approval of the N. R. A. were exactly 
identical, namely, to increase the price to the domestic consumer. 
That is what happened, is it not? 

Mr. Stannard. It did for a period under N. R. A. 

The Chairman. Yes, and it also did for at least a portion of the 
time while the Copper Exporters was operating and imtil the crash 
came, which upset everything. Isn't that correct? 

Mr. Stannard. It did for a period there; yes. 

The Chairman. Now we may interpret those facts any way we 
please, don't you knpw, but this is a fact, that the two things were 
coincidental. Now 6f course I assume that there must be very 
numerous other factors that were affecting the price of copper on 
both occasions. 

Mr. ScpLL. And it was also true, was it not, that the domestic 
producers were selling copper abroad for less than they received here 
during the N. R. A. period? 

Mr. Stannard. That is generally true ; some of them were, at least. 

The Chairman. Of course, there maj^ have been some difference 
between the two, the N. R. A. was definitely an effort to adjust pro- 
duction to consumption, was it not? 

Mr. Stannard. That was the general idea, yes. 

■ Appendix, p. 13394. 


The Chairman. And was there any such purpose or action with 
respect to Copper Exporters, Inc., or the previous organization? 

Mr. Stannard. I think they were a Uttle bit difi'erent in their 
inception. There probably was some effort made to adjust production 
to consumption, but I am not particularly familiar with that period 
because I did not come to New York until 1930, and had practically 
nothing to do personally with Copper Exporters in any of its periods 
of operation. 

The Chairman. In both situations, therefore, the industry, some- 
times without the cooperation of Government, and sometimes with 
the cooperation of and approval of Government, in order to maintain 
price, was at least experimenting with the effectiveness of production 
control, that is to say curtailment of production. 
Mr. Stannard. That is probably true. 

Mr. ScoLL. Continuing a Uttle on the Senator's point, the purpose 
of the system of sales quotas was to restrict production, was it not? 
Mr. Stannard. In a way it was. On the other hand, when you 
had the control put on sales quotas, each one could produce whatever 
tonnage he cared to produce. 
Mr. ScoLL. But he couldn't sell any more than the quota. 
Mr. Stannard. He couldn't sell any more in the domestic market 
than his sales quota, 

Mr. ScoLL. Did the adoption of the plan involve a curtailment at 
that time of production by any of the producers? 

Mr. Stannard. I cannot say definitely, Mr. Scoll. I think that 
production was gradually curtailed, at least by some of the participants. 
Senator King. That was true of agricultural products, wasn't it? 
Sugar and rice and wheat and com and agricultural commodities 
were restricted. That is, there were restrictions placed upon produc- 
tion and restrictions now have been placed upon production, • particu- 
larly sugar and some other agricultural commodities, isn't that true? 
Mr. Stannard. That is true. 

Mr. Scoll. Was such curtailment reflected in the reduction of 
employment, do jou know? 

Mr. Stannard. It was to a certain degree, yes. 
Mr. Scoll. What percentage of capacity were the United States 
producers operating on at the time the code was approved, if you 

Mr. Stannard. Our own operations ran oU about a 30 percent 
basis, and the operations generally were probably on about a 40- to 
45 percent basis. Some properties were shut down entirely. 

Mr. Scoll. You referred to curtailment taken by some of the pro- 
ducers after the code went into effect. Was it true also that certain 
producers voluntarily gave up their sales quotas during N. R. A.? 
Mr. Stannard. It was. 

Mr. Scoll. And was that incident to their Curtailment? 
Mr. Stannard. There were periods when there was only a small 
demand for copper. For example, in the months of July, August, 
and September 1934, the total sales of copper under the code amounted 
to a total of only 18,000 tons of copper, or an average of 6,000 tons 
a month. In these periods when there was no market for copper, some 
of us curtailed our operations, and at the same time gave priority to 
custom smelters because under the code whenever any member of the 
code (producer or custom smelter) had accumulated an amount of 


copper equalto 1 month's supply, he had the right to withdraw from 
the code, unless his position was taken care of. So working in coopera- 
tion with the Deputy Administrator, most of the producers in those 
circumstances waived their sales allocation and gave priority to the 
custom smelters. 

Mr. Stannard. That is correct. 

Mr. ScoLL. What was the purpose of that meeting? 

Mr. Stannard. Shortly before the meeting there was introduced 
in the Senate, bill No. 2445, which covered an extension of the N. R. A. 
The copper industry was very much worried when that bill was 
introduced, as we were against the continuation of the N. R. A. 
code beyond June 1935. Mr. Petermann, who was acting as counsel 
for the code authority in New York, discussed the matter here in 
Washington with certain people in Congress, and told them how we 
all felt about the continuation of the N. R. A. They asked him, 
"What would the industry like to do?" Mr. Petermann came back 
to New York; we had informal discussions, and it was finally agreed 
that if we had to have anything after the N. R. A. expired we would 
prefer to operate under some act like the Capper- Volstead Act.^ Mr. 
Kelley mentioned that act in his testimony yesterday. It would give 
us the right to have voluntary cooperation. 

Mr. ScoLL. In other words, if you had to have any law you pre- 
ferred to have a Capper- Volstead Act substituting the authority of 
the Attorney General for the authority of the Secretary of Agriculture? 

Mr. O'CoNNELL. You said if you had to have anything. Did you 
prefer to have nothing? 

Mr. Stannard. We preferred to have nothing to an N. R. A. ex- 

Mr. O'CoNNELL. Did you prefer to have nothing to the Capper- 
Volstead Act? 

Mr. Stannard. I think it might have been a good thing had we 
had the right to get together and talk over production and sales 
matters, which right we would have had under the Capper-Volstead 
Act; but speaking frankly, I doubt very much, even though we had 
that right, that the copper industry could agree any better than we 
did in meetings in 1930, '31, '32, and in the copper code days. 

The Chairman. In other words, that would not have been effective 
either for your purpose? 

Mr. Stannard. It would not have been effective. It was just the 
right to do something but I cannot believe that, practically, it would 
have been of any great use to us. 

The Chairman. There is a problem, is there not? 

Mr. Stannard. There is a problem. 

The Chairman. And it stUl is with us. 

Mr. Stannard. It stUl is with us. 

The Chairman. And the copper industry is still facing it? 

Mr. Stannard. The copper industry is facing it, yes. 

The Chairman. Have you any suggestions as to how you could 
best meet it? 

Mr. Stannard. Senator, it is a very complex problem and I must 
say that I haven't any suggestions. Differences in the copper in- 
dustry as to grade of ore, and weather and other conditions are so 

' See infra, p. 13679 et seq., for text of Capper-Volstead Act. 


great that I do not know how you could work out anything that could 
apply generally. 

The Chairman. You feel that the industry ought to be free to 
consult with respect to rpice? 

Mr. Stannard. I think we ought to be free to consult in respect to 

The Chairman. Am I to interpret that as being a negative answer 
to my question? 

Mr. Stannard. I personally would be very much opposed to any 
fixed price for copper. 

The Chairman. Of course, that is not an answer, either. My 
question was, do you believe that the industry ought to be permitted 
to consult with respect to price? 

Mr. Stannard. I think it should be permitted to consult with 
respect to price when the price gets down to very subnormal levels. 
For example, if we should get back to a time when the price of copper 
is down to 7 cents a pound or as low as 5 cents a pound where it was in 
January and February 1933, I certainly think we ought to have the 
right to get together in a meeting and discuss a plan of cooperation 
without fear of violating any laws. 

The Chairman. In other words, you feel that there should be no 
occasion to feel that the anti-trust laws would prevent consultation 
of that land? 

Mr. Stannard. Not when we are in a position of very subnormal 
prices such as we were in during 1931, '32, and '33. 

The Chairman. How would we determine when the period of sub- 
normal prices arrives so that such consultation could properly 
take place? 

Mr. Stannard. I have given that matter a great deal of thought 
and must say that I have no way of knowing now when that time 
would arrive. In other words, I have no idea now whether that 
price should be 7 cents or 6 cents or 5 cents or 10 cents. 

The Chairman. Now then, you were quite definite in expressing 
the opinion that the industry should be permitted to consult with 
respect to production. 

Mr. Stannard. Yes, I think we should, particularly when we get 
in these bad periods. ' 

The Chairman. That means that you believe that the industry 
ought to have the right to curta,il production. 

Mr. Stannard. That is right. 

I think we ought to have the right to curtail production, to bring it 
in line with consumption, because you cannot go on permanently 
producing much more than you consume. 

The Chairman. Do you believe that consultation with respect ,to 
production upon the one hand and price upon the other should be 
carried on without the concurrence of somebody acting upon behalf 
of the general public? 

Mr. Stannard. I think the general public should be consulted and 
should be in on these conference^ 

The Chairman. And is there any way of doing that except through 

Mr. Stannard. I do not know of any way, no. 

Senator King. A bill was offered in the Senate and referred later 
by the President to the Department of Justice, I think it was in 


1933 — it was at the time when they were trying to prolong the Ufe of 
the expiring N. R. A. — under the terms of which any industry could 
confer with the Federal Trade Commission, and put all their cards, 
using a conmion expression, upon the table, the Federal Trade Com- 
mission make a thorough and searching investigation of the industry, 
and then if it found a situation to exist that threatened the industry, 
and particularly threatened employment — would cause unemploy- 
ment — that it could promulgate some rule under the terms of which 
there would be some sort of union for the protection of the industry 
and for the purpose of protecting the employees and the consuming 
pubHc, Were you familiar with that bill? 

Mr. Stannard. I was not familiar with it, Senator. 

Mr. ScoLL. I would like to offer at this time the minutes of the 
meeting of the Copper Industry on April 16, 1935, and draft of a 
letter which was prepared and considered at that meeting, the letter 
being addressed to the Senate Finance Committee. 

The Chairman. The exhibit may be received. 

(The minutes and letter referred to were marked "Exhibit No. 
2155" and are included in the appendix on p. 13526.) 


Mr. ScoLL. Now, Mr. Stannard, I would like to have you discuss 
with the committee the international agreement on production control 
from 1935 to 1939, and I shall ask you some questions about it. Do 
you recall the break-up of the last international meeting of producers 
in New York in December 1932? 

Mr. Stannard. I do. 

Mr. ScoLL. At that time there was practically unanimous opinion 
that no agreement was possible. 

Mr. Stannard. That is correct. 

Mr. ScoLL. Subsequently, efforts were made, I believe in 1933 and 
'34, to get together on foreign production control, and when I say 
"get together," I mean that Ajiaconda and Kennecott with their 
South American mines made such efforts. Is that correct? 

Mr. Stannard. I do not recall, Mr. ScoU, that there were any 
particular efforts in 1933, or the early part of 1934. The N. R. A. 
came in in 1933 ; we were aU very busy with it and I do not recall that 
there were any efforts made in 1933 on the part of Anaconda or Ken- 
necott, or their foreign subsidiaries, to get together with the foreign 

Mr. ScoLL. When did the discussions leading to the agreement. of 
'35 first begin? 

Mr. Stannard. The first I heard of the ideas of the Europeans was 
about the middle of December 1934. 

Mr. ScoLL. Who initiated the„discussions? 

Mr. Stannard. The people in Europe. 

Mr. ScoLL. What was the substance of their proposition? 

Mr. Stannard. Some time about the middle of December 1934, one 
of the Rhodesians called me on the phone from London. He wanted 
to know how we would feel about another meeting to discuss cooper- 
ation. He said that they would come to New York, or preferably if 
Mr. Kelley and I would come to London, they would like that better. 

Mr. ScoLL. May I break in to ask you a question? Were they one 
of those" who helped to break up the '32 meeting? 


Mr. Stannard. Tbis was Mr. Storke, who was the managing direc- 
tor of the Roan Antelope Copper Company. 

Mr, ScoLL. Have you any idea what changed their mind? 

Mr, Stannard. A good many things happened after 1931 and 1932. 
At that time the Ehodesians were just coming into production. By 
1934, they had fairly well established their productive capacity, and 
the Canadian production of copper was increasing very, very rapidly. 
Going back to 1930, we never worried much about the Canadian 
production of copper, but due to the discovery of new ore bodies and 
the development of new properties, particularly Noranda and Hudson 
Bay, the Canadian menace became very real. 

Mr. ScoLL. So that generally speaking, the world producers were 
beginning to get nervous about the production. 

Mr, Stannard. They were getting very nervous, and particularly 
about the Canadian production. 

Mr, ScoLL. And Mr. Storke called you as representative of the 
Braden Copper Company? 

Mr, Stannard. He called me as representative of the Braden 
Copper Company having production in Chile. 

Mr. ScoLL. And Anaconda- participated insofar as its Chilean 
operations were concerned? 

Mr. Stannard. I think I ought to go on and tell you a little bit 
more about these various telephone conversations, I told Mr. Storke 
in our conversation in December that I didn't think it was any use to 
talk about a further conference unless the Rhodesians themselves 
could first agree as to a policy and then in turn reach an accord with 
the Katanga Company, which is the Belgian Congo producer. I said 
we had had meetings in previous years, in '31 and *32; and had never 
been able to agree on anything, and, therefore, I wasn't interested in 
another conference until they could compose their differences. 

They went ahead with their conferences in January, and in February 
I suppose I had three or more conversations with Mr. Storke and 
Mr Taylor, They told me they had been having meetings with 
Katanga, and were gradually getting their differences composed. 
Finally, in the latter part of February, they telephoned me and said 
they had their differences with Katanga composed and were coming to 
New York for a meeting to discuss the whole copper situation. 

Mr. ScoLL. And the discussions in New York in contrast to those 
in 1932, I take it, were somewhat more harmonious, 

Mr, Stannard. They were much more harmonious because the 
nimaber of people involved in the conferences was reduced to only a 
quarter of the number involved in earlier conferences, and because the 
Rhodesians and the Belgians for the first time were in accord. 

Mr. ScoLL. Were there any discussions in these meetings regarding 
the possible effect of United States exports on the control scheme? 

Mr. Stannard. There was very Uttle discussion. One of the 
Rhodesians, I think it was Mr. Storke, asked me what Kennecott's 

f)osition would be in reference to exports. He was, I think, particu- 
ariy concerned about Kennecott because we were the largest United 
States producer and at that time our properties were not being oper- 
ated at capacity, I told him in view of the tariff that had been put 
on copper coming into the United States, our obligation to the domestic 
market and the fact that our stocks of copper had been reduced to a 


reasonable level, that ^ur general policy probably would be not to 
export very much copper in^^e near fulure. 

Mr. ScoLL. According to the accounts published in the newspapers 
describing these meetings, there was an understanding that United 
States exports by the members of the international control agreement 
would be kept to approximately 9,000 tons a month. Was there such 
an understanding, or any similar understanding? 

Mr. Stannard. There was not. I have told you about my conver- 
sation with Mr. Storke as to our general export policy. One reason 
we arrived at that policy was because we were afraid that if we 
exported a lot of copper, the Canadians and the Rhodesians would 
have a duty put on copper going into England. In other words, they 
would put u tariff wall aroimd England. If they should do that, we 
felt that the Belgians and France would next make a tariff arrangement 
which would practically exclude American and all other copper, except 
Belgian, from France, and we would thereby build up an impossible 
situation in the copper world. 

Mr. ScoTJ.. So that the foreigners requested no assurances of any 
kind that the Americans would not use their American production for 
export abroad. 

Mr. Stannard. No; Mr. Scoll, they didn't — there was no agree- 
ment or assurance. I think the only company they put the question 
to very definitely was Kennecott, and I have told you why we decided 
not to run the risk of an English tariff by exporting too much copper. 

England at that time was in a position to get all of its copper require- 
ments from Canada and Rhodesia. Katanga could supply the French 
market. With an American tariff and the export of copper to England, 
the danger of a tariff there was very real, and had it been put into 
effect there would have been one more obstacle in the way of the 
development of the American copper industry. 

Mr. Pike. Didn't England put on a sort of optional tariff whidi 
they had never used at that time? 

Mr. Stannard. We have offices in London, Berlin, Paris, and Italy. 
We got word from our office in London that there was a very strong 
sentiment there to put on a tariff to. keep out American copper, in 
fact everything but colonial copper. I think the Board of Trade did 
have right to put on a s mall tariff had they so elected, but it was never 

Mr. Scoll. One further question. Do you have any idea as to how 
these rumors arose about the limit of 9,000 tons on exports? 

Mr. Stannard. The Rhodesians may have talked with other people 
about exports. They were a bit concerned, but not very much. Their 
main concern was about Kennecott, because we were the largest 
American producer. I do not believe they gave much thought to 
the smaller producers. 

Mr. Scoll. Do you recall who finally agreed to participate? 

Mr. Stannard. In the cooperative arrangement? 

Mr. Scoll. In the cooperative arrangement. 

Mr. Stannard. There were really only five groups, and I \fant 
to say right here that Kennecott Copper Corporation as such did not 
participate in this cooperating group, nor did Anaconda. Subsidiaries 
of Anaconda operating in Chile (and Mexico) and a subsidiary of 
Kennecott, the Braden Copper Co., operating in Chile, participated. 

Mr. ScoLL. That was you and Mr. Kelley. 


Mr. Stannard. Mr. Kelley and myself, and the Roan Antelope 
Copper Co., and the Mufulira Copper Co. represented by Mr. Storke; 
Rhokana, represented by Mr. Taylor, and during a part of our con- 
ferences, Mr. Preston represented Rio Tinto and Mr. Belanger 
represented Bor. 

Mr. ScoLL. Did you mention Katanga? 

Mr. Stannard. Mr. Pisart first represented Katanga, and then he 
was joined by Mr. Sengier. 

Mr. ScoLL. Those parties were the signatories to the final agree- 

Mr. Stannard. Those parties were signatories to the final under- 

Mr. ScoLL. I would like to introduce for the record at this time a 
table showing the share of foreign production of copper controlled by 
participants in the international agreement, 1935 to 1938. I believe 
you have seen a copy of this, have you not? For purposes of the 
record, this table was prepared by staff members of the T. N. E. C. 
from figures that were obtained from the American Bureau of Metal 
Statistics. It briefly shows that in 1935 the members of the agree- 
ment controlled 50 percent of the total foreign production. In 1936, 
this had dropped to 46 percent. It rose to 53 percent in 1937, and in 
1938 it was 48 percent. It also shows that if production of Russia 
were excluded, in '35, the members would control 53 percent of produc- 
tion; in '36, 50.3 percent, and in 1937, 56.5 percent, and it dropped 
in- 1938 to 52 percent. The reason for setting that tabulation up 
separately is that it is generally understood that Russian production 
was consumed in Russia. Is that correct? 

Mr. Stannard. That is correct, but I do not think, Mr. Scoll, 
that that is quite a fair tabulation. You have put into the cooperating 
group the production of Rio Tinto and Bor. As a matter of fact, Rio 
Tinto had a quota of 3,100 tons a month assigned to it which was 
far in excess of its productive capacity. Mr. Preston told me that 
they had not produced more than 2,100 or 2,200 tons per month, and 
that is what they would keep on producing. 

(The table referred to was marked "Exhibit No. 2156" and is 
included in the appendix on p. 13528.) 

Mr. Scoll. May I interrupt. I think we are in complete agree- 
ment. The purpose of introducing this is to show that the inter- 
national production control members only controlled about half or a 
little less than half of the world production. 

Mr. Stannard. I agree with you on that, but if you put in Russia 
and Japanese production, we figure it controlled considerably uiider 
50 percent of the production outside of the United States. My 
figures are 46 percent. 

The Chairman. Let's get this cleared up, please, Mr. ScoU. 

Mr. Scoll. The disagreement, Senator, involves a few percent, 
depending upon whether or not Russia and Japan e^ould be included 
in the total, and I think for our purposes, we are pt-i-fectly willing to 
concede that the percentage may have varied somwhat from the 
figures shown on the table. 

The Chairman. This table does not include Russia and Japan 

Mr. Scoll. The table includes Russia under one figure of 50 percent 
in 1935, which I read, and also Japan. Then in another figure we 


have shown the percentage of '35 as 53 percent, an increase of 3 ])er- 
cent, by excluding Russia. 

Now, the Committee can take either one of those figures. 

The Chairman. Are both figures on the table? 

Mr. ScoLL. Both are on the table, Japan is also included. 

The Chairman. The members of this international group controlled 
how much of world production, excluding Russia and Japan? 

Mr. ScoLL. We are talking only of foreign production. 

The Chairman. All right, of foreign production; how much? 

Mr. ScoLL. If we excluded Russia, and included Japan, it would 
be 53 percent. 

The Chairman. Is that your understanding, Mr. Stannard? 

Mr. Stannard. That is what we actually produced, you-^mean, 
Mr. ScoU. 

Mr. ScoLL. That is production; that is not sales. 

Mr. Stannard, That would be approximately correct. 

The Chairman. Now, then, what would be the figure, including 

Mr. ScoLL. If we included Russia, the figure would be 50 percent, 
and I should state that we are talking now about 1935, when the 
agreement was made. 

The Chairman. Is that your understanding, Mr. Stannard? 

Mr. Stannard. Fairly close to that. I haven's any real disagree- 
ment with these percentages. 

The Chairman. That clears up the apparent disagreement, does it? 

Mr. ScoLL. I would like to read to the committee a verj^ brief 
excerpt from the Memorandum of Provisions Covering Curtailment 
and Production Control of African, South American, and European 
Producers, dated March 28, 1935. That is the memorandum of an 
agreement that was adopted by the members, was it not? 

Mr. Stannard. That is correct. 

Mr. ScoLL, The first paragraph: 

Recital : The purpose of the above mentioned producers in 'participating in this 
memorandum is to bring about better conditions in the production, distribution 
and marketing of copper, throughout the world outside of the United States, and 
it is specifically provided that none of the terms hereof shall apply to the United 


I would like to offer as the next exhibit this memorandum from 
which I have just quoted. 

The Chairman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 2157" and 
is included in the appendix on p. 13528.) 

Mr. ScoLL. A quota system was used, I believe, to allot the curtail- 
ment among various members, was it not? 

Mr. Stannard. It was. 

Mr. ScoLL. And basic tonnage quotas were set up for each 

Mr. Stannard. That is correct. 

Mr. ScoLL. The agreement provided, did it not, that the sales 
should be made as far as possible to consumers only. 

Mr. Stannard. That is correct. 

The Chairman. To what agreement Are you referring? 

Mr. ScoLL. The agreement that has just been introduced in the 
record, "Exhibit No. 2157," 


The Chairman. My attention was diverted when you were dis- 
cussing this agreement. Was it identified by the witness? 

Mr. Stannard. It was. 

The Chairman. By whom was it prepared, Mr. Stannard? 

Mr. Stannard. It was prepared in our office in New York — that 
is — mimeographing of it was done there. During the month of 
March 1935— we had I would imagine 10 or 12 meetings — and this 
was the final understanding of what we agreed upon. 

The Chairman. And has the agreement been introduced in evi- 
dence here in the form in which it was prepared in your office? 

Mr. Stannard. It has been, exactly. 

The Chairman. And the title of this memorandum was prepared 
in your office was it? Have you seen the title? 

Mr. Stannard. It was the title that was agreed to by all the 
participants at the meeting. 

The Chairman. And that title is "Memorandum of Provisions 
Covering Curtailment and Production Control of African, South 
American, and European Producers"? 

Mr. Stannard. That is correct and that is aU that it covered. 

The Chairman. I notice in the first paragraph which is entitled 
"Recital," it is stated as follows "and it is si)ecificaUy provided that 
none of the terms hereof shall apply to the United States." Why was 
that phrase put in? 

Mr. Stannard. Because this covered production outside of the 
United States; it had no reference whatsoever to production within 
the United States. As far as Kennecott was concerned, it was our 
Braden property in Chile that participated in this understanding 
and it referred only to Chilean production. The same applied to the 
Chile Copper Co., Andes, and Greene Cananea, whose properties are 
in Chile and in Mexico — all are subsidiaries of Anaconda. 

The Chairman. Would it be proper to say that you were making 
it clear that you were not doing anything with respect to production 
control in the United States that might be condemned by the Sherman 
antitrust law? 

Mr. Stannard. That is correct. And I would like to point out. 
away from any price control; each of the participants kept its own 
selling agency in Europe, and there was the same competition as 
before in keeping oiPtlets. 

The Chairman. In other words, you were careful to confine this 
agreement to the regulation of production and not to the control of 

Mr. Stannard. That is true. 

The Chairman. Of course, the regulation of production would 
necessarily affect the price, would it not? 

Mr. Stannard. Perhaps slightly. When we started these dis- 
cussions copper in Europe was seeing at say 6.7 cents per pound. It 
was the first time we had assembled a group of producers whose ores 
were devoid of precious metals. In other words, we were simply 
copper producers and had as common competitors in the market 
abroad all of the Canadian production, Peruvian production and 
various other production containing lots of precious metal values to 
help pay the cost of operation. Being in about the same cost bracket, 
it was a rather logical set-up. We hoped through arriving at a com- 
mon imderstanding that we would avoid additional plant installations 

124491 — 41— ffit. 25 14 


because if one party increased its plants — put in more capital — then 
the others would have to follow and we would finally come down to a 
price of copper abroad which would be ruinous to all of us; these five 
main participants probably had in the neighborhood of half a billion 
dollars tied up in their copper investments in Rhodesia, Africa, and 

The Chairman. In other words, the puroose was to afTect the 

Mr. Stannard. It was not to affect the price upward, it was 

The Chairman (interposing). To prevent a disastrous decline? 

Mr. Stannard. That's it exactly. There is quite a distinction. 

The Chairman. In other words, the distinction that you are trying 
to make to the committee is that the purpose of this agreement was 
to save the industry and not to exploit the consumer. 

Mr. Stannard. That is exactly correct. 

The Chairman. Well now, did it have the effect to raise the price? 

Mr. Stannard. It happened that this agreement became partiallv 
effective in May 1935, and fully effective in June 1935. The N. R. A. 
ended at the end of May 1935 and business picked up very decidedly 
in this country beginning about the 10th of July 1935. From that 
time on there was an ascending cycle of business here- which un- 
doubtedly had its effect on the copper markets outside of the United 
States because automatically as business got better here exports 
stopped going to Europe and that meant less copper on the European 
market. At that same time a cycle of business improvement started 
in Europe; and generally speaking, that cycle, insofar as concerns 
copper, continued right along through 1936, 1937, 1938, and 1939. In 
other words, due to preparations for war, the consumption of copper 
abroad increased continuously, you might say, during that period, 
and even though we had not had this imderstanding as regards pro- 
duction, I believe the trend of prices would have been exactly the 

The Chairman. What was the attitude of the foreign producers 
who entered this agreement with respect to the exclusion of United 
States properties from its terms? 

Mr. Stannard. I don't just get your point. 
' The Chairman. Well, you invited European producers to enter 
into a production and curtailment program. 

Mr. Stannard. We didn't invite the European producers; they 
invited Mr. Kelley and myself and the interests we represented to 
join with them. 

The Chairman. I see. All right, they invited you to come in, 
and then you wrote into this agreement the exclusion, the specific 
exclusion, of the United States. What was their attitude toward 
that provision? 

Mr. Stannard.- In the meantime. Congress had put a 4-cent tariff 
on copper coming into the United States, and as a result of that tariff 
the copper world was divided into two parts, the ins and the outs, 
a;nd the people who were in this Agreement here 

The Chairman (interposing). Whiph were the ins and which were 
the outs? 

Mr. Stannard. I should say those inside the United States were 
|:h8 ins, so to speak. The rest of them were the outs. The people 
^K) participated in this cooperative agreement were people with 


production entirely outside the United States; their copper couldn't 
come into this market and with the market in Europe more or less 
limited we had to meet the competitioai there, particularly of Canada, 
which worried all of us very much. 

The Chairman. What I wanted to know is whether there was any 
objection upon the part of these European producer^ to this clause 
which you wrote into the preliminary recital: "It is specifically pro- 
vided that none of the terms hereof shall apply to the United States." 

Air. Stannard. There was no objection on the part of the Rhodesian 
or Belgian producers. 

The Chairman. They were not concerned, then, about the effect of 
American production upon the foreign market? 

Mr. Stannard. They were not particularly concerned about it, 
Senator. As I stated, they asked as to Kennecott's position respecting 
exports to the foreign market, and I told them that our stocks of 
copper here were already fairly well reduced, and as a general prin- 
ciple we would not export much copper to the European market. 
As I told you, our decision in that matter was largely determined by 
our fear that there would be a tariff put on copper in England, which 
would exclude all American copper as well as South American copper, 
following which France would give preference to Belgian copper and our 
operations everywhere would be greatly harmed by such developments. 

The Chairman. Was I mistaken in getting the impression that 
American production — ^by that I mean the United States production — 
was or has been about equal to American demand? 

Mr. Stannard. It has varied a great deal. At the bottom of the 
depression the actual consumption of copper within the United States 
got down to a low of about 18,000 tons per month. At the peak of 
the business rise in 1937, which I think was in March, the consumption 
of copper rose to eighty-seven thousand-odd tons. From a top of 
87,000 to a bottom of 18,000 tons per month is a wide variation. The 
total productive capacity of the United States is about 90,000 tons 
per month, I would say. The average consumption of copper within 
the United States over the past 4 or 5 years has probably been around 
fifty-five to sixty thousand tons per month. Therefore on the average, 
the consumption of copper in the United States has represented 
about 60 to 65 percent of th*e productive capacity of the United States. 

The Chairman. Now, there was an active demand from the copper- 
producing States, notably Arizona and Montana, for this excise tax, 
was there not? 

Mr. Stannard. There was. 

The Chairman. And that was promoted, I presume, by a fear that 
foreign copper — that is, copper produced by the outs — would take our 
domestic market to the disadvantage of the mines in the United States, 
or at least of the miners. 

Mr. Stannard. That is true. 

The Chairman. And what was the attitude of the producing com- 
panies with respect to the tariff? 

Mr. Stannard. Kennecott took no position. 

The Chairman. It was neutral also, as Mr. Kelley said? 

Mr. Stannard. We were neutral also. 

The Chairman. As a matter of fact, the tariff was promoted rather 
by the laborers, the miners, than by the producing companies, was 
it not? 


Mr. Stannard. I think it was promoted by both the producing 
companies and the miners. 

Mr. ScoLL. Certain producing companies? 

Mr. Stannard. Certain producing companies. 

The Chairman. Were Anaconda and Kennecott occupying neutral 

' Mr. Stannard. There may have been on^e or two others, perhaps, 
who were more or less neutral. I am not sure about it, because we 
didn't participate in any of those meetings. 

The Chairman. Woiild it be proper to infer that the neutrals were 
those who had foreign properties? 

Mr. Stannard. We both did have foreign properties; yes. 

The Chairman. That inference would be substantially correct, 
would it not? 

Mr. Stannard. Yes; I think it would be. 

Mr. ScoLL. Generally speaking, to continue the line of discussion 
on one further point, the effect on prices of a tariff imposed by the 
Government is just about the same as a production control put on 
by the industry, isn't it? 

Mr. Stannard. No; I do not think it is the same thing at all, 

Mr. ScoLL. It produces the same effect. 

Mr. Stannard. No, I don't think that is true, Mr. ScoU. 

Dr. Lubin. Mr. Scoll, may I ask Mr. Stannard one question? 
There was nothing in this agreement to prevent any foreign producer 
from selling all the copper he wanted to in the United States if he could 
sell it over the tariff and still come out? 

Mr. Stannard. Absolutely not. There was no restriction on any 
of the participants in this agreement, there was no allocation of 
territoiy, there was no price control; we could sell any place in the 
world we wanted to sell. 

Dr. Lubin. Well, copper mining is what one might characterize a 
decreasing cost industry, in the sense if you operate at 50 percent your 
unit cost is much higher than if you operate at 70, 80, or 90 percent. 

Mr. Stannard. It is somewhat higher; it varies a great deal with 
different properties. 

Dr. Lubin. But in terms of your unit cost, would the unit cost tend 
to go down as you get closer, well, let's say as you get farther and 
farther away from 40 to 50 percent capacity? 

Mr. Stannard. Yes, the costs go down when you get above 50 
percent and they go up when you produce under 50 percent. 

Dr. Lubin. So that in reality, then, by limiting the output of these 
competitive mines abroad you in a sense fixed their costs or at least 
their [costs from going down, which in a sense made it less profit- 
able for them to try to sell copper in the United States, didn't it? 

Mr. Stannard. With a tariff wall of 4 cents per pound they could 
not have sold copper in the United States; it would have been a losing 
proposition for them. 

Dr. liUBiN. You don't think that any of those people, if they were 
operating at maximum efficiency at the point of lowest cost, could get 
over that tariff wall? 

Mr. Stannard. I would not think so. 

Mr. Scoll. As a matter of fact, Mr. Stannard, didn't the control 
committee at its meeting on July 15, 1935, agree that it would exchange 
information with a view to avoiding price cutting? 


Mr. Stannard. They had one meeting abroad and it was agreed 
that they would exchange information. But, as a matter of fact, 
practically nothing was done in the way of any agreement as to prices. 
There were two or three producers of best select copper, and I think, 
they agreed — Mr. Ulrich representing our company — that they would 
make a price differential of 5 shillings or 1 shillings on certain shapes. 
That was the only thing done, and it was not in reference to copper 
as a whole. 

Mr. ScoLL. Have you got the minutes of that meeting before you? 

Mr. Stannard. I have the minutes before me, Mr. Scoll. 

Mr. Scoll. Well, you notice on page 2 of the minutes it states 
(paragraph 8): 

It was agreed that the representatives of the various producers shall cooperate 
by exchanging information with a view to avoiding price cutting. 

Mr. Stannard. I see that. 

Mr. Scoll. What did that have reference to? 

Mr. Stannard,. At that time it was thought advisable to have the 
sales representatives of the different companies in Europe report their 
sales to a common agency. Sales were reported to an office in Brussels 
and that office, in trurn cabled daily to the office in New York stating 
the tonnage sdld during the day and the price at which it was sold. 

Mr. Scoll. This meeting/ July 15 took place after the break-up of 
the N. R. A.? - "^ 

Mr. Stannard. That took place after the br'eak-up. 

Mr. Scoll. Was there any concern among the members that the 
N. R. A. break-up might result in price cutting and interfere with the 

Mr. Stannard. I do not believe there was any concern about it. 

1 think the American representatives at that meeting thought the 
break-up of N. R. A. was going to be a good thing for industry generally 
in the United States. 

Mr. Scoll. I would like to introduce into the record at this time a 
copy of the minutes of the meeting held at London, July 15, 1935. 

The Chairman. The exhibit may be received. 

(The minutes referred to were marked "Exhibit No. 2158" and are 
included in the appendix on p. 13533.) 

The Chairman. Mr. Scoll, it is now afternoon, the roll has just been 
called in the Senate. WouljlAis be a satisfactory place to recess until 

2 o'clock this afternoon? 
Mr. Scoll. Yes, sir. 

The Chairman. The committee will stand in recess until 2 o'clock 
this afternoon. 

(Whereupon, at 12:10 p. m. the committee recessed until 2 p. m. of 
the same day.) 


The committee resumed at 2:15 p. m. upon expiration of the recess. 

The Chairman. The committee will come to order, please. 

Mr. Scoll, are you ready to proceed? 

Mr. Scoll. Yes,- sir. 

The Chairman. Before you proceed, the chairman is going to take 
the liberty of putting in the record the Capper- Volstead Act, to which 
reference has been made from time to time during the hearings. Mr. 


Kelley referred to it yesterday and Mr. Stannard referred to it today. 
Inasmuch as this was an act to authorize certain producers of agri- 
cultural products to form associations, and inasmuch as the sugges- 
tion has been made that similar permissions should be extended to 
the producers of industrial products, and inasmuch as it deals with 
the subject matter of this committee's study, it occurred to the chair- 
man that it would be of interest to all members of the committee and 
to all who read the record. 

The Capper- Volstead Act was approved February 18, 1922. It is 
a short act, perhaps it might be appropriate to read it. 

Be it enacted by the Senate and House of Representatives oj the United States of 
America in Congress assembled, That persons engaged in the production of agri- 
cultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers 
may act together in associations, corporate or otherwise, with or without capital 
stock, in collectively processing, preparing for market, handling, and marketing 
in interstate and foreign commerce, such products of persons so engaged. Such 
associations may have marketing agencies in common; and such associations and 
their members may make the necessary contracts and agreements to effect such 
purposes: Provided however, That such associations are operated for the mutual 
benefit of the members thereof, as such producers, and conform to one or both 
of the following requirements: 

First. That no member of the association is allowed more than one vote be- 
cause of the amount of stock or membership capital he may own therein, or, 

Second. That the association does not pay dividends on stock or membership 
capital in excess of 8 per centum per annum. 

And in any case to the following: 

Third. That the association shall not deal in the products of non-members to 
an amount greater in value than such as are handled by it for members. 

Sec. 2. That if the Secretary of Agriculture shall have reason to believe that 
any such association monopolizes or restrains trade in interstate or foreign com- 
merce to such an extent that the price of any agricultural product is unduly 
enhanced by reason thereof, he shall serve upon such association a complaint 
stating his charge in that respect, to which complaint shall be attached, or con- 
tained therein, a notice of hearing, specifying a day and place not less than thirty 
days after the service thereof, requiring the association to show capse why an 
order should not be made directing it to cease and desist from monopolization or 
restraint of trade. An association so complained of may at the time and place so 
fixed show cause why such order should not be entered. The evidence given. on 
such a hearing shall be taken undf^^ such rules and regulations as the Secretary of 
Agriculture may prescribe, reduced to writing,^and made a part of the record 
therein. If upon such hearing the Secretary of Agriculture shall be of the opinion 
that such association monopolizes or restrains trade in interestate or foreign 
commerce to such an extent that the price of any agricultural product is unduly 
enhanced thereby, he shall issue and cause to be served upon the association an 
order reciting the facts found by him, directing such association to cease and 
desist from monopolization or restraint of trade. On the request of such asso- 
ciation or if such association fails or neglects for thirty days to obey such order, 
the Secretary of Agriculture shall file in the district court in the judicial district 
in which such association has its principal place of business a certified copy of the 
order and of all the records in the proceeding, together with a~petition asking that 
the order be enforced, and shall give notice to the Attorney General and to said 
association of such filing. Such district court shall thereupon have jurisdiction 
vo enter a decree aflBrming, modifying, or setting aside said order, or enter such 
other decree as the court may deem equitable, and may make rule^ as to pleadings 
and proceedings to be had in considering such order. The place of trial may, for 
cause or by consent of parties, be changed as in other causes. 

The facts fdund±)y the Secretary of Agriculture and recited or set forth in said 
order shall be prima facie evidence, of such facts, but either party may adduce 
additional evidence. The ' Department of Justice shall have charge of the en- 
forcement of such order. After the order is so filed in such district court and while 
pending for review thereiij t\e court may issue a temporary writ of injunction 
forbidding such association from violating' such order or any part thereof. The 
court may, upon conclusion of its hearing, enforce its decree by a permanent 


njunction or other appropriate remedy. Service of such complaint and of all 
notices may be made upon such association by service upon any officer or agent 
thereof engaged in carrying on its business, or on any attorney authorized to 
appear in such proceeding for such association, and^such service shall be binding 
upon such association, the officers, and members thereof. 

The Chairman. This bill, which was finally passed, was the House 
bill. A report was submitted on that bill from the Committee on the 
Judiciary in the House of Representatives on April 26, 1921, by 
Congressman Volstead. It was report No. 24 (Sixty-seventh Cong., 
1st. sess.). The report also is a short one and I shall ask that that 
also be incorporated in the record but I won't undertake to read it.^ 

The bill was reported in the Senate by Senator Walsh of Montana. 

Also from the Committee on the Judiciary of the Senate, this is 
report No. 236 of the first session of the Sixty-seventh Congress. I 
shall also ask that this brief report be printed in the record.^ 

I may call attention to what would seem to me to be very interesting 
paragraphs of this report [readingl: 

Inasmuch as it is utterly impossible to establish a monopoly of any of the 
ordinary farm products, cereals, cotton, livestock, etc., an inhibition of monopoly 
must be unobjectionable to the producers of such. Moreover, your committee is 
entirely satisfied that they have no desire or purpose to establish a monopoly. 
Why anyone should insist under these circumstances, on the enactment of a law 
which, in terms, would authorize them to do so, your committee finds it impossible 
to understand. 

This remark of the report was in support of an amendment added 
to the bill in the Senate to forbid monopoly. 

Then there was a second paragraph which is of interest when one 
takes into consideration various milk organizations [reading further]: 

It is possible, however, to establish a monopoly with respect to farm products 
which can be produced profitably only in a very limited area, or in the case of 
highly perishable products, like milk, which will not stand shipment long distances. 
It would not be in the public interest, your committee believes, to permit aU 
producers of milk within the area from which one of our great cities is supplied 
to effect a single organization having thus a monopoly which might or might not 
be utilized to exact extortionate prices of coi^umers. Your committee sees no 
good reason why two, three, a half dozen, or a dozen cooperative associations 
might not properly be organized for the purpose of supplying a city with its milk, 
nor why, in the case of raisins, for instance, produced only within a limited area 
in the State of California, a monopolistic organization should be permitted and 
encouraged, rather than two or three cooperative associations organized and 
operating on similar lines. 

I ask the pardon of the committee for taking the time, but I rather 
imagine that the law and these two reports will be of great interest to 
all who are following these hearings. 

Mr. ScoLL. At this time, Senator, I should like to file with the 
committee certain tables which were received from the Copper Insti- 
tute too late to be analyzed in the form of a chart. These tables are 
"Blister Output — 1937, by all U. S. Smelters," and "Refinery Output — 
1937, by all U. S. Refineries," and "Sales During 1937 of Refined 
Copper Produced or Treated in U. S. A." 
. I would like to have those filed, no't introduced into the record. 

The Chairman. They will be so ordered. 

Mr. ScoLL. Mr. Stannard, were any meetings of the control 
committee held after July 15, 1935, to your recollection? 

' See appendix, p. 13579. 
•Ibid., p. 13581. 


Mr. Stannard. No, that was the only rnccthig ever held. 

Mr. ScoLL. The agreement provided for the scttmg up of a statis- 
tical agency — was that ever undertaken? 

Mr. Stannard. Only in connection with Mr. Eckert. He was 
given figures relative to the monthly production of each member of 
the cooperative group, and in turn issued reports the middle and the 
end of each month informing all members as to the production of each 
member of the group and of the group as a whole. 

Mr. ScoLL. Now, the agreement provided that quotas might be 
changed from time to time and they were so changed, were they not? 

Mr. Stannard. They were changed in the period of the original 
agreement which expired 

Mr. ScoLL (interposing). Excuse me, I won't ask you to go into 
the details. 

Mr. Stannard. Yes; they were changed. 

