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INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
HEARINGS
BEFORE THE
TEMPOKAEY NATIONAL ECONOMIC COMMITTEE
CONGEESS OF THE UNITED STATES
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 INVESTIGA-
TION WITH RESPECT TO THE CONCENTRATION OF
ECONOMIC POWER IN, AND FINANCIAL CONTROL
OVER, PRODUCTION AND DISTRIBUTION
OF GOODS AND SERVICES
PART 27
IRON AND STEEL INDUSTRY
DISTRIBUTION AND PRICING OF SELECTED STEEL PRODUCTS
THE BASING POINT SYSTEM
JANUARY 26, 27, 29, AND 30, 1940
Printed ^or the use of the Temporary National Economic Committee
UNITED STATES
GOVERNMENT PRINTING OFFICE
124491 WASHINGTON : 1940
NORTHEASTERN A" ^
•Alternates.
TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Created pursuant to Public Res. 113, 75th Cong.)
JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMNERS, Representative from Texas, Vice Chairman
WILLIAM H. KINO, Senator from Utah
WILLIAM E. BORAH, Senator from Idaho
CLYDE WILLIAMS, Representative from Missouri
B. CARROLL REECE, Representative from Tennessee
THURMAN W. ARNOLD, Assistant Attorney General
•WENDELL BERGE, Special Assistant to the Attorney General
Representing the Department of Justice
JEROME N. FRANK, Chairman
•LEON HENDERSON, Commissioner
Representing the Securities and Exchange Commission ..i
GARLAND S. FERGUSON, Commissioner ^31
•EWIN L. DAVIS, Commissioner VH
Representing the Federal Trade Commission ^~^
ISADOR LUBIN, Commissioner of Labor Statistics
•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics "-^
Representing the Department of Labor
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel .^^
•CHARLES L. KADES, Special Assistant to the General Counsel QM
Representing the Department of the Treasury j™»J
CLARENCE C. AVILDSEN, Special Adviser to the Secretary XStS
Representing the Department of Commerce "^
JAMES R. BRACKETT, Executive Secretary
REPRINTED
BY
WILLIAM S. HEIN & CO , INC
BUFFALO N. Y.
1968
CONTENTS
Testimony of — Page
Adams, Avery C, vice president, United States Steel Corporation,
Pittsburgh, Pa 14157-14230, 14234-14261
Custer, A. B., administrative officer, Purchase Division, Bureau of
Supplies and Accounts, Navy Department, Washington, D. C. 14307-14312
de Chazeau, Melvin G., professor of economics, University of Virginia,
Charlottesville, Va 14130-14149
Dorenbusch, A. A., general sales manager, Newport Rolling Mill Co.,
Newport, Ky 14279-14288
Ezekiel, Mordecai, economic adviser to the Secretary, Department of
Agriculture, Washington, D. C--, 14154-14156
Fairless, Benjamin F., president, United States Steel Corporation,
New York City 14157-14230, 14232-14278
White, Hugh E., examiner. Federal Trade Commission, Washington,
D. C 14231, 14293-14307
Widmann, Edward T., attorney. Federal Tradt Commission, Wash-
ington, D. C-. 14289-14293
Wooden, Walter B., assistant chief counsel, Fedcal Trade Com-
mission, Washington, D. C 14313-14329
Yntema, Theodore Otte, professor of economics, Univer^ty of Chicago,
Chicago, 111 14150-14153
Form A questionnaire. 14130
Form B questionnaire 14133
Analysis of distribution of selected steel products 14134
Fabrication-in-transit rates and price cutting 14142
Relationship between steel prices and production and general activity 14150
Federal Trade Commission's analysis of United States SteeL Corporation's
report on the basing point system ' 14lt'>6
The basing point system in the steel industryand deviations from it Hlb'
Effectiveness of commercial resolutions since N. R. A -.. 14211
Policy of price announcement since spring of 1 936 142 15
Freight rate book of the Iron and Steel Institute 14222
N. R. A. code provisions continued after N. R. A. invahdation 14232