Mr. ScoLL. I would like to introduce at this time a chart and 
supporting table showing "Foreign Copper Before and After the 
International Agreement of 1935, Monthly, 1933-39." , 

This chart and the tables were prepared by the staff of the T. E. N. C.;' 
the source of the information is shown on the chart. Before introduc- 
ing it, I might describe it briefly. It shows the prices, quotas, 
production, sales, and exports of the world producers. United States 
and foreign, under the agreement and prior to its adoption. The 
quotas shown on the chart are based on the supporting table. Briefly, 
if the committee will examine the curve shown thereon, it will see 
that the quotas were first increased about August 1936; that the price 
began to rise, and as the price continued to rise, the quotas were 
increased accordingly, and finally the quotas were removed entirely 
at the end of 1936, after which the price — and I am referring to the 
London price — rose to above 15 cents. I would like to offer this 
as an exhibit. 

(Representative Williams, assumed the Chair.) 

Acting Chairman Williams. This may be received. 

(The chart and tables referred to were marked "Exhibit No. 2159" 
and are included in the appendix on p. 13534.) 

Mr. ScoLL. Was there an-^understanding among the members to 
the production control agreement that quotas would be removed 
entirely if the London price reached a certain point? 

Mr. Stannard. It was the consensus of opinion that if the price 
went above, let us say, £45 for standard copper, all restrictions ought 
to be removed. 

Mr. ScoLL. Now, was war buying a factor that the committee took 
into consideration in changing the quotas from time to time? 

Mr. Stannard. Yes; Europe was considerably affected by buying 
for munitions and military purposes. 

Mr. ScoLL. Were any changes in the quotas based upon informa- 
tion which the members had of pending purchases by governments? 

Mr. Stannard. No, not that I ever heard of. 

Mr. ScoLL. The changes were just made, then, in response to what 
the observed prices were on the London market? 

Mr. Stannard. Prices and consumption. 

Mr. ScoLL. By "consumption" yon mean 

Mr. Stannard (interposing). Deliveries to customers. 


Mr. ScoLL. You said before that the committee did not meet after 
July 1935. How were the quotas changed after that date? 

Mr. Stannard. If either Mr. Kelley or myself on this side, or any 
one of the three control members on the other side felt that the quota 
should be increased or decreased, he would get in touch with some 
other member of the group of five, usually by telephone, and would 
discuss the matter; the foreign members might have a meeting abroad 
and we have one here ; usually we would be pretty much in agreement 
as to increasing or decreasing the quotas. Such matters were handled 
entirely by telephone. 

Mr. ScoLL. When the agreement expired in jJune — I believe the 
30th, 1938— was it renewed? 

Mr. Stannard. It was renewed, and at that time an additional 
quota was given to Rhokana. 

(Senator O'Mahoriey resumed the chair.) 

Mr. ScoLL. All of the participants were apparently pretty well satis- 
fied with the way it worked, were they not? 

Mr. Stannard. They were. 

Mr. ScoLL. Was the success of the agreement due in' part to the 
improvement in the copper situation of 1935 to 1939? 

Mr. Stannard. I do not think so;* no. 

We all felt that such an association was generally beneficial, but 
no one believed that this cooperative arrangement had been respon- 
sible for a great improvement in the copper business. 

Mr. ScoLL. That was not quite the point of my question. What 
I meant was, didn't the increased consumption of copper and the 
improved prices which copper brought in the world market have 
some bearing on the success of the arrangement? 

Mr. Stannard, It had a very decided bearing on the success of it. 
If consumption had been downward instead of upward during that 
period of 3K years the arrangement might have broken up in a short 

Mr. ScoLL. I would like to offer at this time a table entitled, 
"U. S. Exports of Duty Free Copper by Various Classes of Exporters, 
Monthly, 1935-39." 

This was prepared by Mr. R. R. Eckert, secretary of the Copper 
Institute, for the committee at the request of members of the staff. 
I might explain the use of the term "duty free" as I understand it. 
What it covers is all domestic and refined copper, plus any previous 
imports of duty-free copper. That would include duty-free copper 
from Cuba, but no other copper from any other country. 

The Chairman. The exhibit may be received. 

(The table referred to was marked "Exhibit No. 2160" and is 
included in the appendix on p. 13537.) 

Mr. ScoLL. There is no comment that I wish to make about this 
table except to point out that Kennecott's exports, that is, exports of 
domestic copper, stopped in June 1935, and did not resume until 
August 1938, which bears out Mr. Stannard's statements. 

The Chairman. Have you any comment, Mr. Stannard, on the 

Mr. Stannard. No. I have none. 

Mr. ScoLL. I believe I asked you before whether there were any 
discussions concerning the; taking of steps that might be necessary to 


prevent price cutting. Was there any cooperation by the members of 
this agreement during its existence to prevent price cutting? 

Mr. Stannard. I do not think so, Mr. Scoll, except as I explained 
this morning. In the case of fire-refined copper, there were only two 
producers and the question was whether the differential on fire-refined 
copper should be 20 or 25 points. That was of no consequence. 

Mr. Scoll. Was there any machinery set up to enforce the agree- 

Mr. Stannard. Absolutely none. 

Mr. Scoll. It was purely voluntary? 

Mr. Stannard. Purely voluntary. 

Mr. Scoll. There was no trouble about it? 

Mr. Stannard. There was no trouble at all. 

Mr. Scoll. The agreement, as was noted before, provided for direct 
sales to consumers. The purpose of that of course was to eliminate 
sales to or through speculators and dealers? 

Mr. Stannard. That is correct. 

Mr. Scoll. And what steps were taken by the members to avoid 
copper from getting into the hands of specualtors and dealers? 

Mr. Stannard. We sold direct to the consumer. 

Mr. Scoll. Now how could you keep any one member from selling 
to a dealer if he wanted to? 

Mr. Stannard. Any member could have sold to a dealer had he 
wanted to, but the general thought was that the copper industry 
would be better off it kept away from speculation. 

Mr. Scoll. Now do all the foreigners agree on that proposition? 

Mr. Stannard. Generally speaking, yes. However, there is a lot 
of copper sold through the London Metal Exchange. 

Mr. Scoll. Which wasn't sold by members of the agreement? 

Mr. Stannard. Practically none of it was sold by members of the 
agreement. However, at one time in 1937, when the price of copper 
was getting out of hand, we ourselves sold about 5,000 tons on the 
London Metal Exchange with the idea of trying to break the fictitiously 
high price; that was the only time that we have sold copper on the 
London Metal Exchange in many years. 

The Chairman. When you speak of speculation, Mr. Stannard, 
what do you mean? 

Mr. Stannard. I mean the buying of copper by people who are 
not directly users of copper. In this connection I was told that in 
the London boom of 1937 somewhere between 100,000 and 150,000 
tons of copper were bought through the London Metal Exchange by 
amateur white-collar speculators. They were all speculating and 
that was one of the things that made it possible for the price of copper 
to get entirely out of hand in the London market. 

The Chairman. Well, were these speculators amateur speculators 
or amateurs in the copper industry? 

Mr. Stannard. They were amateurs in the copper industry. 

The Chairman. They might have been very highly professional 

Mr. Stannard. Some of them may have been. There were always 
professional speculators on the London Metal Exchange. 

The Chairman. You are referring now to purchases and sales, 
probably, too, in copper by persons who are not connected with the 


Mr. Stannard. Largely so. 

The Chairman. Do people who are connected with the industry 
also speculate? 

Mr. Stannard. Some few do; it is not general, however. 

The Chairman. What is the attitude of the industry toward specu- 
lation of this kind? 

Mr. Stannard. We disapprove of it and in New York, for exam- 
ple, the Commodity Exchange during N. R. A. days was practically 
put out of business as far as copper was concerned. After the N. R. A. 
expired it gradually came back into being again. It is my personal 
belief that speculation on the London Exchange and on the New York 
Commodity Exchange is probably responsible for much wider varia- 
tions in the prices of commodities than if these exchanges did not 
exist. Take copper for example: If the fluctuation in copper is 4 
cents per pound, or, let us say, between 12^ cents and Sji cents, with 
the commodity exchanges, then without the commodity exchanges I 
think the fluctuation would be very much narrower. This would be 
a great help to consumers since it would lessen the inventory prob- 
lem they have if they buy copper at 12 cents and it goes down to 8. 
They suffer great losses. 

The Chairman. In your opinion, then, it would be a great benefit 
to the copper industry and to consumers of copper if the commodity 
exchanges could be prevented from speculating or permitting specula- 
tion in copper? 

Mr. Stannard. Generally speaking, yes. 

Mr. ScoLL. Senator, we are going to discuss the function of the com-, 
modity exchange and prices on the exch'ange very shortly. 

The Chairman. I am sorry; I am always jumping ahead of you. 

Mr. ScoLL. Now in connection with the direct selling were you able 
to prevent some of the purchasers of copper from reselling to other 
purchasers or selling to dealers in times when it was profitable to do so? 

Mr. Stannard. We were not able entirely to stop that. 

Mr. ScoLL. But you were able to stop it in part? 

Mr. Stannard. In part, yes. 

Mr, ScoLL. Generally because you knew who your customers were 
and you knew what their requirements were? 

Mr. Stannard. That is true. 

Mr. ScoLL. Now did the direct sales policy reduce the influence of 
the London Metal Exchange on the foreign price during the period of 
the agreement? 

Mr. Stannard. I think it did, yes, to a considerable extent. 

Mr. ScoLL. Now conversely, what effect did the prices on the 
London Metal Exchange during 1935 to 1939 hiave on the prices which 
the members of the agreement received for their copper? 

Mr. Stannard, The speculation on the London Metal Exchange 
resulted in the members — well, in fact resulted in all copper producei-s 
receiving temporarily a much better price for their copper. 

Mr. ScoLL. Did the trade-practice committee established by the 
agreement ever meet? 

Mr. Stannard. It had a meeting in July 1935. 

Mr. ScoLL. According to article 6 of the agreement, provision was 
made for a study of the entire problem of cooperative marketing of 
copper? Was such a study prepared? 

Mr. Stannard. No; it was not. 


Mr. ScoLL. Have you anything prepared by the committee — trade- 
practice committee — on that question? I presume that if the trade- 
practice committee had prepared a report or made any recommenda- 
tion on trade practices you would be famihar with it? 

Mr. Stannard. I would be; yes. 

Mr. ScoLL. What happened to tjie international production control 
agreement on the outbreak of the war in September? 

Mr. Stannard. It was understood that in the event of war the 
whole cooperative arrangement would be discontinued. In other 
words, since September 1 every member of the cooperating group has 
been free to produce at will. 

Mr. ScoLL. And the agreement is no longer in force in any par- 

Mr. Stannard. The agreement is no longer in force in any par- 

Mr. ScoLL. So if you want to get together again you would have to 
make a new agreement? 

Mr. Stannard. We would have to make a new agreement. 


Mr. ScoLL. Now the history of the various cooperative efforts that 
we have reviewed thus far, Mr. Stannard, naturally raises questions 
as to whether any informal cooperation has more recently occurred 
Id the domestic copper industry. I would like to ask you a few ques- 
tions along that line. To your knowledge have any individual pro- 
ducers discussed the desirability of production control at any time 
since the N. R. A.? 

Mr. Stannard. I do not remember of any such conferences. 

Mr. ScoLL. Have there been any conversations uiformalljr among 
producers in which opioions or information was exchanged with refer- 
ence to the desirabihty of curtaihng production? 

Mr. Stannard. I don't know of any, Mr. ScoU. 

Mr. ScoLL. I am referring particularly to the possibility of recent 
exchange of opinions among the representatives of the primary pro- 

Mr. Stannard. I am sure there have been no recent discussions. 
_ Mr. ScoLL. Well now, you do discuss from time to time the stock 
situation as shown by the figures compiled by the Copper Institute, 
do you not? 

Mr, Stannard. Figures were turned in to the Copper Institute 
every month up to August 1939. Due to the outbreak of war we 
have since been unable to get foreign statistics and therefore discon- 
tinued issuing all statistics. 

Mr. ScoLL. Now I wasn't referring to the statistics exactly, but 
you remember "Exhibit No. 2095," ^ which we introduced yesterday, 
showing the trend in concentration of mine production, showed that 
the three largest producers of copper — with Kennecott the largest 
and including Anaconda and Phelps Dodge — produced 77.6 percent 
of the domestic mine output in 1937. Now the representatives of 
these three companies, that is you and Phelps Dodge and Anaconda, 
frequently meet as members of the Copper Institute, do you not? 

> Appendix p. 13390. 


Mr. Stannard. I believe we had only two meetings of the Copper 
Institute in the past year, and at those meetings we had no discus- 
sions whatsoever as regards production within or without the United 

Mr. ScoLL. Well, have you ever met on any other occasion and 
discussed it? 

Mr. Stannard. We have had absolutely no meeting in reference to 
production. Each company produces whatever its executives think 
most advisable to produce. I have no idea what Phelps Dodge is 
producing at this time, or what Anaconda is producing. 

Mr. ScoLL. Now if, for instance, Phelps Dodge were to consider 
curtailing their production next month, you probably would find out 
about it pretty soon, wouldn't you? 

Mr. Stannard. We probably would find out about it through the 
newspapers, because if they did curtail, the Arizona papers unques- 
tionably would have some comment. 

Mr. ScoLL. You would have to look at the newspapers to find out? 

Mr. Stannard. Unquestionably so. 

Senator King. Curtailments frequently come by reason of the 
exhaustion of a particular deposit and then further exploration must 
be made to find another deposit? 

Mr. Stannard. That is true. 

Senator King. So that curtailment comes even where you desire to 
have a practically uniform output, isn't that true? 

Mr. Stannard. Well, curtailment- 

Senator King (interposing). By that I mean diminution in the 
quantity of copper produced. 

Mr. Stannard. That is true. At the present time. Senator, we 
are producing in our Kennecott enterprise about forty-one or forty- 
two thousand tons of copper per month. To get out that production 
we are handling 260,000 tons of rock per day, and from that tonna-ge 
of rock, which includes stripping removed to get at the ore, we are 
recovering on the average between 10 and 11 pounds of copper per 
ton handled. Business has been dropping off but We will probably 
continue at our present rate of production for another month or 
6 weeks. However, if the business outlook is not encouraging around 
March, we will start gradually to reduce our production as men quit 
our employ and in this way will not have to lay off any men. For 
example, we will drop down possibly to a production in this country 
of 20,000 tons per n onth, where we are now producing say 30,000 tons. 
Any curtailment on our part will be made on the basis of our best 
judgment as to the outlook for business and will not have any refer- 
ence to what Phelps Dodge or Anaconda may do as to their production. 

Senator King. Various manufacturing institutions, do they not, 
curtail production from season to season, or within the limits of a 

Mr. Stannard. That is true. 

Senator King. Depending upon the market, upon the prospective 
demand for their particular commodities, depending upon competition, 
depending upon the development by other manufacturers of rather 
unique or a little different product which is more attractive to the 
public, as a result of which their output is not uniform but is measured 
by demand and supply in various market conditions? 


Mr. Stannard. That is true. As I said this morning, it has been 
our experience over a period of years that we can operate at about 65 
percent of our installed capacity. We have at times operated at 
100 percent and other times at 40 percent. The average is about 
65 percent. 

Dr. LuBiN. Mr. Stannard, over how long a period of time, assuming 
that the hypothetical situation which you have just presented actually 
materializes, will that curtailment take place? In other words, cur- 
tailing from 30,000 to 20,000 tons a month? Will that take place 
within a month? 

Mr. Stannard. It would probably take place within 6 months, 

Dr. LuBiN. In other words 

Mr. Stannard (interposing). It would be a very gradual curtail- 
ment. We used to curtail much more abruptly, but in the last 2 or 3 
years we have been trying to work out some scherr.e which would give 
more stability to our employment. In that connection, Kennecott 
some 2 years ago accumulated copper having a value of about 
$30,000,000. After having accumulated that much copper, buying 
started in June 1938 — and in a period of 4 months we reduced our 
stocks of unsold copper from about 150,000 tons to perhaps 15,000 
tons. Then we started another period of accumulation and in this 
second period which lasted from the fall of 1938 until June 1939 we 
again accumulated about 150,000 tons of copper, which at 10 cents a 
pound had a value of $30,000,000. Then buying started again and 
our stocks of copper were again reduced to a reasonably small level. 
Now we have started on another period of accumulation. We are 
trying to plan so as to give our labor fairly continuous employment. 
On the average, about 20,000 tons copper per month is about what 
we can find a market for. 

Dr. LuBiN. I take it those accumulated stocks were disposed of in 
a rising market as business improved? 

Mr. Stannard. We started to sell those stocks at 10 cents a pound.- 
That was the low point reached in Jime of last year. Whereas we 
sold only 12,400 tons of copper in the domestic market in the first 
3 months of 1939, we sold in the first few days of July last year 86,000 
tons. I am mentioning that to show you how the copper industry 
fluctuates. In a descending business cycle fabricators postpone their 
buying as long as they can and prices keep on slumping. In the decline 
last year the price went to 10 cents, and when business changed the 
price rose from 10 to 12^ cents. The man who is not familiar with 
the copper business might assume that the price received on one of 
these buying movements would be the average between 10 and 12^ 
cents, or 11}^ cents. But as a matter of fact much more buying is 
done in the first part of the rise than in the latter part, with the result 
that the average price received by the domestic producer on a move- 
ment from 10 to 12}^ cents would be in the neighbfprhood of 10.75 
cents per pound. 

Dr. Lubin. Which is a profitable venture under the wage system 
that prevails in the industry, isn't it? 

Mr. Stannard. Pardon me? 

Dr. Lubin. Which makes it a profitable venture under the wage 
system that prevails in the industry? 

Mr. Stannard. You mean at a price of 10 cents per pound? 


Dr. LuBiN. Because 1 understand your wages are geared to the 
market price of copper and these stocks are accumulated durmg the 
period when the price is relatively lower; consequently your wage cost 
per ton is lower and you dispose of it at a higher market. 

Mr. Stannard. I cannot agree with you in that statement. I will 
take our particular case which I know better than that of the other 
domestic companies. Most of our copper was accumulated on the 
basis oi llji cents per pound because that was the price from October 
1938 until March 1939. As I remember it there was one reduction 
in wages of 25 cents per day in that whole period, while last fall, when 
the price started up, we made an increase of 50 cents per day in wages, 
which brought the wages up to a higher level. We do not regulate 
wages on the basis of the price of copper. Some of the domestic 
companies do have a sliding wage scale. Generally speaking, we keep 
m line with their wage scales, although the last time wages were ad- 
justed I do not believe we cut quite as much as some of the companies 
who were on a sliding wage scale. 

On the other hand at the time of the increase in wages last October 
I tliink the Anaconda Co. increased wages 75 cents per day, whereas 
we increased 50 cents per day. 

Senator King. One of the reasons for the large accumulations was 
for the purpose of giving employment as far as possible? 

Mr. Stannard. That is true. 

Senator King. So that you accumulated, though you had no market 
and no immediate prospective market, but you wanted to give em- 
ployment as long and as far as possible to your employees? 

Mr. Stannard. That is true. 

Mr. ScoLL. Mr. Stannard, how many important Consumers of cop- . 
per are there in the United States, roughly speaking? 

Mr. Stannard. We are the largest producers and sellers of copper, 
and have on the average only 50 customers for our total output. 

Mr. ScoLL. And some of those customers divide their purchases 
with other producers? 

Mr. Stannard. Some of those customers divide with other pro- 

Mr. ScoLL. But outside of those 50, are there any others that you 
know about that are important? 

Mr. Stannard. There may be a few others. Of course, we do not 
sell to the Anaconda fabricating plants. All told, there may be 60 
purchasers of raw copper. 

Mr. ScoLL. Including the fabricators that are subsidiaries of the 

Mr. Stannard. That is true. 

Senator King. In the United States, of course? 

Mr. Stannard. In the United States. The copper business is de- 
cidedly a wholesale business. 

Mr. ScoLL. At this time I would like to refer you, or have you take 
another look at "Exhibit No. 2100." * That is the large chart showing 
the price movements in 1912 to the present. Now you will notice 
that after N. R. A. came in, or I should say after N. R. A. ended, 
there have occurred several months when the price remained 
unchanged. Now at this time I should like to introduce a chart which 
shows in somewhat greater detail the New York price trends, from 1933 

> Appendix, p. 13394. 


through 1939. The chart is entitled "United States Domestic Price, 
Stocks, Production, and Sales of Copper, 1933-1939." Prepared by 
the staff of the committee from information obtained from the Copper 
Institute and the Engineering and Mining Journal. 

The Chairman. The exhibit may be received. 

Senator King. Has it been identified by the witness; Mr. Stannard, 
have you seen this chart?.] 

Mr. Stannard. I have. 

Senator King. Have you any comment to make on it? 

Mr. Stannard. I have no comment. 

(The charts and tables referred to were marked "Exhibit[,No. 2161" 
and are included in the appendix on p. 13538.) 

Mr. ScoLL. I would also like to introduce at this time an affidavit 
of H. H. Wanders of the McGraw-Hill Publishing Co., publishers of 
the Engineering and Mining Journal. This affidavit concerns the 
method of compiling — that is — securing and reporting the price 
averages on copper which the Engineering and Mining Journal 
publishes, and to which we have made frequent reference throughout 
the hearing. 

Senator King, Has there been any challenge to the substantial 
accuracy of the figures of the Mining Journal? 

Mr. ScoLL. There has not been. Senator, but I am introducing it 
at this time because I think the record should show how these averages 
are made up. For whoever wants to refer to it in the future it would 
be a good idea, I think, to know what these averages really represent. 

Senator King. Mr. Witness, do you know how the averages are 
made up by McGraw's Journal? 

Mr. Stannard. I do not know exactly. 

Senator King. I have no objection. 

The Chairman. Without objection the exhibit may be received. 

Mr. ScoLL. This will bear the number 2162. ^ 

Senator King. May I make this suggestion, Mr. Chairman, that 
the witness, after examining the afladavit as to the method by which 
the averages are prepared, if he desires to question or explain or 
comment upon them, may have that opportunity? 

Mr. Stannard. Thank you veiy much. 

The Chairman. All these exhibits are subject to correction by 
anybody who desires to comment upon them, and the more the merrier. 

(The affidavit referred to was marked "Exhibit No. 2162" and is in- 
cluded in the appendix on p. 13541.) 

Mr. ScoLL. This affidavit which you have just introduced shows, 
and I believe you are aware, that the monthly average of the E. and 
M.J. represents the actual sales during each month made by each of 
seven sellers, whose names I would like to enumerate: The American 
Metal Co., the American Smelting & Refining Co., Anaconda Sales 
Co., International Minerals & Metals Corporation, Adolph Lewisohn & 
Sons, Kennecott Sales Corporation, and Phelps Dodge Corporation. 
Now those represent, do they not, the principal sellers of copper in 
New York? 

Mr. Stannard. Yes, they represent the principal sellers. 

Mr. ScoLL. Now if there were any misrepresentation or, I should 
say, any inaccuracy that might appear in the E. and M. J. price, it 


would occur only if any of those sellers did not correctly report all 
their transactions to the E. and M, J.; isn't that so? 

Mr. Stannard. One would think that would be the case. But I 
seriously doubt, Mr. Scoll, that our sales department reports all of 
our sales to the Engineering and Mining Journal. 

Mr. Scoll. You mean that Kennecott does not report all of its 
sales to the E. and M. J.? 

Mr. Stannard. I do not think we report sales made to our own 
fabricating plant. 

Mr. Scoll. Now you will note from the affidavit that the E. and 
M. J. price does not include sales that are made to fabricating 

Mr. Stannard. I haven't read this and you will have to give me 
an opportunity to read it. It is all new to me. 

Mr. Scoll. Do so, please. Now that you have had an opportunity 
to look over the aJQSdavit, have you any comment that you care to add? 

Mr. Stannard. I would like to discuss this affidant with our sales 
department in New York and make sure that this is a correct state- 
ment. I do not know. 

Mr, Scoll. Well, as the Senator said, if there is anything you wish 
to add, that will go in the record, but so far as you know now that 

Mr. Stannard (interposing). I can't dispute it. 

Mr. Scoll. Well, now, turning to "Exhibit No. 2100," ' you will 
notice from that chart that there were only two occasions prior to 
N. R. A. when the monthly average of domestic copper prices remained 
unchanged for more than a month. In those two periods, the period 
of the War Industries Board and the 18-cent price level of 1929-30 
which we discussed yesterday — and I should add that there was 
further a brief period, January-February of 1933, when the price was 
stable. In other words, during 22 years of domestic copper prices, 
stable prices or fixed prices, if they may be called that, occurred only 
during three periods; two of them were admittedly during periods of 
price control. 

Now will you turn to the small chart, "Exhibit No. 2161" ^. 
That chart shows that there have been six periods of price stability 
in the 5 years since N. R. A. 

The first one, November 1935 to March 1936, when the price 
stayed" at 9.025 cents. The next one was in May and June 1936, 
when the price was 9.275 cents. The third period of price stability 
was August and September 1936, when the price remained at 9.525 
cents. And the next one was May to August 1937, when the price 
remained at 13.775 cents. And the next one, February to April 1938, 
when the price was 9.775 cents. And finally, one last period, Novem- 
ber 1938 to March 1939, when the price remained at 11.025 cents. 

How would you explain the situation that I have just described? 

Mr. Stannard. In the first two periods in 1935 and 1936 the in- 
dustry was in a period of ascending prices and I think we were largely 
resDonsible for the stable prices that prevailed. We were not anxious 
to have copper go up, and then fall back again right away, and there- 
fore did not raise our price as soon as other sellers of copper. In other 

' Apppndix, p. 13394. 
' Aprendii, p. 13638. 

124401— 41— pt. 25 15 


words, we preferred to have a strong 9)^-cent price, to a weak 9K or 
9%-cent price and our price made the market quotation. 

Mr. ScoLL. What do you mean when you say we? 

Mr. Stannard. I mean Kennecott Copper — Kennecott * Sales 

Mr. ScoLL. These prices were not just Kemiecott's; they were 
prices reported by all the selling agencies covering 90 percent of all 
United States produced copper. 

Mr. Stannard. I don't want to dispute the Engineering and 
Mining Journal but I know what happened at that time. We had 
copper to sell at 9}^ cents, let us say, and that being so, the i)rice for 
copper was 9)^ cents and that was the quotation of the Engineering 
and Mining Journal. While some of the other producers may have 
had a price of 9% cents, or 9% cents, I don't beheve they made any 
sales at those prices, and therefore, the Engineering and Mining 
Journal quotation was really Kennecotts' quotation. That explains, 

I think, the first two. 

Now as to 1937. There had been a long period of heavy business 
and by the middle of 1937 most of the members of the industry were 
in a very much oversold position. During such an oversold period 
when practically all of the industry was getting back from an over- 
sold position to a position of balance there was no copper pressing on 
the market and, therefore, a uniform quotation prevailed. 

Coming now to 1938-39, there was a period when the price was 

II >i cents. We and many others were again sold out of copper in 
the fall of 1938. When business dropped off we started to accumulate, 
and irrespective of the quotation of anyone else, we held our price at 
llYi cents and accumulated copper. I think the industry was opti- 
mistic as to the future. I know we were decidedly optimistic and 
thought business would be much better by February 1939, in which 
case tKe price might hold at llK cents. But business did not pick 
up as we expected, and in March the price was reduced by certain 
units in the industry. We followed the reductions in price to 10 cents 
a pound, where the buying again started. 

Mr. ScoLL. Do you think there is any significance in the fact that 
these periods of price stabilization should have occured so frequently 
after N. R. A. and so infrequently before N. R. A. and then in prior 
periods at times, when it was admitted — as it was here yesterday — 
that the price was fixed? 

Mr. Stannard. I do not think there is any significance in these 
plateaus, as we call them. They are the result of buying waves in 
the industry during which custom smelters and producers get sold out 
or oversold, and then there is a period of 2 or 3 months of stable price 
when they are balancing their positions. 

Mr. ScoLL. Then you of course did not participate in any discus- 
sions of prices with any of the other members of the industry whom 
I named before? 

Mr. Stannard. No. 

Mr. ScoLL. Do you know of any discussion that might have taken 
plabe with the others? 

Mr. StanIiard. I do not know of any. 

Mr. ScoLL. Has either Anaconda, Phelps Dodge, or Kennecott 
ever been the leader in cutting prices from the table lines which have 
occurred since N. R. A., that you know about? 


Mr. Stannard. Yes; on one occasion after the expiration of N. R. A. 
Phelps Dodge, I beheve, reduced the price from 9 cents to 8 cents in 
one move. 

Mr. ScoLL. Is that the only one you know about? 

Mr. Stannard. That is the only one I think of at the moment. 

Mr. ScoLL. Have any of the producers that I named been respon- 
sible for leading an upward price movement from the levels which 
we have been discussing? 

Mr. Stannard. Well, I think, imquestionably they have. 

Mr. ScoLL. Has Kennecott? 
' Mr. Stannard. We led in an advance last July from 10% cents to 
10?^ cents. That is the only one that I can recall in recent periods. 

Senator King. I suppose the decrease or the increase would 
depend upon the market demands or the prognostications as to the 

Mr. Stannard. That is true. The increases particularly depend 
upon market demand. 

Senator King. And where you are sold out, or your stocks are 
pretty well depleted, that would call, if you expect even a return to 
normal business, a replenishing of the stocks by increasing production? 

Mr. Stannard, By increasing production; yes. But Senator, that 
would not always hold true, because if we thought the demand for 
copper was going to remain at say 55,000 tons per month, it might 
not be necessary to increase production to satisfy that demand. On 
the other hand, if we thought consumption was going to increase from 
55,000 tons a month to 70,000 tons a month, we would immediately 
anticipate it by an increase in production. 

Senator King. For my own information — :it may not be quite 
germane— when I was making an investigation of the stock markets 
in 1925, '26, '27, '28, and '29, I found very irregular prices and I 
found there was a great deal of speculation, not alone by producers 
but large speculation by the market on the stock exchange and those 
speculations extended to the most remote parts of the United States. 
Was there any considerable speculation in copper stocks during that 

Mr. Stannard. There was a tremendous speculation. 

Senator King. And where general 

Mr. Stannard (interposing). I mig:ht say also there was a great 
deal of speculation in copper at the time. Everyone was expecting 
inflation and I remember we had innumerable calls from people who 
wanted to buy as much as 1,000 tons of copper metal in order to put 
their money in something physical. As I recall now we sold only 
about 1,000 tons of copper of this type, as we thought it was a very 
bad thing to do. 

I have here a little statement made by Dr. Harold G. Moulton, 
president of The Brookings Institution. This was from an address he 
made in New York. He says- 

The sharp increase which has occurred in the prices of raw materials is the result 
of demand from two sources: (1) from speculators seeking to make profits by an- 
ticipating price advances based on expectations of war-time inflation; and (2) 
from industries desiring to expand inventories to take care of immediate and pros- 
pective requirements. The speculative element enters here also, since an expected 
price advance prompts heavy advance buying. 


Mr. ScoLT,. Mr. Stannard, the present producer's price of domestic 
electrolytic is 12}^ cents, is it not, approximately? 

Mr. Stannard. I understand the price was cut yesterday after- 
noon to 12}^ cents by the Miami Copper Co. 

Mr. ScoLL. Up to yesterday afternoon it was 12}^ cents? • 

Mr. Stannard. It was 12}^ cents, although the foreign price had 
been somewhat above 12^2 cents until a few days ago. 

Mr. ScoLL. How long did that 12}^-cent price obtain? 

Mr. Stannard. Since about October 1, about 3)^ months. 

Mr. ScoLL. Was there any implied or explicit understanding be- 
tween Kennecott and the other producers not to let that price go 
above 12}{ cents? 

Mr. Stannard. No; there was no understanding at all. 

Mr. ScoLL. To what influence do you ascribe the fact that the price 
stayed at 12)-^ cents so long? 

Mr. Stannard. Everybody was in an oversold or practically over- 
sold position on October 1, so there was no copper pressing on the 

Mr. ScoLL. No influence from the fact that there was a statement in 
high official quarters in Washington that 12}^ cents was a good price 
for copper, was there? 

Mr. Stannard. There may have been such a statement in Wash- 

Mr. ScoLL. You don't think that had any influence? 

Mr. Stannard. I don't think that had any influence in stopping 
the price at 12}^ cents. I think the thing that really stopped the price 
at 12K* cents was the fact that Kennecott had a large tonnage of 
hopper to sell and that served to keep the price down. 

Mr. ScoLL. There was some discussion among the producers about 
the statement I referred to, wasn't there? 

Mr. Stannard. There may have been a little discussion about it. 

Senator King. Who were the high officials ^in Washington that 
determined the price and told people when it was too high and too low? 
I would like to know who they were and what authority they had. 

Mr. ScoLL. Senator, I am referring, and I hope I am referring cor- 
rectly because this is a matter of considerable importance — it would be 
very embarrassing for the counsel of the committee to go wrong in this 
matter, but I think that a statement was issued from the White House 
with reference to the price of copper, that 12j^ cents was high enough. 
Thereafter the price of copper, I believe, and Mr. Stannard can testify 
whether I am right or not, at least for a time stayed at 12^ cents. 

Mr Stannard. It did stay at 12^ cents from October 1 until 

Mr. ScoLL. And it did not go above 12)^ cents at any time during 
that period? 

Mr. Stannard. Not in the domestic market. 

Senator King. Did it in the foreign? 

Mr. Stannard. In the foreign market I think some copper was 
sold as high as 14 cents. Quite a lot of copper was sold at 13 cents. 

Mr. ScoLL. Now, Mr. Stannard, will you look at "Exhibit No. 
2161," ^ the detailed chart which was introduced a while ago that 
shows at the. bottom "Stocks, Production, Sales for 1933-39." You 
will notice the wide fluctuations in the line marked "Sales" from '34 

> Appendix, p. 13538. 


through to '39. Could those wide fluctuations in sales be interpreted 
as being caused by buying waves or as representing buying waves? 

Mr. Stannard. In each case they represent buying waves. 

Mr. ScoLL. Will you describe for the coraThittee briefly the buying 
habits of United States fabricators of copper? 

Mr. Stannard. In a period of uniform business and price the 
consumer of copper would ordinarily buy his copper daily or weekly, 
but in the last few years, due to wide fluctuations in business, the 
consumer of copper has had a tendency to use out of his stocks when 
business is on a downward trend. A fabricator who will have, let us 
say, 50,000,000 pounds of copper in process in liis fabricating plant 
can safely reduce the volume in process by 10,000,000 pounds of 
copper if business declines 30 percent. With the price of copper down 
he comes, into the market when the business outlook improves. 
This starts a buying wave in which it is not uncommon for the whole 
industry to seU as much as 150,000 tons of copper. If consumption 
is 50,000 tons per month and 150,000 tons is sold in one of these 
buying waves 3 months' consumption is covered in a period of 2 or 
3 days. These buying waves are something we would like to get away 

Mr. ScoLL. When they occur they of course affect prices. 

Mr. Stannard. When they occur they affect prices. 

Mr. ScoLL. Generally upward? 

Mr. Stannard. Generally upward. 

Dr. Lubin. Do they occur in anticipation of prices? Is it the 
expectation that prices might go up that makes these people buy? 

Mr. Stannard. They hold off until they think prices are down to a 
minimum rock bottom level and then the consumers of copper — by 
the consumers I mean the people out in Dubuque, Iowa, and so forth, 
in contrast to the actual fabricator himself — \yill be in jieed of re- 
plenishing their stocks, and then they vnU come to the fabricator and 
place an order for so many pounds of brass or sheet copper or other 
copper material, and that starts one of these buying waves, and then 
the fabricator in turn asks the producer of copper for these tonnages. 

Dr. Lubin. Of course, these people know, though, what the stock 
situation is in the country. Why should they get worried and buy 
150,000 tons all of a sudden when they know that copper is available 
in the United States? Is it fear of a shortage, or is it fear of the fact 
that you have touched bottom on prices, that you had better buy 
now because if they wait they will be higher? 

Mr. Stannard. It is the idea that prices have reached bottom and 
by buying now they can make an inventory gain. 

Dr. Lubin. So that instead of this necessarilj': bringing about the 
high price, it is in itself a result of anticipation of a higher price. 

Mr. Stannard. Well, I would say it is because the price of the 
raw material is low, and they think it is advisable for them as a 
business proposition to fill up their shelves. 

Dr.^LuBiN. But there are other periods where you don't have the 
waves where people do buy, I mean months may go by where people 
just buy their regular quota, and all of a sudden they get scared and 
buy 150,000 tons. Now why should they get scared when they already 
know that the stocks are here, because they know what the stock 
situation is. What other factor other than the fear of a higher price 
would lead a man to buy three times more than he normally buys? 


Mr. Stannard. The fear of inflation and anticipation of higher 

Dr. LuBiN. Now in September, most of the consumers of copper 
thought that copper having sold for 31 cents a pound or 23 K cents a 
xjound during the first World War, the chances were that copper would 
again sell at such prices in this world war. They didn't stop to think 
that the conditions are now entirely different than they were in the 
first World War. Then the Chilean production was relatively small, 
the Canadian production was, insignificant, the Rhodesian and Belgian 
Congo production was insignificant, and the United States mines 
virtually had to supply the copper for the world. Today, the Do- 
minion copper — that is the Canadian copper — and the Rhodesian 
copper is sufficient to take care of England's needs in this war and 
much more. So that there isn't the demand now from Europe for 
copper that there was at that time, and that virtually leaves the 
American supply of copper — rather the United States supply of 
copper — for the United States market. 

Of course, that was true in September, 1939, but after all, there 
were no such factors in '34, '35, and '36, when you also had buying 
waves. In other words, what I am trying to get at is whether or 
not these waves would be eliminated if there was any way of knowing, 
as in some other industries, that during the next quarter the price is 
not going up. I mean if Kennecott could say, "As far as we are con- 
cerned 12J^ cents is our price and is gomg to stay our price for the 
next 2 or 3 months," would people rush in to buy copper at three 
times their normal consumption rate? 

Mr. Stannard. No, they wouldn't; but if Kennecott would say 
that its price was going to be 12}^ cents for the next 3 months, some 
of the other producers might not follow and the price might go down 
to 12/4 or even 11 cents. While Kennecott is the largest producer it 
cannot control the price of copper. 

Dr. LuBiN. Kennecott can say, "As far as we are concerned it 
won't be more than 12)^, which means in effect that it might be less, 
and somebody else might be wiUing to sell it to you at less," which 
gets back to a question you raised — I don't- know whether counsel 
cares to have me bring it up at this point, Mr. Chairman. If you 
liad a market where you could buy and sell futures, couldn't you 
eliminate these wild fluctuations in selling of copper? 
- Mr. Stannard. I don't think that you could. I do believe that 
with the enactment laws here in Washington, for example, a law' 
such as the wage and hour bill, the consumers of copper immediately 

The Chairman (interposing). Are we to understand that you 
don't want any change in the Wage and Hour Bill? 

Mr. Stannard. I didn't mean that. Senator. What I was going 
to say is this: The effect of the passage of such a bill 

Senator King (interposing). Or the threat of it. 

Mr. Stannard. The threat of such a bill causes the consumers of 
copper to come into the market for large tonnages before the bill or 
law becomes effective. That happened at the time of the passage of 
the Wage and Hour bill. 

The Chairman. Of course that criticism can be made of any law, 
can it not? 

Mr. Stannard. That is true. 


The Chairman. And if a legislative body, whether the Congress 
of the United States or the legislatures of the various States, were to 
refrain from passing necessary laws or attempting to pass necessary 
laws, or laws which the members believe to be necessary, merely 
because they had an immediate effect upon our economy, then there 
would be no legislation at all. Isn't that correct? 

Mr. Stannard; I think it is. 

Dr. LuBiN. May I follow up your question, Mr. Chairman? What 
laws were passed in '35 after the Social Security Act became effective, 
in '36 and '37, which created a cost situation in your industry that 
might have scared buyers to come in and buy? 

Mr. Stannaed. The N. R. A. 

Dr. LuBiN (interposing). I am talking from the time the N. R. A. 
was declared unconstitutional and the passage of the Social Security 
Act, between that period and the passage of the Wage and Hour 
Act — what laws were enacted to explain this tremendous fluctuation 
in '35, -36, and '37? 

Mr. Stannard. I don't know offhand whether I can name any 
other law, but I would like to say this: Going back to the period 1923 
to 1928, that was probably the most imiform period of industrial 
activity that we have ever had in this country. During that period 
the price changes were very small ; we did not have these buying waves. 
Since 1933 we have had many changes in business here, we have had 
big rises in business, and then it has fallen off, and the copper industry 
is very similar to the steel industry. When steel operates at 90 
percent the copper fabricators are operating at about 90 percent; as 
steel goes dowTi, copper goes down. Our monthly consumption of 
copper from '23 to '28 was very uniform.. As I explained the other 
day, in recent years we have gone from a minimum of consumption of 
18,000 tons a month up to a maximum consumption of 87,000 tons 
per month. Those wide fluctuations in business that we have had 
are responsible for these buying waves. 

I think today if we could have uniform .business, and let us say the 
price of copper was 21 cents per pound, it would be a fine thing for the 
copper industry and a fine thing for the fabricators and the consumers 
of copper if the price of copper did not fluctuate more than an eighth 
of a cent per pound per month. If we had that kind of condition, 
we would get away from these^ buying waves because then no con- 
sumer of copper would be interested in speculating on his future 
supply. I don't know, however, how we could ever arrive at such a 
uniform situation as that. I think it would be advisable, but I 
don't know how we could accomplish it. 

Dr. LuBiN. Don't you automatically bring that situation about 
when you have a futures market so you can hedge against the price 
of your raw materials? 

Mr. Stannard. Not entirely so 

Dr. LuBiN. You eliminate the greatest part of that fluctuation, 
you know what the copper is costing you when it gets into production. 

Mr. Stannard. From the standpoint of the consumer hedging is 
probably a good thing. Most of the producers would like to do 
away with commodity exchanges as hedging gives rise to too much 
gambling. We ourselves do not use the commodity market and I 
personally know very little about the operation of the commodity 


Dr. LuBiN. Does the Chase Brass & Copper Co. go on these buying 
spurts the way the others do? 

Mr. Stannard. The Chase Brass & Copper Co. buys from Kenne- 
cott every day an amount of copper sufficient to meet its daily sales. 
When these buying waves occur and Chase customers order brass and 
copper products requiring, let us say, 5,000,000 pounds of copper, 
Chase Brass & Copj^er Co. buys that amount of copper from Kennecott. 
Every fabricator has to take care of the needs of its customers. 

Dr. LuBiN. Do these people buy this stuff for immediate delivery, 
or do they just place forward orders? 

Mr. Stannard. Copper is usually sold for dehvery 3 months hence. 
In other words, we sell copper in January for delivery in the month 
of April. 

Dr. LuBiN. If the Chase Co. should get an order for certain fabri- 
cated materials that required a certain amount <of copper, and they 
are going to use that copper in March, April, May, and June, would 
they buy that complete supply today? 

Mr. Stannard. They would buy the supply today for delivery in 
those months. 

Senator King. There are many orders for copper by persona who 
are not the users of copper, are there not? You call it speculative, 
speculative buyers. 

Mr. Stannard. Those people deal mostly on the commodities 
exchange. We do not sell to people who are not users of copper. 

Senator King. But in the market, are there not persons who are 
buying on speculation the same as they buy stocks of other corpor- 

Mr. Stannard. There are, Senator. 

Senator King. And those purchasers, whether they are many or 
f6w, have some effect upon the price. 

Mr. Stannard. That is true. 

Senator King. I recaU when the price of sugar went up to 26 cents 
a pound, although just a short time before it was only 4 or 5 or 6 cents 
a pound. Have you not from your observations discovered very 
great fluctuations in other commodities during the period concerning 
which we have directed attention? 
' Mr. Stannard. That is true. 

Senator King. Would that not be true in copper and wool and many 
of the commodities which 

Mr. Stannard. That is true, of the metals, copper is more specu- 
lative than zinc or lead. 

Senator King. We haven't yet been able to eradicate from the 
human mind the desire for speculation. 

Mr.^ Stannard. That is true. Mr. Chairman, I^have an article, 
or an excerpt that is taken from the report of thQ National Resources 
Board, part 4, entitled, "Report of the /Planning Committee for 
Mineral Policy," issued in early 1935 ^ which reads as follows: 

Economic stabUity is of peculiar importance to the nonferrous metals. They 
are especially subject to and they suffer from wide variations of price. They 
need, above all things, to i3alance supply and demand, to avoid needless expansion 
of capacity, and to temper the. extremes of price fluctuation, whether sudden 
advances or violent declines. The quest fpr stability is seen in numerous foreign 
experiments, such as the European metal cartels, which have been attempted, 
none too successfully, to control the extremes of competition. 


Moreover, in the case of these metals, the consumer's objections to produc- 
tion control carry less weight than in the case of the typical manufacturing in- 
dustry. The problem of protecting the public against unreasonable advances in 
price is simplified by the conditions of the copper market. International move- 
ments in a commodity selling at several cents a pound are extraordinarily fluid, 
and except for freight and tariflf differentials, the price of copper is a world price. 
Competition from foreign sources is keen, so keen, in fact, that American copper 
producers have found it impossible to realize the full advantage of the import 
duty adopted in 1932. In the domestic field there remains a large reserve of 
high-cost capacity waiting for a chance to break into the market. Further, the 
consumer of copper has his own weapons. The scrap which he produces makes 
him a seller as well as a buyer of the metal." Copper is practically indestructible, 
and the total supply is cumulative. With minor exceptions, the fabricated 
product comes back in time for resmelting and re-use. In 1929, the recovery of 
scrap including copper in brass, was 404,000 tons, as compared with a new mine 
production of 998,000 tons. This salvaged copper (not including new scrap re- 
turned direct by fabricators) averaged 38 per cent of the mine production from 
domestic ores in the years from 1924 to 1928, inclusive, 41 per cent in 1929, and 
rose to 76 per cent in 1932. An advance in the producer's price must reckon 
with this flood of scrap. Again the consumer has the alternative of substitution. 
In the field of power transmission copper meets competition from aluminum. 
In other fields it competes with this and other metals, including a rapidly grow- 
ing group of alloy steels. All these factors w^ork to protect the consumer against 
any unreasonable advance in copper prices to a degree far greater than is true 
of most lines of manufacture. 

Senator King, Who was the chairman of the planning committee 
at that time? 

Mr. Stannard. Mr. Delano, as I remember it. 

Senator King. Who is now the head of it? 

Mr. Stannard. He is now the head of it, and I think Dr. Leith, 
of the University of Wisconsin, was the head of the Division on 
Mineral Resources. 

The Chairman. I understand the witness has read that with 

Mr. Stannard, That is true. 

Senator King. May I ask one question? Is it not a fact that the 
Scrap iron is a factor in determining the price of steel that is manu- 
factured by the big steel companies? 

Mr. Stannard. It is, yes, sir. 

Senator King. There is a vast amount of scrap iron? 

Mr. Stannard. There is a vast amount. 

Senator King. We furnish, I regret to say, a very large amoimt of 
scrap iron, and have been for several years, to Japan, and that has 
an effect upon the price of the steel that is furnished by the big steel 
companies of the United States. 

Mr. Stannard. If export copper is eliminated, about 90 percent of 
the copper as mined is preserved in the form of recoverable metals and 
about 10 percent is used in iron and steel and in the making of insecti- 
cides. Eventually you will have a surface copper mine instead of an 
underground mine. 

Mr. ScoLL. I have one final question on the matter of buying waves 
that I would like to ask Mr. Stannard. You referred a while ago to 
Kennecott's policy of accumulating a conservative amount of inven- 
tories to stabilize your production. 

Now, if the other producers were to follow that same policy, wouldn't 
you be able to resist the wide price movements that occur with 
buying waves without the necessity of havinsr t^ get together and have 


Mr. Stannard. I think it vvould be very helpful, 

Mr, ScoLL. -My question had two parts, so maybe I had better 
divide it. You think the practice would be a good one to follow. 

Mr. Stannard. My first impression is that it would. 

Mr. ScoLL. Now, the second question is, would it prevent the wide 
buying fluctuations. 

Mr. Stannard. I think it would tend to stability of price, and^ 
stability of price would tend to reduce these buying waves. 

Mr. ScoLL. So that it would be unnecessary to rely on cooperation 
to prevent these fluctuations in price. Is that an accurate conclusion? 

Mr. Stannard. I would like to think that over. It is a new 

The Chairman. Have you finished this phase of it? 

Mr. ScoLL. I have. 

The Chairman. The Chair wants to take advantage of this moment 
to introduce into the record as a part of the investment study pre- 
sented by the Securities and Exchange Commission a few weeks ago, 
a memorandum which was prepared by Mr. R. C. Leffingwell, of the 
firm of J. P. Morgan & Co. Mr. Lefl&ngwell was one of the witnesses 
who appeared before the committee at that time,^ and he. indulged in 
a very stimulating discussion of general economic policy, apparently 
prepared a memorandum on this same subject matter, and under 
date of January 2, sent a copy of it to the chairman. The chairman 
was absent from Washington at the time, having gone home for a brief 
visit, so that the letter was not called to his attention until yesterday 

This afternoon Mr. Leffingwell called the chairman from New York 
to say that extracts from this memorandum had gained some publicity, 
and he asked for permission to give the entire text out. That permis- 
sion, of course, was very readily granted, and I am now puttmg the 
memorandum in the record. It may be proper in putting it in to call 
attention to one or two significant statements in the memorandum. 
I was reminded of this by the action of the witness just now in quoting 
from a report of the National Resources Board, in its report of the 
Planning Committee for Mmeral Policy, because Mr. Leffingv/ell in 
this memorandum indicates that he is not altogether in harmony with 
what has been commonly called planned economy. Planned economy 
is one thing when it is carried on by business executives, and quite 
another thing when carried on by Government, but both by business 
executives and by Government it unquestionably has an important 
effect upon the general public. I note with interest that the witness 
quoted this report of the planning committee with some approval. 

The particular statement to which I refer now is: 

The point is that Government has for twenty-two years managed our money and 
to a great extent planned our economy. 

Then in this memorandum Mr. LeflBingwell makes some reference 
also the the tariff system and to the general effect of Government 
action upon recovery. It may not be inappropriate for me to say, 
while I was on my way back from Wyoming — that was last Sunday—;-! 
picked up a copy of the Chicago Sunday Tribune in Chicago and in 
the business i),nd finance section I found several very interesting 
headlines. One was this: "Business Pace Quickens After Lag at Year 

1 See Hearings, Part 23, p. 12101, et seq. 


End." "Rebound is Normal From Holidays." Then follows a two- 
colimm article by Leland Forrester, the general tone of which is to 
show generally improved business conditions. Side by side with that 
is another story from New York bearing the headline, "Building Sets 
Best Record in Nine Years." On the same page is another story, 
"Two Furniture Shows Report Heavy Buying." And then there is 
another story, "British Tighten Money Control to Aid Business." In 
the middle of the page I find this story, "F. H. A. Activities Show 
Increase for Last Year." "Northern Pacific to Buy Seven Engines 
for About $500,000." 

And so it goes, but the most important of all it seemed to me was 
this graph, apparently prepared by the Chicago Tribune, entitled, 
"Number of Automobiles and Amount of Gasoline Used Reached 
New Peak in 1939." This graph shows that the total passenger and 
truck registrations have been on a steady increase since 1933, and 
that in 1936, they had already passed the previous high of 1929, and 
in 1937, '38, and '39, were far in excess of anything that had appeared 
in the history of the automobile business. And the story of gasoline 
consumption was exactly the same. It seemed to me that these com- 
ments might be appropriate at this time. 

Dr. LuBiN. Do you wish to add "in spite of the legislation"? 

The Chairman. I accept that amendment. 

Senator King. What legislation has Dr. Lubin in mind? 

Dr. Lubin. The legislation which interfered with business. 

(The memorandum referred to was marked "Exhibit No. 2163" and 
appears in Hearings, Part 23, appendix, p. 12338. The chart referred 
to was marked "Exhibit No. 2164" and is included in the appendix 
on p. 13542.) 

The Chairman. You may proceed now. 

Mr. ScoLL. Apropos of the discussion that just took place about the 
commodity exchange, I would like to introduce at this time a table 
which shows trading in copper futures on the Commodity Exchange, 
Inc., New York, compared with domestic direct sales of refined copper 
by copper producers, 1929-39. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2165" and is in- 
cluded in the appendix on p. 13543.) 

Mr. ScoLL. Just to summai'ize that exhibit, it shows that when the 
exchange opened — that is, when copper trading began on the exchange 
in 1929—6,132 tons were sold. In 1939, 537,880 tons were sold; in 
other words, the highest for all preceding years, and the chart shows a 
rJsing trend of importance of copper sales on the Commodity 

Mr. Stannard, during the buying wave of September, did the 
copper producers ration sales to consumers? 

Mr. Stannard. They did to a certain extent. 

Mr. ScoLL. What producers to your knowledge rationed sales? 

Mr. Stannard. At the very end Kennecott rationed sales in a way. 
In the first few days of October the price of copper was advanced by 
some of the producers from 12 to 12}^ cents. When that occurred we 
had calls from different customers and not knowing how much copper 
they might need altogether, our sales department made a note of the 
amount of copper they wanted to buy, and, as I remember, it totaled 
about 16,000 tons. The next morning we allocated to each one of 


these customers a certain percentage of the copper asked for. The 
next day we gave them another part of it, and then, knowing that they 
could get the copper, they ceased to want the balance. Some of the 
other producers may have done this same thing. In this way we were 
trying to tell our customers not to worry about their supply of copper. 
We thought the cycle had about run its course and could not conceive 
that business could keep up much longer at such a high level. When 
we think the price is getting to the top our general recommendation 
to customers is not to buy copper that they are not going to use for 
6 months or a year, because they may be able to get' it at a lower 
price later_on. 

Mr. ScoLL. The effect of that, of course, is to prevent the market 
from running away. 

Mr. Stannard. That is the effect of it. 

Mr. ScoLL. That is the desired effect? 

Mr. Stannard. That is the desired effect, and I think it does help 
to prevent runaway markets. 

Mr. ScoLL. What will prevent a dissatisfied customer of Kenne- 
cott's from buying copper from some other producers? 

Mr. Stannard. There is nothing to prevent him. 

Mr. ScoLL. Do you know whether any of them succeeded? 

Mr. Stannard. I really do not know. 

Mr. ScoLL. You recall, do you not, that during that period higher 
prices were reported on the Commodity Exchange — that is the out- 
side market — during September than the producers were getting, 
isn't that correct? 

Mr. Stannard. Yes, I think the high price on the Commodity 
Exchange in September was about 14 cents per pound, which com- 
pared with a producer's price of 12 to 12}^ cents. 

Mr. ScoLL. Had Kennecott been willing to ask for a tiigher price 
could it probably have gotten it? 

Mr. Stannard. I don't thinlc there is any question but what we 
could have, had 13 cents, or maybe more than that had we been so 

Mr. ScoLL. You were quoting before from a report of the National 
Resources Board, a report on National Planning and Public Works in 
Relation to Natural Resources and Including Land Use and Water 
. Resources with Finding and Recommendations, Part IV of the Report 
of the Planning Committee for Mineral Policy, and I might add par- 
enthetically that Commissioner Leon Henderson of this body was a 
member of the committee that made the report. 

Senator King. Who were the other members of the committee? 

Mr. ScoLL. C. K. Leith, vice chairman. We already have the 
name of the chairman. Herbert Feis, of the State Department, John 
W. Finch, of the Bureau of Mines, J. W. Furness. Mr. Leith — I don't 
know whether he is with the Government or not. 

Mr. Stannard. He is with the University of Wisconsin. 

Mr. ScoLL. C. T. Harris", Jr , Mr. Leon Henderson, W. C. Men- 

Senator King. He is with the Geological Survey. 

Mr. ScoLL. I believe so. F. A. Silcox. 

Senator King. He was the head of the Forest Service. 

Mr. ScoLL. Wayne C. Taylor. 

Senator King. He was Assistant Secretary of the Treasury. 


Mr. ScoLL. And W. L. Thorp. 

Senator King. He is with the Department of Commerce. 
The Chairman. And he is on the staff of this committee. 
Mr. ScoLL. In that publication appears the following statement — 
Ihat is in addition to what you have read: 

The committee offers the following recommendations. 

Full and complete statistics should be provided covering all factors of supply 
and demand, including consumption and consumers' stocks as well as production 
and producers' stocks, and including scrap as well as virgin metal. Such market 
information should be deposited with one of the permanent Government mineral 
fact-finding agencies. The basic data should be compiled in the form of totals 
or aggregates and published promptly for the use of both consumer and seller. 
The collection of such statistics should proceed with the closest cooperation of the 
trade organizations most interested. 

Now you recall, do you not, that in September 1939, the Copper 
Institute suspended publication of domestic and foreign copper 

Mr.STANNARD. That is correct. 

Mr. ScoLL. And why were the foreign statistics suspended? 

Mr. Stannard. They were suspended because we could not get 
statistics from the Rhodesian, Canadian, and Belgian producers at 
that time. We are not able to get the statistics from the Canadian 
producers even now. 

Mr. ScoLL. And why were the domestic statistics suspended? 

Mr. Stannard. It had always been the custom to publish the for- 
eign and the domestic figures at one and the same time. It was the 
general opinion of the domestic industry during the period of hysteria 
at the outbreak of the war and during the month of September that 
speculation would ba decreased if the figures were not published. 
We came to that condlusion because consumption was extremely high 
at that time and we had not yet been able to increase mine production 
to a point where it anywhere near balanced consumption. Had we 
published statistics at that time I am afraid it would have led to rather 
extreme speculation. 

Mr. ScoLL. It was your attitude then if the domestic statistics on 
stocks and production were known that there would be a considerable 
price advance on the Commodity Exchange? 

Mr. Stannard. There might have been. 

Mr. ScoLL. Suppose the price had gone up on the Commodity 
Exchange, why would the producers have had to foUow it? 

Mr. Stannard. The Commodity Exchange price has a very de- 
cided influence upon the consumers of copper. If the Commodity 
Exchange price should be 15 cents and the producer's price 12}^ cents 
the consumers would think there was certain to be an advance in 
price and consequently would buy. 

Mr. Sgoll. You testified that the method of controlling the buying 
wave was through rationing which you employed. I might add that 
the producers did not follow when the price on the Commodity Ex- 
change rose above 12}^ cents. 

Mr. Stannard. That is true; they did not foUow. 

Mr. ScoLL. Do you recall that statistics were suspended, that is 
domestic statistics, by the American Bureau of Metal Statistics in 
Oqtober 1931? 

Mr. Stannard. I do not recall that, Mr. Scoll. It may have been 


Mr. ScoLL. And if that happened, that was a suspension under 
conditions of depressed buying, and in your opinion, perhaps if they 
hall not been suspended conditions would have been worse? 

Mr. Stannard. They might have been ; yes. 

Mr. ScoLL. See if I correctly summarize yom* view on the matter 
of publication of statistics. The essential point is that the producers 
are better able to control prices during abnormal periods if statistics 
are suspended during such periods. Does that summarize it? 

Mr. Stannard. I think that is true. 

Mr. ScoLL. You are aware, are you not, that other industries — 
take petroleum, for example — have adopted exactly the opposite 
pohcy; that also the automobile industry releases figures on annual 
production and sales both in good times and bad. Obviously the 
suspension of copper statistics in October 1931 did not lead to better 
prices than otherwise would have occurred, did it? 

Mr. Stannard. No; it did not because we were then in a descending 
business cycle. 

Mr. ScoLL. That is all I have with this witness. 

Dr. LuBiN. Mr, Stannard, do you really believe that the more you 
can keep the public and your consumers in ignorance the better it is 
for yom* industry? 

Mr, Stannard. No; I do not think that, but I do think with a 
commodity like copper that if we published statistics every quarter 
instead of every month, it would tend to narrow the fluctuation in 
the price of copper. 

Dr. Lubin. In other words, by keeping the consumer ignorant of 
what the stock situation is, it makes it impossible for him to get a 
true picture of the conditions of production and thereby making 
it possible for the producer to keep his prices higher than otherwise 
the market would make them. 

Mr. Stannard. If you have in mind that it is for the best interests 
of the American public to have copper selling at 5 cents a pound 
instead of at a price where the producer can make sdme return on 
his investment, that is one thing. But if you think it is in the public 
interest for the producer of copper to, as I say, make a little some- 
thing on this investment, then I do not think you should want the 
consumer of copper to get his supplies at less than the cost of pro- 

Dr. Lubin. Would you, therefore, advocate that we ehminate all 
industrial and production statistics and stock statistics so nobody will 
know what the true situation is? 

Mr. Stannard. I am not advocating that at all. I am a believer 
in statistics, but think that the speculators take a great deal of ad- 
vantage from the publication of copper statistics. When business is 
in a downward cycle and they see stocks of copper increasing, specu- 
lation tends to weaken the price and finally prices may go down to 
7 or 8 cents a pound. If figures were not available to the specu- 
lator — I am not speaking of the consumer, but the speculator — 1 
think it would narrow price fluctuations very materiallv. 

Dr. Lubin. That would be true of cotton, too, wouldn't it? 

Mr. Stannard. WeU, I do not know very much about cotton. 

Dr. Lubin. That is, I mean the absence of statistics on production 
and stocks would make it impossible for the speculator, when he sees 
a report to the effect that the crop is going to be bigger than they 


anticipated, from being a factor in getting lower prices, and that would 
be true in wheat equally well, wouldn't it? In other words, one would 
almost logically have to come to the conclusion that, "Let's ehminate 
all of these statistics and let's do business ignorantly rather than 

Mr. Stannard. I was brought up as an engineer and engineers 
generally like to do business intelligently, I am not advocating doing 
away with all statistics. In a war period when we are apt to have 
many sudden changes in conditions, it is probably better to be on 
the safe side as regards statistics. Beginning with January 1 this 
year I would like to see copper statistics published every quarter 
untn such time as we again arrive at a period of stability. 

Dr. LuBiN. In other words, you don't think that supply and 
demand should determine the price of copper? 

Mr. Stannard. Not entirely so because on the basis of supply and 
demand — if you were to have a period when you would use 18,000 
tons of copper per month and you had a supply of 80,000 tons of 
copper per month — what would th^ price be? It might be 5 cents 
or 4 cents, and copper cannot be produced for anything like 4 cents 
a pound in the United States. 

Dr. LuBiN. After all, isn't that the fundamental way of the Amer- 
ican system of doing business? 

Mr. Stannard. Yes, it is, generally speaking. 

Dr. LuBiN. You think your industry should be made an exception 
to that rule? 

Mr. Stannard. No ; I do not believe in exceptions. I think we have 
in American life today too many groups, each one asking a special 
position, and having that belief, I cannot ask that the copper industry 
be made an exception. 

The Chairman. Are there any other questions to be addressed to 
Mr. Stannard? Who is your next witness? 

Mr. Stannard. May I say just one word? I want to thank you 
and the committee for all your courtesies, and repeat what Mr. Kelley 
said yesterday about Mr. Scoll and Mr. Moment. They have been 
most courteous and cooperative. I thank them also. 

The Chairman. The committee is very much indebted to you, 
Mr. Stannard, for a very frank discussion of the issues. 

Mr. Scoll. My next witness is Mr. Brownell who will only take a 
few minutes, and I think he wants to go back tonight. 

The Chairman. Very well, put him on. 


N. Y. 

Mr. Scoll. Mr. Brownell, will you teU the reporter your full name? 

Mr. Brownell. Francis H. Brownell. I am chairman of the 
American Smelting & Refining Co. 

Mr. Scoll. Does thr American Smelting & ReiBning Co. own any 
substantial copper-mining property? 

Mr. Brownell. No. 

Mr. Scoll. Its principal connection with copper is that of a smelter 
and refiner of the ores of other producers? 


Mr. Brownell. Mostly. It has a small copper production, but of 
10 consequence. 

Mr. ScoLL. How important in its total income are the profits 
obtained from smelting and refining copper? 

Mr. Brownell. Well, our total business is lead, copper, zinc, and 
gold and silver, and so on. We can't allocate as between copper or 
lead or gold or silver. Our total expenses — broadly speaking, the 
tonnage of lead that we handle on a customs basis is greater than the 
tonnage of copper. The tonnage of copper, owing to the fact that 
copper has a higher price, generally two to three times, is in a monetary 
sense moi'e important than the lead. Zinc is third. Then we have 
our own mines. They are not copper mines but they are lead-zinc 
mines and gold and silver mines. And that all enters into the picture. 
We don't keep our books on the basis of metals and I can't really 
tell you. 

Mr. ScoLL. But it is an important factor. 

Mr'. Brownell. It is a very important factor. 

Senator King. And if the ores which you smelt have an arsenical 
compound, the profits from your copper would be lower because of 
the cost of reduction and refining would be greater to get rid of those 
refractory and base elements which are very injurious in your smelting 

Mr. Brownell. Exactly, Senator. 

Senator King. So that you can't tell just how much cost to allocate 
to copper because you don't know just what proportion of the cost of 
smelting that was caused by the base and deleterious compounds or 

Mr. ScoLL. I asked Mr. Kelley to distinguish between the market- 
ing problems of a producer like Anaconda and those of a custom 
smelter like the American Refining Co. He replied, ^'Very briefly the 
situation is this: In the case of a producer carrying his operation 
through from mining to the finished metal and then selling it, he has 
the margin between the cost of production and whatevier he sells his 
metal for. In the case of the custom smelter, the margin is the differ- 
ence between what the smelter pays the miner for his metal and what 
the smelter is able to sell him, and, therefore, this situation which I 
think you wish explained arises: The custom smelter, having a very 
narrow margin and buying ore from day to day or metal from day to 
day, is not in a position to care for this metal. They must sell it, 
endeavor to sell it, as rapidly as they require it, irrespective of market 
conditions. Otherwise, if they went long or short, they would be 
speculating in the market and that is a thing they don't desire to do." 
Have you anything to add to Mr. Kelley's statement? 

Mr. Brownell. That is a very excellent brief statement of the 
situation. Unless you have some particular point, I don't think it is 
necessary to add anything to it. I would like, however, to explain a 
little more the position that the custom smelter has in the trade. We 
are essentially the gatheiing point of the small producers of the coun- 
try, mines which are too small to have their own smelters, either 
because the tonnage is small or because their financial ability to have 
plants of that size is too limited. The smelting business requires a 
mixture of ores. Generally people regard smelting as beiag a process 
of throwing so much ore or concentrate into a furnace, heating that 
furnace imtil it is reduced into a liquid state, in which the heavier 


metals of lead or copper and gold and silver sink to the bottom. In a 
broad way, that is true, but in that process you would only save 40 or 
50 percent of the total metals. In order to get a saving of the major 
part of the metal, you must have a neutral condition of the bath, 
neutral as between acid and alkali. If you have, for example, iron 
which is essentially alkaline, you must have silica which is essentially 
acid to flux the iron. In some districts some mines are all acid, prac- 
tically; others are all alkaline. The smelter has to buy its ore with 
reference to the condition of the various customers who are sending 
their ores to it. And that means that if they don't get it, they would 
have to use, in the case of lack of silica, barren sand. In the case of 
lack of iron in the ore itself, they would have to use scrap iron. With- 
out the custom smelter it would be impossible for the small mines of 
the country to operate. We have over 500 customers in the copper 
business — custom copper customers — in the United States alone, and 
we have slightly more than that in the lead business — in the lead 
custom business. 

Our position, then, is that of the representative of the small mines, 
which m the aggregate, because they are less mechanized, employ 
more labor per ton of ore than do the larger mines. 

They are perhaps more important in their communities, also, in 
many ways. The practice that we have in buying has grown up 
historically; and it is when the ore or concentrates arrive at the 
smelter that the metal content is ascertained. It would serve no good 
purpose to detail that process unless somebody wishes it. As soon as 
it is ascertained — agreed upon between the parties — we pay the rniner 
for the metal content of his shipment at the price prevailing at the time 
of its arrival at the smelter. 

Mr, ScoLL. That is the E. and, M. J. price? 

Mr. Brownell. In the case of copper, it is the E. and M. J. price. 
In the case of lead, it is the A. S. and K. price. In the case of zinc, 
it is the St. Louis price for zinc. In the case of silver — domestic 
silver — it is the United States price ; for foreign silver, it is the Handy 
& Harmon price that is established every day. From the total dollar 
value — 100 percent of the metals thus ascertained— is deducted a 
certain amount of the metal which is part profit to us, and part to 
cover the metallurgical loss. We also deduct an agreed upon amount 
of money to cover the process of smelting, refining, and marketing, so 
the little miner gets his money on the arrival of the ore, practically, 
at the smelter. 

Now in the case of copper it takes a little over 90 days (with us it 
averages about 100 days) between the time we pay for the copper at 
the smelter and jhe time it has been smelted, refined, transported to 
market, and sold. 

We have to carry it during that time. If the price of copper has 
gone up, we would make a profit. If it has gone down, we would take 
a loss. But we find that we can not conduct our business in that way 
because the volume increases on the rising price and when a fall in 
price would occur, we would have a drop on a very large amount of 
metal and our total loss would be more than our total gain on the 
way up. So to avoid that possibility and to sell every day as far as 
we can what we pay that day for the tonnage received, we estabhsh 
what we call our normal stock, which is in effect a reservoir which we 
visualize as being always there, although the W^ter in the reseryoir is. 

124491 — 41— pt. 25 — —16 


constantly changing. In the case of copper, we have 35,000 tons of 
copper in the United States— I am not speaking of what we allow for 
our foreign copper, simply for the United States — in this reservoir. 
We thus theoretically are able to sell every day from the outgoing 
finished product end of the reservoir what we buy at the intake end, 
thus protecting our manufacturing and fabricating profit. Theoreti- 
cally that ought to be easy. It is not. It is almost impossible, owing 
to the irregularity with which metal (and I may confine myself for the 
present mostly to copper) is bought. You have heard about these 
buying waves. You have heard that in 1 month there will be sold as 
much as has been sold in 3, 4, 5, or 6 preceding months, and not only 
in 1 month but in a very few days of that month. 

Now, our mterest lies in maintaining a price level as high as we can 
and still sell at it. That is our duty to our customers, for one thing. 

The Chairman. To your customers? 

Mr. Brownell. Yes ; they are the little miner who sells his ore. He 
regards us as his trustee to get for him the best price we can. He 
knows that he is selling on the market price, and he wants that price 
naturally to be high. We are selfishly interested in as high a price as 
possible, with evenness of operation, because the better the price, the 
more tonnage comes into our plants, thus reducing our cost and 
increasing the profit per ton because the tonnage increases. 

We are also interested from the standpoint of the man who buys 
from us, the fabricator. The fabricator isn't so much interested in the 
price of copper as he is in regularity of that price, because he has his 
own problems of being able to sell his product at the price which he 
paid for the raw material. If, therefore, we were every day in this 
irregularity of selling — that is to say, if we can't sell copper at 12K 
cents, we reduce the price to 12}{ cents, and if it doesn't move at 
12j^ we reduce the price to 12 cents; and then if it did move to go up, 
we would help make the swings, then we would on the one hand lose the 
confidence of the miner who would feel that we were not trying to get 
him the best price, but were serving our own selfish interest only in 
trying to sell without making a loss. And on the other hand we would 
alienate the buyer of our finished copper because he doesn't want the 
price changed and he would rather buy from somebody who isn't 
alwa,ys changing the price — ^wobbling around — than to buy from us. 
So that, within Hmits of increase in our inventory, we always try to 
lean over, backward before we break the price, and I would like to 
emphasize that point because the custom smelter is kicked all around- 
in the mineral row as being a price breaker. They don't reahze how 
much we have done to maintain the price. 

Senator King. Is it not a fact that in Utah and Nevada and Idaho 
and Montana (but particularly Nevada and Utah) the small miner 
has been the beneficiary of these attempted pohcies of your smelter 
(and I am familiar with them) to equalize prices and to protect the 
small man, as a result of which a large part of your ores come from 
newly developed mines by the small mine owner. He may be working 
alone or have two of three partners with him in developing a little 
mining process and they know whenever they get the ore out they can 
sell it to your smelter. 

Mr. Brownell. And they can get the money as soon as they get it 
to our smelter. 


On the whole, just for a quick look — [referrmg to charts] 

Mr. ScoLL (interposing). Which one are you taking first? 
Mr. Brownell. This red one is copper. 



Mr. ScoLL. The chart that Mr. Brownell is going to refer to is a 
chart prepared by the American Smelting & Refining Co. entitled 
"Copper Accumulated in Excess of Working Inventory." 

(The chart referred to was marked "Exhibit No. 2166" and is 
included in the appendix facing p. 13543.) 

Mr. Brownell. I told you we have a volume of normal 

Mr. ScoLL (interposing). Do you want to identify this one, too? 

Mr. Brownell. This one in blue is lead. It is, "American Smelting 
& Refining Co., Domestic Lead Accumulated in Excess of Working 

The Chairman. That wiU be admitted. 

(The chart referred to was marked "Exhibit No. 2167" and is 
included in the appendix facing p. 13543.) 

The Chairman. These two exhibits may be admitted. 

Mr. Brownell. These cover the same period of time from 1918 to 
1939. I have-not taken account of the increase of 5,000 tons above 
our normal stocks in either metal. We accumulate that before we 
make a determined break in the price unless all the surrounding 
conditions look very bad from a market standpoint. 

Now you will see that on these three occasions, first at the end of 
the war, then in 1918 and 1922, we accumulated in copper 34,000 
tons and in lead a maximum of 23,000 tons. We didn't accumulate 
again until the panic in 1931, when we accumulated a maximum of 
55,000 tons of copper and 61,000 tons of lead, above our normal stock. 
Then we sold out and we didn't accumulate again until the 1937-1938 
depression, when we accumulated 18,000 tons of copper and 25,000 
tons of lead. 

Now you will notice we accumulated more lead than we did copper, 
except immediately after the war. Why we didn't do it then, in my 
judgment, is that during the war the use of lead was not as important 
as the use of copper. The nations didn't buy as much; and for the 
further fact that in the case of lead what was used took the form of 
rifle bullets and was lo'st. In the case of copper the brass is all re- 
covered so that the recovery from the brass and the larger stocks held 
by the nations made more acute the case of copper than of lead at the 
end of the war, and therefore we accumulated more copper than lead. 
In these other periods, we accumulated more lead than copper. 

Senator King. Mr. Brownell, being a custom smelter, it is your 
duty, or at least you conceive it to be a duty, to take the ores that are 
delivered at your smelter, whether you have the surplus or not. 
You buy them ; you have to do it. That encourages the small miner 
particularly to continue his operations, because he knows that no 
matter how large your surplus may be, you are bound to take his ore 
and pay him the price immediately? 

Mr. Brownell. Absolutely. 

Senator King. He doesn't wait until you are settled? 


Mr, Brownell. We are under contract in probably 90 percent of 
the tonnage, and we are under a moral obligation because we adver* 
tise what is called an open contract price for anybody who ships in 
tonnage at any time that he will be given a certain printed rate. 

Senator King. If a miner or a company from Nevada brought ores 
to your smelter, though you had large acciunulations of copper or lead, 
you would take his ore, even though you held it for an indefinite period, 
and pay him immediately, as soon as it was sampled, that very day or 
the next day, and he would go away with the money in his pocket? 

Mr. Brownell. Exactly. He generally stays around until he gets 
it, too. 

The Chairman. Is he usually satisfied? 

Mr. Brownell. Well, not always, of course 

Mr. ScoLL. May I interrupt you to ask a question at this point,, 
and ask whether the situation you describe couldn't be relieved if the 
custom smelter had a hedging market? 

Mr. Brownell. I would like to come to that a httle later, may I, 
if it is equally agreeable to you? I want to point out two other things 
in connection with that chart. The first is that in the case of lead 
there was no combination under the Webb-Pomerene Act, no agree- 
ment of sale, no other sort of a collaboration, excepting only that like 
copper we have a statistical trade organization, the Lead Institute. 

The Chairman. In other words there was no organization like the 
Copper Export Association or Copper Exporters, Inc.? 

Mr. Brownell. Exactly. 

The Chairman. And no combination or agreement among the pro- 
ducers of lead? 

Mr. Brownell. Exactly. Lead has run its own course and in that 
connection I would Uke to show this other chart of mine which com- 

The Chairman (interposing). Before you refer to that chart, let me 
ask, was there any combination of lead producers abroad? 

Mr. Brownell. Yes, there were two; one was for a period right 
after the war, 1921 to 1923, in regard to foreign production — Mexico, 
AustraUa, Canada, Germany, and France. The first one was a price- 
agreement arrangement in which the tonnage sold was apportioned 
among every member of the organization. The agreement was one 
made in accordance with the laws of Great Britain, drawn by counsel 
and filed with the Board of Trade and perfectly legitimate and lawful. 
That didn't wcwrk. An over-sold member who had sold more had to 
btiy from somebody else, and then he had to use that brand when he 
resold it; and quarrels arose over that, over maintaining customers 
whom they had taught to hke a particular brand. For example — we 
would say "The A. S. and R. brand is the best brand of lead, and we 
don't want to sell your brand," and the other fellow would say exactly 
the sanie thing. 

The Chairman. And both were correct, probably? 

Mr. Brownell. And both were probably correct. So the agree- 
ment brok6 down on that basis — lasted only about 18 months. No 
other attempt was made in lead until the summer of 1938, when we 
had a production agreement between practically the same people, the 
Australian, Canadian, Mexican, and South American. 

The Chairman. Now did any American interest of any kind partici- 
pate in either of these agreements? 


Mr. Brownell. We participated in both of them for our Mexican 
production, and we stipulated in that, as they did in tliis copper pool, 
that it should not apply in any way to our production or position in 
the United States. 

The Chairman. In other words in the United States you were of 
the opinion the law prohibited an agreement of that kind, whereas by 
statute abroad it was a perfectly legal procedure? 

Mr. Brownell. Perfectly legal procedure. 

The Chairman. And I understand you to say that though it was 
legal abroad it did not succeed? 

Mr. Brownell. The first one did not succeed. The second onie 
in my judgment was doing fine until the war came and that broke it; 
it was just getting on its legs and was a very, very promising child. 

The Chairman. In what respect was it successful? In maintaining 
the price? 

Mr. Brownell. No, it was an automatic reduction of production 
with a change in price. The arrangement was this; whenever on the 
London Metal Exchange — which is a free and open market — this may 
have some bearing on your later subject, Mr. Scoll — the price of lead, 
the average price of spot and future, remains below £15 for a period of 
20 market days in succession, automatically we put in a 5 percent 
reduction of production and in Heu — if it were impossible, as it often 
was, to change our mine production, then we agreed to hold that 
amoimt of refined lead off of the market indefinitely, only to be sold 
when lead arose above £17 or £16 — only a pound variation. 

It was just smoothing out. 

The Chairman. That operated by way of withholding the lead 
from the market? 

Mr. Brownell. Withholding the lead from the market when the 
market price dropped below 

The Chairman. A certain level? 

Mr. Brownell. A certain level — agreed upon' level — and when it 
came above that level, with every increase of one poimd we released 
5 percent of previous reduction of production. 

The Chairman. Then there was also an agreement to curtail 

Mr. Brownell. In heu of that withhold a resultant amount of 
lead from the market. 

The Chairman. One or the other? 

Mr. Brownell. One or the other. 

The Chairman. So that the effect was the same, whichever pro- 
cedure was followed by a particular producer. 

Mr. Brownell. Exactly. It avoided changes-of labor at the mine. 

The Chairman. The purpose of tliis curtailment of production or 
withholding of lead from the market was to stabilize the price? 

Mr. Brownell. Was to stabilize the price so that it would not 
go below this minimum level, and when it rose sufficiently above the 
£16 level, all restrictions would be off and it was a perfectly free and 
open rnarket in production and everything else. ^ 

The Chairman. Then it didn't operate to raise the price imduiy, is 
that your point? 

Mr. Brownell. That is the point; Above this release level you 
came back to a state of nature, if you please, where there was no control 


The Chairman. So as in the case of copper, your answer would be 
the sime as that of Mr. Stannard, that it was an agreement to prevent 
destructive effects upon the industry rather than to produce exploita- 
tion of the consumer "i* 

Mr. Brownell. Exactly. 

Mr. O'CoNNELL. It was the purpose of putting a floor below prices, 
but noHceiling? 

Mr. Brownell. Putting a floor below prices, but no ceiling above 
prices, except that there would be a perfect freedom of production. 

Mr. O'CoNNELL. So long as the price remained above the floor? 

Mr. Brownell. Yes. 

The Chairman. This was all upset by the war? 

Mr. Brownell. This was upset by the-war, ended with the war in 
September. Now before I leave this question of the chart, I would 
like to show the similarity in the price of lead and in the price of 
copper for the period 1932 to the end of 1939. 

Mr. Scoll. Do you want to introduce the chart? 

Mr. Brownell. I don't care. 

The Chairman. If you are going to discuss it, let's get it in the 
record; I tbink it would be helpful. 

Mr. Scoll. Read the title. 

Mr. Brownell. The title is "Comparison of Monthly Lead and 
Copper Prices." I should have put on there that they are the United 
States prices, E. and M. J. prices in both cases. 

The Chairman. The exhibit will be admitted. You may proceed. 

(The chart referred to was marked "Exhibit No. 2168" and appears 
in the appendix on p. 13544.) 

Mr. Brownell. In a broad way the lower or black line is lead and 
the upper line is copper. This duU line, dotted red line, is the foreign 
price of copper, and the solid red line is the United States, E. and 
M. J. price of copper. Now you wiU notice that in a broad way while 
lead, of course, is a much cheaper metal, the swings in prices were 
very identical with the swings in prices in copper because both metals 
are affected by the same general economic condition, largely used in 
Construction — prince and pauper occupations, both of them — and 
when times are good the price goes up, and when they are bad it falls 
quite rapidly. 

The two things in this chart that I wish to call attention to, in view 
of the discussion here, is that there was, in lead, I venture to say, the 
most free and open niarket of any commodity I know of, and yet 
about the same types of plateaus occurred at about the same periods 
as occmred in the price of copper. Here, if I recollect, is one of these 
plateaus— :si am leaving out the Code period and those things. Here 
is a plateau, and a corresponding plateau of about the same length 
in copper. Here is a plateau not quite as level as the one in copper, 
but substantially so. 

Here at the end of the period which was pointed out, the plateau 
is almost identical, a little longer in lead than in copper. So that it 
seems to me, being equally interested in both inetals — ^having as 
much to do with the marketing of one as with the other — that about 
the same conditions affect the level of prices with this one exception, 
the swings of marketing, of buying', are very much greater in copper 
than they are in lead. . The buying waves in copper are very much 
greater than the buying waves in lead. 


In my judgment, as was touched upon, that was due to these two 
causes; in copper they didn't swing any more than lead before 1929. 
Your chart on 1929, this famous exhibit that. has been used more than 
any other — ■ — 

The Chairman (interposing). "Exhibit No. 2100". ^ 

Mr. Brownell. Shows a pretty stable levelof copper before 1929; 
these variations have come afterward. That is due to the fact, in 
my judgment only, that in the case of lead we don't sell forward as 
they do in copper. The custom in copper is to sell for delivery after 
3 calendar months; you sell in January and you don't have to take it 
and pay for it until April. In the extreme you have 4 months to 
play the market. In lead we only sell for delivery in the next calendar 
month, and we keep the fabricators closer in their buying. They 
haven't such a period of play of the market, and tSey are in closer 
touch with their immediate demand in the country. 

The Chairman. Well, do the producers of lead to as great a degree 
as in copper also control fabricating units? 

Mr. Brownell. No ; nothing like the degree in copper. 

The Chairman. Does that, in your judgment, have any bearing? 

Mr. Brownell. We have only two small operations, one in Selby, 
San Francisco, and a small one at Perth Amboy; both of them use 
together less than 1,000 tons of lead a month. 

The Chairman. Don't you think that has some bearing upon the 

Mr. Brownell. I tliink it has a very great bearing on the situation, 
and I think it partly — I was coming to that; the second cause is due 
in effect to that very situation. The fabricator's sales department 
always wants to get business and he wants to get it away from his 
competitor if he possibly can. In copper I think that practice has 
now been abandoned, however. 

In copper these buying waves often occur when there is rumor or 
conditions are such that you have reason to beUeve from anybody 
acquainted with the business, that probably the price will go up 
pretty soon. Well, now, when it is going up somebody — one of the 
larger producers, Kennecott or Anaconda or Phelps Dodge, as the 
case may be — may make a statement that the price is going up 
unless somebody else puts it up. And they prolect the buyer at the 
fabricator end for 24 hours, at the old price, so that if you announce 
today that the price tomorrow is going to be — announce today at 5 
o'clock, tomorrow the price is going to be 12.75 instead of 12.50, but 
anybody who wants to buy tomorrow before it goes up will be taken 
care of at 12}^, you obviously are going to have a big buying wave. 

Dr. LuBiN. In other words, the producers- create the buying 

Mr. Brownell. Let me distinguish. I think Kennecott does not. 
I think it has been more the other producers, and I don't think they 
have done it so much from the buying wave standpoint as from the 
desire to get at their fabricating end the largest possible volume of 

The Chairman. I wonder if Mr. Stannard wants to make any 

Mr. Stannard. I don't think I care to make any comment. 

I Appendix p. 18384. 