Freight rate compilations by the Iron and Steel Institute 14246
Comparison of Pacific coast and Birmingham prices 14255
Prices in the Detroit area 14259
Development of the Pittsburgh-plus system 14261
Price discussions among competitors 14280
Identical bids in the steel industry 14289
Excess capacity in production of sheets and hot-rolled strip 14301
Comparison of costs and prices at Pittsburgh, Chicago, and Birmingham. 14304
Identical bids received by the Navy Department 14308
Federal Trade Commission's summation of the monopolistic characteristics
of the basing point system . 14312
Schedule of exhibits iv
Friday, January 26, 1940 14129
Saturday, January 27, 1940 , 14187
Monday, January 29, 1940.-.' 14229
Tuesday, January 30, 1940 ^ 14279
Appendix . 14331
Supplemental data 140 ly
Index ^
IV
CONTENTS
SCHEDULE OF EXHIBITS
Number and summary of exhibits
2189. Form A, data on the distnoution of selected carbon
steel products, and letter of instruction from
Thurman Arnold
2190. Form B, data on the distribution and pricing of
selected steel products, and letter of instruction
from Thurman Arnold
2191. Companies reporting. Forms A and B
2192. Affidavit and verification
2193. Form A or B, consuming districts of the United
States
2194. Supplement to Form B tables
2195. Table: Form B summary — February 1939
2196. Table: Published base prices, February 1939
2197. Tables: Heavy Structural Shapes; Plates; Hot
Rolled Sheets; Hot Rolled Strip
2198. Tables: Summary of analysis of Form B distribu-
tion of selected steel products, February 1939
2199. Chart: Dispelling the Fog, 1938, compilation of
basing points classified by products issued by
Republic Steel
2200. Letter from Carnegie-Illinois Steel Corporation to
its sales managers announcing price program
2201. Letter from Carnegie-Illinois Steel Corporation to
its sales managers re : price announcement
2202. Article from Iron Age, "Steel Buyers Overwhelm-
ingly Opposed to F. T. C. Plan of Steel Pricing"...
2203. Circular letter of Walter S. Tower, executive secre-
tary of the American Iron and Steel Institute
2204. Copy of draft of preamble and resolutions adopted
by the board of directors of the American Iron
and Steel Institute .
2205. Resolution adopted by members of the iron and
steel industry assembled, at American Iron and
Steel Institute, June 6, 1935...
2206. Commercial resolution adopted by the board of
directors of the American Iron and Steel Insti--
tute as amended June 14, 1934
2207. Commercial resolution adopted by the board of
directors of the American Iron and Steel Insti-
tute, June 14, 1934-.
2208. Iron and Steel Industry Code of Fair Competition
regulations as amended Oct. 11, 1934
2209. Table: Freight tariff, American Iron and Steel
Institute
2210. Table: Government tonnage record, 1939
2211. Table: Government tonnage record, 1938
2212. Excerpt from a price announcement of the Carnegie-
Illinois Steel Corporation on June 4, 1936
2213. No exhibit.
2214. Letter from A. A. Dorenbusch to A. K. Andrews,
president, Newport Rolling Mill Co
2215. N. R. A. code of fair competition for the iron and
steel industry as approved by President Roose-
velt on Aug. 19, 1933
2216. Supplemental commercial resolutions adopted by
the board of directors of the American Iron and
Steel Institute
Intro-
duced at
page
14129
14129
14129
14129
14130
14130
14130
14130
14130
14130
14192
14219
14219
14229
14231
14231
14231
14233
14236
14246
14247
14275
14275
14257
14280
14288
14288
Appears on page
14331-14335
14336-14339
14339-14341
14341
14341-14343
14343-14347
14347
14348
14348-14423
14423-14428
Facing
14428
14428
14429-14430
14430-14434
14434
14434
14435
14435
14436
14437-14441
14442-14443
14444-14457
14458-14505
14506
14506
14506-14530
(0
' On file with committee.