Mr. Brownell. That is what accentuates these buying waves and 
that is why it is so difficult for a custom smelter who cannot sell for- 
ward — we cannot sell forward. A producer has only at stake liis 
cost of production — his money cost of production from a monetary 
standpoint. All he loses if the price later goes up is an additional 
profit, but we who buy our copper on the current price — if we sell 1 
day's intake forward and the price has gone up a quarter of a cent in 
that day, have lost $5 a ton on that day's intake; and if it advances 
rapidly, why we would lose very much — lose our shirt, as the saying 
is— so that a custom smelter can never participate in a buying wave. 
We automatically have to stop when we have sold our intake up to 
that date, or we would be gambUng with the future in a short position. 
I think that covers what I have to say. That is why we are more 
unpopular as a custom smelter in the copper business than we are in 
the lead business. 

Mr. ScoLL. Mr. Brownell, now couldn't the custom smelters help 
themselves in the situation you have described if there were a, say, 
hedging market? I beheve I asked that question before. 

Mr. Brownell. Yes; the custom smelter would be able to sell on 
that hedging market. There is no doubt about that; but from the 
producer's standpoint, I think Mr. Stannard is correct. If I was 
solely a producer I would be opposed to a commodity market. As a 
custom smelter, there again the interests of a producer and a custom 
smelter are sUghtly different. 

Mr. ScoLL. Well, now, Jiave you — the A. S. & K. — been using the 
market established by the Commodity Exchange? 

Mi". Brownell. Well, we do; yes, we do in this effort that I pointed 
out — not to break the price, because that alienates our mine customer 
on the one hand and our fabricator customer on the other end — 
highly undesirable in every way, from our own standpoint. We will 
go along during these duU periods and we will sell our copper where- 
ever we can at a loss of from 1 to $5 a ton; as a rule 50 cents a ton 
will move the business. There is an old saying in the copper busiiiess 
that no friendship and no enmity whatever can stand against 25 cents 
a ton, either way, so we generally — rather than break the price — as 
long as we can sell on the Commodity Exchange without more than a 
loss of $1 a ton or thereabouts — in order to carry over one of these 
lulls, and at the same time not tie up so much money, we do it. We 
sell abroad. We seU very largely abroad because very often — even 
with this tariff — the price abroad has been higher than in the United 
States for nearly a quarter of the time since the tariff went into effect. 

Mr. ScoLL. So in view of the position of the custom smelter that 
you have just described, why then did A. S. & R. join both the Cop- 
per Export Association and Copper Exporters, Incorporated? 

Mr. Brownell. In the Copper Export Association, which was 
organized in 1918, our position was that of the largest selling agency 
in copper then existing in the United States. Anaconda at that 
jtime was second. We sold — we smelted and refined on what we 
%all a toll basis; that is, we didn't buy their copper but we agreed to 
return from the ore within 90 days or 100 days, as the contract might 
read, the resulting refined electrolytic copper at a given point, at our 
seaboard refinery, Atlantic seaboard. Then we sold that copper for 
them; we sold for Utah, Rio Tinto, Cerro de Pasco, Tennessee Cop- 
per, Miami — Miami only for a very short time — and Mason Valley. 


All told we were seUing in 1918 about 60 percent of the copper pro- 
duction of the United States. 

Our clients — that is, our toll customers — these copper companies, 
wanted to go into the Export Association and of course we had to 
go in with them, and particularly as at that time there had grown up 
in our seUing agency a feeling that a custom smelter was not a proper 
agent for selling a producer's copper because his interest lay in selling 
more while a producer's interest lay in holding until he got a proper 

As a result the seUing agency was dissolved at the end of 1920, 
about 18 months after we went into the Export Association. We 
went in in the first instance at the request of these customers of 
ours, very largely, and also because* we were a believer in principle 
and notwithstanding that we are a custom smelter, we tried to 
cooperate as much as we could for the welfare of the industry in which 
we are engaged. 

At the end of 1920 we stayed in — the sales agency ended — and 
we stayed in, notwithstanding that our experience up to that time 
had shown that under the organization of the Association there were 
many dangers for a custom smelter. The Association prorated all 
sales in proportion to your offerings. The Association wouldn't let 
you sell except at the Association price, which would be fixed by others, 
and which might be a price at which we douldn't relieve ourselves. 
But 1921 came, when we were free. At that time in this accumula- 
tion we had borrowed $12,000,000 from the banks. The copper 
industry as a whole had borrowed about $60,000,000, trying to get 
over carrying the copper that was pushed upon them in that panic, 
or right after the war. But for the most of this, or a large part of 
it, about $40,000,000 was borrowed in the form of acceptances in 
banks. The banks, having reached their loaning ability, would 
accept a draft payable in 90 days. They would take that over to 
the discount corporation, which would endorse it; and then it was 
available for sale to the Federal Reserve Bank. The bank, the 
originating bank, got a quarter of 1 percent; the discount corporation 
got a quarter of 1 percent, and we paid a half of 1 percent over the 
discount rate of the Federal Reserve Bank. 

WeU, along there in early 1921 the Federal Reserve decided that 
it was in the interest of public policy to liquidate this large amount 
of loans based upon inventories in order that prices might seek their 
level more readily, I suppose. At any rate it caught us in a very 
bad position^ — the copper mdustry. And we didn't know what to do 
about it. We finally decided to adopt the plan that was described 
by Mr. Kelley under the Export Association. We took — each one 
of us our pro rata of 200,000 tons of copper at 10 cents a pound, 
$200 a ton. 

Mr. ScoLL. If I may interrupt you, Mr. Brownell — for just a 
moment — then you resigned from the Association when it no longer 
served your purposes? 

Mr. Brownell. Exactly. 

Mr. ScoLL. Now I would like to ask you just one question to 
clear the record on a point Mr. Kelley covered, and then I will be 
through. In order to maintain the 18-cent price through the panic 
of October in 1929 did any of the primary producers purchase copper 
from the A. S. & R.? 


Mr. Brownell. Not in 1929. 

Mr. ScoLL. Did they at any time during that period ? 

Mr. Brownell. In 1928 and intervals prior to that. 

Mr. ScoLL. When in 1928? 

Mr. Brownell. In 1928 we sold to United Metals Selling Co., 
which is an Anaconda Company, 9,875 tons of copper. Well, I 
was wrong — in 1929 we sold them 2,500 tons of copper, but it was 
before the 18-cent price. 

Mr. ScoLL. Did those sales have anything to do with the mainte- 
nance of that price? 

Mr. Brownell. Oh, no; they were made before the 18-cent price. 

Mr. ScoLL. Now after the panic in October 1929, there was an 
arrangement, I beUeve, whereby the primary producers agreed to 
assist the custom smelters in disposing of copper which they had on 
their hands. Is that correct? 

Mr. Brownell. Yes. 

Mr. Scoll. And did that apply to domestic sales? 

Mr. Brownell. No. 

Mr. Scoll. Only to foreign sales? 

Mr. Brownell. Only to foreign sales. 

Mr. Scoll. Now you have described the arrangement briefly. 

Mr. Brownell. In the organization of Copper Exporters we cured 
the defects of the old Association when we went into it; namely, under 
the Exporters anybody could make a special sale. If he didn't want — 
if the custom smelters, for example, didn't want to hold for the price 
of the others, we could notify them that we had so much copper to 
sell at something below their price. 

Mr. Scofci. I believe Mr. Kelley explained that. 

Mr. Brownell. And that relieved us from the difficulty of the 
Copper Export Association. Well, now everything went along very 
well. The 1929 sales of copper were tremendous. There had been a 
buying wave in August or September, and when I got back here^I 
had been on a trip around the plants in September — the latter part 
of that month, I found that there had been a great lull in buying 
and the fabricating plants in which we were interested reported that 
there had been a great lull in buying so far as they were concerned. 
The outstanding forward sales at the 18-cent level were very large. 
You have got the figures. 

Mr. Scoll. I believe that was covered, too, Mr. Brownell, if I may 
interrupt you. 

Mr. Brownell. Surely. 

Mr. Scoll. Our time is rather short, and so I would just like you 
to confine yourself, if you will, to a description of just how the pre- 
ferred participations in the export sales worked. 

Mr. Brownell. In order to prevent a break-up in the general sit- 
uation at that time by reducing the price which we otherwise would 
have done in all probability, the Copper Exporters adopted article IV. 
Article IV permitted the custom smelters to make any oflFerings of 
unsold copper to the Copper Exporters. Thereupon any past sales 
at the same price would be reallocated, and proportionately from each 
member of the association would be taken enough of his sales and 
given to the custom smelter to take care of that offering. 


Mr. ScoLL. So thai tlie utliers lueiely postponed tiieir sales and let 
the custom smelters always have first choice. 

Mr. Brownell. Had the first choice. 

Mr. ScoLL. Now after April 1930 did C. E. I. endeavor to secure 
the cooperation of the custom smelters in not forcing down the offi- 
cial price by permitting them to sell at prices below the official price? 

Mr. Browneli^ (interposing). No; after the close of that level which 
was maintained, as Mr. Kelley pointed out, much longer than was 
anticipated at the request of the Government — when it ended in May 
1930 section IV was repealed and we came back to the origin where 
we could make special sales— offer at a lower price. 

Mr. ScoLL. The same as anybody else. 

Mr. Brownell. The same as anybody else. 

Mr. ScoLL, But they never held the umbrella over you. 

Mr. Brownell. No; they didn't hold the umbrella over us any 
more except for that period. 

Mr. ScoLL. Thank you, Mr. Brownell. That is all I have. 

The Chairman. Do any members of the com.mittee desire to address 
any more questions to Mr. Brownell? Have you any further com- 
ments to make, Mj. Brownell? We are very much indebted to you. 

Mr. Brownell. I appreciate the courtesy of the counsel and of 

The Chairman. The committee will stand in recess until 10:30 
tomorrow morning. 

(Whereupon, at 5:10 p. m., an adjournment was taken until Friday, 
January 19, 1940, at 10:30 a. m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pm-suant to adjournment on 
Thm-sday, January 18, 1940, in the Caucus Room, Senate Office 
Building, the chairman. Senator Joseph C. O'Mahoney., presiding. 

Present: Senator O'Mahoney, chairman; Representatives Sunmers 
and Williams; Messrs. Henderson, Davis, Ferguson, O'Connell, Pike, 
and Brackett. 

Present also: Willis J. Ballinger and Ellen L. Love, Federal Trade 
Commission; M. Quinn Shaughnessy, Securities and Exchange 
Commission; Walter A. Janssen, Department of Commerce; Theodore 
J. Kreps, economic adviser, Samuel Moment, economic analyst and 
David E. Scoll, counsel to the committee. 

The Chairman. The committee will please come to order. 

Mr. ScoU, are you ready to proceed? 

Mr. Scoll. Yes; I am, sir. 

The Chairman. Who is the first witness? 

• Mr. Scoll. The witness this morning is Mr. Arthur Notman. Will 
you take the stand please, Mr. Notman? 

The Chairman. 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. Notman. I do. 

The Chairman. Please be seated. 


Mr. Scoll. Before calling on Mr. Notman, I might state for the 
information of the committee that Mr. Notman is an outstanding 
expert on mining and mining engineering and is a consulting engineer 
in New York City. He will discuss certain phases of the testimony 
which has been offered by Mr. Kelley, Mr. Brownell, and Mr. Stan- 
nard. He has appeared here voluntarily, and the staff, I might add, 
is indebted to him for his assistance in explaining some of the technical 
phases of the study that we have made. 

Mr. Notman, wiU you give the reporter your name and address? 

Mr. Notman. Arthur Notman, 40 Wall Street, New York. 

Mr. Scoll. And will you tell the committee briefly of your mining 
and consulting experience? 

1 In connection with Mr. Notman's testimony see letter from Cornelius F. Kelley, president of Ana- 
conda Copper Mining Co. to the committee, under date of Marcb 6, 1940, which aopears in the appendix 
on p. 13576. 



Mr. NoTMAN. Well, for 15 years, starting with 1908, I was in the 
employ of the Phelps-Dodge Corporation in Arizona, and I occupied a 
number of unimportant positions with that company. Then I worked 
as general superintendent of their mining operations in Bisbee, Atiz. 
I left them in 1923 and opened a consulting ojSice in New York, and 
have been engaged in consulting practice in New York since that time. 
Most of my work has been on the investment side of the industry and 
as a consultant, although I have done quite a little consulting work on 

Mr. ScoLL. You have \\Titten numerous articles on copper, have 
you not? 

Mr. NoTMAN. Yes. 

Mr. ScoLL. Would you like to name one or two for the committee? 

Mr. NoTMAN. Well, I prepared the section on copper for the last 
edition of the Encyclopedia Britannica and have recently prepared one 
for the new issue which is coming out shortly. I also wrote the articles 
in Peel's Mining Handbook, second .edition, on mining costs and 
mining organization, and there agai ^, I have revised those articles for 
the new issue about to come out. In i?33 the International Geological 
Congress, which holds quadrennial meetmgs, met in this country, here 
in Washington. The late Dr. Waldemar Lindgren, formerly of the 
United States Geological Survey — in more recent years professo-^ of 
economic geology at the Massachusetts Institute of Technology — was 
president of that Congress during that meeting. It had been cus- 
tomary for the Congress for several previous meetings to appoint 
committees to prepare volumes on certain world natural resources. 
For example, they had prepared one on gold resources of the world, 
one on petroleum, one on coal, and one on iron ores; and at the 1933 
meeting it was decided to get out a volume on the copper resources of 
the world, and a committee was appointed to do that, of which I was 
chairman. Then, in addition to a series of carefully prepared geologir 
cal descriptions of the important copper occurrences in the world, we 
included sections on the economic history of the industry and world 
trade in the industry. I, as chairman, prepared that section on the 
economic history of the industry. I might say that haying engaged 
throughout my connection with operations in the copper industry and 
having made a contiauing study since my opening of a consulting 
office of that industry, the committee felt that I should undertake that 
■particular section. I think that covers it. 

Mr. ScoLL. Now, you held a position with the N. R. A., did you not, 
Mr. Notman? 

Mr. Notman. Yes; I was asked by Dr. Alexander Sachs, who was 
the chief of the Research and Planning Division of the N. R. A., to 
come to Washington and act as one of his assistants on the nonferrous 
metal industries, and during that time I sat in on a great many code 
hearings in copper, lead, and zinc, and other nonferrous metals, and 
I was engaged with the N. R. A., I think, in aU, about 5 months. 

Mr. ScoLL. And you resigned before the N. R. A. ended, did you 

Mr. Notman. Well, I am not sure whether I resigned or was fired, 
but I left. 

Mr. ScoLL. Why did you leave? 

Mr. Notman. Well, my economic views didn't seem to be in favor. 


Mr. ScoLL. W6ll, we will go into that a little later. You are in close 
contact with the industry today, are you not? 

Mr. NoTMAN. Yes. 

Mr. ScoLL. Now, in your studies have you made a study of invest- 
ment and income from copper production? 

Mr. NoTMAN. Yes; a great deal of my attention has been directed 
towArd such study. 

Mr*. ScoLL. Well, what conclusions have you drawn with respect to 
profits from copper production? 


Mr. NoTMAN. Well, primarily this, that the one stable element has 
been the margin of profit as measured over any period of time sufficient 
to iron out some of the peaks and hollows. My method of meas- 
uring profits is one that was first developed and advanced by Mr. 
James Ralph Finlay, who was regarded, I think, by the profession as 
the outstanding authority on the economics of mining. His book, 
The Cost of Mining, which has had three editions, is really the 
standard reference book for all mining engineers on that subject. He 
developed the idea that the one sure way of measuring profits was to 
take that portion of the gross income which was actually returned to 
creditors — that is, holders of bonds and shareholders in the under- 
taking. In other w^rds, if you take the gross income received from 
sales of product and subtract from that the amount distributed in 
bond interest and dividends, the remainder is really your true cost. 
Of course, variations from year to year due to capital expenditures 
may upset that measuring stick for the time being, but over a period 
of years, those things are ironed out and you are not relying on the 
estimates of earnings made by the companies themselves. You are 
not dependent on their estimates of what proper depreciation charges- 
shall be written off, and you come down to the actual fact as to how 
much profit was earned and received by the shareholders of the com- 

Mr. ScoLL. And, of course, that method eliminates the necessity 
of making audits of the records of individual producers, does it not? 

Mr. NoTMAN. Entirely. You merely have to use their published 
income statements and balance sheets. 

Mr. ScoLL. Now, what about depletion? I didn't hear you men- 
tion depletion as one of the elements. 

Mr. NoTMAN. Prior to the enactment of the income-tax law, there 
was never any reference to depletion. An investor in a mining under- 
taking knew that in the nature of things, an ore body was exhausted 
and all that he was concerned with was in securing the best information 
he could as to the probable life of those resources, and he did his own 
depleting. If he bought a share of stock, that was the capital sum 
which he had to be sure would be returned over the life of the invest- 
ment, plus his income; and so far as comparative costs, or perhaps to 
put it more pointedly, competitive costs are concerned, depletion does 
not enter into the picture. 

Mr. ScoLL. Are you implying then that mine operators did not 
think about depletion until the mcome-tax law was passed? 

Mr. NoTMAN. Well, I wouldn't piit it exactly like that. They 
were aware of the fact that mainly because they were able to earn 10 


percent, say, this year, the real value of that income depended upon 
how long it would last, but they saw no reason for putting any such 
estimates on income statements or balance sheets. It is true that any 
industry exhausting a natural resource has a limited hfe, and part of 
all its annual returns to stockholders are a return of capital. In that 
respect, they difl'er from so-called self-perpetuating industiieso 

Mr. ScoLL. Now, have you made any calculations on the basis of 
the Lindsay formula as to the cost of production for individual copper 
companies in the United States and in some of the foreign countries? 

Mr. NoTMAN. If I may make a correction for the record a minute, 
the engineer's name is Finlay, not Lindsay. 

Mr. ScoLL. I beg your pardon. 

Mr. NoTMAN. Yes, I have prepared such comparisons and a number 
of them are included in this section of the copper resources volume. 
I have a reprint here. 

Mr. ScoLL. Excuse me, but before you read that, have you read 
the title of the publication into the record? 

Mr. NoTMAN. This is entitled, "The Economic History of the 
Copper Industry; Estimated World Reserve of Copper," from "Copper 
Resources of the World"; Sixteenth International Geological Congress, 
Washington, 1933. 

Mr. ScoLL. And what you are going to read are the costs per pound 
of producing copper for individual copper companies? 

Mr. NoTMAN. Over periods prior to 1933. I would like to say, of 
course, that these figures are subject to correction, to be brought up 
to date, and there has been a continual reduction in costs since 1932. 

Representative Sumners. May I ask one question? Is there any- 
thing to indicate that the improvement in production may utUize 
low-grade ore that heretofore has been regarded as not — I want to use 
a big word but I can't think of it. Anyhow, you can't get enough 
copper out of it to pay for its working. 

Mr. NoTMAN. Oh, yes, but at a price. 

The Vice Chairman. Sir? 

Mr. NoTMAN. At a price. 

The Vice Chairman. What do you mean by "at a price"? 

Mr. NoTMAN. Well, copper that could be produced at 10. cents a 
pound — say, 10 years ago — at a 10-cent price would show no profit 
and therefore it would not be produced. 

The Vice Chairman. Well, it didn't show any profit when you could 
produce 10-cent copper at 10-cent prices, did it? 

Mr. NoTMAN. No. 

The Vice Chairman. Now, my question is — is there anything to 
indicate that the method of production has so improved that you could 
produce that 10-cent copper — copper that would be worth 10 cents — 
for 8 cents? 

Mr. NoTMAN. Yes. I 

Mr. Williams. And if that is done, would it add largely to the 
copper resources of the country? 

Ml. Notman. Very largely; it has. 

Mr. Williams. You have a great deal of low-grade ore that hereto- 
fore has been regarded as unmarketable that is in process of being 

Mr. Notman. Yes, sir. 


Mr. ScoLL. I believe you were going to read a list of costs, Mr. 

Mr. Notman. Well, I have a number of the important producers 
here with earnings calculated according to the method that I have 
outlined to the committee, for the period from 1926 to 1932. The 
companies included are Anaconda, their Butte operations- 

Mr. ScoLL (interposing). Excuse me, Mr. Notman, but are you 
talking now about earnings or about costs? 

Mr. Notman. I said earnings but I have both figures here in the 

Mr. ScOLL. Well, why don't you give them both? 

Mr. Notman. Do you want me to read the list >of companies or 
just select certain ones, or how would you hke me to reply to that? 

Mr. ScoLL. Well, I think the best thing to do would be to read the 
list and put them in — all of them. 

Mr. Notman. Anaconda (Butte operations alone); Andes; Chile; 
Greene; Cananea; Inspiration; Calumet and Hecla; Cerro de Pasco; 
Copper Range; Kennecott, including Utah, Braden, and Alaska; 
, Nevada Consolidated — I might say at that time Nevada Consohdated 
had not been completely absorbed by the Kennecott Corporation and 
was still an independent entity — Mother Lode; Phelps-Dodge; 
Granby; Magma; Miami; Mohawk; Old Dominion; United Verde 
Extension; Noranda; Pludson Bay; Katanga. 

The average selling price received by those companies over the 
years from 1926 to 1932, assuming that they received approximately 
the average E. and M. J. quotation for those years — this of course is 
subject to some correction because certain companies might have 
sold more copper in a period when the price was higher than the E. and 
M. J. average or they might have sold some more when the price was 

Mr. ScoLL. Would that result in a material difference? 

Mr. Notman. Not over a 6-year period, in my judgment. I have 
had occasion at times to check on such calculations and found that 
there was very little material error. During those years they received 
an average price of 13.19 cents per pound. 

Mr. S.coLL. Now will you give the 

Mr. Notman (interposing). The earnings as measured by the 
aggregate interest and dividends paid out plus or minus any increase 
or decrease in the net current assets during the period, plus any cash 
investments in earnings and increased facilities to produce, or in the 
securities of other copper-producing companies, less any interest and 
dividends received from other copper producing companies, and any 
cash received from the sale of new capital issues — that is the basis on 
which the earnings were set up. Profits from the production of other 
metals, as gold, silver, lead, and zinc, were aU credited to the cost of 
copper. Similarly, profits from custom smelting, refining, and manu- 
facturing enjoyed by certain of the companies have also been credited 
to the cost of copper. 

Mr. ScoLL. So that the result you get is as close as you can possibly 
come to figuring the true cost of the copper., 

Mr. Notman. Yes. And I would like to add that where the invest- 
ment in such other activities — such other facilities— has been wise, it 
improved the competing power of that unit of the industry; where un- 

124491 — 41— Dt 25 17 


wise it proved a handicap. The results from such additional ventures 
are not different in kind from those inherent in higher copper or 
higher precious metal contents of their ores than those of their com- 

Mr. ScoLL. Then what do you finally arrive at for the cost per pound 
for those companies and their earnings per pound? 

Mr. NoTMAN. The average cost of the whole group was 9.63 cents 
per pound for that period. 

The Vice Chairman. Is there anything to indicate that they were 
carrying a considerable load of unprofitable production? 

Mr. NoTMAN. The only company of the group named who showed 
a deficit for that period was the Old Dominion Co., at Globe, Ariz., 
which was about exhausted. 

The Vice Chairman. About exhausted? 

Mr. NoTMAN. Yes; exhausted so far as profitable ores were con- 

The Vice Chairman. Then it was just a question of continuing to 
operate as scrap? 

Mr. NoTMAN. Yes. 

Mr. ScoLL. Can you tell from that which are the low and which are 
the high-cost producers? 

Mr. NoTMAN. Yes. 

Mr. ScoLL. Which were which? 

Mr. NoTMAN. On that basis 

Mr. ScoLL. And you might amplify it by giving the figures. 

Mr. NoTMAN. The Noranda Co. in Canada shows the lowest cost 
per pound. 

Mr. ScoLL. What is that figure? 

Mr. NoTMAN. 5.22 cents. 

The Vice Chairman. May I ask one other question to develop what 
I have in mind? Was this cost of production to which you have just 
referred due to any degree to an antiquated machinery or method of 
extracting the copper? 

Mr. NoTMAN. I am not sure that I understand the question. 

The Vice Chairman. If that company had had an up-to-date plant 
for procuring the raw material and converting it into copper, would it 
have been probable that they would have a lower per ton cost of work- 
ing the ore? Does that make it clear? 

Mr. NoTMAN. I think I understand; yes. I think it fair to say that 
none of these companies were handicapped during this period that I 
speak of by the use of obsolete equipment or obsolete methods. 

The Chairman. May I ask you again to tell us what factors you 
have taken into consideration in determining the cost? 
• Mr. Notman. We start with the gross income received from the 
sale of the product. From that we deduct the gross amount of interest 
and dividends distributed by the company, plus or minus any increase 
in net current assets over the period. In other words, if they did not 
distribute all their eaniings as dividends, presumably if they had made 
no capital investments, their net current assets would have increased ; 
if they had made capital expenditures the net current assets might 
have decreased; so that we adjust the distributions to the net current 
asset position — change in the position — over the period. 

Representative Williams. In that connection, do you take into 
consideration the surplus— does that include the undistributed profits? 


Mr. NoTMAN, Yes. 

Representative Williams. And the surplus that may be set aside — 
you call that current assets? 

Mr. NoTMAN. Yes. And it is adjusted to any capital expenditures 
made or any capital received from the sale of additional securities? 

Mr. Pike. Mr. Notman, in mining accounting you can't take sur- 
pluses necessarily as a net current asset of capital accounts of the 
mines; it is strange, anyway. Net current assets have no necessary 
relation to surplus. You know mines with deficit, in their capital 
account that have large net current assets. 

Mr. Notman. Well, I subscribe to that correction, Mr. Pike. I 
might say, perhaps to illuminate the matter a little nv>re, that in gen- 
eral the formula used was much simpler than that I have described. 
In other words, we confine ourselves purely to the distributions of 
interest and dividends over a period of years. 

The Chairman. The success of the formula which you have de- 
scribed would depend entirely, would it not, upon the assumption 
that the sale price was large enough to cover the actual cost? In other 
words, if a product were sold at less than cost you couldn't determine 
what the cost of production was by beginning with the receipts from 

Mr. Notman. I think I can make that plain. In the case of the 
Old Dominion they received 13.3 cents average price, but by the 
method used their costs were 14.3 cents. In other words, they 
accumulated a deficit over the period and their actual costs were 
above the price. That happens to be the only one m the group in 
that particular period of years. 

The Chairman. This is a formula which you use for the purpose of 
determining costs without having access to the actual expenditures. 

Mr. Notman. That is right. 

The Chairman, In the mining and production of the ore? 

Mr. Notman. That is right. We have access to their published 
balance sheets and income statements. 

The Chairman. So that you are defining to us a formula which is 
used to deterinine from published statistics what the cost must have 

Mr. Notman. Yes. 

The Chairman. It is 19, deductive process. 

Mr. Notman. Right. 

I have a similar table here covering a large group of companies 
from the close of 1921 to the close of 1932. The companies con- 
sidered in this group covered North and South America and included 
Anaconda, Andes, Chile 

Mr. ScoLL (interposing.) Excuse me, may I interrupt for a moment? 
If you have the companies there individually listed do you also have 
the individual costs for each company per pound? 

Mr. Notman. Yes. 

Mr. ScoLL. Or is this just a group? 

Mr. Notman. Not in the table I have abeadyreferred to, they are 
there individua^y. In the table I was about to refer to they are in 
the aggregate. 

Mr. ScoLL. Before you read the a^regate, coidd you read the 
individual costs and earnings if you have them for the companies for 
that period so that the committee would have «pme information jpon- 


ceming what the relative cost of production is for the various com- 
panies that are engaged in copper mining? 

Mr. NoTMAN. Would you like to have me read them all, or just 
examples of high and low? 

Mr. ScoLL. How manj^ are there? 

Mr. NoTMAN. About eight. 

Mr. ScoLL. Why don't you read them all? 

Mr. NoTMAN. Perhaps I might add this is table 1 on page 26 of this 
pamphlet.' Anaconda, Butte operations, cost 9.98 cents. Andes, 
10.05. Chile, 8.13. Greene Cananea 10.35. Inspiration 11.3. 
Calumet and Heel a 10.62. Cerro de Pasco 9.73. Copper Range 
11.97. Kennecott, includmg Utah, Braden, and their Alaska opera- 
tions, 7.86. Nevada Consolidated 10.18. Mother Lode 8.57. 
Phelps-Dodge 10.63. Granby 9.69. Magma 8.89. Miami 11.94. 
Mohawk 8.40. It is only fair to say that Mohawk has now ceased 
operations. Old Dominion, 13.32. That has also ceased. United 
Verde Extension, which we have just finished up, 8.52. An average 
for those companies of 9.58. 

Mr. ScoLL. Now have you got the foreign companies there? 

Mr. NoTMAN. I have Noran'da, Hudson Bay, and Katanga, but 
with this explanation, that Hudson Bay was only really just started 
and the period is too short to be representative. Noranda, 5.22. 
Katanga, 11.27. 

Mr. ScoLL. What period was this? 

Mr. NoTMAN. Period from 1926 to 1932, inclusive. 

Mr. ScoLL. Have you anything more to add to the discussion of 
costs before we proceed to further points? 

Mr. NoTMAN. I was going to cover other matters later. I think 
that is all. 

Representative Williams. Have you anything later than 1932 
;vitL. reference to the costs? 

Mr. NoTMAN. Only in individual cases. 

Representative Williams. How does it compare with this period 
from 1926 to 1932 in general? 

Mr. NoTMAN. Substantially lower. 

Representative Williams. How much? Have you got any idea? 
Has your study led you to conclude how much percent lower it is than 
it was during that period? 

Mr. NoTMAN. Probably between a cent and a half to 2 cents a 

Representative Williams. It would average, you think, lowe;-; 
the cost of production according to your method of computation 
would be a cent and a half to 2 cents per pound lower average from 
1932 down to the present time? 

Mr. NoTMAN. Yes. There are a number of high-cost units that 
have gone out and there has been a very marked improvement in the 
larger operations. 

Mr. Pike. You mean for the same mines that you are covering and 
nbt covering new mines? 

Mr. NoTMAN. Yes. In addition to that, as Mr. Pike's question 
suggests, there has been the very large group of African Rhodesian 
producers who belong in the low-cost class that have come in, so that 

> "Copper Besonroes of the World." The table is shown in "Exhibit No. 2169- A" appendix, p. 13646, at 
p. 18M0. 


tne average cost of producing of those units of the industry now 
supplying the copper of the world is definitely lower in cost. 

The Chairman. To what is that production cost to be attributed? 

Mr. NoTMAN. To technological improvements in mining methods, 
equipment, and metallurgy. 

The Chairman. Would there be any dispute about your con- 

Mr. NoTMAN. There might well be. 

The Chairman. Do you think they would be accepted generally 
in the industry? 

Mr. Notman. Well, it is not for me to say, Mr. Chairman. I 
think they would. 

The Chairman. Well, you have a prett}'^ good notion, I would 
think, as to whether or not other experts would disagree with your 

Mr. Notman. I don't think seriously. 

Representative Williams. From the samples you gave of the cost 
of foreign production during the period of 1926 to 1932 there isn't a 
great material difference between the cost of production abroad and 
at home. 

Mr. Notman. With the possible exception of Noranda, and I 
haven't included the largest Canadian producer, which is the Inter- 
national Nickel Co., because of the difficulty of separating — dividmg— ' 
the costs between their nickel production and their copper pro- 

Representative Williams. What have your studies led you to 
conclude with reference to the difference in cost between domestic and 
foreign copper during the last 8 years from 1932 to 1940. 

Mr. Notman. There are no domestic units that can show as low a 
cost as that of Noranda. There are domestic units that are On all 
fours with the Chilean and Rhodesian producers. Does that answer 
your question? 

Representative Williams. Well, I was wondering if you could draw 
a conclusion with any degree of accuracy as to the average cost of- 
foreign production as compared with domestic production. You 
understand — not any one particular company — but the general aver- 
age as you have drawn it during the period from '26 to '32. 

Mr. Notman. Of course it depends largely on what volume of out- 
put you are basing your average on. If you are dealing with relatively 
small volume produced mainly by the low cost producers, there is very 
little difference. If you are dealing with a large volume which must 
necessarily include a lot of high cost ones, then there may be a sub- 
stantial difference. 

Representative Williams. What method did you use in arriving 
at your average in the figure that you gave here? 

Mr. Notman. I took the actual production figures for those com- 
panies for the years included in the period. 

Representative Williams. Why not use that same test during this 
latter period? 

Mr. Notman. That could be done. 

Representative Williams. That is what I am asking, whether or not 
you have done that. 


Mr. NoTMAN. No; I have not- 

Representative Williams (interposing). Sufficient to give us the 
benefit of your judgment on it? 

Mr. NoTMAN. I haven't got the figures here, but in my opinion 
there would be some material difference in the cost. The foreign 
production would be at a definitely lower cost. There are very few 
liigh cost units in the foreign group. 

Representative Williams. You don't care to hazard a suggestion as 
to what that difference would be? 

Mr. NoTMAN. Weil, I would say that it probably lay between 1 
and 2 cents a pound. 

Mr. Shaughnkssy. Mr. Notman, under youi' method do you charge 
off development nt the begimiing or ratably over the life of the mine? 

Mr. Notman. Under this method one does not have to consider 
where the money was spent or what it was spent for. 

Mr. Shaughnkssy. I was wondering at the rather high cost for 
Chile and Andes copper. 

I mean thev wouldn't be substantially less today than they were 

Mr. Notman. Oh, very much. 

Mr. Shaughnessy. They would be? 

Mr. Notman. Yes. 

Mr. Shaughnessy. As much as 3 or 4 cents? 

Mr. Notman. Yes. 

Mr. Shaughnessy. So the foreign production today might be 
considerably cheaper as far as Chile and Andes are concerned? 

Mr. Notman. Yes; but in answer to the Congressman's question 
I was referring to my present opinion as to current costs. 

Mr. Shaughnessy. I see. 

Mr. Scoll. In other .words, Mr. Notman, there is a reasonable 
basis upon which you can determine the cost of producing copper 
today, and using that basis the trend of cost has been downward. 
Does that summarize it? 

Mr. Notman. In my judgment, yes. 

Mr. Scoll. You mentioned technological improvement, and that 
has resulted, has it not, in a more economical production of copper? 

Ml-. Notman. Oh, yes; and it has brought about serious changes in 
volume of employment. 

The Vice Chairman. I would like to ask something on that. 

Mr. Notman. For example, according to the Bureau of Labor Sta- 
tistics the copper mines, mills, and smelting plants in the United 
States employed about 45,000 men in 1929 as compared with 13,000 
hi 1932. The increase in employment from 1919 to 1929 was less 
than 2 percent, while production increased 70 percent. This affords 
some measure of the technological advances in the industry which 
have been a major factor in increasing the known reserves of metal 
in the groimd by making available for profitable extraction lower- 
grade material. That tendency has continued since '29. To illus- 
trate: The collapse of prices after the World War, for example — and 
that is true of the coUapse of prices in the late depression — stressed 
the search for cheaper metals. Mr. A. B. Parsons, secretary of the 
American Institute, of Mini»f-«Btd: Metallurgical Engineers, published 
a book, I tJimk about 1931, entitled "The Porphyry Coppers." In 
that book Parsons cites the facts that the Utah Copper Co., a Kennecott 


unit, piodi.j'-e!l ivjpper for al»oijl H% ceiils a pound iii 1928 from ores 
yioldiDg oTily 17 pouiiHs i<^ Mio foti, atnl lliat if the company had been 
eonipollod to use t\\c. (>'|iiipni(Mi(. niul iiiotJiods available to it in 1916 
w'liile carrying increased wages, cost of supplies, and taxes of 1928, 
the copper would have cost 12^4 cents instead of Q% cents. I think 
that answers yoirr question. 

The Vice Chairman. I believe so, yes. 

Representative Williams. What about biinging that down to date? 
It seems to me that I am more concerned with these figures since 

Mr. Notman, There lias been still f urtlier improvement. I haven't 
made any recent calculations, but I can confidently say that there ha8 
been substantial improvement. 

Representative Williams. The cost of production has gradually de- 
creased, as you have already stated. Is it also true that the number 
of employed has decreased in the mining business? 

Mr. Notman. I am not so sure about that phase of it, but I would 
say definitely that it had at least held its own — that is, the production 
per man employed is certainly no lower than it was in the period that 
we have been discussing. 

Representative Williams. But you think there are as many men . 
employed in the mining industiy as a whole in, we will say, 1939, as 
there were in 1929? 

Mr. Notman. Oh, no; there are not. 

Representative Williams. What would be the difference? 

Mr. Notman. I couldn't tell you offhand. The Bureau of Labor 
Statistics undoubtedly has up-to-date figures on that. 

Representative Williams. Has there been an increase in the output 
in the United States? 

Mr. Notman. No; we have not gotten back to the 1929 figures. 

Representative Williams. Of course there has been a relative de- 
crease compared with foreign production, but the United States has 
actually decreased in production, has it? 

Mr. Notman. If the committee will permit me I would like to refer 
to tlie American Bureau of Metal Statistics figures for that. 

Representative Williams. There isn't any question about the evi- 
dence already before this committee that there has been a relative 
decrease-in domestic production as compared with foreign production 
during the last 10 years, but as to whether there has been an- actual 
decrease in production? 

Mr. Notman. At the peak of 1919 the United States produced in 
excess of 1,000,000 short tons;, the highest figure reached since that 
year was in 1937 when we produced 878,000 short tons. 

Mr. O'Connell. In answer to Congressman Sumners' question I 
understood you to give some figures as to the relative increase in. 
productivity per unit of labor. Did you do tiiat? If you did I 
would like to have you repeat it and tell me the period. 

Mr. Notman. I answered specifically for the period 1919 to '29, 
and my estimate is that there may have been some further improve- 
ment in efficiency; there certainly has been no falling oft". 

Mr. O'Connell. During the period 1919 to 1929, I understood you 
to say that there was a 2-percent increase in the volume of employ- 

Mr. Notman. Yes. 


Mr. O'CoNNELL. And a 70-percent increase in production? 

Mi. NoTMAN. Yes. 

Mr. O'CoNNELL. And that would be explained by technological 
improvement and would indicate that per unit of copper produced 
substantially less labor was required in '29. 

" Mr. NoTMAN. Yes; mainly because of the active expansion of the 
operations of the so-called porphyries, which are highly niechanized. 

Mr. O'CoNNELL. What was that word again? 

Mr. NoTMAN. So-called porphyry coppers. Those are such com- 
panies as are exploiting large low-grade ore bodies, which permit of 
large scale operation with steam shovels in the case of open cut mines 
and all the modem equipment for such undertakings. 

The Vice Chairman. May I ask this question? Are these tech- 
nological and scientific improvements to feny degree recovering copper 
which under former processes went out into the dump heap? 

Mr. NoTMAN. Oh, yes. Most of it, however, never ieven reached 
the dump heap; it wasn't touched; it was too low a grade even to 
attempt to use. 

The Vice Chairman. That wasn't what I was asking about par- 
ticularly, though. It was whether or not imder the old processes you 
failed to recover copper in the ore worked which now you are able to 

Mr. Notman. That is true, but the only large scale operations of 
that sort, if my memory serves me rightly, now in existence in this 
country are the recovery of the copper and the tailings of the Michigan 
companies which were accumulated j^ears ago. At the time that I 
was actively in charge of operations m Bisbee, for example, we were 
still digging up old slags that had been produced in the nineties; and 
it was about the most profitable ore we had. There was a good deal 
of that slag that ran as high as 3 percent. 

Mr. ScoLL. Mr. Notman, Mr. Kelley stated in his testimony that — 

The increase in recovery of metal content from the ore would reduce the cost 
approxinoately three cents a pound on the average. Now the price has not 
increased. On the contrary the price has likewise on the average decreased, so 
that the consuming public has received the benefit of the technological advance. 

; Can you illustrate by any evidence which you have at hand or are 
familiar with whether the decrease in the price of electrolytic copper 
has been passed on in the selling price of the articles that are made 
from copper, the final articles of copper that are used in the trade, 
such as plumbing fixtures, and so on? 

Mr. Notman. Well, that question I have prepared some data on 
and I don't think that it has been referred to by any of the previous 
witnesses. Obvio-usly nobody uses electrolytic copper as such, and 
the price of electrolytic ?;opper has no bearing on what the consumer, 
who is the man who uses copper wire or copper sheets or brass sheets 
or copper tubing, pays for his material. 

Mr. ScoLL. Have you prepared a table to show the comparison of 
the electrolytic prices and the prices of the final fabricated copper? 

Mr. Notman. I have, covering only three forms of fabricated 

The Vice Chairman. Mr. Scoll, will you pardon me just a moment? 
Have you developed whether or not the producers of the raw copper 
to any degree follow through the processes of the factory and into 


the market as a tinished commodity? I mean from the point of 
ownership and depletion. 

Mr. ScoLL. Yes ; we have covered that. 

The Vice Chairman. Then I will try to get it from the record. 

Representative Williams. There is one thing I don't understand. 
Did I understand you to say there was no relation at all between the 
cost of copper as such and the cost of the finished products? 

Mr. NoTMAN. Perhaps that is a little subject to 

Representative Williams (interposing). That is a rather remark- 
able statement, if that is true. 

Mr. Notman. What I mean to say is that the ultimate consumer 
of copper does not buy electrolytic copper. He buys fabricated 
product, and his cost depends upon what prices are quoted on the 
fabricated product, and not on the so-called electrolytic copper. 

Representative Williams. I think I understand that, but there is 
undoubtedly some relation between the cost and the price. 

Mr. Notman. That is what we are going to try to explain. 

Representative Williams. At least there should be, it seems to me. 

Mr. Notman. The three fabricated products upon which I have 
been able to secure prices, for which those products were sold, prior 
to the acquisition of any fabricating units by the copper producers, 
are copper wire, base size, copper sheets in base sizes, and so-called 
high brass sheets. High brass in the trade in general is an alloy 
composed of 66 percent copper and 34 percent zinc. I have used for 
my sources for prices on the products in the two periods which I have 
examined, '*the annual yearbooks published by the American Metal 
Market, under the title of Metal Statistics. The American Metal 
Market is a daily trade paper which has been publishing these year 
books for the last 32 years, and enjoys the confidence and respect of 
the metal trade and the mining profession for the accuracy of their 

I don't know whether you want to introduce these yearbooks into 
the record. 

The Chairman. I wouldn't think so, Mr. Notman. Suppose you 
state simply the conclusion which you are seeking to convey to the 
committee, and then it can be supported by any statistical exhibit 
that you desire. 

Mr. Notman. I have a summary here which shows the differentials 
between the average prices of electrolytic copper, f. o. b. refinery, and 
copper wire, copper sh-eet, and high brass sheet, for the periods 
1909-12, inclusive, and 1933-38, mclusive. 

The Chairman. Very well, what does it show? 

Mr. Notman. In the case of copper wire, that average differential 
was 1.38 cents per pound in the early period. 

The Vice Chairman. Yes; but now what percentage of value was 
that differentiation? 

Mr. Notman. Well, the average price of electrolytic copper for 
that period was 13.75 cents per pound, and they sold their wire at an 
average price of 15.13 cents per pound. In the later period, '35 to 
'38, inclusive, that average differential was 3% cents per pound. 

Mr. Scoll. So that the difference between the price of copper and 
the fabricated article has increased considerably, taking into account 
the fact that the copper producers have acquired the fabricators who 
have made the copper. Is that a correct summary? 


Mr. NoTMAN. Yes; I think so. 

Mr. ScoLL. That same thing would apply to other fabricated 

Mr. NoTMAN. Well, in the case of copper sheet, in the early period 
the differential was 4.73 cents, and in the later period, 7.85 cents. 

Mr. ScoLL. And the early period was the period when the copper 
producers owned no subsidiaries, the later period is a period in which 
they did own subsidiaries? 

Mr. NoTMAN. In the case of high brass sheet, we have rather an 
extraordinary condition. 

The Chairman. Are you leading to the conclusion that the larger 
the organization of the industry became, the greater was the dif- 

Mr. NoTMAN. Well, I wasn't drawing any conclusions, Senator. I 
was merelj'^ giving the facts to the committee. 

The Chairman. And letting the committee draw the conclusions. 

Mr. N or MAN. Yes, sir. 

Mr. ScoLL. Senator, may we introduce that table jis an exhibit? 

The Chairman. Certainly. It may be received. 

(The table referred to was marked "Exhibit No. 2169" and is 
included in the appendix on p. 13545.) 

The Vice Chairman. Do you have any information as to the rela- 
tive income of these producers of copper between those two periods, 
with reference to which these figures are compiled? 

Mr. Notman. Well, I am not sure that I understand the question. 

The Vice Chairman. Here is a period in which there was this lower 
differential and then there came a period of much higher differential. 
In what way were those differences in differential reflected in net 
profit to the concerns? 

Mr. Notman. Of course in the first period they were not concerned 
with fabricatmg at all, so that their figures give you no measure of 
what the fabricating profits were in the early period. There were not 
ni that business, but it does show that those who were in the fabri- 
cating business were able to recover their costs and presumably some 
profit with a margin less than half of what seems to be required now. 

The Vice Chairman. May I ask this question in that connection, 
if the Chair will pardon me? Have you developed in your testi- 
mony, Mr. Scoll, or do you expect to, whether or not in their system 
of accounting these integrated companies now have a separate ac- 
counting for production and fabrication and marketing? 

Mr. Scoll. Congressman, we haven't gone into their accounts. 

The Vice Chairman. What you are trying to do mostly now is to 
deal with cartels, I believe? 

Mr. ScoLL. Yes. 

The Vice Chairman. How does this testimony we are getlhig now 
bear on cartels? 

Mr. Scoll. It bears on the question of what the economic effects 
have been on the prices of the things that have been produced. 
The previous testimony went to show how the industry has grown 
and integrated and how it is coordinated, and Mr. Notman 's testi- 
mony is going to show what effect those influences have had on 
prices and on employment. 


The Vice Chairman. You are going to hook this up with rottip 
cartel connection between these? 

Mr. ScoLL. Well, we have already discussed the orgamzation — 
the so-called cartel organization — of the copper industry. Now we 
are discussing what the results have been of that orgamzation. I 
have one final question for Mr. Notman, and that will conclude this 
copper testimony. 

Representative Williams. One question in this connection I 
would like to ask: To what extent do these integrated companies 
carry on this fabricated business? 

Mr. Notman. My imj)ression is that that is ah-eady in the testi- 
mony. My recollection is that they now own in excess of 70 percent 
of the fabricated capacity in the country. 

Representative Williams. Oh, I had forgotten that that was in 
the testimony. 

Mr. O'Connell. The witness, a few moments ago, was about to 
give us the figures as regards the differential in high brass, and I 
would like to have those. You said they are rather striking? 

The Chairman. They will go in with the exhibit. 

Mr. O'Connell. I would rather not wait until you read it. If you 
can give us those two figures, it will take just a moment. 

The Chairman. All right. 

Mr. Notman. On high brass, we have a differential over the cost 
of electrolytic in the early period of 0.4 cent per pound. In the 
later period, it was 5.95 cents per pound. 

Mr. O'Connell. And may I ask ope more question? Have the 
characteristics of the commodities that you have been comparing 
undergone any substantial change in those two periods? 

Mr. Notman. So far as I know and have been able to check with 
the American Metal Market, they represent the same trade products. 

Mr. Pike. There is one thing on high brass, Mr, Notman, which 
I would like to ask. Do you happen to know the difference of the 
price of zinc for those two periods? 

Mr. Notman. In the early period, the average price for zinc was 
6.95 cents, and in the later period, it was 5.46 cents. 

Mr. Pike. Not a great difference then? 

Mr. Notman. Actuallv nearly a cent and a half less. 

The Chairman. Mr. Scoll? 

Mr. Scoll. Mr. Notman, you have heard the testimony of the 
representalivf«3 of the leading copper companies on the subject of 
cooperation and how that has brought about stabilization in the indus- 
try. Could you briefly summarize your view on that point with ref- 
erence to what has happened in the business cycle and whether or not 
the cooperation has in effect brought stabilization? 

Mr. Notman. Well, I have an article here that I prepared for the 
American Yearbook, 1934 volume, and perhaps 

Mr. Scoll (interposing). Read the last two paragraphs of that 

Mr. Notman. Under the caption of "Fallacies in the name of 
conservation," it is suggested — 

that the socalled natural resources industries are in a diflferent category from 
manufacturing and therefore should be regimented in some different and stricter 


manner, because the ultimate exhaustion of these natural resources is inevitable, 
and posterity must be protected from this impending shortage through wasteful 
exploitation. After all, there is nothing wasteful about permitting the nation as a 
whole to secure its needs cheaply. Whatever merit there may be in the argument 
would seem to imply that with limited supplies within her borders, a nation should 
give every encouragement to the exploitation and exhaustion of foreign sources 
before consuming her own. This, of course, means the abolition of all tariffs on 
such materials. 

Much stress is laid on petroleum as an example of wasteful production, but here 
we are dealing with a weakness in the basic law governing the exploitation of 
petroleum resources in the United States. The so-called law of capture requires 
the owners of properties adjoining producing wells to drill off some of the wells 
so that that portion of the oil pool underlying those properties may not be drained 
by the original drilling, leaving those properties with no production, to which they 
were entitled by ownership. Herein lies the chief difficulty of the petroleum in- 
dustry. No such conditions exist with respect to copper or any other important 
mineral resource, but for reasons not hard to find, certain producers of the metals 
bespeak the government in the name of conservation to permit them to conspire 
against the public to fix prices and control production, to defeat the law of supply 
and demand; in other words, to set up monopolies. To fix and maintain prices, 
however, implies the existence of three conditions, as follows: "Monopoly of supply, 
unavailability of satisfactory substitutes, and inelastic demand. 

Throughout history, these conditions have never existed save momentarily with 
respect to any important commodity. The world has always and will always find 
ways to avoid undue exactions by those seeking to establish monopolies. Noting 
short of arbitrary dictatorial powers could possibly support them. It would surely 
appear wise to design an economic program in harmony with economic law rather 
than in conflict therewith. 

The probability of success for a machine designed in conflict with physical law 
can never be greater than zero, and similarly the probability of success for an 
economic program based on having more by making less can never be more than 
zero, whether tried by an individual, a corporation, an industry or a nation. 

I would like to add, if I may, for a moment, Mr. Scoll, the descrip- 
tion given to such artificial methods of control of production by Mr. 
J. R. Flnlay, to whom I have referred already. In writing to me on 
that subject, he expressed himself this way: 

I will take one more opportunity to reaffirm a lifelong conviction that production 
is already adequately controlled by the law of supply and demand. The laws of 
economics are fully as rigid as those of mechanics capable of inflicting penalties 
on those who ignore them far more severe than any committee could think up. 
A man who ignores the law of gravity breaks his neck. One who continues to 
produce something which the world does not want goes broke. It is true that 
astronomers by long years of observation and study finally determined the fact 
that the earth revolves around the sun in an elliptical orbit which phenomenon 
gives rise to many beneficial effects. They may well have determined at the same 
time that it would have done a better job had it revolved in a circular orbit. 
But so far as I am aware, I never heard of a committee getting together, to try 
to bring that about. 

Mr. Scoll. Thank you, Mr, Notman. 

The Vice Chairman. Well, now, wait a minute. I think there is 
much in this fundamental principle. Now, do we understand from 
your observations based on what you have observed and what you 
have seen that these laws of economics to which you refer do not 
require an agency of government to make them effective, as applied 
to a community of human beings, on that basis? 

Mr. Notman. No ; my feeling, Congressman, is that no single group 
In any country 

The Vice Chairman (interposing). I understand but I am just 
asking you a question. 

Mr. Notman. Can be trusted with the power to regulate themselves. 

The Vice Chairman. That's right. • 


Mr. NoTMAN. It requires somebody who has the interest of the 
public in general. 

The Vice Chairman. Now, one of two questiojis, if 1 may. I 
understand from my colleagues that this is not in the record. Have 
you any notion as to the amount of capital required with reference 
to ordinary conditions, to equip a mining and refining plant sufficient 
to operate in the copper field? 

Mr, NoTMAN. Yes; I have such figures. 

The Vice Chairman. Are they in the record at all? 

Mr. NoTMAN. They are given in this pamphlet. 

The Vice Chairman. Is that to be in the record? 

Mr. ScoLL. We can put it in the record. May we insert the 
pamphlet in the record? 

(The pamphlet referred to was marked "Exhibit No. 2169-A" and 
is included in the appendix on p. 13546.) 

The Vice Chairman. Well, it has been suggested by the chairman 
that it would seem wise that those figures bc^ incorporated, if you 
will be good enough to incorporate them.' 

The Vice Chairman. Now, with regard to these integrated com- 
panies, has anything come to your observation to indicate that with 
regard to manufacture and sale of those commodities, in one or more 
of those steps, they may suffer a loss and make it up from profit in 
some other phase of their activities? 

Mr. Notman. That undoubtedly happens in certain instances. I 
cannot cite the facts because most of those companies give consohdated 
income statements without any allocation of profits or cost to the 
particular steps. 

The Vice Chairman. That information would probably be regarded 
as important, as a usable fact to some members of the committee, if 
it should be found that the producers of — shall I call it the raw mate- 
rial? — where they have practically no competition, would, where they 
compete with independent producers, reduce their cost to the point 
where it would tend to squeeze the independent producers out of the 
field of activity. I mean, it would be important one way or the other. 
To me, I think, it would be one of the most usable facts that could 
be drawn out. 

Mr. Notman. It is possible that the independent fabricators who 
have no source of raw material of their own may be in an uncomfort- 
able position in competing with the integrated companies in the 
fabricating end of the business. 

The Vice Chairman. It would seem to me, just looking at the 
whole picture as an outsider, that if the persons who produce the raw 
material, if they be closely organized, they could make it tremendously 
difficult, it would seem to me, to an independent producer who has got 
to go to his competitors for his raw materials. 

Mr. Notman. Yes; there are possibilities in. both cases. 

Mr. Pike. Your comparison as to differentials, though, suggested 
the opposite. 

Mr. Notman. In case the independent fabricator had free access to 
copper supplies at all times. 

The Vice Chairman, You mean copper supplies that are to be 
bought under competitive conditions? 

> The figures appear in "Exhibit No. 2169-A," appendix, p. ia646, at p. 13652. 


Mr. NoTMAN. Yes. 

The Vice Chairman. Does that condition obtain? 

Mr. NoTMAN. Well, I think in general it has obtained. 

The Vice Chairman. Well, that would be important. 

The Chairman. In other words, the integration of the industry has 
not operated to the disadvantage of the independent fabricator; is that 
the conclusion you want to leave with us? 

Mr. NoTMAN. No; I don't want to draw that conclusion, Senator, 
because I don't know what the facts are. 

The Chairman. Well, then, of course, your testimony would not 
be of importance. May I ask this question: You have been sitting 
here during the preceding testimony, and you have heard the con- 
clusions stated by representatives of the industry, that the associations 
which have been affected from time to time by way of the Copper 
Export Association, for example. Copper Exporters, Inc., the foreign 
cartel, and so forth, have been used primarily for the purpose of cur- 
tailing production merely to prevent the destructive decline of prices, 
and not for the purpose of exploiting the consumer. Have you heard 
that testimony? 

Mr. NoTMAN. Yes. 

The Chairman. What is your conclusion with respect to that? 

Mr. NoTMAN. Well, my conclusion is that most of the undertak- 
ings — and there have been many of them throughout tha history of 
the industry, prior to Copper Export Association, Copper Exporters, 
Inc.— all resulted in higher prices. 

The Chairman. WeU, now, were those relatively higher prices or 
were they high prices which resulted because the lower cost of produc- 
tion was not reflected in the final price to the consumer? 

Mr. Notman. Strangely enough, they all of them coincided with a 
rising cyclical trend of business, and they all collapsed when the decline 
started. ^ 

The Vice Chairman. Self-preservation got into the situation? 

The Chairman. Well, that doesn't quite answer my question, does 

Mr. Notman. Well, you want me to express an opinion as to 
whether I think the objective was raising prices or preventing.unduly 
low prices? 

The Chairman. Well, let me put in this way, rather: Have these 
agreements resulted in actual increases of price or in an increased 
differential by reason of a reduction in the cost of production? 

Mr. Notman. Well, what I have tried to indicate by this reference 
to fabricated product prices was that the reduction of cost in electro- 
lytical copper, due to technological advances, had not been passed on 
to the consumer. I believe it was the testimony from previous wit- 
nesses that it had been — — 

The Chairman (interposing). Well, of course, the problem before 
the country in almost every great industry and in all business, is the 
effect upon public welfare of the highly complicated modem organiza- 
tion. Now, what I am interested in listening to is your opinion as 
to the effect in this particular industry of the complicated organization 
which is apparent in the copper industry. 

Mr. Notman. I think, Senator, that it has been adverse not only 
to° public interest but to their own interest. 

The Chairman. And what remedy do you see for this condition? 


Mr. NoTMAN. I am stiJl a believer in the economics of Adam Smith, 
and if price is allowed to rogulate supply and demand, it will do so. 
If rigidities arc artifically imposed on free price, if rigidities are arti- 
ficially imposed by labor by demands for continually higher wages, if 
rigidities are imposed by Government by increased taxes — those all 
tend to interfere with the price regulated. 

The Chairman. Well, what specific would you suggest to the com- 
mittee for avoiding these results? 

Mr. NoTMAN. I would endeavor to develop such means as will con- 
tinue to enforce competition. 

The Chairman. What is your opinion with respect to the advis- 
ability of integration in the industry, that is to say, the acquisition 
of fabricating plants by producers? Should there be any separation 
of the two? 

Mr. NoTMAN. Very definitely I am of the opinion that if I were a 
producer of electrolytic copper, and I may say for the committee's 
information that I am a representative of the industry as well as 
consulting engineer — I have been on the board of directors of the 
United Verde Mining Co. for a number of years back, and have been 
concerned with production. As a producer, I would not go into the 
fabricating business. As a fabricator, I would not go into producing 
end of the business. 

The Chairman. And you say that would be your attitude now? 

Mr. NoTMAN. Yes. 

The Chairman. In present conditions? 

Mr. NoTMAN. In present conditions. 

The Chairman. Then that would imply that a producer who did 
not go into the fabricating business could, under present conditions, 
operate successfully? / 

Mr. NoTMAN. I know that he can. 

The Chairman. And it would also imply that a fabricator who had 
no production source could also operate successfully? 

Mr. Notman. If he is protected against arbitrary price fixation. 

The Chairman. Well, but is there such a thing as arbitrary price 

Mr. Notman. Well, there has been at times. I believe it is in the 
record — at least for one occasion. 

The Chairman. Well, but you have just testified that, speaking for 
yourself, you would now recommend a production concern not to have 
a fabricating outlet? 

Mr. Notman. Yes, that is right. 

The Chairman. Well, then, if that were your advice to a client who 
came to you seeking advioe, it would necessarily be based upon the 
conclusion in your mind that under the present organization of the 
industry, such a producer could operate at a profit? 

Mr. Notman. Well, I am looking further ahead than that, Senator. 
I hope that I have a long view of the picture, and the ultimate good 
of the industry, I believe, depends on the maintenance of competition. 

The Chairman. Well, would you say that there is or is not compe- 
tition in the industry now? 

Mr. Notman. Not as much as there was. 

The Chairman. And to what do you attribute that elimination of 


Mr. NoTMAN. The concentration of ownership, both horizontally 
and vertically. 

The Chairman. In other words, the integration of the companies 
and then their tendency to make national and international agree- 
ments or at least international agreements, as adverse to the present 
freedom of competition which you believe ought to be maintained? 

Mr. NoTMAN. In my judgment. 

The Vice Chairman. If you had a client and you advised him not 
to go into the production of the raw material, your advice would be 
sounder perhaps if his competitor was not in the production of raw 
material? In other words, you would want your client not to have to 
compete with somebody who was producing the raw materials and 
also fabricating? Do you have that in your mind? 

Mr. NoTMAN. I have this in mind, sir, that if there is a free market 
for hedging operations, there is very little difficulty in the independ- 
ent fabricators' protecting himself against fluctuation in the cost of his 
raw material. If no such market is av9,ilablo to him, he can get him- 
self in very deep water. 

The Vice Chairman. Now, do you think that answers my ques- 
tion? You answer my question by saying if there is a free market he 
can get along pretty well? 

Mr. Notman. Yes. 

The Vice Chairman. Now my question was this: Whether or not 
the position of the independent operator who doesn't produce the raw 
materials — who is a fabricator — would be better and safer if his com- 
petitor didn't have the advantage of producing the raw material also? 
That is a concrete proposition, but it gets right down to the heart of 
this inquiry, or part of it. 

Mr. Notman. Well, taking the long view of it again, I think he 
would be. 

The Vice Chairman. Weil, shorte%up your view a little bit in 
what you say. 

Mr. Notman. WeU, I think I wouldn't advise him' to leave his 
own last. 

The Vice Chairman. I understand that, but I am disposed to press 
this question so we can get it in the record — ^that is, if you. feel at 
liberty to answer the question, and that is in the maintenance of this 
competition which you seem to feel is essential in the long run, and 
probably in the present run, too, is that opportunity for free competi- 
tion as among fabricators disturbed 6y the fact or interfered with by 
the fact that maybe some of those fabricators also produce raw mate- 

Mr. Notman. I think it is. . 

The Vice Chairman. Well, that is what we are trying to get at. 

The Chairman. But that opinion is not so definite that it would 
prevent you from advising a producer at the present time to stay 
out of the fabricating business? 

Mr. Notman. No; I certainly would advise him to that effect. 

The Chairman. WeU, then, consequently, doesn't it follow that in 
your opinion the integration of the industry is not disadvantageous 
to such producer? I am frank to say to you, Mr. Notman, you don't 
seem to give me a clear view of what your actual opinion is, whether 
or not the integration of the industry actually has impaired competi- 
tion or whether it has not. 


Mr. NoTMAN. I can answer that very definitely, that I feel it has. 

The Chairman. Then it must be a disadvantage to the producer, 
that there is integration in the industry? 

Mr. Notman. I feel that way. 

The Vice Chairman. Well, let's get that straightened out. You 
are sort of see-sawing that thing. If it is a disadvantage to an 
individual producer to be integrated, then how does that man have 
an advantage over the nonintegrated producer of the finished com- 

Mr. Notman. I don't think he has any 

The Vice Chairman (interposing). That is what I understood your 
statement to be. 

Mr. Notman. has any advantage when the independent 

fabricator has a free commodity market on which he can hedge his 
purchase of raw material. I happen to have, Congressman, some 
figures on the earnings of the American Brass Co. Unfortunately I 
haven't them with me, but prior to the acquisition of the American 
Brass Co. by the Anaconda Copper Co., the American Brass Co. 
made money every year, regardless of the fluctuations in the cost of 
their raw material — they made money whether copper was high or 
whether cooper was low, because they were in a position to hedge their 
raw-material purchases. 

The Vice Chairman. I am being helped a good deal. I know 
about that hedging business myself. ^ I already Imow about that, but 
now, if we could hold to this one thing that we are considering, and 
that is this, and I am not going to pregs the question further than this 
at this one time: Here is A. He is an integrated organization. Bis 
producing the fabricated or finished commodities — producing the 
finished commodities. Now, is it your general notion that neither 
A nor B should be both in the production of raw materials and in the 
business of fabricating, as a matter of pubUc policy? 

Mr. Notman. Right. 

The Vice Chairman. That is right? But if A is the producer of 
the raw material, and the producer of the fabricated article, having 
his own source of raw material, is he or not at an advantage in his 
competition with B, for the oppc'tunity to sell the commodities which 
people put in their houses in the way of plumbing? 

Mr. Notman. Well, my answer is just what it was before, that I 
would not go into both ends of the business. 

The Vice Chairman. Well, we have heard that five or six times, 
but what I am trying to do is to get an answer to my question. If 
you want to answer it. 

Mr. Notman. Well, I would like to, but I don't understand the 
distinction between what you are asking and what I have replied. 

The Vice Chairman., Well, I asked a pretty simple question, I 

Mr. Notman. Well, let's tiy again. Congressman. 
The Vice Chairman. All right. A and B have commodities which 
they sell as plumbing that goes into a house. A is integrated and B 
is not integrated. A, therefore, has his own control of his raw material 
source. Those two people are competing for the opportunity to sell 
plumbing to go into a ^ven house. Would A have any advantage 
over B in that competition by reason of the fact that A had an inte- 
grated organization? 

124491 — 41 — pt. 25 18 


The Chairman. And under present conditions. 

The Vi^E Chairman. What I am talking about now. 

Mr, NovMAN. Under present conditions, I don't think he would 
have any advantage. 

The Vice Chairman. Now what are those present conditions? 

Mr. NoTMAN. Well, there is a free market at the present time. 

The Vice Chairman. If he has any advantage it is a potential 
advantage. Well, now that is a clearcut answer and even I can 
understand it, and I am much obhged to you. 

Representative Williams. Well, suppose his cost of production was 
considerably below the market price? 

Mr. NoTMAN. Now, you are talking about the producer of elec- 
trolytic copper. We were talking about fabricators. 

Representative Williams. Well, the man that I am talking about 
now is engaged in both of them — the man who is engaged in produc- 
tion and fabrication. Suppose his cost of production was below the 
free market price. Would not he have an advantage, then? 

Mr. NoTMAN. Certainly. 

Representative Williams. Well, he would have an advantage? 

Mr. NoTMAN. The man who has the low cost always has the 

Representative Williams. In other words, he would get his copper 
at the cost of production, while the independent* fabricator world 
necessarily have to buy it at the market price? 

Mr. NoTMAN. Well, if he can hedgis again — all he is concerned with 
is getting his cost of his operation back, plus what he regards as a 
reasonable profit on it. Now, if he can hedge himself against any 
fluctuation in the cost of his raw material, he is not concerned with it. 

The Chairman. Well, can a man or such an operator hedge under 
present conditions? 

Mr. NoTMAN. Well, there again. Senator, I can't answer cate- 
gorically because I don't feel that I know the facts. I know that 
prior to integration all of them did. 

The Chairman. Well, you see, Mr. Notman, frankly speaking, the 
impression that you have given me is this: You state the premise, 
that competition is a desirable condition and ought to be maintained. 
Then say that the integration of the industry and these various 
agreements, international and otherwise, which we have been dis- 
cussing are hostile to competition? 

Mr. NoTMAN. Yes. 

The Chairman. And then you say that imder present conditions, 
in which all of these circumstances which you have described as 
hostile to competition do exist, there is nevertheless a free market, or 
otherwise competition exists? 

Mr. Notman. Well, as I understand it, there are no organizations 
in operation at the moment. Senator. That is what I was referring to. 

The Chairman. Ah, I see. Well, now, when these organizations 
were in operation di(^ we have free, open competition? 

Mr. Notman. I don't think we did. 

The Chairman. So that you beUeve that the elimination of these 
organizations has tended to reestablish competition in this industry? 

Mr. Notman. I do. 

The Chairman. And that we now have competition in the industry? 

Mr. Notman.-- Yes. 


The Chairman. And that anything which would tend to revive 
those organizations would be adverse to pubUc interest? 

Mr. NoTMAN. Not only adverse to public interest but adverse to the 
interest of the companies themselves. 

The Chairman. Why adverse to the interest of the companies 

Mr. NoTMAN. Well, the automobile industry is probably — there 
probably is no industry where the competition is keener. Neverthe- 
less, it is the most prosperous industry that we have. In my opinion, 
if the three large manufacturers of automobiles got together and 
allocated markets and divided up the business, we would be pay- 
ing twice as much as we are for automobiles and th^ would be sell- 
ing for three times what they are selling for, and there would be a 
smaller volume of employment in the industry. 

The Vice Chairman. You think, then, that that old fellow who 
was sitting around a kerosene lamp or pine knot and reading or think- 
ing a little bit and deciding that competition was the life of trade, 
wasn't as big a fool as most of us fellows who fly around in flying 
machines now think? 

Mr. NoTMAN. I don't think he was any fool. 

The Chairman. Are there any other questions to be addressed 
to Mr. Notman? 

You have how many more witnesses, Mr. Scoll? 

Mr. Scoll. That is all I have on copper. I believe that Dr. 
Kreps has some more witnesses this afternoon. 

The Chairman. We have two more witnesses on the cartel hearing, 
do we not? 

Dr. Kreps. Three. 

The Chairman. What opportunity will there be to finish with them 
this afternoon? 

Dr. Kreps. I think we can finish only two this afternoon. 

The Chairman. I see. Well, thank you very much, Mr. Notman. 

Mr. Scoll. Before we recess, may I offer the article from which 
Mr. Notman read for the file? May I have that article? 

The Chairman. You want it for the file? It may be received and 
filed. It is not to be printed. 

(The article referred to was marked "Exhibit No. 2169-B" and 
is on file with the committee.) 

The Chairman. The committee will stand in recess until 2 o'clock. 

(Whereupon at 12:30 p. m., a recess was taken until 2 p. m. of the 
same day.) 


The committee resumed at 2:15 p. m. on the expiration of the recess. 

The Chairman. The committee will please come to order. Dr. 
Kreps, who is the first witness? 

Dr. Kreps. I call Dr. Amos Taylor of the Department of Com- 

The Chairman. Mr. Scoll is hot here this afternoon? 

Dr. Kreps. No. 

The Chairman. I should have made acknowledgment this morning, 
then, of the splendid service which he has performed for the com- 
mittee in the presentation of the copper industry. I think all the 
members of the committee felt that it was an excellent piece of work. 


Dr. Kreps. I want to add to that my own personal gratitude to 
David Scoll and Samuel Moment for the able way in which they took' 
charge of the copper portion of our cartel hearing. 

The Chairman. Mr. Taylor, do you solemnly swear that the testi- 
mony you are about to give in this hearing shall be the truth, the 
whole truth, and nothing but the truth, so help you God? 

Mr. Taylor. I do. 

The Chairman. You may be seated. 


" Dr. Kreps. Dr. Taylor, Mr. Chairman, is stricken with a cold and 
he would like to have his assistant also sworn in, who will be able to 
help him with the questioning. 

The Chairman. Mr. Dickens, do you solemnly swear that any 
testimony you may give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Dr. Dickens. I do. 

Dr. Kreps. I probably should preface the examination of Dr. 
Taylor by saying that we are at this stage resuming our consideration 
of cartels in general. We began with a general introduction, and then 
in order that the committee might see exactly how cartels or cartel- 
like organizations or activities are carried on, an historical and detailed 
examination was given to an industry in which, in accordance with the 
weight of opinion on cartel literature here and abroad, many of the 
aspects of cooperation are best exhibited. 

The purpose of Mr. Taylor's testimony is to indicate the extent to 
which a circumstance which Mr. Kelley referred to in his testimony is 
present in other industries in our economy. You will remember that 
Mr. Kelley stated that the originating factor in the formation of Copper 
Exporters Association was protection against the Metallgesellschaft, 
the buying cartel in Europe. Mr. Taylor is going to discuss the inter- 
national impact of international industries in general, including 
cartelized industries, upon our industry. 

For the convenience of the committee, a summary of his testimony 
has been prepared, but Mr. Taylor prefers to answer questions and 
state the points made in the summary in his own words. Dr. Taylor. 


Dr. Taylor. My statement relates primarily to the results of a 
special study which we have recently completed in the Finance Divi- 
sion of the Bureau of Foreign and Domestic Commerce relative to the 
foreign investors' interest in American enterprise, particularly insofar 
as that foreign interest represents control and majority ownership in 
such American enterprises. 

We find that foreign companies or individuals resident in foreign 
countries own or control a total of 1,172 companies, and branches, in 
American enterprises. 

The Chairman. Dr. Taylor, may I interrupt you to ask — my atten- 
tion was diverted 'for a moment — whether you were requested to give 


a brief summary of your service in the Govermnent and your experi- 

Dr. Taylor. I might say, Senator, that the nature of this study is 
very much like that of studies that we have been making on a con- 
tinuous basis. 

The Chairman. You didn't hear my question. Did you ask bim? 

Dr. Kreps. No; I did not. 

The Chairman. Well, Dr. Taylor, what position do you hold m the 

Dr. Taylor. I am sorry. I am Chief of the Finance Division in the 
Bureau of Foreign and Domestic Commerce. 

The Chairman. How 'ong have you held that position? 

Dr. Taylor. I have just recently been appointed as Chief; for 8 
years I was Assistant Chief. 

The Chairman. How long have you been in the Department of 

Dr. Taylor. I have been in the Department of Commerce since 
November 1930. 

The Chairman. How did you enter the Department? 

Dr. Taylor. I entered the Department through the regular Foreign 
Service examination, and was appointed to a position in Washington. 
The nature of my work happened to be such as to keep me there. I 
made no request at any particular time to enter the Foreign Service. 

The Chairman. You entered by way of examination, civil-service 

Dr. Taylor. It was the regular Foreign . Service examination. I 
am not quite sure exactly how that would be catalogued under the 
civil-service rules as of that time. 

The Chairman. What was your previous training? 

Dr. Taylor. For 10 years prior to my coming to Washington I was 
on the faculty of the Wharton School of the University of Penn- 

The Chairman. Very well. 

Dr. Taylor. The total amount of investment which foreign com- 
panies had at the end of 1937 in these 1,172 companies and branches 
was approximately $1,883,000,000. In this total the manufacturing 
group represents the largest single industrial type of enterprise. 

The Chairman. What is the source of these figures? 

Dr. Taylor. Our figures have been collected from various sources. 
Some of them are secured from reports of other Government depart- 
ments. We are dependent to a very large degree for our information 
on special reports from the various corporations concerned, with which 
we have developed through the years of our work in the Finance 
Division a relationship whereunder every year certain statistics are 
submitted to us with the understanding that insofar as they relate to 
the individual companies they be held confidential. With that kind 
of cooperation we have been able to continue what we consider fairly 
complete studies of foreign investments of various kinds in the United 

The Chairman. And we may regard these as substantially accurate 

Dr. Taylor. I would consider them substantially accurate. Senator. 

The Chairman. The reason I asked that question is that sum 
which you give, namely, $1,882,603,000, seems to be considerably 


smaller than tlie estimate which has currently been placed upon 
foreign investments of this character in the United States. 

Dr. Taylor. Well, I think that there is a general tendency for the 
more popular estimates of foreign investments in the United States 
as well as American investments abroad to be reported higher than 
they really are. This, of course, represents only one type of foreign 
investment in the United States. The total foreign interest in tMs 
country at the present time is possibly close to $9,000,000,000, or 
between $8,000,000,000 and $9,000,000,000, but the remainder is 
represented by other types of investments, including approximately 
$3,000,000,000 in hsink balances that are foreign owned. 

The Chairman. What other types? 

Dr. Taylor. Another very important category is one closely re- 
lated to this group except it does not represent control, namely, the 
holding by foreigners of many small blocks of stocks of corporations 
such as those whose shares are listed on the New York and other stock 
exchanges. The total of that type of holding here is a very important 
item, running possibly between 2}^ and 3 billion dollars. 

The Chairman. Then this figure purports to deal solely with invest- 
ments which constitute control of 1,172 companies? 

Dr. Taylor. That is correct, Senator. 

In this particular group, a total investment of $729,000,000 repre- 
sents controlling investment in manufacturing industries as distinct 
from other types of business. This represents, therefore, about 
40 percent of the total. 

Dr. Taylor. Other important items or groups are, first, the 
banking, insurance, and other financial types, all in the aggregate 
representing an investment of $412,000,000. There are others that 
are relatively important, such as petroleum, transportation — which, 
incidentally, is represented primarily by the controlling interest in 
railroads in this country on the part of the two Canadian systems — 
and then various distributive enterprises have substantial invest- 
ments here. 

I have here a table which shows the total figure divided by industrial 
groups, the group extending far beyond the few that I just mentioned. 
I shall be glad to have this table prepared for inclusion in the record, 
if desirable. 

Dr. Kreps. I suggest that this table be included in the record. 

The Chairman. It may be received. 

Dr. Kreps. And given exliibit No. 2170. 

(The table referred to was marked "Exhibit No. 2170" and is 
included in the appendix on p. 13557.) 

Dr. Taylor. Now, when we take this total investment and examine 
it by countries, that is on a geographical basis, we find that the 
United Kingdom share is the largest, representing a total investment 
of $833,000,000, or about 44 percent of the total. The Canadian 
share, although considerably smaller than that of the United Kifigdom 
takes second place with a total investment of $463,000,000. The so- 
called direct investments of the Netherlands amount to $179,000,000 
and are third in order of size by countries. 

It might be interesting to note that taking all European countries 
together, the total amounts to $1,337,000,000. It might also be 
added that exclusive of Europe, Canada, and Japan, the so-caUed 
direct investments in the United States held by foreigners are relatively 


small, although a large number of other countries are represented to 
some degree in these holdings. 

In connection with the geographic distribution of these investments, 
we have two tables that have been prepared with a view to showing 
tliis distribution in some detail — one table Foreign Direct Invest- 
ments in the United States, End of 1937, showing the amount that 
each country has in the United States, and the other one, called 
Foreign Direct Investments in the United States by Countries and 
Industries, showing the totals for the important countries broken 
down by types such as manufacturing, distribution, transportation, 
pubUc utihties, petroleum, mining and finance. 

Dr. Kreps. Would you like to submit these? 

Dr. Taylor. I would like to submit these two tables for the record 
by way of amplifying my remarks before the committee. 

The Chairman. The tables may be received. 

Dr. Kreps. The exhibit marked 2171 reads, "Foreign Direct 
Investments in the United States in 1937," and exhibit marked 2172, 
"Foreign Du'ect Investments in the United States by Principal 
Countries and Industries." 

(The tables referred to were marked "Exhibits Nos. 2171 and 2172" 
and are included in the appendix on pp. 13558 and 13559.) 

Dr. Taylor. In order that we may examine these investments from 
the standpoint of the size of the companies concerned, we made a 
special examination of 651 industrial and commercial enterprises 
which are foreign-controUed, the total representing an investment of 
$1,347,000,000. In this group, 37 companies, that is, companies in 
this country, foreign-controlled, represent each an investment qf more 
than $10,000,000. The total investments of these companies repre- 
sent 64 percent of the total of the 651 relatively large companies 

An examination of the foreign holdings of the common stock of these 
companies as examined against the interest in the total assets of these 
companies shows that 81 percent of the common stock is entirely 
foreign owned, whereas only 63 percent of the total capitahzation is 
foreign owned, simply indicating that in these companies controlled 
from abroad, the interest of the foreign owners ran more nearly to 
total ownership in the common stocks than in the case of the preferred 
shares and the bonds. 

We find that the mterest in American enterprises is fairly well 
scattered throughout the American economy. There are certain 
types of industries in which there is, of course, a higher degree of 
control than in others. When we examine the degree of control in 
particular types of industries by individual countries, we find sUght 
differences. The British interest, for example, is' centered to an 
important degree in the manufacturing field. The Canadian is 
scattered, except perhaps for one special situation, namely, that of the 
railroads rumiing betw^een the eastern part of Canada to certain parts 
of our eastern seaboard, and the other roads running out of central 
Canada into the Chicago area, roads that are controlled by the two 
Canadian systems. Apart from that, the Canadian interest is repre- 
sented here more or less by a relatively large number of moderately 
sized companies. 

Now, I haven't gone into any detail with regard to these, with more 
or lees of the thought that there may be some questions on them. 


The Chairman. I observe from examining this table No. 3, which 
you have presented, that with the exception of the United Kingdom, 
Canada represents by far the largest block of any foreign ownership 
in the United States. 

Dr. Taylor. Yes; that is true. I should like to suggest, in con- 
nection with your questions that are based on these tables, if I may, 
I should like to have Dr. Dickens answer the questions since he 
directed the study and is much more familiar with the statistics. 

The Chairman. Well, he. may answer any question that he may 
desire to answer. To what extent do these figures represent merely 
ownership by individuals in a particular concern, and to what ex- 
tent, if you know, do they present ownership by organizations in 
American corporations? 

Dr. Dickens. I don't have the exact figures on that, but I don't 
believe that more than, say, 10 percent of this investment would be 
represented by individual ownership; that the balance of 90 percent 
would be represented by organized or institutional ownership, such 
as a corporation. 

The Chairman. Any other classification besides corporations, when 
you speak of institutional ownership? 

Dr. Dickens. No. That would be aU a corporation, an insurance 
company — they are corporations. 

Dr. Kreps. Are there any companies within foreign cartel organi- 
zations that have large investments in the United States? 

Dr. Dickens; I should say that there were very few companies 
within cartel organizations that have investments here, with the 
exception of a few of the relatively large ones. 

Dr. Kreps. Do you know which? Could you give examples of 
some large enterprises that are subsidiaries of foreign units? 

Dr. Dickens. I should say that in the rayon industry, there un- 
doubtedly is some cartel relationship. That would be the principal 
one. Possibly potash might come in that same category. 

Dr. Kreps. Does the control of American enterprises by foreign 
corporations involve any considerable control of production in this 

Dr. Dickens. Generally, no. There are a few special cases, how- 
ever, where a fairly large part of the production is in the hands of 
foreign-controlled companies. 

Dr. Kreps. Due to patents or due to control by a special company 
set up over here? 

Dr. Dickens. In some cases, I think it might be due to patent 
control, at least at one time or other in the history of an industry. 
In other cases it is a matter of gradual development of firms con- 
ducting the same type of business that they had abroad. 

Dr. Kjytips. Now, as I understand it, there are a few cases where 
fairly large parts of the output in this country are produced by the 
United States subsidiary of a foreign enterprise, is that correct? 

Dr. Dickens. That is right. 

Dr. Kreps. Could you give examples? 

Dr. DicKESfs. Well, I have mentioned the rayon industry. I 
think that would be true of the production of whisky in this coun- 
try, the production of potash and -borax, and true in a lesser degree 
of the production of dyestuffs. Most of the other — well, there 
might be some specialized patented products sucb as those, say, in 


the medicinal field, that are largely controlled by foreign companies, 
but those would be specialized products. Taldug the general field as 
a whole, the production probably does not run more than 1 to 5 
percent of the total American production. 

Dr. Kreps. You have been making some tabulations, have you, 
in various industries of the extent to which production in this country 
is controlled by foreign subsidiaries? 

Dr. DioKENs. We tried to measure at least aU of the principal 
cases. It was not possible at all times to get production figures, but 
sometimes we could substitute sales or productive capacity. In the 
rayon industry, for example, we had productive capacity of the plants 
in the United States, which showed about 55 to 60 percent under 
foreign-controlled enterprises. 

Dr. Keeps. How many such foreign-controUed enterprises in the 
rayon industry are there in the United States? 

Dr. Dickens. There are five. In the whisky industry, I think 
the percentage of production was about 37 percent. On the other 
hand, probably 90 percent of the borax produced in this country is 
produced by foreign-controlled enterprises, and 75 percent of the 
potash is produced by such enterprises. 

It should be noted here, however, that these companies are not 
wholly owTied by foreign companies, but may have American interests 
associated with them, in some cases in form of fairly substantial 
holdings. Dyestuffs sales by foreign-controUed companies con- 
stitute 30 percent of the total sales of dyestuffs in this country. 

The Chairman. Well, how many of all of these corporations thus 
controlled — 1,172 — are actually forei^ corporations? 

Dr. Dickens. They are all American corporations, that is, in- 
corporated under American law, but the stock is held by foreign 

The Chaibman. Well, how many of them are corporations organ- 
ized under American law, under American control? 

Dr. Dickens. Ndne of them. 

The Chairman. They were all, when organized here, under foreign 

Dr. Dickens. That is right. 

The Chairman. What relation does this total investment mentioned 
by Dr. Taylor, namely, $1,882,603,000, bear to the total investment 
of this character in the United States? 

Dr. Dickens. This is the total investment of this character. The 
total foreign investment in the United States, as Dr. Taylor said, was 
somewhere around $8,000,000,000 

The Chairman. No, you misunderstood my question. What 
proportion of the total investment in the United States of this char- 
acter, that is to say, in this sort of enterprise, is foreign-owned? 

Dr. Dickens. That would involve, if I understand you correctly, a 
knowledge of the total investment in American corporations. 

The Chairman. That is right. 

Dr. Dickens. That figure I do not have. It would be a very small 
percentage, however, based on production figures. It would not run, 
on the whole, probably more than 5 or 6 percent. 

The Chairman. Well, this is only a fraction of the total investment 
in the United States? 

Dr. Dickens. A very small fraction, not more than 5 percent. 


The Chairman. How significant, in other words, is this figure which 
Dr. Taylor has given us? 

Dr. Dickens. It is significant chieHy in showing the foreigner not 
to have any very substantial control oi our American industry. 

Mr. O'CoNNELL. But they do have very substantial control over 
particular industries? 

Dr. Dickens. Over individual groups, individual commodities. 

The Chairman. In the beginning of our industrial development, by 
far the greatest proportion of capital investment was foreign capital 
in the Imited States? 

Dr. Dickens. That is quite true. 

The Chairman. So that this may represent the smallest percentage 
of foreign ownersliip in the history of the United States? 

Dr. Dickens. I don't doubt it at all. I would like to sa^, however, 
that in the early history of the United States, there was still consider- 
able concentration of foreign capital in particular industries, say, in 
our railroad industries for example, and that certain other branches of 
the American industries were not greatly affected by forei^ capital. 

The Chairman. Well, there is much less foreign capital in our 
railroads today then there was 50 years ago. 

Dr. Dickens. Much less. 

The Chairman. Proportionately. That is true, I suppose, of 
almost every other industry, is it not? 