CONTENTS
SCHEDULE OF EXHIBITS— Continued
Number and summary of exhibits
2217. Letter from American Iron and Steel Institute to
Lukens Steel Co., July 12, 1935
2218. No exhibit.
2219. No exhibit.
2220. Letter from Lukens Steel Co. to American Iron and
Steel Institute, Oct. 15, 1935
222i. Letter from American Iron and Steel Institute to
St. Louis-Southwestern Railway Lines, Oct. 15,
1935
2222. Letter from American Iron and Steel Institute to
Boston and Maine Pailroad, July 18, 1935
2223. Letter from American Iron and Steel Institute to
Lockhart Iron and Steel Co., Sept. 9, 1935
2224. No exhibit.
2225. Letter from Lockhart Iron and Steel Co. to Amer-
ican Iron and Steel Co.,- Sept. 4, 1935
2226. Letter from American Iron and Steel Institute
Traffic Committee, to chairman of Commercial
Committee, Jan. 29, 1934
2227. No exhibit.
2228. Letter from Reading Iron Co. to American Iron &
Steel Institute, Nov. 27, 1935
2229. Letter from Bethlehem Steel Co. to American Iron
& Steel Institute, Dec. 2, 1935
2230. Letter from the Youngstown Sheet and Tube Co. to
the Bethlehem Steel Co., April 11, 1935
2231. Table: Analysis of "Government Tonnage, 1938"
and "Government Tonnage, First Quarter 1939".
2232. Table: Numerical measurement of awards for
rolling mill products and all other steel products _
2233. Chart: Total steel ingot capacity. United States;
ingot capacity, United States Steel Corporation;
total ingot production, United States
2234. Table : United States capacity for the production of
hot rolled sheet and hot rolled strip steel; indi-
vidual and total capacities of the 16 principal
producers of sheet and strip steel and ratio of
production to total capacity
2235. Chart: Total capacity United States for produc-
tion of hot rolled sheet and liot rolled strip steel;
annual capacity of the 16 principal producers of
hot rolled sheets and hot rolled strip; produc-
tion, United States, hot rolled sheets and hot
rolled strip
2236. Excerpts from "Financial Analysis of the Steel
Industry," purporting to show certain facts re-
specting certain producers of rolled steel having
a rated annual ingot capacity in excess of one
million tons
2237. Tables: Relative mill cost of manufacturing struc-
tural shapes, plates, merchant bars and black
sheets in the Pittsburgh, Chicago, Duluth, and
Birmingham districts, for the 2 months' period
of January and Februarv 1921, and the year
1920
2238. Table: Statement of relative mill costs of finished
steel and the sales prices thereof at various pro-
ducing points
2239. Chart: Showing comparative margins between cost
of producing steel and the selling prices thereof at
Pittsburgh, Chicago, Birmingham, and Duluth. _
Intro-
duced at
page
14290
14290
14290
14290
14291
14291
14291
14292
14292
14293
14295
14296
14299
14302
1430S
14304
14305
14305
14305 I
Appears on page
14530-14532
14532
14532-14533
14533
14534
14535
14535
14536
14536
14536-14537
14538
14539
14539
14540
14541
14542-14543
14544-14545
14546
Facing
14546
VI
CONTENTS
SCHEDULE OF EXHIBITS— Continued
Number and summary of exhibits
Intro-
duced at
page
Appears on page
2240. Invitation for bids issued by Navy Department,
Bureau of Supplies and Accounts, opened Nov.
19, 1935
2241. Invitation for bids issued by Navy Department,
Bureau of Supplies and Accounts, opened May
26, 1936
2242. An arialysis of the basing point system of delivered
prices
14307
14307
14329
SUPPLEMENTAL DATA
Exhibit introduced in Hearings, Part 20
1418. The basing point method of quoting delivered prices
in the steel industry
14547
14548
14548-14618
14619-14694
INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER
FRIDAY, JANUARY 26, 1940
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 10:40 a. m., pursuant to adjournment on
Thursday, January 25, 1940, in the Caucus Room, Senate OflSce
Building, Senator William H. King, Utah, presiding.
Present: Senator King (acting chairman); Representative Williams;
Messrs. O'Connell and Davis.
Present also: Walter B. Wooden, Assistant Chief Counsel, and
Willis Ballinger, Director of Studies for the Federal Trade Commis-
sion, representing the Federal Trade Commission; Frank P. Smith,
representing the Securities and Exchange Commission; A. H. Feller,
special assistant to the Attorney General, Department of Justice;
W. A. Janssen and John V. W. Reynders, representing the Depart-
ment of Commerce.