Dr. Taylor. Well, perhaps not in the same way that it applies to 
the railroad industry, but I certainly think it is safe to say that with 
the exception of these Canadian-owned subsidiaries here the foreign 
interest in American railroads is confined entirely to the ownership of 
small blocks of stocks in particular roads, but do not in any way repre- 
sent control of the roads, and the same, I think, holds true by and large 
in other types of industry, although as has already been indicated, in 
such industries as rayon and perhaps a few others you do have some 
degree of concentrated foreign ownership. 

The Chairman. By and largfe, it may be said very accuratelyiJthat 
the American economy is now freer from foreign control and owner- 
ship than at any time in history. 

Dr. Taylor. I think that is true, and of course we need to remember 
that since the World War the United States has gone through a period 
of its history in which it was really a lender rather than a borrower, 
and that is incidentally one of the reasons why during the period of 
the utilities development in the United States you did not have the 
foreign controlling interest coming in that you had coming in during 
the period of railroad building when we happened to be a debtor rather 
than a creditor. I think it is the changes of the last twenty years 
that have definitely moved us away from the foreign control. 

The Chairman. In other words, we are moving in the direction of a 
much more independent economy so far as the world is concerned. 

Dr. Taylor. I think that is correct. 

The Chairman. And there is no reason to fear, then, that foreign 
controlled cartels are likely to dominate our economy. 

Dr. Taylor. I think that is correct. 

Mr. O'Connell. You are using the word "control" as not synony- 
mous, I take it, with 51-percent ownership. 

Dr. Taylor. I am not sure that we have for statistical purposes 
been able to adhere to a very strict definition of control. I think 


perhaps it mi^ht be interesting in this connection if Mr. Dickens 
would briefly indicate how we have in practice determined when a 
company fell within the scope of our compilation. 

Dr. Dickens. In general, 51 percent might be taken as the rule, 
but in cases where we found that the foreign ownership was concen- 
trated in large blocks and the American ownership was widely dis- 
tributed, if that foreign ownership was as low sometimes as 30 percent, 
we would still put the company in the list of foreign control, provided 
the foreign ownership was concentrated in blocks large enough to 
indicate a very substantial voice in the management of the American 
company. Those cases are a relatively small part of the total figure 
mentioned in here in any case. Just how much constitutes control 
can't be a hard and fast rule. 

Mr. O'CoNNELL. I realize that is so as a matter of practice. I 
wanted to bri^Qg out, if I could, just what sort of measuring stick you 
did use. 

Dr. Dickens. The rule has been a flexible one. 

The Chairman. If there are no other questions to be addressed to 
Dr. Taylor or Dr. Dickens, the witnesses may stand aside. 

Representative Williams. I think it would be very helpful if we 
could have a little more elaboration on the question of these foreign 
investments outside of what is covered here. As I understood, you 
say that amounts to something like $8,000,000,000. 

Dr. Taylor. It would amount close to that, I think. It depends of 
course somewhat on what methods are employed in determining the 
value of, let us say, these many small, blocks of common shares held 
by foreigners. In this particular connection I don't believe that the 
statistics on foreign holdings here that do not represer^t foreign 
control would be entirely pertinent. We have made rather extensive 
studies covering the whole field of foreign investment interests in the 
United States. Without having any of the results before me, I would 
be somewhat hesitant to elaborate at any length upon them. I can 
say this by way of throwing the approximate figures into relief, that 
as I indicated a little while ago in response to Senator O'Mahoney's 
question, of these total foreign holdings here of about nine billion, at 
least tluree billion is represented by deposits mostly of foreign banks 
with American banks. 

Those represent, no doubt, in substantial part, although not entirely 
so, the flight of foreign capital to the United States in recent years 
that has come here for safety. The accumulation of foreign-owned 
stocks in American corporations in small blocks purely for investment 
purposes is one that dates back many years. During the World War 
a substantial amount of the foreign holdings had been liquidated. 
Possibly two billion, if I may guess at a figure — perhaps Mr. Dickens 
can correct me —was left here and then was gradually built upon, par- 
ticularly in the last 7 or 8 years, when due to uncertainties abroad 
capital moved out of investment in foreign countries and moved to the 
United States, especially in 1935 and 1936, presumably to take advan- 
tage of what was then a definite upward movement in business in this 
country. In addition to that there is a foreign ownership of American 
bonds which possibly runs $700,000,000 — I am merely giving my best 
guesses at the moment — and there are holdings of preferred shares 
which would run perhaps another three, four, perhaps five hundred 
million dollars, and then miscellaneous investments, that is mis- 


cellaneous in the sense that we are unable to catalog them very satis- 
factorily, not the least important item of which is represented at least 
for our purpose by holdings in trust funds where the beneficiaries live 
abroad. That item alone might conceivably run to $450,000,000 or 
$500,000,000. Our estunate as of the end of 1938, which we have 
published in an official report, shows these figures as follows. I find 
that a few of them are sUghtly less than those I gave you a moment 
ago, partly because of changes that took place during the year. 

The direct investments here are shown at the end of 1938 as 
$1,685,000,000. The common stocks on a market value basis, that 
is those that do not represent control but are simply held in small 
amounts by foreigners 

Repxresentative Williams (interposing). Just a moment. In order 
that I may understand you, what do you mean by direct investments? 

Dr. Taylor. That is these controlling investments. We make the 
distinction between these and common stocks owned in small blocks. 
A British investor might conceivably own 50 shares of General Motors 
and another foreign investor another block of a given stock; all those 
in the aggregate, not representing control in any industry here, total 
on a market value basis at the end of 1938 about $2,250,000,000. The 
preferred stocks on a par value basis I find here are somewhat less 
than the figure I suggested. I think I suggested four or five hundred 
miUion. As a matter of fact, that was fairly close as a range estimate. 
It is $425,000,000. The bonds we showed on a par value basis at 
the end of 1938 at $580,000,000, and then miscellaneous investments, 
including these trust funds I referred to a moment ago were shown at 
$750,000,000. That total is $5,690,000,000. If you add to that these 
foreign owned bank balances and the small amount of brokerage 
balances, you have a figure that runs, as I said a little whUe ago, 
close to $9,000,000,000. 

That is the composition of the total. Now our testimony before 
the committee is centered on that first group, the so-called direct 
investments representing foreign control in American companies. 

Mr. O'Connell. What about gold? Is there gold in substantial 
quantity held here for the account of foreign governments? 

Dr. Taylor. Well, the actual amount held is a public figure. We 
reported it recently in a release on gold exports and imports. I don't 
recall the exact figure. I think at the end of 1939 the amoimt of 
gold held here under earmark for foreign account was just slightly 
less than one biUion. It was fairly close to $1,000,000,000. 

The Chairman. Any other questions? If not, we are very much 
indebted to you, Dr. Taylor, and Dr. Dickens. Will you call the 
next witness, please? 

Dr. Kreps. Dr. Clair Wilcox. 

The Chairman. Dr. Wilcox, 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 vou God? 

Dr. Wilcox. I do. 



Dr. Kreps. Dr. Wilcox, for the purpose of the record, will you state 
your full name, please, and address? 

Dr. Wilcox. Clair Wilcox, Swarthmore, Pa. 


Dr. Kreps. How long have you been at- Swarthmore? 

Dr. Wilcox. I have been professor of economics at Swarthmore 
College since 1927. 

Dr. Kreps. I believe you have held positions in various govern- 
mental bodies? It seems to me I remembef that you had a position 
with the Wfekersham Commission ; is that correct? 

Dr. Wilcox, I was director of research for the National Com- 
mission on Law Observance and Enforcement; I served with the 
N. R. A. as a special advisor to the Consumers Advisory Board; as a 
member of the General Code Authority; as a member of the Advisory 
Council; and after the Schechter decision as Director of the Code 
Research Studies in the Division of Review. I served with the Social 
Security Board in 1936 as a consulting economist. 

Dr. Kreps. You have heard the testimony on cartels. What do 
you understand by cartel-like arrangements? 

Dr. Wilcox. Well, I should follow the — in a broad sense — definition 
that was introduced earlier in the hearings in the League of Nations 
committee report. Cartels are defined as associations of independent 
undertakings in the same or similar branches of industry established 
with a view to improving conditions of production and sale. Dr. 
von Beckerath, who was quoted in the earlier hearings, defines a cartel 
as a voluntary agreement of capitalistic enterprises of the same branch 
for a regulation of the sales market, with the view to improving the 
profitableness of its members. 

Dr. Keeps. Now we have just had testimony indicating that the 
existence of cartels in this country can be but little stimulated by 
involvement, direct or indirect, in foreign cartel organizations. Have 
there been purely domestic cartel-like developments in the United 

Dr. Wilcox. In the United States we have not called these arrange- 
ments cartels, but there have been and are in this country arrange- 
ments that are cartel-like in nature, and to which the word cartel 
might well be applied. 

Dr. Keeps. How far back do they go? 

Dr. Wilcox. Well in the nineteenth century there were a number 
of pooling arrangements, formal agreements fixing uniform prices, 
limiting output, and sharing inarkets by allocating sales quotas or 
assigning separate territories to the participants, enforced with pro- 
visions penalizing violations, or provisions for the sharing of profits. 
These were used in the sale of coal, cordage, cotton thread and yam, 
glass bottles, gunpowder, iron and steel, meat, nails, naval stores, 
petroleum products, salt, sugar, tobacco, whisky, and other goods. 
In general the so-caUed pool was abandoned after the decision of the 
Supreme court in the Addy stone Pipe case in 1899. 

Dr. Kreps. Was there a survival of such cartel-like arrangements 
after this Supreme Court case? 


Dr. Wilcox. The most significant development in the twentieth 
century in this connection appears to be the growth of the trade 
association. There are in the United States now some 2,000 national 
trade associations, or were at the end of 1938. 

Trade associations are Associations of sellers of the same product 
for common action. They may be. incorporated or unincorporated. 


They do not. themselves produce or sell goods or make profits. 
They exist to serve their members. Members are free to enter or 
leave the association. They arc administered by governing boards 
elected by their members, the detailed administration being in the 
hands of a paid secretary and staff. They are financed by dues paid in 
proportion to output, sales, capital, pay roll, or some such standard. 
The association cannot compel the collection of dues. The member- 
ship and contribution are voluntary. The strength of trade associa- 
tions in various industries will depend upon the character of the 
industry, the number of firms in the industry, their relative size and 
whether one or a few of them are dominant. 

Trade associations developed in the United States during the latter 
part of the nineteenth century. At that time they were either purely 
social arrangements or clandestine agreements. Their growth was 
greatly stimulated after 1912 by the enimciation of the rule of reason 
in the Standard OH case, and by the publication of a book called The 
New Competition, by A. J. Eddy, proposing the development of a 
price reporting plan. They have had their greatest growth durmg 
the period of the first World War and during the hfe of the N. R. A. 

The cooperative activities carried on by trade associations have 
included such things as simplification and standardization, cooperative 
industrial research, the interchange of patent rights, joint advertising, 
joint purchasing, mutual insurance, traflSo information, credit and 
collection activities, joint representation before Govermnent legis- 
lative or administrative bodies, common labor relations activities, 
commercial arbitration, and so on. This activity in general does not 
threaten independence of action of the individual members of the 
industry as to policy with reference to production or price. 

It was said, however, in 1776 by Adam Smith that — 

people of the same trade seldom meet together even for merriment and diversion, 
but the conversation ends in a conspiracy against the public, or in some contrivance 
to raise prices. 

That is from The Wealth of Nations. 

Arthur Bums in his book on the Decline of Competition says that 
the collection and dissemination of information likely to affect the 
production and price policy of members have been the core of trade 
association activities. The most important types of activities are 
the cost-accounting activities, the statistic9,l activities and the open- 
price reporting activities. 

Trade associations have characteristically provided for the stand- 
ardization of forms for the calculation of costs. According to Pro- 
fessor Burns the establishment of uniform systems is expected to 
eliminate price-cutting arising out of the ignorance of sellers. More 
generally cost accounts are a means of suggesting a minimum price, 
it being assumed that prices should never fall below costs of produc- 

Dr. Kreps. Are you suggesting that some of these activities may 
result in the equivalent of what we would call a price cartel? 

Dr. Wilcox. That is the suggestion that I should like to develop. 
Trade associations go on to standardization of methods of calculating 
costs, establishing the prices at which raw materials are to be included, 
or the treatment of overhead. The next step is the standardization 
of the amount of profit included in costs. As Bums says, the resulting 
figure then becomes a desired selling price. They may go on from 


there to the pubhcation of an average cost for the whole industry. 
According to Bums the average cost has served as a cost which should 
be adopted by members in place of their own separate calculations, 
and is used as the basis of calculating a selling price by the addition 
of the desired rate of profit. 

This leads to the inclusion of a profit element in average costs. 
Bums says: 

There still remains a possibility of differences in selling price, owing to differ- 
ences in the amount of profit added to cost, and some associations have taken the. 
final step and included an allowance for profit in the so-called average costs. 
Average costs then become merely a suggested selling price, uniform for all and 
provide a means by which to define and detect price-cutting and a stimulus to 
attempts to eliminate it. 

There may finally be pressure on individual sellers to force them to 
adhere to the recommended common cost figures, either by recom- 
mendations in trade-association publications, by resolutions passed 
at trade-association meetings, or by persuasion applied by trade-asso- 
ciation oflScials. 

The statistical activities involve publishing statistics of the volume 
of production which may show output as a ratio of capacity and 
compare it with a normal ratio, or may compare output with orders 
or shipments, or may compare output with that in a normal period 
in the past. The consequent ordering of production amounts, accord- 
ing to Burns, to adapting production to demand and avoiding the 
accumulation of unsold stocks. It is implied that when demand de- 
clines there is only one proper response, viz., an equal reduction of 
output. Associations may go on to compare changes in the volume 
of one member's output with changes in the volume of another, and 
q noting Biuns again : 

These calculations are aimed at deterring the firm whose sales have been falling 
from attempting to increase its sales by increased sales efforts or price-cutting at 
a time when the sales of all firms are falling. Such ah interpretation of the sta- 
tistics must tend to fix the distribution of business between firms. Insofar as 
price-cutting is deterred when business falls off there is also a tendency to maintain 
unchanged prices. 

Sometimes statistics of inventories are published. Bums says these 
statistics are likely to be used as a guide to production policy, pro- 
duction being diminished when stocks are accumulating and increased 
when stocks are falling. The existing price of the product tends to be 
maintained and production adjusted to changes in demand at the un- 
changing price. Statistics of unfilled orders may be published. 

The response to a decline in the total of unfilled orders may be a 
reduction of output for the purpose of maintaining prices. Statistics 
of productive capacity may be published arid the presence of a large 
quantity of unused capacity may deter existing firms from expanding 
their equipment and new enterprises from entering the field, even 
though it might be possible to put the equipment to work at a lower 

The third major type of activity of the associations is the open price 
reporting activities. It is argued that open price reporting may 
operate to increase competition in a trade and indeed it may, under 
certain circumstances: If information is made available to buyers 
so that one buyer discovers that two sellers are selling at different 
prices and he can hunt up the seller who is selling at the lower price. 
If pressure cannot be put on a firm reporting a low price in order to 


get the firm to raise its price, because firms are not identified or the 
reporting agency is a confidential agency, impartial as among sellers, 
or where there are many sellers in the industry and no one dominates 
the industry, and finally if sellers report prices for a past period and 
not for the future and are free to change them when they wish. 

Under these circumstances I say it is possible that open price re- 
porting may operate to increase competition in a trade. On the 
other hand, it may operate under other circumstances 

The Vice Chairman (interposing). I didn't catch that last. Open 
price what? 

Dr. Wilcox. An open price reporting system may operate to make 
a trade more competitive. 

The Vice Chairman. You mean if each seller reports his price, or 
if some agency reports the average price, or the prices in detail? 

Dr. Wilcox. Each seller reports his prices to the agency; the 
agency reports the prices offered by sellers without identifying the 
sellers, reports the range of prices offered by all sellers. 

The Vice Chairman. That may result in what? 

Dr. Wilcox, That may result in a more competitive situation in 
the industry than would exist in the absence of such a price reporting 
system — if that information were not otherwise available. 

The Vice Chairman. You mean if a person found that a given 
article was selling from a dollar and a half to two and a half, that it 
might stimulate business? 

Dr. Wilcox. He might hunt for the man who was selling it at a 
dollar and a half, and if other people who were selling at more than a 
dollar and a half discover that they were not getting the business, 
they might lower their prices in order to get the business. 

The Vice Chairman. Why does that obtain in practice? Where 
is that stimulus ever to be observed ? 

Mr. Henderson. Isn't the stock market about the best example o^ 
it? That is where a number of bids are posted and there is a constant 
changing of the bid to make a price. Isn't that the best example of 
a real market where prices that sellers will take are posted? 

Dr. Wilcox, Or where bids for commodities are posted. 

The Vice Chairman. You think that is an illustration of what you 
are talking about, a fellow goes in and bids on a fluctuating or active 
market and he buys at a lower price and he thinks he can sell the 
stuff again? 

Dr. Wilcox. The man wiU buy in th stock market at the lowest 
price at which anybody will sell. 

The Vice Chairman. That is a thing you wouldn't have to support 
by argument, isn't it? 

Dr. Wilcox. And that is what he will do under an open price re- 
porting system, also. 

The Chairman. We are discussing trade associations. 

The Vice Chairman. Anybody does that; nothing you have dis- 
covered is remarkable about that, is there? People usually buy 
where they can get it the cheapest? 

Dr. Wilcox. That is right. 

The Chairman. The witness isn't really discussing that; he is 
discussing the operations of trade associations, as I understand it. 

Dr. Wilcox. Yes, sir. 


The Chairman. And one of the manifestations or activities carried 
on by trade associations is this open price reporting? 

Dr. Wilcox. Yes, sir. 

The Chairman. Now can you give us an illustration of that and 
how it operates to stimulate competition? 

Dr. Wilcox. What I was saying- was that it is argued that it might 
operate to stimulate competition under certain circumstances. 

The Chairman. Then do you say, pardon me Congressman, that 
it does so react, in your opinion, from your studies? 

Dr. Wilcox. It might conceivably. I should be at a loss to give 
you specific illustrations of open price reporting systems that have in 
fact done so. 

The Vice Chairman. Let me ask you this question. In practice, 
do people belong to and sustain trade organizations which publish 
prices cheaper than they are able to meet, speaking generally, lower 
than they are able to meet? 

Dr. Wilcox. Well, I suppose if the prices in an industry are lower 
than a firm is able to meet, it has to drop out of business, and there- 
upon it does not sustain the trade association. 

The Vice Chairman, What I am trying to get at is the practice, 
do these trade associations by reason of the prices which they publish 
tend to stimulate competition? 

Dr. Wilcox. As a generalization I should say no. 

Mr, Henderson. I think, in looking ahead at your outline, when 
we get into the other provisions that are introduced in the open 
price associations it will be evident that the trade associations' main 
interest in open price is not competition. 

Representative Williams. Let me see that I understand. I 
understood you to start out v/ith the premise that the argument is 
made that open price reporting stimulates competition, and you pro- 
pose to show that perhaps that wasn't the situation? 

Dr. Wilcox. That is right. 

Representative Williams. That is what I thought you started into 

The Vice Chairman. I was just asking about this. 

Dr. Wilcox. Under other circumstances the operation of an open 
price reporting system may tend to reduce competition in an industry. 
This would be the case where the information was available only to 
sellers and not to buyers, where the jBrm reporting the low price was 
identified in the reports by name or by symbol, or revealed to com- 
petitors in the field by the reporting agency, so that it might thereupon 
be possible for one seller to exert pressure on another to raise his 
price, or where the price reporting was combined with an average 
cost guide to price policy and the trade association officials should 
apply pressure to prevent the filing of prices below the price that 
covered the standard cost formula. 

The Vice Chairman. How often do you find that these trade 
associations bring pressure on somebody to lower their prices? 

Dr. Wilcox. I doubt if in a majority of cases they do bring pressure 
on people to lower their prices. 

The Vice Chairman. Would you say almost a majority that they 

Dr. Wilcox. I am not sure that I understand your question. 

124491— 41— pt. 25 10 


The Vice Chairman. You say you doubt that in a majority. You 
see that could be 45 percent, I believe, even more, maybe 49 percent. 
You think probably that approximates the percentage of cases in 
which they bring pressure to bear on their members to lower their 


Dr. Wilcox. I should say if pressure is applied it is more likely to 
be in the other direction. 

Mr. Henderson. Let me ask a question. Now, there is a standard 
volume, as you know, on open price associations, and then there is 
Bums' book on the decline of competition; and then there was the 
N. R. A. experience. I tEonk you are "familiar with all of them. Is 
there a single case recorded in any of the literature on open price trade 
associations where the pressure was brought to reduce prices? 

Dr. Wilcox. Not to my knowledge. 

Mr. Henderson. Not to mine, either. 

The Vice Chairman. Then the chances are probably it wouldn't 
even be 49 percent? 

Dr. Wilcox. I think that is a safe statement. Or finally, if seUers 
are bound to adhere to the prices which they report until they file a 
new price, again the effect of the system would be toward lessening, 
rather than increasing competition. There is nothing in the set-up 
that gives any assurance that statistical reports on costs, production, 
inventories, orders, capacity, or prices will not be manipulated in order 
to raise or maintain prices. 

These associations engage also in standardization of terms of sale. 
This operates to prevent indirect reductions in price. This involves 
common terms of credit, common cash discounts, common customer 
classifications, common trade discounts, common quantity discounts, 
common poUcy on trade-in values and refunds, the discouragement of 
long-term contracts, allowances, guaranties and so forth. 

Bums' conclusion on trade association activities is this: 

The outstanding characteristic of trade association policies has been their 
attempt to restrict price cutting. Prices tend to be maintained upon a level that 
will keep even the highest cost firms in existence and give to others abnormally 
high returns. This policy tends to retard adjustments of the allocation of invest- 
ment. Furthermore, the pressure existing under competition to raise the effi- 
ciency of all firms to the level attained by the most eflBcient is eliminated. The 
transmission of the benefits of reductions in costs to purchasers is retarded. 

The trade association, he says, is — 

aimed in general at securing profits for all their members by maintaining prices 
and restricting output rather than by pressure to reduce the number of firms or 
increase the internal efficiency of producers. 

A line has been drawn by the courts between legal and illegal 
activities of trade associations in the Maple Flooring case and the 
Cement Manufacturers Protective Association case, and naore recently in 
the Sugar Institute case. Roughly, the courts have maintained that 
price reporting activities are legal if they are confined to past trans- 
actions, if the sellers are not identified, if the sellers are not. compelled 
to adhere to the prices that they file, and if no agreement or under- 
standing as to future price or production policy obtains. 

It seems, however, to be a difficult matter to draw a clear line be- 
tween cooperative activities enabling members of an industry better 
to adjust themselves to changing economic conditions and better tQ 
serve the public while preserving their essential independence on the 


one hand, and concentration in the hands of a trade association or its 
leaders of power to control the production or price policies of all of 
the members of an industry. 

To what extent are American trade associations functioning as 
effective cartels? I don't know that anybody can answer that ques- 
tion. There are 2,000 national trade association ojQEices in the United 
States. In each of them a paid secretary with a paid staff is working, 
I suppose 5K days a week, 52 weeks a year, to promote those activities 
which the trade conceives to be in its common interest. There are 
occasional Trade Commission investigations and sporadic antitrust 
prosecutions, but these probably can no more than scratch the sur- 
face of the situation. It would seem to me that the only way to 
obtain complete assurance that the merriment, diversion, and con- 
versation of which Adam Smith speaks do not lead to the conspiracies 
or contrivances to raise prices, which he fears, would be to place an 
agent of the Federal Government in every trade association office to 
read all correspondence, memoranda and reports, attend aU meetings, 
listen to aU conversatioils, and participate in all the merriment and 
diversion, and issue periodic reports thereon to the Trade Commission 
or the Department of Justice or to some other agency of the Govern- 

The Vice Chairman. Do you say that would be the remedy? 

Dr. Wilcox. I am not proposing that 

The Vice Chairman, (interposing) I didn't get your language 
exactly. I thought you said the only way to avoid this thing com- 
plained about is to do this thing. 

Dr. Wilcox. I said the only way to find out whether in fact the 
activities are of the one character or the other would be some such 
device as this. 

The Vice Chairman. Who would watch him? 

Dr. Wilcox. I assume that it would be necessary also to have 
inspectors to inspect the inspectors. 

I should like to have presented now a list of industries involved in 
cases brought before the Federal Trade Commission or before the 
courts, or both, during the last 10 years, in which members of an 
industry have employed a common agency, usually a trade association, 
to deprive individual sellers of their freedom to determine their own 
output or the prices at which thev might sell, or to exclude other 
sellers from the industry. 

Dr. Kreps. Would you like to submit this list as an exhibit. Dr. 

Dr. Wilcox. Yes. 

Dr. Kreps. This list of industries involved in cases brought before 
the Federal Trade Commission and/or the courts over the last 10 
years in which the members of an industry employed a trade associa- 
tion or other common agency to deprive individual sellers of their 
freedom to determine their own output and/or the prices at which 
they may sell, or to exclude other sellers from the trade, is submitted. 

The Chairman. The exhibit may be received- 

(The list referred to waL marked "Exhibit No 2173" ana is included 
in the appendix on p. 13560.) 

Dr. Wilcox. The references in the exhibit where the material has 
previously been introduced into the hearings are to \part 5 -A of the 
hearii^s before this coinmittee; the pages are indicated. 


, In the case of the antitrust cases, the references are to cases as 
numbered by the Department of Justice in the publication called 
The Federal Antitrust Laws. 

The Chairman. Do you know how many of these cases listfed in 
the exhibit which has just been offered were initiated by those who 
were engaged in the industry rather than by some agency of Govern- 

Dr. Wilcox. I can't answer that. I don't' know. 

In the case of the Trade Commission cases that have not been intro- 
duced into evidence before this committee, the docket number is given. 
It is indicated in connection with certain cases that they are still open, 
namely, there is a complaint before the Commission or an indictment 
has been returned by a grand jury. It will be noted that these arrange- 
ments have obtained in some 65 industries, including asphalt shingle 
and roofing, automobile parts and accessories jobbers, building ma- 
terials suppliers, blue print paper, bolts, nuts and rivets, brushes, but- 
ter tubs, buttons and buckles, candy distributors, card clothing, cast 
iron soil pipe, chalk and wax crayons, water colors, and so forth, cellu- 
lose sheeting, cement, cleaners and dyers, compressed air machinery 
and pneumatic tools, com products, com cribs and silos, corrugated 
and solid fiber-board shipping containers, cotton yams, dresses, elec- 
trical contractors, electrical equipment distributors, fire hose, fire- 
works, fish wholesalers, furniture retailers, furs, glass distributors, 
glazing contractors, golf balls, grocery wholesalers, hot air furnaces, 
industrial rivets, Kraft paper, ladies' imitation-leather handbags, 
laundries, linen coats, towels and aprons, lumber, machine tools, 
metal windows, millinery, Norwegian sardines, oil, paper, pulp and 
wooden d'shes, photo-engraving, poultry, power cable and wire, 
produce distributors, retail credit reporting service, rubber heel dis- 
tributors, rice, sand and gravel contractors, sea food, sheet metai con- 
tractors, sponges, sugar, surgical instruments and supplies, textile 
refinishing, tile contractors, trucking, uniform caps, water gate valves, 
hydrants and fittings, wooden containers, woolen goods and zinc and 
copper plates — from A to Z, omitting only a few letters of the alohabet. 

The Chairman. How was this list prepared? 

Dr. Wilcox. I prepared the list from cases before the courts or 
the Trade Commission. 

The Chairman. Is it an exhaustive list? 

Dr. Wilcox. It was every case that I could get. There are some 
cases before the Federal Trade Commission, I believe, that they have 
not yet published, so the list is not entirely complete. 

The Chairman. Well, so far as the published records of the Federal 
Trade Commission are concerned, this represents every case that you 
could find? 

Dr. Wilcox. That is right. 

The Chairman. In the records covering these particular types of 

Dr. Wilcox. Duripg the 10-year period. 

The Chairman. And how did you conduct your search with respect 
to court cases? 

Dr. Wilcox. I approached it through the cases as recorded by the 
Department of Justice in its Ust of numbered cases, relative to the 
Federal aatitrust laws. 


The Chairman. So that so far as your own diligence and accuracy 
could make it, this is an exhaustive list of published cases? 

Dr. Wilcox. Covering that period. 

The Chairman. That's right. 

Mr. Pike. May I ask, if these fellows all turned out to be guilty? 

Dr. Wilcox. Where there was an acquittal or where the Federal 
Trade Commission dismissed a complaint, I did not include the case. 

Mr. Pike. In other words, these were presumably proven? 

Dr. Wilcox. Except where indicated that it is an indictment or a 
complaint and the case is still open. 

Mr. Henderson. Well, Dr. Wilcox, the question just put had to 
do with whether or not there was a legal violation. Would it not be 
possible that in a case where no conviction or no declaration of guilt 
was obtained, the economist would see many interferences with com- 
petition in the admitted practices that came forth in the case? 

Dr. Wilcox. Yes. 

Mr. Henderson. In other words, if you are looking at the restraints 
on competition, the economist is likely to see a much broader range 
than those with which the law has caught up? 

Dr. Wilcox. I would agree to that. 

I should like to pass on to a brief mention of the codes, so-called 
codes of fair competition. 

The Chairman. Well, the Chair feels that one comment should be 
made here. Under the heading of "Candy distributors," I notice you 
have reference under subletter "d" to the Wyoming Valley Jobbers' 
Association. The Chair wants it to be understood that Wyoming 
Valley is in the State of Pennsylvania, and not in the State of Wyo- 
ming. (Laughter.) 

Dr. Wilcox. I thought when I saw the smile on the chairman's 
face that he was going to call attention to the Institute of Tubular 
Split and Outside Pronged Rivet Manufacturers. 

compulsory cartelization under the n. r. a. 

Dr. Wilcox. Trade associations played an important part in the 
initiation and administration of codes under the N. R. A. In general, 
they took the initiative in drafting and presenting the codes. This 
caused in many cases a consolidation of existing trade associations. 
It called moribund associations into life and created new associations, 
and these associations dominated the administration of most codes. 

In some codes, the trade association itself was the code authority. 
In others, the trade association selected the code authority. In others, 
it selected the majority of the code authorityC In general, or in a 
majority of cases, trade association and code authority officers and 
executives were the same. 

Mr, Henderson. Dr. Wilcox, you have some familiarity with the 
submission of codes and code provisions. I know that over a period 
of years it seems to be increasingly the superstition that a group of 
wild-haired youngsters representing the Government in N. R. A. 
created most of the code provisions. Isn't it a fact that the code pro- 
visions were actually submitted by the industries themselves through 
their trade associations? 

Dr. Wilcox. The origin of many of the code provisions can be 
clearly traced in the published codes of ethics of the trade associations. 


in the trade practice submittals before the Federal Trade Commissiou, 
and in the earlier practices of the associations themselves. These 
things were not all invented overnight in 1933. 

There was published by the Department of Commerce, Bureau of 
Foreign and Domestic Commerce, Market Research Series No. 4, 
a document called Code Sponsoring Trade Associations. An 
examination of this document indicates that in about 600 out of 850 
codes, the secretary of the code authority and the chief executive of 
the trade association had the same name and did business at the same 

The N. R. A. in some cases strengthened the trade associations by 
forcing members to contribute to their support. In the garment 
industries, there was the requirement that labels be purchased and 
sewn in garments sold by establishments operating under the codes. 
The cotton garment code authority sold labels at a profit to itself 
and used the income to administer the code. The code authority 
hired the trade association to manage the code. The code authority 
and the trade association were run by the same officials in the same 
office. It was impossible to determine which was code authority 
work and which was trade association work. 

In effect, then, the label provision in this case gave the tiitde asso- 
ciation the taxing power to maintain its activities. That, in general, 
was not true in N. R. A. codes. 

All 750, or depending on how you count them, 850 codes, made some 
provision regulating terms of sale. The N. R. A. division of review 
has published a document called "Summary of Analyses of Certain 
Trade Practice Provisions in N. R. A. Codes," which devotes 46 
pages, typed single space, to listing 21 major types of provisions 
designed to restrict the granting of indirect concessions to influence 
a sale, or to preserve or modify channels of distribution. 

Five hundred and sixty of the first 677 codes had some provision 
governing the prices that might be charged by members of an industry. 
Four hundred and three of them forbade firms to sell below cost; 
352 of these forbade a seller to sell below his own cost; and 51 forbade 
a seller to sell below some average cost for the industry. But 361 
codes provided for the estabUshment of a standard cost system. 
Only 39 of these systems were approved by the N. R. A. This gave 
the code authority 

Mr. Henderson (interposing) . A little information as to why they 
weren't approved might be offered, because I was the approving 
officer, at the end of 1935, I think it was. 

The Chairman. Well, why weren't they approved, if that is the 
proper question, Mr. Conmiissioner? 

Mr. Henderson. That is a good question, Mr. Chairman. I 
thought that they were not drawn for the encouragement of greater 
production. There was some language in the act creating the 
N. R. A. which indicated it was to be a recovery administration, and 
I did not think that we could get recovery by restriction of production. 
I had some other technical accounting reasons but in the main^ most 
of the accounting systems presented by trade associations to imple- 
ment the no-selhng-below-cost provisions of the codes were price- 
lifting devices. They had in mind making it mandatory that every 
member of ^he industry use a fixed set of costs as the basis for his 


prices. The kind of examination we gave them plainly indicated 
that they could not be passed by the N. R. A. A few were actually 
written into the code, within the first 10 codes. There was one 
written right into the code and there wasn't much to be done about 

Dr. Wilcox. If I may do so, I should like to quote a few cases of 
cost accounting provisions in the codes. The crushed stone, sand, 
gravel, and slag code defined prime plant cost and required that no 
producer sell below prime plant cost plus 10 percent. The water- 
proofing, damp-proofing, and so forth, code forbade sale below 
allowable cost, which was defined as the cost of materials, containers, 
and processing, plus a reasonable percentage of these three to be 
determined by the code authority. The structural clay products 
industry code forbade sale below allowable cost, which was defined as 
individual indirect factory cost of such member plus the weighted 
average indirect allowable cost as determined by the code authority. 
This cost was stated in dollars and was uniform for the industry. 

The paint, varnish, and lacquer code said: 

The Paint Industry Recovery Board shall classify the products of the industry 
and estabUsh and furnish to all manufacturers figures representing all direct 
factory costs, depreciation, plus a proper proportion of all indirect factory expenses, 
in accordance with the share each class of products should bear. Such figures 
shall be the lowest reasonable cost of manufacturers, large and small, throughout 
the industry, and shall be used as the minimum processing cost by all members of 
the industry. 

That industry was said at the time to have 2,000 firms. The code 
authority sent questionnaires to 160 of them, received replies from 74, 
threw out 34 of the replies as inadequate, and used 40, which included 
no return from du Font's, involving no costs for some products, but 
they fixed minimum costs below which it was thereafter illegal to 
sell. In some cases 

The Chairman (interposing). Now, you want us to assume that 
these were artificial costs? 

Dr. Wilcox. It seems to me that they must have been artificial 

The Chairman. And that this was manifest in most of the codes? 

Dr. Wilcox. WeU, the cases that I have picked are cases that prove 
my point. Not all of the code cost provisions are as plain as these. 

The Chairman. Well, would the inference be justified that the 
■tendency at least in the codes was -to fix an artificially high cost basis? 

Dr. Wilcox. Yes, I believe that is true. In some cases the action 
of the code authority went beyond that permitted in the code. In the 
wallpaper manufacturing industry a schedule of prices was developed 
at a conference at Lake George, N. Y., and sale below these prices 
was regarded as sale below cost. The graphic arts code authorized 
the code authority to determine an average cost for the industry, 
which, when approved by the N. R. A., should be a minimum below 
which no one could sell. It further authorized the code authority to 
publish price determination schedules which, when approved, should 
serve as guides for fair value. The code authority, in fact, published 
and circulated a price book called the Franklin Catalog, which was 
never approved by the N. R. A., which divisional code authorities 
eijforced on printers as what they called the N. R. A. rates. 


A hundred and eighty-eight codes provided for price-fixing in the 
case of an emergency. The code for the retail solid fuels industry, 
for instance, said : 

Whenever, upon complaint or upon its own initiative without complaint, the 
National Code Authority is of the opinion that an emergency exists within the 
industry in that destructive price-cutting is being engaged in, it shall certify 
such conclusion to the divisional code authorities. 

The procedure thereafter was to be that the divisional code author- 
ities would hold hearings to determine whether an emergency in fact 
existed, then investigate costs within the industry and determine the 
lowest reasonable cost of delivering coal. Thereafter, sale below the 
lowest reasonable cost was a violation of the code. No clear principle 
governed the definition of destructive price-cutting or emergency. It 
was said in the N. R. A. that an emergency is something that is de- 
clared by a code authority. 

Mr. Pike. Is that a fair question to ask — did they declare an emer- 
gency, do you happen to remember? 

Dr. Wilcox. The retail sohd fuels code was approved one day and 
the emergency was declared the next day. 

Mr. Pike. That was normal? 

Dr. Wilcox. They arrived at that opinion with rapidity. 

Mr. Henderson. And I might say that they asked the question, 
how long has this emergency been going on, and they said, "Why, 
it has been going on ever since before the war." 

Dr. Wilcox. They said there had always been an emergency in the 
retail sohd fuels industry. Emergencies were declared in eight indus- 
tries besides retail solid fuels: Cast-iron soil pipe, lumber and timber 
products, tires, waste paper, wholesale tobacco, retail tobacco, agricul- 
tural insecticide and fungicide, and ice, in a number of urban markets. 

Twelve codes gave the code authority outright power to fix mini- 
mum prices without reference to cost of production. The bituminous 
coal code carried this provision: 

The selling of coal under a fair market price is hereby declared to be an unfair 
competitive practice and in violation of this code. The fair market price of 
coal shall be the minimum prices which may be established by marketing agencies 
or by the respective code authorities. The term "marketing agency" shall in- 
clude any trade association of coal producers. 

Similar provisions were contained in the codes for lumber and . 
timber, petroleum, cigar containers, cigar manufacturing, lead pencils, 
motorbusses, domestic freight forwarding, inland water carriers, fur 
dressing and dyeing, cleaning and dyeing, and in those for certain 
wholesale and retail trades. 

Four hundred and twenty-two codes provided for open price 
filing systems. Nearly aU of these systems would have been held 
by the courts to violate the antitrust laws. 

Mr. Henderson. That is, based on the decisions on open price 
in' the maple flooring cases and in the other three cases during the 

Dr. Wilcox. That is what I meant. 

The Chairman. Well, of course, this was a substitute for the 
antitrust laws; in other words, the antitrust laws were set aside? 

Dr. Wilcox. That's right. 

The Chairman. So fax as the codes were concerned? 


Dr. Wilcox. That's right. I am merely saying that these arrange- 
ments were of a character that before the enactment of this legislation 
would have been outlawed. 

Mr. Henderson. I am not so sure, Mr. Chairman, that all of 
these did get the benefit of the clause in the National Recovery Act, 
which specifically 

The Chairman (interposing). Well, I hope, so far as they were 
approved by the approving authority, they had the benefit of the 

Mr, Henderson. I wasn't the approving authority; I was the 
reviewing authority. 

The Chairman. Dr. Wilcox, did the N. R. A. have any virtues at 
all in your opinion as a member of its staff? 

Dr. Wilcox. The vices stand out in the center of my attention 
more clearly than the virtues. I think one might find virtues upon 
careful examination. [Laughter.] 

The Chairman. But you would have to take careful examination, 
is that the implication? 

Dr. Wilcox. Yes. 

Mr. Henderson. Doesn't that depend on your attitude toward the 
dominating economic pohcy of the country? If you give that answer, 
doesn't that mean you are practically declaring for a maintenance 
of competition? 

Dr. Wilcox. Yes. It is a matter of opinion, certainly. 

Mr. Henderson. x4nd there is, I think, the testimony this week 
and other weeks, of many earnest-minded businessmen who believe 
we have got to go to a control of competitive status, is that not true? 

Dr. Wilcox. I have heard such opinions expressed. 

Mr. Henderson. Well, I have heard a lot of them at this table, 
and if that should come to be the prevailing, driving force of our 
economy, then the N. R. A. experience will have been decidedly 
illuminating as an experiment, isn't that correct? 

Dr. WiLco:;. I should say so. 

The Chairman, Well, was there a rising tide of criticism of N. R. A. 
among the businessmen who were affected by it, at the time the 
Supreme Court decision was rendered? 

Dr. Wilcox. There was a rising tide of criticism of N. R. A. 
among aU groups by 1935. 

The Chairman. Yes; but I am thinking now of businessmen 

Dr. Wilcox. Yea; I should say so. 

The Chairman. Well, would that justify the inference that busi- 
nessmen were turning away from this type of organized control of 
production and of price, and turning back toward the notion of open 

Dr. Wilcox. Not necessECrily. Different people were dissatisfied 
for different reasons, because the arrangements that they had hoped 
to get were never approved by the approving ojfficials, or because they 
were not implemented or because they were not extended, and thei 
arrangements in some cases operated to the disadvantage of some 
groups that then protested. The reasons for dissatisfaction with the 
set-up were so diverse that I think it is scarcely possible to generalize 
as to them. 


The Chairman. And you couldn't generalize then on the basis of 
resentment against or disapproval of these practices which you are 
now discussing? 

Dr. Wilcox. In some cases, that was the basis of criticism. 

Mr. Henderson. But in the majority of cases, it was not a turning 
back to the American tradition of competition, was it? 

Dr. Wilcox. Well, if you take the type of objection raised against 
code provisions by the economist of R, H. Macy & Co. or by the 
economist representing the Mail Order Association of America, in 
general it was. 

Mr. Henderson. But they were in the small minority, were 
they not? Wasn't the complaint that the codes did not go far enough 
and that you couldn't get the type of court action which would give 
them enforceability? 

Dr. Wilcox. I should say that was the case; yes. 

Dr. Kreps. To refresh your memory, Dr. Wilcox, I have here a 
pamphlet entitled, "Policies Supported as in the Public Interest," 
by the Chamber of Commerce of the United States, pubhshed in 
1936, in which they state on page 3: 

The anti-trust law shall be modified so as to make clear that the laws permit 
agreements increasing the possibilities of keeping production related to con- 
sumption. Modification of the anti-trust laws should include provision for 
Government supervision in order that agreements which are not in the public 
interest in stabilization of business operation and employment may be nullified. 
Businesses desiring to combine should have opportunity to ascertain from a suit- 
able Government authority whether or not the proposed combination will be in 
violation of the anti-trust laws. Each industry shall be permitted to formulate 
and to put into effect rules of fair competition which receive governmental 
approval. The governmental agency named by the President should have only 
the power of approval or veto of such laws, w thout power of modification or 
imposition, but with power to indicate conditions of approval. Tiiere should be 
opportunity for members of an industry to enter into agreements other than 
rules which when approved by the governmental agency, shall be enforceable 
against parties to the agreement. Rules of fair competition formulated by a 
clearly preponderant part of an industry as suitable for the whole industry, with 
due consideration for small units and approved by the governmental agency, 
dhould be enforceable against all concerns in the industry. 

Now, is it your impression that these rules that would stabilize 
competition differ materially from the rules which you have thus far 
outlined for us; in other words, it wasn't 'that businessmen were 
dissatisfied with the opportunity to combine, it was that they were 
dissatisfied with the amount of governmental supervision ovfer such 
opportunity to determine collectively what measures would stabilize 
industry and adjust production to consumption? 

Dr. Wilcox. What is the date of that statement? 

Dr. Kreps. 1936. 

The Chairman. From what was that quoted? 

Dr. Kreps. Quoted from the pamphlet by the Chamber of Com- 
merce of the United States, Policies Supported as in the Public 
Interest. A substantially similar provision occurs in the 1939 

Dr. Wilcox. I should say that that indicated that the mference 
concerning which the chairman spoke could not be drawn. 

The Chairman. Dr. Kreps wants us to understand, I take it, that 
the criticism of the N. R. A. proceeded largely from the dissatisfaction 
with tlae refusal of the reviewing authorities to approve all of the 
trade relationships and rules that were desired. 


Dr. Kreps. I v.()uld make it broader than that. They were dis- 
satisfied with all acts of Government, including what the Government 
approved as well as what it refused, in these N. R. A. agreements. 
I do not doubt that the emergence on the N. R. A. Board of a majority 
genuinely interested in the welfare of consumers and laborers may 
have been conducive to the lack of interest on the part of business 
in the N. R. A. device. Business tlid not like the wage-hour provisions 
and in particular resented section 7 A which provided for collective 
bargaining. As the quotation from the pamplilet issued by the United 
States Chamber of Commerce shows, business liked the cartel features 
of N. R. A., the production and price controls. The N. R. A. was a 
quid pro quo. The Government gave business the right to combine 
if business would meet certain wage-hour requirements. Business 
then liked and still desires to get together in production, sales, and 
prices. ^Tiat business did not like was the noncartel features of 
N. R. A. 

The Vice Chairman. If I caught correctly what you read, it 
seems, too, that they were making some request for additional Gov- 
ernment intervention for the purpose of giving them advance clearance 
with regard to what they were going to do, and probably some coer- 
cion from a governmental agency to compel their individual members 
to comply with the joint determination? 

Dr. Kreps. That is correct. 

Mr. Henderson. In addition. Congressman, and Dr. Kreps, the 
1936 edition was very plain about compelling even those who were 
not parties to the agreement, the n^inority who did not subscribe 
to the agreement, to be bound by the terms of the agreement of the 
majority, which was the crucial issue, of course, in the code. You 
remember the chiseling 10 percent usually upset the apple cart in a 
code, particularly when you couldn't get enough enforcement officers 
to bring all the chiselers to book. 

The Vice Chairman. They wanted the aid of a governmental 
agency to coerce the nonagreeing members of the trade? 

Mr. Henderson. That's right. 

The Vice Chairman. Well, it seems to me that we are perhaps now 
at the most important part of this inquiry. It is clear that there is a 
difference of opinion in this country. We are at the point where we 
have got to make a decision, probably, as to whether or not we are to 
have agreements recognized by the Government, probably supervised 
by the Government^ with maybe a certain amount of coercion exercised 
by the Government, in order to have competition. Do you propose 
to discuss more directly than you have yet discussed them, these two 
conflicting economic and governmental theories which are now 
being debated in this country, as to what is the best thing to do 
about it? 

Dr. Wilcox. The material that I have assembled is addressed to the 
question, whether arrangements have existed in the United States or 
do exist in the United States, that can properly be called cartels. 
I should be glad 

The Vice Chairman (interposing). Well, the fact as to whether 
or not these organizations may be called cartels? 

Dr. Wilcox. That is right. 

The Vice Chairman. Well, now, why are we so much interested in 
what you name a thing? 


Dr. Keeps. Possibly I can answer that question, Mr. Congressman, 
in that these cartel-like arrangements that we have here are similar to 
certain cartel developments that occurred abroad. We are interested 
here because they represent a type of activity quite universal through- 
out the modem world, with respect to which diverse governmental 
pohcies have been put into effect. 

The Vice Chairman. Then are you going to deal at all, in the ex- 
amination of these agreements, with characteristics distinctive of 
cartels, with the possible failure of a complete development of what 
ought to have been the governmental policy in that situation? I 
make that statement to illustrate what you no doubt appreciate is 
in my mind about it. 

Dr. Kreps. I think I understand. We are limiting this presenta- 
tion on cartels completely to a factual exposition of what cartels are, 
what cartel-like arrangements are, what their economic consequences 
have been, and what their political consequences are abroad. 

The Vice Chairman. By political consequence do you mean their 
repercussions in their several countries? 

Dr. Kreps. That is right. 

The Vice Chairman. Do you draw any relationship between the 
economic development in Germany, for instance, and the political 
development in Germany? 

Dr. Kreps. We have an expert witness who will testify presumably 
tomorrow, who will give us the benefit of his 20 years' study on that 

The Vice Chairman. I will try to bear all that in mind and restrain 
my inquiries, because I understand, of course, one witness can't cover 
every field. 

Dr. Wilcox. I was speaking of the character of the open price filing 
systems in N. R. A. codes. Of the 422 codes that had open price filing 
systems, 161 gave no information to buyers, all of them identified 
sellers, some of them gave sellers on the code authority prior access 
to the file, probably all of them required adherence to filed prices, and 
297 of them included a waiting period. 

Mr. Henderson. That is what was known, I believe, as a period of 
intimidation, was it not, in the N. R. A.? 

Dr. Wilcox. The effect of forcing a seller, to wait before he could 
sell at the lower price which he had filed of course gave other sellers 
an opportunity to suggest to him that the price should not be cut and 
if he did cut the price they would meet it, and consequently there would 
be no advantage to him in cutting it. 

Mr. Henderson. These provisions for open-price filing were tied 
in with other provisions, were they not? As I recall, nearly eveiy 
code had a no-selling-below-cost provision. It was the intent to 
have a uniform cost-accounting system for the determination of costs. 
Then with an open price reporting system the prices reported by 
every member were available to all others and there was a 10-day 
waiting period in which each competitor could check and could raise 
the question whether that price was below cost. The intent was 
with the uniform accounting system that he would have a ready 
reckoner as to whether the price offered was below cost, and all three 
things tied in together. 


Dr. Wilcox. It was the function of the open price reporting system 
to implement the no-salesvbelow-cost provision. In the iron and steel 
code appeared this provision: 

The board of directors shall have the power to investigate any base price for 
any product filed by any member of the code. If the board of directors after such 
investigation shall determine that such base price is an unfair base price for such 
product, the board of directors may require the member of the code to file a new 
list showing a fair base price. If such member of the code shall not within ten 
days file a new list showing such fair base price, the board of directors shall have 
the power to fix a fair base price. 

Mr. Pike. "Fair" meaning one that gives hun a profit? 

Dr. Wilcox. I can't say what was in the minds of the members 
of the industry when they wrote that word into the code. 

Mr. Pike. There was no definition of "fair"? 

Dr. Wilcox. It is not defined- 

Mr. Henderson. Who constituted the code authority? 

Dr. Wilcox. The code authority in this case was the Iron and 
Steel Institute. 

In the tag industry, members of the industry who did not choose to 
file prices were bound according to the code by the lowest prices and 
most favorable terms on file. In practice, only one or two large 
concerns filed prices, and these prices were compiled into a price book 
which was circulated to the rest of the industry to inform them of the 
prices they must follow unless and until they filed prices of their own. 

The Vice Chairman. Now, wait a minute. You say that the prices 
were filed by a very few of the big industries, and those prices were 
sent out to the other persons engaged in the same industry? 

Dr. Wilcox. This is one industry, the paper-tag industry, paste- 
board tags that are affixed to merchandise. In this industry the 
provision was that if you did not file a price yourself, if one seller did 
not himself file a price, he was then, bound by the lowest price on file 
by any seller. The practice in the industry was that only one seller 
filed any price. Thereupon everyone else in the industry was bound 
by his price. 

The Vice Chairman. Who selected the one who was to file the 

Dr. Wilcox. I think perhaps it was a process of self-selection. 
I don't know. 

The Vice Chairman. Yes; but how did he arrange that he could 
get there first? 

Dr. Wilcox. I can't answer that. My authority for this is the 
investigation of the N. R. A. before the Senate. 

Mr. Henderson. Of which Senator King was a member. 

Dr. Wilcox. Page 870 of that record. 

That completes what I had to say about the N» R. A. codes. 


Dr. Wilcox. A similar arrangement was carried over from the 
bituminous coal code into the Bituminous Coal Act of 1935 and appears 
again in the Bituminous Coal Act of 1937. In this act, part 2 states: 

The Commission shall have the power to prescribe for code members minimum 
and maximum prices, 


and then goes on to say: 

Said prices shall be proposed so as to yield a return per net ton 6qual as nearly 
as may be to the weighted average of the total cost per net ton of the tonnage. 
The computation of the total cost shall include the cost of labor, supplies, power, 
taxes, insurance, workmen's compensation, royalties, depreciation and depletion, 
and all other direct expenses of production, coal operators association dues, 
District Board .'assessments for Board operating expenses, and reasonable costs of 
selling and the. cost of administration. 

Dr. Kreps. Are the foregomg set-ups properly to be described as 

Dr. Wilcox. They fall within the broader definition of cartel, 
which I quoted at the outset. 

Dr. Keeps. In other words, they are what Dr. von Beckerath and 
other authorities would call term-fixing or price-fixing cartels. 
Dr. Wilcox. That is right. 

Dr. Kreps. I take it, then, you have so far not treated of cartels in 
the stricter sense of production control, sales control, and the like. 

Dr. Wilcox. That is right. The stricter definition of the term 
"cartel" would confine it to organizations which assign customers 
among sellers or divide markets among sellers or allocate production 
or sales quotas among sellers, or organizations in which the members 
market their entire output through a common sales office which assigns 
quotas and makes payments, or organizations which enforce quotas by 
pooling earnings or by the imposition of money penalties. 

The Vice Chairman. You use the disjunctive there frequently. 
Does it more frequently or not occur that all those characteristics 
which you have disjoined apply to cartels? 

Dr. Wilcox. More than one of these characteristics may apply, 
that is, one organization may engage in more than one of these prac- 
tices. I am following here the list used by Dr. Herbert von Beckerath 
in his book on Modern Industrial Organization, that is, I merely am 
employing his classification of types of cartels. 

The Vice Chairman. If you had an organization that did only one 
of those things — let's go over those things. 

Dr. Wilcox. Assign customers among dealers? 
The Vice Chairman. Assign customers among sellers without at 
all dealing with price or production, that would work it out the same 
way, wouldn't it? 

Dr. Wilcox. It does affect price and production, you see, because 
the sellers no longer compete to sell to different buyers, they divide 
them up on some other basis. 

The Vice Chairman. As a matter of fact, when people get together 
to do either one of those things, isn't it usual that they pretty soon 
work into the whole thing? 

Dr. Wilcox. I should think that one thing leads to another; yes, 
as I think I shall suggest in some cases. 

The Vice Chairman. When a cartel is simply one in which people 
get together to control the market, whatever seems to be necessaiy in 
a given situation is about what they usually do, isn't it? They are 
not interested in just doing one of these things; thfiy are interested in 
the objectives, aren't they? 

Dr. Wilcox. The objective is protection of existing investment and 
larger profits for the firms in the organization. 


The Vice Chairman. How much more tire we going to learn by 
talking about it? It is most interesting; I am interested in the whole 

Mr. Henderson. I think, Mr. Chairman, the country doesn't know 
the extent to which it is creeping, via various kinds of cartel-like 
arrangements, into an entirely different structure of industry from 
tliat contemplated by the idea of free competition. 

The Vice Chairman. It is a very informative statement. _ I 
think it is fine. There are a heap of big words in there I can use in 
the campaign. It's all right, I Hke it. 

Dr. KTreps. I take it there are in the United States, then, sales 
cartels, or syndicate arrangements? 

Dr. Wilcox. The sales cartel or syndicate arrangement which 
employs the device of a common selUng agency which fixes total 
output and assigns quotas and allots orders, the arrangement which 
is quite common in Germany, has not been extensively used in the 
United States. There have, however, been cases of arrangements of 
this type. I have a list for presentation. 

Dr. Kreps. Would you like to have it submitted as an exhibit? 

Dr. Wilcox. Yes. ■ 

Dr. Kreps. I would like to submit "Sales Cartel or Syndicate 
Arrangements in the United States." 

(Representative Sumners assumed the Chair.) 
The Vice Chairman. It may be admitted. 

(The document referred to was marked "Exhibit No. 2174" and is 
included in the appendix on p. 13562.) 

Dr. Wilcox. 'This indicates the existence in the United States of 
common seUing agency arrangements as far as I have been able to 
collect them, since 1875. In the oil industry around 1875, in^ the 
wallpaper industry in 1898-1909, in the sheet music and player piano 
roll business in 1922, in the white glazed paper industry in 1921, in 
the cattle and calf hair industry in 1927, in the sardine industry in 1927, 
in the bituminous coal industry in 1933, in connection with the public 
performance of copyrighted music in 1934, iu the concrete pipe 
industry in 1938, and in the candy stick industry in 1939. The only 
one of these formally to be approved by the courts was the common 
selUng agency in bituminous coal lq the Appalachian Coals decision 
in 1933. 

The other types of market-sharing arrangements, however, have 
made their appearance more frequently in the United States than the 
common selling agency. We have had, for instance, cartels which 
assign customers among sellers. I refer to the statement made before 
this committee by Mr. Thurman Arnold on July 7, 1939.' Mr. 
Arnold said: 

Contractors who erect buildings add their own systems of restraint. Many 
contracting groups maintain bid depositories in which copies of all bids and 
estimates are supposed to be filed prior to the award of the contract. In some 
of these depositories the bids are opened before the contract is let and the infor- 
mation thus obtained is used to coerce low bidders to withdraw or raise their bids. 
Other contractor groups maintain central estimating bureaus which calculate the 
cost of the job and supply the various contractors with the bids they are to make. 
In still other groups a central bureau determines the specifications for piaterial 
and labor to be included in the bid, and the contractor is expected to apply 

' See Hearings, Part 11, p. 6150. 


standard prices and labor rates to these specifications and thereby to arrive at 
the sancie bid as everyone else. Spme bidding rings determine in advance which 
contractor is to get the job and arrange their bids so that everyone else bids 
higher than he. 

The Procurement Division of the Treasury has recently prepared a 
report, a summary of wliich has been released by the Committee, 
which indicates that during a 12-month period between December 
1937 and November 1938 nearly one-quarter of the bid openings 
in that period involved the receipt of identical bids from diiferent 
sellers. In this period there were 332,000 bid openings of which 
76,000, or 24.1 percent, were instances of the receipt of identical 
bids. This covered a long list of industries including all of the major 
categories of industries from which the Goverimaent makes purchases. 

Where identical bids are thus submitted by a number of different 
sellers the Government has to decide some way who is going to get 
the business. It is the practice in this case with most agencies to 
award the contract by lot. Thus the parties to a uniform bidding 
compact or a tacit imderstanding are assured over a period of time 
of an equal share in the contracts awarded, that is by pure chance. 
If they match pennies or throw dice or draw cards, every seller in the 
group will get his share over a time. 

Mr. O'CoNNELL. May I interrupt there a moment? I understand 
that that is the accepted way of dealing with identical bids. There is 
one rather outstanding exception to that, however, and it might be 
of interest to this committee to know that the Secretary of Interior 
over a period of time adopted a policy of making the award in the 
event of the receipt of identical bids to the bidder that incurred the 
greatest expense of transportation in connection with the supplying 
of materials, the theory, I take it, being that if he had to deal with 
people who were operating in collusion he would like to make it as 
unprofitable for them to reduce the profit margin as much as he could. 

Dr. Keeps. Or rather stimulate additional employment on the 
railroads, and so on. 

Mr. O'CoNNELL. I beheve both factors were present. 

The Vice Chairman. Under the law of average the one who would 
supply the Government's business would be the one who would have 
to have a higher price eventually if he stayed in business because his 
overhead would be higher. 

Dr. Wilcox. There is a case resulting in a cease-and-desist order 
by the Federal Trade Commission in which four glass distributors in 
the St. Louis area agreed on formulas for computing bids, exchanged 
information on one another's bids, and determined among themselves 
which firm was to get the contract. Information on that case is in 
the hearings of this committee on pages 2351 to 2352.^ 

In the case of the United States v. The Textile Refinishers Association, 
in 1936, which resulted in a consent decree, the Textile Refinishers 
Association included in its membership 30 firms, substantially all of 
the textile refinishers in New York City. The members of the asso- 
ciation agreed on prices, terms, and conditions of sale, setting prices 
which were uniform, excessive, and noncompetitive, according to the 
petition. They allotted the business of each manufacturer to a mem- 
ber of the association and manufactm'ers were effectively compelled 
to have their work done by the designated refinishers. 

> Hearings, Part 5-A. 


To turn now to cases of cartels dividing markets among sellers. In 
,he case of the United States v. The National Retail Credit Association, 
vhich resulted in a consent decree in 1933, the National Retail Credit 
Association had about 20,000 members, 18,000 of them were granters 
)f credit and about 1,300 of them were consimier credit-reporting 

The service department committee of the National Retail Credit 
Association devised a plan for the division of the national credit market 
by regions. These regions were assigned to member agencies as their 
exclusive reporting territories. Member agencies agreed not to 
gather credit information or make credit reports in other regions 
except through the credit agency to which the regic^Q was assigned. 
Credit-granting members agreed to furnish information on the credit 
of the consumers only to the credit agency to which they were affiliated, 
and which was the member of the association having exclusive rights 
in the territory. 

There were also in the N. R. A. codes a number of provisions which 
had the effect of dividing territory among the participants. There 
were zone protection provisions, dividing the country into zones. In 
some cases producers outside the zone were forbidden to sell within 
the zone at prices below those filed by producers within the zone. 
In other cases producers outside the zone were forbidden to sell at 
prices below the minimum fixed for producers in the zone by some 
price-fixing authority under the code. There was a provision in the 
corrugated and fiber shipping container code to the effect that the 
practice of certain manufacturers and sellers shipping quantities of 
merchandise into territories outside of their normal territories and 
of selling such merchandise below the general market price prevailing 
in such other territories is condemned as unfair. 

There were antidumping provisions in 23 codes. In the funeral 
supply industry code, for instance, there was a prohibition against 
selling the products of this industry or offering the same for sale in a 
market or trade area other than that in which the seUer is usually 
and normally engaged, at prices lower than the price at which such 
products are customarily sold or offered for sale in the seller's normal 
market. The code authority had the power to define normal market ' 
areas, and the prices at which products were customarily sold. This 
provision, of course, could be employed to check outside competition. 

There was also in some 86 codes prohibition of freight allowances 
which operated to prevent sellers from entering distant markets by 
absorbing freight. . 

More recently in the case of the Building Material Dealers Alliance, 
which resulted in a cease-and-desist order by the Federal Trade Com- 
mission, the case bein;g described in the hearings of this committee, 
pages 2331-2333,^ eight building material trade associations centered 
in the Middle States and Ohio, and the National Federation of Builders 
Supply Associations, comprising federated associations located in some 
32 States, adopted a recommendation that organized imits should 
determine territories for member cement dealers and that manu- 
facturers should not ship to dealers outside of the prescribed dealer 

In the window glass industry, a case which resulted in a cease and 
desist order in 1937, recorded on pages 2330-2331 of the hearings,* 

' Hearings, Part 6- A. 

124491 — 41 — pt. 25 20 


the Window Glass Manufacturers Association and the National 
Glass Distributors Association had agreements and understandings 
which divided distributors into two classes: quantity buyers and car- 
lot buyers. The manufacturers association made the final decision 
as to the classification of the buyers. The manufacturers published 
a price list only for quantity buyers; only quantity buyers could pur- 
chase directly from manufacturtirs. Car-lot buyers and others were 
compelled to buy from or through quantity buyers. Quantity buyers 
got a discount of 7% percent not granted to other buyers. 

Each quantity buyer under) this system confined his purchases 
and sales to a definite area. 

The Vice Chairman. Did this quantity buyer retail? 

Dr. Wilcox. He would sell to other distributors; in general these 
were wholesalers. 

The Vice Chairman. Was ho permitted to distribute at retail? 
I would like to know whether they made a distinction between 
retailers and wholesalers or made a distinction among retailers. 

Dr. Wilcox. I don't know whether that distinction can be clearly 
drawn in this case. I think it is a distinction between wholesalers and 
retailers in general. The record does not indicate The point 1 
wanted to make here is that the quantity buyers, if they can be 
defined as wholesalers, were limited to specific territories and they were 
getting a discount, a lower price than other buyers got. 

These are all cases of division of territory. There are cartels which 
allocate production or sales quotas among sellers and there have been 
in the United States a number of arrangements that might come 
under this definition. In the window-glass industry, prior to 1923, 
there existed an employment agreement negotiated between the 
National Window Glass Manufacturers Association and a trade 
union of window-glass workers. Under this arrangement the manu- 
facturers were divided into two groups, and each group was to operate 
only 6 months of the year; at any one time only half of the plants 
would be in operation. No factory in effect operated more than 
4K months a year. The agreement fixed the dates between which 
each shop might operate. 

The Vice Chairman. Hqw long did that agreement last? 

Dr. Wilcox. That agreement was ended in 1923. I don't have 
here the year in which it originated. 

The Vice Chairman. Did it end as the result of governmental 
action or voluntarily? 

Dr. Wilcox. A case was brought before the courts and appealed 
to the Supreme Court and the Supreme Court in its decision did not 
condemn the arrangement. 

Mr. Pike. But they 4id close it up right after the decision? 

Dr. Wilcox. The arrangement was discontinued by the industry, 

Mr. Pike. Right after the Supreme Court decision was made? 

Dr. Wilcox. Even before the Supreme Court decision. They 
had first had decisions in the lower courts. 

In the cotton textile industry prior to 1930, or starting in 1930, the 
Cotton Textile Institute sought a pledge from firms in the industry 
not to operate day shifts more than 55 hours a week or night shifts 
more than 50 hours a week. This was called the 55-50 plan, and was 
adopted by 75 percent of the industry. Later on an attempt was 


made to eliminate all night operatiolis in the industry, and still later 
the institute encouraged branches of the industry to adopt curtail- 
ment policies; print cloth mills, for example, arranged to reduce 
output from 10 to 50 percent. The operation of these agreements 
was impeded by contrary policies of noncooperating mills. 

Evidence has already been offered before the committee of the 
existence of a proportionate restriction of output among producers 
of copper in the United States between 1930 and 1932. 

All of these are quota-like arrangements existing prior to the codes 
under the N. R. A. There were also quota systems operating under 
N. R. A. codes. Sixty of the codes placed Imiits on the number of 
hours a day or a week that a plant or machinery might be in operation. 
Forty-three of these were in the textile industries, five in the paper 
industries, and there were a dozen others including glass containers, 
cast-iron soil pipe, sewing machines, and canning and packing ma- 
chinery. The effect of this arrangement is to establish quota limits 
proportionate to productive capacity. In some textile industries 
permissible hours of operation were reduced by administrative action 
below those allowed in the code. The synthetic yarn staples industry 
was permitted to close down entirely for a period of 8 weeks. The 
device restricts output to demand at a current price and gives each 
firm a share of the business. 

There were under five codes outright quota systems. The lumber 
code set up a code authority called the Emergepcy National Com- 
mittee and provided: 

That the committee shall determine, and from time to time revise and not 
less frequently than every three months, estimates ^ expected consumption, 
including exports of lumber and timber products of each species, and based 
thereon it shall have the authority to establish and from time to time to revise 
production quotas for the divisions of the lumber and timber preducts industries, 
and by its designated agencies within the divisions for the persons engaged in said 
industries. Said quotas as between divisions shall be substantially in proportion 
to the shipments of each division during the representative period to be determined 
by said committee. Said quotas for persons engaged in the industry shall be 
determined by the designated agencies in accordance with an equitable method 
of allocation approved by the committee, whether on the basis of shipments, 
existing hourly capacity or otherwise. Persons subject to the jurisdiction of 
this code shall not during the period therein specified produce or manufactOre 
lumber and timber products in excess of their respective allotments under the 

Dr. Kreps. Dr. Wilcox, are all the other quota systems under the 
N. R. A. for petroleum, copper, glass container, Atlantic mackerel 
fishing, substantially similar? 

Dr. Wilcox. The arrangements are substantially similar in char- 
acter. That for the petroleum code is given in article 3, sections 3 
and 5, and in article 4 of the code, and provided for a direct limitation 
on petroleum production on a quota basis, and also for a limitation on 
petroleum refining. 

Dr. Kreps. Would you like to take the materials you liave and 
put them together in the form of an exhibit submitted for the record? 

(The documents referred to were marked "Exhibit No. 2175" and 
are included in the appendix on p. 13563.) 

Dr. Wilcox. That exhibit covers the provision of the petroleum 
code and a provision in the copper code, where it should be noted 
that a different situation obtained; namely, the firms in the industry 


were indicated by name and the quota of each firm expressed in terms 
of an absolute sum. 

In the Atlantic mackerel fishing industry I do not have the exact 
provisions of the code. That code contained provisions for limiting 
the catch of mackerel to a point where production would balance 
consumer demand at a price most advantageous to the fisherman. The 
executive committee of the code was empowered to estimate consumer 
demand and to issue regulations to limit the catch of mackerel to that 
figure. The committee successively placed a limit upon the number 
of pounds which any boat could catch and sell on a single trip, then 
divided the boats into two squadrons each of which was permitted 
to, fish on alternate weeks, and then limited the amount of mackerel 
which could be landed by any boat during any one week. 

The quota systems were contemplated but not established in the 
codes for the cement industry, the iron and steel industry, the corru- 
gated and solid fiber shipping container industry, the cotton garment 
industry, the California sardine industry, the folding-paper-box in- 
dustry, the machine waste industry, the pulp and paper industry, and 
the piano-manufacturing industry. 

Proposals for the control of the output of newsprint were later ad- 
vanced also, but were bitterly opposed by the newspaper publishers. 
I come now to quota arrangements existing since the termination of 
the N. R. A. 

(Senator O'Mahoney resumed the Chair.) 

The Chairman. Now, can't we .lump those into an exhibit? You 
see, we are trying to shorten the time a bit. Dr. Wilcox. You are 
merely discussing the history of these various associations? 

Dr. Wilcox. These are all of them quite recent cases, Mr. Chair- 
man; 1938, 1939, 1940. That is, they describe current practices in 
the main in important industries. 

The Chairman. Now, have you written that out? 

Dr. Wilcox. I have it only in notes; I don't have it in the form at 
the moment to submit a copy. The first case is that of the Independ- 
ent Refiners Association of California, knovim as the Pacific Coast Oil 
Cartel. The background of this case is a quota arrangement which 
existed prior to 1930 in California among refiners and was outlawed 
by a consent decree in that year. The program was revived under 
the N. R. A. and the arrangement went by the name of the Pacific 
Coast on Cartel, which is the only case I know of in which the word 
"cartel" has been used in this country to describe these arrangements. 

It was ended with the Schechter decision. The arrangement was 
revived in 1936. The General Petroleum Corporation and six other 
major refining companies at that time refined about 70 percent of the 
gasoline on the Pacific coast and sold about 85 percent. They were 
members of an association called the Fair Practices Association. 
There were 30 independent refiners who refined about 30 percent of 
the gasoline and sold to retailers and consumers about 1.5 percent. 
Of these, 27 are mem])ers of the Independent Refiners Association of 
California, Inc. i 

Some independents sold all of their gasoline and all of them sold 

{)art of it to the Independent Refiners Association. The General Petro- 
eum Corporation and other majors bought large quantities of gasoline 
from independent refiners, largely through the refiners association, 
at arbitrarily high and noncompetitive prices, in th^ words of the 


indictment returned in the District Court of the United States for 
the Southern District of Cahfornia on November 14, 1939. 

This subsidy in efi'ect was given to the independents by the majors 
as an inducement not to post lower prices than those posted' by the 
majors. If the posted price of the independent was less than a 
certain figure, he was paid less for his gasoline by the Independent 
Refiners Association. The Fair Practices Association for the majors 
and the Independent Refiners Association for the independents made 
surveys of prices posted by retailers. These surveys were used to 
discover price-cutting retailers who were coerced or compelled to sell 
at the prices set by the suppliers, either by threats to suspend or 
actual suspension of gasoline deliveries. 

The plan included a system of production quotas. 

The Independent Refiners Association assigned, and independents 
accepted, refining quotas or allowables. The Independent Refiners 
Association advised each member monthly of the estimated consump- 
tion for the next month, and the percentage he could produce. These 
percentages were substantially the same as those which obtained 
under the N. R. A. code. 

Another case of a trade association functioning as a quota cartel 
is that of the Standard Container Manufacturers Association, which 
is outlined in the hearings before this committee at page 2358. 
Another case is indicated in an information filed in the District 
Court of the United States for the Western District of South Carolina, 
Greenville Division, on January 2, 1940; in this case five men, mem- 
bers of the curtailment program committee in charge of the print 
cloth curtailment program of the print cloth industry, which includes 
75 cotton mills owned and operated by approximately 68 firms engaged 
in the manufacture of print cloths, between March and September 
1939, induced print cloth mills representing not less than 95 percent 
of all looms operating in the United States on print cloths, to partici- 
pate in a print cloth curtailment program which required each mill 
to curtail production of such print cloth during the months of July 
to September 1939 to not more 

The Chairman (interposing). I assume you mean it is alleged 
that this was done? 

Dr. Wilcox. I do mean that. I should have said it is alleged by 
this information that, and so forth. 

Mr. Pike. That is true in that Independent Refiners Association? 

Dr. Wilcox. That is also true in the Independent Refiners Associa- 
tion case. The other case I mentioned is a cease and desist order 
issued in that case. To resume, to limit production during this 
period to not more than 75 percent of what otherwise would be the 
normal production of such mill for such period, and during such 
period to limit all sales of such goods produced and not to sell or 
otherwise dispose of any stocks or inventories except as authorized 
by the members of the committee. 

I should hke to offer for submission a public statement made by 
the Department of Justice on June 27, 1939, relative to the activities 
of management engineering firms, in the administration of trade 

The Chairman. Is it desired to make that part of the record? It 
seerns to the Chair" that it might well be. 

Dr. Kreps. I think it ought to be submitted as an exhibit. 


The Chairman. It will be admitted as an exhibit if there is no 

(The statement referred to was marked "Exhibit No. 2176" and is 
included in the appendix on p. 13573.) 

Dr. Wilcox. I had intended to read that but am merely submitting 
it to save time. I should like to go into a Uttle more detail in one case. 
This is the case of the National Container Association, and my 
information is drawn from an indictment returned in the District 
Court of the United States for the Southern District of New York 
on August 9, 1939. In this indictment it is charged that the Steven- 
son Corporation of New York, of which Charles R. Stevenson is 
president, doing business under the firm name of Stevenson, Jordan 
& Harrison, is engaged in the business of organizing, advising, direct- 
ing, and managing trade associations. It provides from its staff the 
officials who manage the affairs of the National Containers Association 
and 12 regional container associations. 

The 110 members of the national association and 165 members of 
the regional associations are engaged in the business of manufactm'ing 
and distributing shipping containers and other products made from 
corrugated and solid fiberboard. The Stevenson Corporation ap- 
plied in its administration of this trade association what was called the 
basic unit principle or basic unit plan, which involved the preparation 
(Jf industry estimating manuals containing formulas, factors, and differ- 
entials which cover all items of cost, including the cost of materials, 
charges for manufacturing operations and charges for delivery. 

These formulas, factors, and differentials do not represent the costs 
of any manufacturer, but are arbitrary amounts agreed on by the 
members of the association with the active participation and advice 
of its officials. They are used in estabUshing selling prices. The 
associations and the staff members of Stevenson, Jordan & Harrison 
ui^ed association members to use the manual, dissuaded them from 
using their actual costs as a basis of selling prices, and insisted that the 
arbitrary figures be used. 

The Chairman. The presentation of this matter and similar 
matter, of course, is not to be understood as indicating any beUef on 
your part that there was an actual violation of law, or that the com- 
mittee in itself is intimating that there was such a violation? 

Dr. Wilcox. That is true. 

The Chairman. I presume that you are presenting this merely as 
illustrative matter; whether or not there was a violation involved 
wiU be determined by the courts. 

Dr. Wilcox. That is true. 

According to the indictment the arrangement is enforced by a plan 
of invoice or order analysis, each association member submitting to his 
regional association copies of invoices or orders giving complete 
details on every sale. 

The regional association officials keep records to insure submission 
of this information and follow up members failing to submit it ; verify 
the information submitted, and apply the formulas, factors, and differ- 
entials contained in the industry estimating manual to the member's 
prices to determine if he is adhering to them in fixing his charges. 

It was necessary to reduce these prices to a basic unit because the 
products manufactured by the industry are made to order in many 
different styles and types. The arrangement enafaies each member to 



compare his prices with the average of the industry. The association 
sometimes furnished members with .hsts of invoices whose basic unit 
was below the average. They prepared and disseminated among 
members reports and charts comparing each member's base unit with 
the average. These reports and charts were discussed at frequent 
meetings of regional associations and members with base prices below 
the average were urged to raise them. 

The records of members were checked by traveling auditors and 
engineers, employees of Stevenson, Jordan & Harrison to, verify in- 
formation submitted, call attention to below-average prices, and pro- 
mote the use of the industry-estimating manual. The members 
filed prices which were not revealed to buyers or to the public. 

The arrangement also involved, accorduig to the indictment, a plan 
variously designated as prorationing of business, equitable sharing of 
available business, and live and let live system designed to limit pro- 
duction by assigning a quota to each member. Stevenson, Jordan & 
Harrison made surveys of the volume of business transacted by asso- 
ciation members during normal or base periods, usually 3 years, to 
determiae the proportion of business transacted by each member 
within each zone. They assigned to each member a quota, a fixed 
percentage of the total volume of business transacted within the zone. 
The association members agreed that each would accept and adhere 
to the quota and supply invoice copies and other reports to regional 
associations in order to enable Stevenson, Jordan & Harrison to deter- 
mine whether members were in fact adhering to their quotas. The 
association staffs prepared periodic reports and graphic charts show- 
ing combined volume of deliveries in each zone, and deliveries of each 
member in the zone every 2 weeks and for the current year. 

The Chairman. Now this was clearly, even as alleged, an attempt 
upon the part of these members to adjust productive capacity' to 
consumption in such a manner as to enable those who were distributing 
the commodity to operate at a profit? 

Dr. Wilcox. It is a plan designed to divide the business among the 
participants, as it is here described, yes. 

The Chairman. Well, it is based upon the assumption that there is 
an oversupply? 

Dr. Wilcox. That is right. 

The Chairman. And that if that supply were increased and if each 
of the members were to produce at capacity, -it would make it impoa- 
sible for any of the members to operate at a profit? 

Dr. Wilcox. Yes. 

The Chairman. In other words, it is the same idea which is behind 
all cartel organizations and behind a great mMiy trade associations 
which deal in the problem of adjusting the production to consump- 

Dr. Wilcox. That is right. 

The Chairman. It describes one method of obtaining an objective 
which from time immemorial has been sought by organizations of 
producers and merchants? 

Dr. Wilcox. This as described is an elaborated cartel arrangement. 
The assumption on which all such arrangements are baaed, that there 
is such a thing as a fixed demand, or a fixed consumption, that would 
not^grow if you reduced the price, I think is open to question, but I 
won't take the time of the committee to go into that. 


The Chairman. That is, as you say, a matter of debate and con- 
sideration, but we have a phenomenon here manifesting certain 
adjustments of Government to business practice. The manner of 
Government adjustment varies in different countries and according 
to the law that may be passed for the occasion. We have seen 
that change in the United States when the provisions of the anti- 
trust law have on numerous occasions been waived for certain objec- 

They were waived for the purposes of the Webb-Pomerene Act, 
which we were discussing throughout this hearing. They were waived 
under the N. R. A. They have been waived in the shipping act and 
so forth. It has been the theory of Congress that certain combina- 
tions which would be in restraint of trade if they were made in the 
United States should be permitted in the world trade, and in some 
phases of domestic trade, and Government has on occasion joined 
in giving its approval to cartel organizations of this character. In 
this particular instance it would appear that this particular group 
were endeavoring to work out some such organization in the industries 
which happen to appeal to them for advice and management, is that 

Dr. Wilcox. That is true. 

Dr. Kreps. Do you have a list? 

Dr. Wilcox. I have just another word to complete the picture of 
this arrangement. They assigned each member a ^uota, a fixed per- 
centage of the volume of busmess transacted within the zone. The 
association members agreed that each would accept and adhere to a 
quota. The association staffs prepared periodic reports and graphic 
charts showing the combined volume of deliveries in each zone and 
the deliveries of/each member in the zone everyjj2 weeks, and for the 
current year, and comparing the percentage of sales actually made by 
each member with his quota. 

The reports were circulated among members of the associations, 
presented and discussed at frequent meetings of regional associations; 
the regional association secretaries who were employees of Stevenson, 
Jordan & Harrison attended meetings, urged the members to adhere 
to their quotas, and urged those exceeding quotas to curtail output. 
Travehng auditors and engineers from Stevenson, Jordan & Harrison 
verified records of reports of members and brought production in 
excess of quota to the attention of members. 

Members filed with regional associations memoranda stating that 
they had obtained contracts or orders from certain customers. Asso- 
ciation secretaries disseminated this information among members with 
the understanding that they would not compete for this business. 
That ends the description as given in the indictment of the arrange- 
ment alleged to obtain in the case of the National- Container 

The Chairman. Now, of course, it is altogether possible that those 
who were indicted might contend that that was an utterly erroneous 
interpretation of what they were trying to do. 

Dr. Wilcox. That is tfue. 

The Chairman. And that may be the case also with respect to 
other pending cases which you have cited? 

Dr. Wilcox. Yes. 


Dr. Kreps. They may contend that this did not fall within the pro- 
visions of the antitrust law, but would they tend to deny the essential 
nature of the cooperation which is the point at issue here? 

Tha Chairman. Of course, we can't prejudge that at all. That 
^, ould be wholly ex parte, and as a matter of fact I may say the Chair 
has been wondering whether matters of this kind actually should be 
admitted to the record in the absence of the persons who are charged . 
This inquiry is not exactly a reportorial institution to report cases 
which have been filed in courts. I just wanted to make it clear that 
there should be no conclusion from the presentation of these matters 
that any of these allegations are in the shghtest degree true. 

Dr. Wilcox. I am not intending to express my opinion on the point 
of whether or not these arrangements, if they do exist, are in violation 
of the antitrust laws, and I am not asserting of my own knowledge 
that they do exist. I am saying that if an arrangement such as that 
described here does exist, it might properly be defined as a quota 

Dr. Kreps. The materials which you have been discussing repre- 
sent true bills of indictment, do they not? 

Dr. Wilcox. That is true. 

Dr. Kreps. Each has been found a true bill by a grand jury. 

The Chairman. I know, but indictments are not proof of guilt. 
This committee can't pretend to regard it as such. Of course, we have 
had the broadest latitude in the presentation of evidence and views 
and opinions here. My comment upon this matter has been to make 
it altogether dear that the presentation of an indictment and the 
reading of these charges shall not be construed in any sense as imply- 
ing any judgment upon the part of the committee, and I hope on the 
part of the witness. 

Dr. Wilcox. Quite so. Similar arrangements are alleged to have 
existed in an indictment brought in the District Court of the United 
States for the Southern District of New York on July 20, 1939, in the 
case of the Kraft Paper Association, also administered by the firm 
of Stevenson, Jordan & Harrison. I should like to offer for inclusion 
in the record an excerpt from a pamphlet written by Charles R. 
Stevenson, head of the firm of Stevenson, Jordan & Harrison, and 
published by that firm. The relevancy of this is that it indicates 
the point of view toward this plan taken by the head of the organ- 

The Chairman. I don't think that we will admit that, if the witness 
will coincide in our pleasure. 

Dr. Wilcox. I have a more recent quotation from the writings 
of the same gentleman which will also 

The Chairman. I don't think it is relevant here. This man is 
apparently under indictment and if the committee is to hear his views 
they should be heard from him and not by selection from any of his 

Dr. Wilcox. I have also a list of trade associations whose affairs 
are administered in whole or in part by the firm of Stevenson, Jordan 
& Harrison. 

The Chairman. I think we will pass that; it is not material at 
this point. 

Dr. Wilcox. I don't mean to suggest that the same plans exist 
in the thirty other associations in the list. 


Analagous arrangements apparently exist in the anthracite coal 
industry. 1 qiioto from the New York Times for January 14, 1940, 
which says that a program for allocating production in Pennsylvania's 
50,000, 000-tons-a-year anthracite industry has been proposed; each 
operating company would mine a fixed number of tons each week; 
the potential weekly demand would be worked out in advance and 
divided among producers on a tonnage basis. 

And I have here several excerpts from the Black Diamond, a 
trade publication of the industry, dated 1939, March 11 to November 
18, which I shall not take the time to read, but merely summarize 
by saying that they indicate that all during 1939 from week to week 
a common arrangement was arrived at to shut down the operation 
of anthracite mines to a certain number of days per week. 

The Chairman. What is the document? 

Dr. Wilcox. These are quotations from the Black Diamond, the 
trade pubHcation of the anthracite industry. In the oil industry the 
State proration laws plus the interstate compact, plus the Federal 
ConnaUy Hot Oil Act as renewed, of course set up a quota arrange- 
ment governing the production of petroleum. 

The Chairman. That, of course, was an instance where govern- 
ment by law adopted the quota system of adjustment of production 
to demand. 

Dr. Wilcox. That is right, but it is properly to be defined as a 
cartel. I should like to present 

The Chairman (interposing). Well, it makes it clear, let me add, 
that there is no moral turpitude necessarily involved in the establish- 
ment of quotas, whether those quotas are established by preairange- 
ment of the corporations engaged in production or whether they are 
established by the Government. Our problem is one of determining 
what arrangement is best in the public interest. 

Dr. Wilcox. Quite so. It may be inferred that an analogous 
arrangement exists among the major meat-packing concerns in the 
United States. I should like to have submitted as an exhibit a table 
which was prepared by Prof. William H. NichoUs, of Iowa State Col- 
lege, and presented in a paper which he read before the American 
Farm Economics Association in December 1939, and is to be published 
in February in the proceedings of that association. What Professor 
Nicholls has done is to study the purchases of livestock in the major 
livestock markets over the period 1931 to 1937 and compare the 
figures which he has thus obtained with figures obtained in earlier 
studies of the same problem by the Federal Trade Commission. 
These give percentages of purchases of hogs by the major packers in 
these markets, as percentages of the total purchases by these packers, 
not as percentages of the total purchases in the market. That is, it 
shows the distribution of their purchases Among themselves. It may 
be coinmented that the figures show a remarkable uniformity of per- 
centage of purchases over time stretching from 1906 down to 1937 in 
each of these markets. 

Dr. Wilcox. In his paper. Professor Nicholls showed that a similar 
situation obtained in cormection with other types of livestock. 

Mr. Pike. You infer there must be some collusion? 

Dr. Wilcox. Professor Nicholls in his paper refers to that point and 
quotes representatives of the pack^s as denying that collnsion exists. 


They explain it in terms of customary behavior. I have no knowledge 
as to the basis. 

Dr. Kreps. Mr. Chairman, I offer this as an exhibit. 

The Chairman. The exhibit may be received. 

(The table referred to was marked "Exhibit No. 2177" and is in- 
cluded in the appendix on p. 13575.) 

Dr. Wilcox. I would suggest also that similarly uniform percent- 
ages of sharing business over time are revealed by "Exhibits Nos. 1687 
and 1704" in the record of the hearings before this committee, deahng 
with the shares of participants in security issues of the American 
Telephone & Telegraph Co.^ 

Also referring to earlier hearings before this committee, it was 
asserted before the committee in connection with the hearings on the 
glass-container industry that the licenses granted to glass-container 
manufacturers to use glass-container machinery under the patents 
owned by the Hartford-Empire Co., in some cases restricted the areas 
in which they could sell or the quantities that they could produce.^ 

In the incandescent electric lamp industry, according to a report 
issued by the United States Tariff Commission, Report No. 133, 
second series, 1939, the Westinghouse Electric Co. pays the. General 
Electric Co. a royalty of 1 percent on sales of lamps which do not 
exceed 25.4 percent of the combined lamp sales of the two concerns. 
It pays a royalty of 30 percent on sales made in excess of this. 

Quoting the report: 

The prices, terms and conditions of sales at which the Westinghouse Company 
is entitled to seU lamps made under license pf General Electric patents are fixed 
by the General Electric Company. 

The five other licensed assemblers are prohibited from making and 
selling lamps for export. They pay a royalty of 3}^ percent on lamp 
sales which do not exceed a certain percentage of General Electric 
sales. They are required to pay an additional royalty of 20 percent 
on sales made in excess of their stipulated shares. 

In both of these cases, the basis of the sharing of the market appar- 
ently lies in a, patent rather than in a formal organization of the 

As to the seventh major type of cartel ariangement mentioned by 
Von Beckerath, those which enforce market sharing by pooling 
arrangements, there are certain cases that might be included. Again, 
an indictment in the case of the Engineering Survey & Audit Co. 
returned in the District Court of the United States for the Ea,stern 
District of Louisiana 

Dr. Kreps (interposing). Do you have there the actual court case 
as opposed to an indictment? 

Dr. Wilcox. This is the only case which I have that shows a 
pooling arrangement. Shall I proceed? 

Dr. Kreps. Proceed to the next topic. 

Dr. Wilcox. To the next category? 

Dr. Kreps. Yes. 

Dr. Wilcox. I quote a paragraph from a paper read before the 
American Economic Association, December 1939, by Mr. Corwin 

The California Marketing Act permits the state director of agriculture with the 
assent of 65 per cent of the producers and 65 per cent of the handlers by volume 

I Included in Hearings, Put 23. 
See Hearings, Part 2. 


to limit the quantity of any agricultural commodity processed, to allot the amounts 
which may be purchased by distributors, to apportion the quantities which each 
processor may process, to establish reserve pools of the commodity, and to appor- 
tion the proceeds of the sale of such pools. 

(Mr. O'Connell assumed the Chair.) 

Dr. Wilcox. There are a few other cases in which penalty pro- 
visions appear to have been employed for the purpose of enforcmg 
quota arrangements. These, of course, would operate to make the 
quota arrangement more effective. One of these was proposed for 
the American Institute of Steel Construction in 1934 in testimony 
before the Senate Committee on Manufactures by the president of 
that mstitute, who proposed a plan to ration the available business 
without being in violation of any Federal or State laws. 

The reasonable ratio of each member's business to the total busi- 
ness would be determined on the basis of productive capacity. If 
any member's output exceeded this reasonable ratio, he would have 
to pay extra dues to the Association on the excess, in the belief that 
where a member profits from the research and promotion work of the 
institute, he should be required to pay that penalty. 

Of this plan, Burns in his book on The Decline of Competition, says: 

- The scheme proposed was in fact an agreement to distribute quotas, to impose 
fines for exceeding the quota, and presumably bonuses for failure to attain the 

There is no evidence that the plan was eVer put into operation. 

Acting Chairman O'Connell. Was it proposed, that the Govern- 
ment aid in the imposition of the penalties, or that they merely exempt 
that situation from the antitrust laws, and that the penalties be im- 
posed by the industry? 

Dr. Wilcox. They stated it was their beUef that the plan would not 
be in violation of any Federal or State law. 

Acting Chairman O'Connell. What were tliey proposing? 

Dr. Wilcox. The proposal was that of allocating output and charg- 
ing extra association dues to those who exceeded the output. 

Acting Chairman O'Connell. I mean why was it necessary to 
present a plan before a congressional committee if there was not legis- 
lation in contemplation? 

Dr. Wilcox. This was the committee which held hearings on the 
estabhshment of a national economic council. It was a discussion of 
economic planning. 

Penalty provisions also appeared in the case of 15 N. R. A. codes 
in the guise of liquidated damages provisions. It was agreed that 
certain amoimts of money were to be paid by those who violated the 
codes as dainages for having injured the other participants, but if 
those Uquidated damages provisions are read, it becomes apparent 
that they amount in reaUty to a penalty in each of these cases. 

I will give only one example, that appears in the Iron and Steel 
Code, article X, section 2, in which it says: 

Recognizing that the violation by any member of the code of any provision 
will disrupt the normal course of fair competition in the industry and cause serious 
damages to other members, and that it will be impossible fairly to assess the 
amount of such damage, it is hereby agreed by and among all members of the 
code that each member of the code which shall violate any such provision shall 
pay to the treasurer as and for liquidated damages, the sum of ten doUars per 
ton of any such products sold by such member in violation of such provision. 


Mr. Pike. That would be prohibitive, of course? 

Dr. Wilcox. In the case of steel, jes; and that is true, I think, of 
the 14 other codes in which this occurs. 

I have only two other cases which come since the N. R. A., and 
both of these are already in evidence in the hearings of the committee. 
The one is the case of the California Lumbermen's Council, which 
appears on pages 2343 to 2344 of the committee's hearings, and in- 
volves a penalty for the enforcement of division of territory. The 
other is the case of the California rice industry which appears on 
pages 2340 to 2342 of the hearings, and involves a pecuniary penalty 
for production in excess of an assigned quota among rice millers in the 
State of California. 

Acting Chairman O'Connell. In connection with which of our 
hearings did that appear? Was that in connection with the Federal 
Trade Commission? 

Dr. Wilcox. That's right; Part 5-A, "Federal Trade Commission 
Report On Monopolistic Practices In Industries." 

I have one final point which relates to a final step in making a cartel 
arrangement completely effective. The possible weakness of a quota 
cartel set-up is this: It restricts production to a point where it estab- 
Ushes prices that will give profits to every firm in the industry. It 
gives a quota to each firm. Every firm gets business and makes 
money. The industry becomes attractive to outsiders. New units 
are estabhshed; they undercut established prices and restore compe- 
tition, or they must be taken into the scheme and given a quota. 
Shares of the earlier firms in the limited volume of sales are thereby 
reduced. To complete the system, then, and make it continue in 
effect, it is necessary to restrict entry into the field. This, of course, 
involves the abandonment of freedom of enterprise. It also requires 
cooperation of the Government. Unless the Government participates, 
it is impossible effectively to restrict entry. 

Mr. Pike. Even sometimes if the Government does participate as 
in the N. R. A. when people entered the pants-pressing business? 

Dr. Wilcox. That is true. 

Fifty-four of the N. R.. A. codes provided for limitations on capacity; 
that is, limitations on the opening of new plants, the construction of 
new capacities, the moving of equipment from one location to another 
or the conversion of old equipment to new uses, or provided for 
the consideration of such limitation. 

One code prohibited the manufacture of specified products by 
members of the industry who had not been producers of such products 
for 2 years prior to the effective date of the code; nobody who had not 
been producing a thing before was allowed to enter into its production. 
That was the candle-manufacturing code. 

One code contained a prohibition of expaiision of capacity. That 
was the iron and steel code, in which it was asserted that it is the con- 
sensus of opinion in the industry that such capacity should not be 

Mr. Pike. On that iron and steel thing, I didn't understand that 
$10 penalty, whether it was a matter of keeping up quotas or a matter 
of breaking prices. 

Dr. Wilcox. They did not have a quota system; it was a matter of 
controlling the price. 


Let me go back to this capacity provision, article V, section 2, of the 
Iron and Steel Code: 

It is the consensus of opinion in the industry that, until such time as the 
demand for its products cannot adequately be met by the fullest possible use of 
existing capacities for producing pig iron and steel ingots, such capacities should 
not be increased. Accordingly, unless and until the code shall have been amended 
as hereinafter provided, so as to permit it, none of the members of the code shall 
initiate the construction of any new blast furnace or open hearth or Bessemer 
steel capacity. 

In 24 codes, authorization of some Government agency was required 
for the installation of new capacity. In 26 codes provision was made 
for the members of the industry to appeal to the N. R. A. for the im- 
position of a plan to limit new capacity. 

Acting Chairman O'Connell. Those provisions under N. R. A. 
were upon the then members of the industry. Could not an outsider 
have come in and installed some additional capacity in steel? 

Dr. Wilcox. In steel it was only upon members of the industry. 

Acting Chairman O'Connell. Wh^,t about the others? My 
general impression was that they could not in those other cases have 
prevented, by virtue of the code itself, new enterprise. 

Dr. Wilcox. I am not certain whether they could have done so or 
not effectively. I believe in many of these cases it was their clear 
intention to do so. 

Acting Chairman O'Connell. Oh, yes; I understand that, but to be 
really effective it seems to me we get to the additional sanction which 
you refer to, that is, Government in the picture to the extent of 
requiring a certificate of convenience for almost anyone to go into any 

Dr. Wilcox. That is right. The Cement Code Authority was 
authorized by its code to formulate a proposal to close down and 
amortize less economical plants, that is, not only keep out new plants 
but buy up and close plants in existence. 

Mr. Pike. A central authority to do that? 

Dr. Wilcox. It was authorized to formulate a proposal. It was 
never done. 

Acting Chairman O'Connell. I take it in order to bring such a 
program to fruition the price structure would have to be such as to 
amortize the units which were obsolete and put them out of existence. 

Dr. Wilcox. Quite so, and it would also be necessary to prevent 
new ones from coming in. I mean, those two things would have to 
work together. 

Twentyvone manufacturers of paper-board presented a plan to buy 
up and dfose down marginal plants. That was never adopted, but 
that gives an indication of the direction in which the thought of these 
industries was running. 

These plans are designed to exclude potential competitors and 
protect existing firms, to prevent the expansion of one firm at the 
expense of another, the relocation of business, the redistribution of 
business on the basis of changing efl&ciency; in effect, they would 
operate to freeze the existing competitive situation, which is the ulti- 
mate objective of cartelization. 

The finalcomment that I should like to make is that about as com- 
plete a cartel picture as one can find anywhere is to be obtained by a 
reading of the N. R. A. Code for the iron and steel industry, which 
outlawed 12 practices as unfair and provided that any other practices 


which the board of directors by a three-quarters vote declared to be 
unfair should constitute a violation of the code, which in effect gave 
them the power of legislation; regulated terms of sale; contained 
detailed regulations of the pricing system; required the filing of base 
prices with a waiting period; i^ave the code authority power to reject 
a filed price as imfair, estabhshed uniform deductions and required 
miiform extras; required sale on the basis of dehvered prices calcu- 
lated from common basing points according to a specified formula, 
and that sale be made only through distributors selected according to 
standards estabhshed by the code authority; maintaiued resale 
prices; provided for the later estabhshment of a quota system; pro- 
hibited the introduction of new productive capacity; and was enforced 
by a system of reports and audits, by provisions for liquidated damages 
which penalized violation, and by a Federal statute which carried the 
penalty of fine and imprisonment. 

That I submit is about as strong a cartel set-up as one could ask to 

Mr. Pike. Was it ever approved by the authority? 

Dr. Wilcox. That was approved by the N. R. A. It was later 
amended in many of these respects, but it is thjB original form in which 
the code of that industry was approved. ' 

Acting Chairman O'Connell. And that code was prepared lq the 
first instance by the industry? 

Dr. Wilcox. By the Iron and Steel Institute. 

Mr. Pike. One question has been running through my mind. Do 
you find any of these cartels that are able to stay put over a period of 
years with just the original authority without ever having to reach 
out for more and more and more control and more sanctions, either by 
Government or somebody? It seems that they keep swelling up 
and then breaking down, of course, eventually. 

Dr. Wilcox. I should say in an industry where a strongly estab- 
lished concern or a number of such concerns had the situation well in 
hand, that is, where they so dominated the market that others perforce 
followed their lead, it wouldn't be necessary to set up an over-all 
arrangement like this. In other fields the mere existence of such an 
arrangement suggests that that control is not completely established 
and that there is the possibility that competition will spiing up, so 
these arrangements are constantly modified in one way or another, 
constantly tending to break down and constantly being fortified by 
the introduction of new sanctions. 

Dr. Kreps. I would like to ask one final question, Dr. Wilcox. 
These arrangements are designed to stabilize conditions in the indus- 
try, are they not? 

Dr. Wilcox. That is right. 

Dr. Krepb. Do they have that effect in your judgment? 

Dr. Wilcox. Well, in the long run I should say no; the objective 
which they undertake to attain is probably not attained; that is, the 
programs tend to be self-defeating. If they operate to raise prices 
and if people can't buy so much of the output at the higher price, the 
total income of the industry is reduced and the people are not better 
off as a result of the restriction of output. 

Dr. Kreps. Do they have the effect of stabilizing prices and produc- 
tion over a period of years? 


Dr. Wilcox. They may have that effect over a limited period of 
time; yes. 

Dr. Kreps. You have been familiar, have you not, with the testi- 
mony that was introduced here on stabilization in the copper industry? 

Dr. Wilcox. I have not followed that closely. 

Dr. Kreps. On this chart on the easel you will note the peaks 
reached in price in 1929 and 1937 and the deep troughs that followed. 
Is such price behavior more or less characteristic of what we would 
call cartelized industries? 

Dr. Wilcox. The question is whether striking price fluctuation is 
characteristic in cartelized industries? 

Dr. Keeps. In those cases in which cartels break down. Would 
you say, for example, that part of the effect of the fictitious price 
situation in copper in '29 was reflected in the extreme depths of the 
depression of '32? 

Dr. Wilcox. I should say the tendency was that when the cartel 
became effective the price would be higher, that while it was effective 
it would be more stable than it would have been without the arrange- 
ment, that when it broke down it would be likely to fall farther. 

Dr. Kreps. Undoubtedly you are familiar with this authoritative 
analysis of the great depression by Dr. Lionel Robbins of the Uni- 
versity of London. 

Dr. Wilcox. Yes. 

Dr. Kreps. In that, page 182, I quote, "There is strong reason for 
attributing much of the severity of the depression to the inflexibility 
of cartel prices and to the insecurity caused by the existence of giant 
buying agencies in the various commodity markets." On the whole, 
would -you agree to that statement? Is it your judgment that most 
of the trained economists of the world would agree with that state- 

Dr. Wilcox. Yes; I would agree. I believe that would be the 
general belief. ' 

Dr. Kreps. In other words, because in '29 there were series of 
such stabilization arrangements in copper, in wheat, coffee, and 
rubber, just to mention a few, and because these broke simultaneously 
throughout 1930, thereby cartels contributed in the judgment of 
most of the trained economic observers of the world to the 'depths 
of the depression in 1932. 

Dr. Wilcox. I think that is the case. 

Mr. Pike. Did you include wheat? 

Dr. Kreps. Yes. 

Acting Chairman O'Connell. Dr. Wilcox, I think we have no 
further questions and I am siu-e that I speak on the part of all the 
committee when I say that what yOu have given us this afternoon 
constitutes a real contribution not only to the study of cartels but 
to the problem of the committee, which, of course, is broader than 
the cartel subject alone. On behalf of the committee I want to thank 
you very much. 

Dr. Kreps. I should like to finish the presentation of the carte, 
hearings.^ Dr. Callmann, now residing at 23 Hammond Street, 
Cambridge, Mass., is an intem-ationally recognized authority on 
cartel problems. , 

' Due to the death of Senator Borah, the senior senatorial member of the Temporary National Economic 
Committee, its cartel hearings were endedbefore it was possible toplace the last witness, Dr. Rudolf Call- 
mann, on the stand. 


For the 10-year period just prior to 1936, when he was attracted 
to the United States, he was Rechtsanwalt am Landgericht in Cologne, 
Germany, engaged in legal consulting practice for a variety of German 
cartels. Prior to that time, for a period of 4 years, he was managing 
director of the firm, Rollmann & Mayer, a shoe manufacturing con- 
cern at Cologne. In addition, he -is the author of a number of au- 
thoritative writings on cartel and related problems, most important 
of which are his volumes on unfair competition, entitled "Der Unlautere 
Wettbewerb (J. Bensheimer, Mannheim-Berlin-Leipzig, 1932) 670 
pages, and his treatise on German cartel law entitled, "Das Deutsche 
Kartellrecht," (Philo Verlag und BuchhandlungG.m.b.H, Berlin, 1934) 
721 pages. 

I should like to submit his statement, prepared aid sworn to by 
him, for the record. 

Acting Chairman O'Connell. Without objection it will be included 
m the record of these hearings. 

If there is nothing further to come before the committee, we will 
stand in recess until tomorrow morning at 10:30. 

(Whereupon, at 5:50 p. m., a recess was taken until Saturday 
morning, January 20, 1940, at 10:30 a. m.) 


I, Rudolf Callmann, do hereby certify that the attached pages 
numbered 2 to 47, inclusive, are a true and correct copy of testimony 
on the cartel problem which I prepared for presentation before the 
Temporary National Economic Committee. 

Rudolf Callmann. 

Subscribed and sworn to before me, Denis E. Connell, a notary 
public in and for the city of Washington, District of Columbia, this 
23d day of January 1940. 

[seal] Denis E. Connell. 

what is a cartel? 

Cartel law even in Germany is a relatively young branch of the law. 
It was not until 1910 that the groundwork for legal consideration of 
cartel problems was laid in the book of Professor Flechtheim, Die 
rechtliche Organisation der Kartelle. During the last 30 years legal 
research upon cartel problems has made rapid progress. 

A cartel agreement adjusts the business activities of its members — 
of merchants of a particular field of industry or trade — to a given 
market. In particular it adjusts productive capacity in a given 
industry to the demands of the market, trying to correct the usual 
tendency of output capacity to outrun these demands. Such an 
adjustment among competitors limits or eliminates competitive 
freedom. A cartel is always a horizontal association; consequently, 
proceeding according to good American usage by looking at the cases 
as they have been decided in the German courts, I define a cartel as — 

a contractual association of legally independent entrepreneurs in the same'oT similar 
field of business formed with the intent, effect or potentiality of influencing the 
market by means of regulation of competition.^ 

' See Callmann DasJDeutsche Kartellrecht, pp. 71-90, 296-333. 
124491 — 41— pt. 25 21 


This is, iur my opinion, the definition which not only covers all 
essential features of a cartel but also underlies the decisions of the 
Grerman Supreme Court and Cartel Court. Regulation of competi- 
tipn by businessmen is the typical function of a cartel. 

It should be noted, however, that on one occasion there was a 
difference of opinion in this regard between the German Supreme Court 
and the Cartel Court. The Supreme Court held an association to be 
a cartel only if the members intended to infliience the market, while 
the Cartel Court held decisive the objective capacity or potentiality 
of the cartel to influence the market. The definition I just gave 
follows the latter theory. 

I have listened with great interest to these hearings on cartels. 
At the request of your counsel I was present at every session. I noted 
carefully the presentation of facts concerning the various cooperative 
organizations in the copper industry— namely, the Copper Export 
Association, Copper Exporters, Inc., and the present international 
copper agreement. All of these are in my judgment cartels in the 
European sense. 

They represent types of cartels well known in national and inter- 
national industry. The Copper Export Association was simply a 
joint selling agency. It would be called a syndikat in the German 
cartel law. The same is true of Copper Exporters, Inc., although 
the situation is not quite so clear as ui the Copper Export Association, 
particularly insofar as its purpose, instead of being that of mitigating 
or eliminating competition among its members, seemed to be that of 
common defense against speculators, who, while neither producing 
nor consuming copper, were believed to be responsible for artificial 
and harmful fluctuations in copper prices, particularly in the London 
metal exchange. But the evidence showing that the major effect 
was the mitigation of competition among each other was so con- 
vincing that I feel no hesitancy in calling Copper Exporters, Inc., a 
cartel. And may I add that it was thus regarded by all of the writers 
on cartel problems in Europe. Dr. Robert Liefmann, the famous 
German expert, in his book entitled "Cartels, Combines & Trusts" 
(London 1928) goes so far as to say (p. 60) that Copper Exporters, 
Inc., was "a clear case of export cartels deliberately fostered by the 
Government of the U. S. A. to the detriment of the European con- 
sumer." [Italics in original.] 

The American public may be surprised, if not annoyed, by such a 
statement. But in European opinion and experience cartels that 
engage in international trade are generally assumed to be fostered 
by their governments because cartels are frequently merely another 
means of international trade policy. 

Moreover, Copper Exporters, Inc., is an association authorized by 
the Government under the Webb-Pomerene Act, which according to 
the evidence presented in these hearings, was strongly urged upon 
Congress and the Wilson administration by influential members of 
the copper industry. 

I hasten to add that in European cartel literature and discussions 
all associations formed under the Webb-Pomerene Act are regarded 
as export cartels. The list, even at the present time, is an impressive 
one, embraci'ig^ a wide range of enterprise: 


List of Export Associations Filing Papers With the Federal Trade 
Commission Under the EJxport Trade Act (Webb-Pomerene Law) Dur- 
ing 1939, TO Date of Janary 18, 1940 

American Box Shook Export Assn., Barr Bldg., Washington, D. C. 

American Hardwood Exporters, Inc., Carondelet Bldg., New^ Orleans, La. 

American Papet Exports, Inc., 75 West St., New York. 

American Provisions Export Co., 80 E. Jackson Blvd., Chicago, 111. 

American Soda Pulp Export Assn., 230 Park Ave., New York. 

American Spring Manufacturers Export Assn., 30 Church St., New York. 

American Tire Manufacturers Export Assn., 30 Church St., New York. 

California Alkali Export Assn., 530 West 6th St., Los Angeles, Calif. 

California Dried Fruit Export Assn., 1 Drumm St., San Francisco, Calif. 

California Prune Export Assn., 1 Drumm St., San Francisco. 

California Rice Exporters, 351 California St., San Francisco. 

Carbon Black Export, Inc., 500 Fifth Ave., New York. 

Cement Export Co., Inc., 150 Broadway, New York. 

Copper Exporters, Inc., 50 Broadway, New York. 

Douglas Fir Export Co., Henry Bldg., Seattle, Wash. 

Durex Abrasives Corp., 63 Wall St., New York. 

Electrical Apparatus Export Assn., 70 Pine St., New York. 

Electrical Export Corp., 100 W. 10th St., Wilmington, Del. 

Export Screw Assn. of the U. S., 23 Acorn St., Providence, li. I. 

Florida Hard Rock Phosphate Export Assn., Savannah Bank & Trust Bldg., 

Savannah, Ga. 
General Milk Co., Inc., 19 Rector St., New York. 

Goodyear Tire & Rubber Export Co., 1144 E. Market St., Akron, Ohio. 
International Wood Naval Stores Export Corp., Gulfport, Miss. 
Metal Lath Export Assn., 47 West 34th St., New York. 
Northwest Dried Fruit Export Assn., Title & Trust Bldg., Portland, Oregon. 
Pacific Forest Industries, Tacoma Bldg., Tacoma, Wash. 
Pacific Fresh Fruit Export Assn., 333 Pine St., Sa;i Francisco, Cal. 
Pencil Industry Export Assn., 703 E. 13th St., New York. 
Phosphate Export Assn., 393 Seventh Ave., New York. 
Pipe Fittings & Valve Export Assn., 1421 Chestnut St., Philadelphia, Pa. 
Plate Glass Export Corp., Grant Bldg., Pittsburgh, Pa. 
Potash Export Assn., Inc., 21 E. 40th St., New York. 
Redwood Export Co., 405 Montgomery St., San Francisco. 
Rice Export Assn., Queen & Crescent Bldg., New Orleans, La. 
Rubber Export Assn., 19 Goodyear Ave., Akron, Ohio. 
Shook Exporters Assn., 2718 Pershing Drive, Memphis, Tenn. 
Signal Export Assn., 420 Lexington Ave., New York. 
Steel Export Assn. of America, 75 West St., New York. 
Sugar Export Corp., 120 Wall St., New York. 
Sulphur Export Corp., 420 Lexington Ave., New York. 
Textile Export Assn. of the U. S., 40 Worth St., New York. 
U. S. Alkali Export Assn., Inc., 11 Broadway, New York. 
Walnut Export Sales Co., Inc., 12th St., & Kaw River, Kansas Citv, Kans. 
Walworth International Co., 60 E. 42nd St., New York. 

The evidence on the copper industry, however, seemed to me not 
nearly so impressive as that given by Dr. Clair Wilcox. It confirmed 
an impression that I had long held, that cartels have reached an ad- 
vanced stage of development in the United States. The evidence 
vividly recalled to my memory the statement of the President on the 
topic of cartels in his message of April 1938, urging the formation of 
the Temporary National Economic Committee. His contention that 
"private enterprise is ceasing to be free enterprise and is becoming a 
cluster of private collectivisms; masking itself as a system of free enter- 
prise after the American model, it is in fact becoming a concealed 
cartel system after tne European model" seems to me to have been 
proved to the hilt. 

It has been said, and it was said often at these hearings, that cartels 
are "Kinder der Not." Necessity may determine the precise time of 


cartel formation but they can meet that necessity only if at least four 
other sets of favorable circumstances are present, having reference 
respectively to the nature of the market, the nature of the product, 
the nature of the industry and the character of the members o^ the 
proposed cartel. The market must show some degree of inelasticity 
of demand. The product. ordinarily must be standardized and easily 
definable with respect to its quahty. The industry most favorably 
acceptable to the formation of cartels is th^t with heavy fixed or 
overhead costs or large transport costs, one least capable of being 
rapidly adjusted to changing market conditions. The members must 
have a certain degree of propensity for collective agreement and 
action. These conditions exist especially in the basic (mineral) and 
heavy industries. Where the situation is different, for instance where 
a large niunber of small or medium sized estabhshments produce 
specialized commodities, cartels are only selling-terms or cost-accoimt- 
ing associations (e. g., clothing, foodstuff and other finishing indus- 

Some writers insist on making a sharp distinction between the 
defense and aggression motive of cartels. But this is of relatively 
Uttle significance so far as my definition is concerned since for the 
problem of governmental supervision or legal enforcement it is un- 
important which of two illegal purposes cooperation was striving to 
achieve when it was created, since also here the old French saying is 
true: Vappetit vient en mangeant. The distinction in substance be- 
tween a very close, strong cartel, e. g., a syndicate, and a merger 
corporation or community of interests or fusion is sometimes negligible. 

Cartels, in short, are formed not only in periods of necessity for self- 
preservation — that is, for defense — but also at other times as a method 
of increasing economic power — that is, for purposes of aggressive 
attack. For ordinarily a cartel has a rather dramatic hfe. Fre- 
quently the necessity to influence the market causes a cartel to de- 
velop from modest beginnings through fiercest struggle into an or- 
ganization whose goal is a quite imperiahstic domination of the entire 

The aggressive portions of the poUcies of such cartels are directed 
within the cartel against breach of the cartel agreement on the part of 
members. Hereby I speak only of the cartel itself, not of the struggles 
among the members between small and large enterprises, high-cost 
and low-cost producers and so on. 

Outside the cartel its methods are directed in the domestic markets 
against the competition of outsiders. Cartels have been known to 
engage in sharp price-cutting, selling below cost and "fighting". 
prices. They may endeavor to cut ofl' important sources of supply and 
credit, sometimes through exclusive dealing agreements and some- 
times by means of boycotts announced to all concerned. I take up 
these matters in greater detail when I discuss section 9 of the Kartell 
Act of 1923. 

In the third place, aggressive poHcies may be directed against foreign 
markets. In the relauonship between cartels and foreign markets we 
have to distinguish two motives which drive cartels into such a policy. 
It is relatively infrequent that cartels extend their market control to a 
contested foreign market merely in order to foster an imperialistic 
poUcy but it is very often the preparation for a coming international 
cartel. The stronger the situation of a national cartel is at the time of 


fouudiiig an international cartel, the greater are the prospects to get 
a favorable quota. 

But there is still another factor causmg aggressive activity of cartel 
members in foreign markets — ^that is, the pressure of productive capac-' 
ity from the home market. In such a case, export price policy is used 
to bolster domestic cartel policy. Selling at lower prices abroad is 
advantageous to cartel members since the increased output reduces 
the fixed costs per unit of output. How far cartel members may go in 
lowering their prices below cost depends upon the margin of profit 
obtainable on the home market and the relation of export quantities 
to the total volume of output. The export activity of members is 
often favored by specific cartel measures such as export premiums and 
the fact that export quantities are not taken into account in levying 
contributions to the cartel treasury. I understand that a study under- 
taken by the Department of Commerce for the Temporary National 
Economic Committee shows the above-mentioned practices to exist 
in a number of industries. In each of these, if German and European 
experience is any guide, there probably exist cartel-like organizations. 

On one occasion in these hearings the question arose what a cartel 
has in common with restraint of trade. The answer is: everything. 
A cartel is a combination in restraint of trade. In one of the first 
American cartel cases Chief eJustice Taft-^then judge of the Circuit 
Court of Appeals for the Sixth Circuit^ — declared contracts made with 
a view to check ruinous competition illegal as contracts in restraint 
of trade, U. S. v. Addyston Pipe ds Steel Co. (85 Fed. 271, 1898). _In 
that case six corporations had made an agreement to assign territories, 
fix prices, and so on. I wish to emphasize, however, that the term 
"restraint of trade" is no more definite or clear than the concept 
"monopoly" and "cartel." 

It would lead us Siw&j from the subject matter of our discussion if I 
should explain the substitute which I suggest for the present standards 
of illegality in the American anti-trust laws. 1 have transmitted a 
memorandum to your committee on this problem, entitled "A new 
appproach to competition, and monopoly." Suffice it here to say that 
the major shortcomings of the present anti-trust laws and the law on 
unfair competition, in my judgment are as follows: 

1 . The language of the antitrust laws is not clear and concise enough. 

2. The courts are called upon in antitrust law cases when it is too 
late. On the other hand, they are unable to supervise economic de- 

3. There must be an administrative agency for which a proper 
method of operation has not yet been developed. 

4. The shortcomings in the law of imfair competition, recognized by 
the majority of American critics, derive from the fact that the legal 
nature of the competitive relationship is still unexplored. 

Therefore I tried to explore the competitive relationship and reach 
the result that its position within the system of the law of torts is differ- 
ent from that advocated in the doctrine of justification. I hold that 
the ambiguous term "monopoly" should not be used in legal language 
and suggest that it be supplanted by the term "anticompetitive 

Since competition is (1) struggle (2) according to game-like rules 
(3) by means of constructive effort (tliis is my equivalent for the Ger- 
man word "leistungswettbewerb" which I introduced in^o the language 


of the German law, taking it from the phraseology of German econo- 
mists) (4) subject to the conditions of the market, any act which vio- 
lates one of these four elements constitutes anticompetitive conduct 
and is Olegal as e violation of the spirit of the antitrust laws if it con- 
travenes or disavows the fundamentals of the competitive order 
(elements 1 and 4) and is illegal as unfair competition if it violates the 
rules of competition (elements 2 and 3). 

Any agreement by which competitors make peace, that is, supersede 
peace to struggle, and any act by which a competitor comes mto the 
position of influencing the market is, therefore, a violation of the anti- 
trust laws. The former is always a tortious act which belongs to the 
jurisdiction of the courts, the latter is an economic condition that 
should be supervised by an administrative agency. Where, however, 
peace is inevitable, it may be allowed by this agency; where the 
influence of market is the voluntary or involuntary consequence of 
business activities, it is to be regulated or supervised by this agency. 

The legal situation which is brought about by this theory is shown 
(1) m cases of unfair competition, (2) in the example of the patent 
cases in the glass container industry in connection with the recom- 
mendations of the Department of Justice as stated in the preliminary 
report of the T. N. E. C. of July 17, 1939, p. IS.^ 


Though the development of the combination movement differs 
considerably among modem industrial nations, there is at bottom a 
curious conformity in their experience in that sooner or later all reach 
that stage of legal consideration which is epitomized in the American 
antitrust laws with the term "rule of reason." Before dealing with 
German legal developments, let me show the devious manner in which 
the major countries have reached the rule of reason.^ Three different 
courses may be noted : 

(1) Countries which at the start of the combination movement in 
the latter half of the nineteenth century had a statute wliich forbade 
commercial combinations expressis verbis and then developed the 
rule of reason by way of interpretation in order to mitigate the appar- 
ently rigid and unreasonable prohibition of the statute. For example, 
the United States where the Sherman Act of 1890 was modified by 
the Standard Oil (221 U. S. 1-1911) and Tobacco cases (221 U. S. 106- 
1911). . 

(2) Countries where the rule of reason was adopted in order to 
dilute a statute which prohibited combinations generally but was 
interpreted to apply also to commercial combinations. This situation 
is similar to that in the United States — see (l)-^except that the 
statutes were not directed against monopoUes expressis verbis but 
were passed in times when no one anticipated the modem monopolies. 
For example, France where the ChapeUers Ax;t of 1791 and the Penal 
Code, article 419, 420 of 1810 prohibited coalitions both of employers 
and workers but were modified by the courts through the development 

1 The fundamental ideas of this memoranflum have been developed in a series of articles to be published 
in the February and , April, issues of the Georgetown Law Journal 1940, under the titles: "What is 
Unfair Competition?" and "Patent License Agreenjents between Competitors and the Monopoly Issue." 
The reference to these articles is made because the detailed qootations of legal and economic authorities are 
not given in my memorandum. 

> Nevertheless, the difficulties in unifying the cartel law of different countries are considerable. . See in this 
respact my opinion given in the Report of the 38tb Conference of the International Law Association, 1934. 


of the rule of reason about 1880; in 1926 a statute recognized commer- 
cial combinations as legal; and in 1935 compulsory cartels were intro- 
duced. In Belgiimi the legal development was almost the same as in 
France. Austria at the beginning had the Coalition Act of 1870 
declaring unenforceable any coalition of employers and workers. 
Th& common opinion of the necessity of commercial combinations 
was expressed rot only in several legislative proposals but also in a 
tacit approval of the cartel movement by the authorities and the 

(3) Countries where, in the beginning, the rule of reason as evoked 
by the courts was the only basis for legal consideration. For example, 
Germany which we will presently discuss more specifically. In 
England, where, under the old coinmon law rule of restraint of trade, a 
conunercial combination was legal only if the restraint was not unrea- 
sonable or against public policy, the Trade Union Acts of 1871, 1876, 
1906, 1913, 1927 apply to both commercial and labor combinations 
but pertain mainly to the problem of enforceability. Just as in 
America, a law intended to protect individual freedom was abor- 
tively transformed into a law to protect an economic principle. 

The United States is the only major country where the unfortunate 
domination of the rule of reason has never been sanctioned by a statute 
modifying the original provisions of the antitrust laws. Curiously 
enough, some of the British Dominions followed the United States 
rather than England, for example, the Union of South Africa, Canada, 
Australia, and New Zealand. 

To speak, as I have just spoken above, of the unfortunate domina- 
tion of the rule of reason sounds at first hearing per se unreasonable. 
But if we understand the technical fact that under this term the courts 
have to decide whether a cartel or any monopoHstic association is 
economically desirable or undesirable, and that courts are often able 
to answer this question only after the association under scrutiny has 
become a considerable economic power, then the grounds for being 
unable to rely upon it become clear. As I have developed in ,full 
in mjr memorandum, I prefer the device of an administrative agency 
exercising continued supervision as the body to decide in how far 
monopolistic associations or concentrations of power in a given 
industry are inevitable, desirable and controllable. 


The cartel movement in Germany did not begin to be of majoi 
significance until after the year 1873. Inasmuch as there was m 
statute specifically directed against cartel agjeements, judges con 
sidering the first and fundamental decisions of the German courts 
were led nearly exclusively by economic considerations. In th( 
first case ^ where an association of Bavarian Kiln owners, formed foi 
the purpose of "checking the decline of their industry by regulation 
of production and prices," brought a suit against a member who had 
violated the agreement by producing and selling in excess of the quota, 
the Bavarian Supreme Court held that it would be "incumbent upon 
prudent business men" "belonging to a branch of industry which is 
suffering from a depression to get together and enter into agreements 

' Bavarian Supreme Court, April 7, 1888, in Decisions of this Court, Vol. 12, p. 67. (Kiln owners associa- 


regulating the ways and means of operating their industry with a 
view to promoting recovery." Although, as is the case in the econo- 
mic literature of all countries, the views of the economists in Germany 
are and always have been widely divided, we find a surprising boldness 
in these economic statements of the jurists. They are not reluctant 
to point to economic theories like these: 

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

In a subsequent suit brought by the same cartel against another 
member, the same court ^ enunciated economic views greatly em- 
phasized 50 years later by the business men, whether in Govern- 
ment service or out of it, who conceived, initiated and administered 
the N. R. A. in the United States. It argued: 

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

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

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

The legal arguments of the courts were derived from two points of 
view; the one was that the German law was not based upon the 
principle of free competition in the sense that the law will endeavor 
to preserve competition; the other that the cartel agreement was 
not against honos mores, and therefore void. 

Fatal to the whole future development of the law were the ideas 
of the Saxon Woodpulp case. I could argue this proposition at 
length. But, that which Mr. Justice Brandeis has shown in one of 
his excellent dissenting opinions ^ is also true here. Most decisive 
for the results reached in any case are the economic and social views 
of the judges. The judges of that epoch were influenced by par- 
ticular and m my judgment one-sided economic considerations, in 
turn derived from doctrines of the historical school of economics 

' Dec. 27, 1888, Decisions of the Bavarian Supreme Court, Vol. 12, p. 22. 

» Decisions of the German Supreme Court of June 25, 1890 (28 R. G. Z. 244) and of Februar- 4, 1897 (38 
R. O. Z. 166.) 

» In Dupfex PHntiru Preu Co. v. During 264 U. S. 443 (1921); se6 also Chief Justice Taft in the District o] 
Columbia Minimum Wane cate 261 U. S. 626 (not to speak of splits within the United States Supreme Court 
In recent years). 


which was opposed on principle to free competition and to the method 
of economic analysis associated with classical economics. 

For about 30 years this attitude of the judiciary fostered the 
flourishing of the industrial combination movement, so that, when 
eventually public opinion cried for a special statute against the abuse 
of power by cartels, it was too late to forbid them altogether. 

There were, of course, a great many other reasons favorable to such 
a development: For instance, tlie fact that the ordinary courts were 
concerned with cartels at a comparatively late date because of the 
popularity of arbitration courts in this held of law. Considerable 
significance must also be attached to the peculiar developments in 
the political economy of the period, for cartels were credited by the 
capitahsts with paving the way for a slow but permanent remolding 
of the economic order on a more stable basis. By Socialists they were 
welcomed in that they were thought to lead to some sort of "organized 
capitalism," comprising a system of extensive monopolies controlled 
by the State, which would finally be converted into a Socialist economy. 
Moreover, business opinion then in Germany, as at present in the 
United States regarded contentions that cartels were in many respects 
but forms of monopoly not only as mistaken but radical and slander- 
ous. Finally the ideal of individual freedom has never been so 
highly estimated in Germany as in England and the United States.^ 


Not until 1923 was there even a shadow of opposition to cartels in 
Germany. Then the "Statute against abuse of economic power" of 
November 2 came into existence but at a time when the power of 
economic circumstances, especially of the emergencies caused by 
currency inflation, was much greater than that of the cartels. 

The curious struggle between the English common law and equity 
courts or between the American administrative agencies and the courts 
has its German counterpart in the opposition of the ordinary courts 
and especially the Supreme Court to the cartel court which was 
established through the Cartel Act of 1923. , This is a genuine struggle 
between the judiciary and an administrative agency, for the cartel 
court, though it is called a court, is in fact a judicially organized 
administrative agency, the peculiarity of which was that it was at 
once the tribunal of first and last resort. In substance it was a 
Federal Trade Commission except that its decisions were not subject 
to judicial review. 

The antagonism between judiciary and administrative agency 
ordinarily becomes more apparent when questions of the ordinary law, 
of the conmion law, are in issue. This was the case not only when 
American courts declared that it was for them to determine what 
methods of competition were to be deemed unfair (see Federal Trade 
Commission v. Gratz, 253 U. S. 421), but also in the German cartel 
law where all cases which came before the cartel court were cases 
apparently presenting problems of the ordinary law transferred from 
the sphere of individual interests into the struggle between individuals 

' About a year ago the New York Times Magazine, November 27, 1938, p. 27, wrote: "The Germans are 
inherently a docile and obedient people. Always have they been under tutelage of King or Kaiser, Prince or 
Duke. In large part that tutelage has been paternal and for good (incidental to that of the ruler), but there 
has always been the mailed flst to make it effective. The consequence is that Germans have come to 
prefer being led." German authors have not infrequently pointed to this national characteristic as an 
explanation of the German ciurtel movement. 


and organizations. My treatise on the German cartel law, page 705, 
contains a table of all decisions of the cartel court from 1923 to 1933 
indicating the legal problems involved. Apart from a few questions 
of procedure, all other problems are those referring to sections 1, 
8, and 9. 

Section 1 pertains to the cartel concept. I already mentioned the 
split in the opinions of the Supreme Court and the cartel court. 

Section 8 deals with the right of a member of the cartel to withdraw 
if serious