Acting Chairman King. The committee will be in order.
Mr. Feller. Dr. deChazeau, please.
Acting Chairman King. I suppose Dr. Yntema ought to be aroujid? '
Mr. Feller. He will be called later.
Mr. Chairman, I offer for the record a series of tables and docu-
ments prepared by the Departmient of Justice. I shall read the list
of documents.
Acting Chairman King. Are they all to be placed in the record?
Mr. Feller. Yes, sir.
Acting Chairman King. All right, but I am not sure as to the
materiality of this.
Mr. Feller. Letters of instruction sent to various steel companies,
covering Form A and a copy of Form A.
(The documents referred to were marked "Exhibit No. 2189"
and are included in the appendix on pp. 14331-14335.)
Mr. Feller. Letters of instruction covering Form B and a copy
of Form B.
(The documents referred to were marked "Exhibit No. 2190" and
are included in the appendix on pp. 14336-14339.)
Mr. Feller. A list of companies on Form A and Form B.
(The list referred to was marked "Exhibit No. 2191" and is mcluded
in the appendix on pp. 14339-14341.)
Mr. Feller. Copy of the affidavits executed by each of the com-
panies for Form A and for Form B.
(The document referred to was marked "Exhibit No. 2192 ' and is
included in the appendix on p. 14341.)
1 Dr.Theodore Otte Yntema, whose tesCfmony for the U. S. Steel Corporation appears In hearings, Part 28.
14129
14i30 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. An outline of consuming districts for Form A and
Form B.
(The document referred to was marked "Exhibit No. 2193" and is
included in the appendix on pp. 14341-14343.)
Mr. Feller. Supplement to the Form B tables.
(The document referred to was marked "Exhibit No. 2194" and is
included in the appendix on pp. 14343-14347.)
Mr. Feller. A summary of the results obtained from the answers
on Form B.
(The document referred to was marked "Exhibit No. 2195" and is
included in the appendix on p. 14347.)
Mr. Feller. A list of the published base prices for reported prod-
ucts Form B for February 1939.
(The dDcument referred to was marked "Exhibit No. 2196" and is
included in the appendix on p. 14348.)
Mr. Feller. Eighteen Form B tables, on each of the following
products: Heavy shapes, plates, hot rolled sheets, and hot rolled
strip.
(The documents referred to were marked "Exhibit No. 2197" and
are included in the appendix on pp. 14348-14423.)
Mr. Feller. Lastly, summary of analysis of Form B, distribution
of selected products, February 1939.
(The document referred to was marked "Exhibit No. 2198" and is
included in the appendix on pp. 14423-14428.)
TESTIMONY OF MELVIN G. deCHAZEAU, UNIVERSITY OF VIRGINIA,
CHARL0TTE3VILLE, VA.— Resumed
Dr. deChazeau. As part of its investigation of the iron and steel
industry for this committee, the Department of Justice with the
cooperation of the Federal Trade Commission undertook a study
of the distribution of shipments of certain selected steel products
and a more detailed examination of certain pricing characteristics
for some of them. I need not point out that this project was under-
taken because there were no data available for any recent period
showing the geographical distribution of steel products nor the magni-
tude of such pricing phenomena under a basing-point system as freight
absorption, phantom freight, mill-net prices received, the extent to
which the basing-point formula of pricing was observed, or the relative
importance of extras in the price of steel. To obtain these data two
questionnaire forms were devised, known as Form A and Form B.
THE FORM A QUESTIONNAIRE"
Dr. deChazeau. Form A was restricted to tonnage of shipments
only, on 18 products in each of the years 1936, 1937, and 1938. To
preclude the burden of an invoice analysis, it was first ascertained
from most companies of any size in the industr}^, some 57 in all, how
these shipments were recorded, if at all. Twelve of the large
companies, which maintained machine tabulating systems using
punch cards on which both State and county of destination were
punched, reported shipments by States and also by the 64 consuming
districts used for Form B analysis. These districts are defined in
CONCENTRATION OP ECONOMIC POWER
14131
the mimeographed sheets before you entitled "Form A or B : Consum-
ing districts of the United States."
I should say that these districts were not devised by us, but were
taken from a report of the National Recovery Administration on the
operation of the basing-point system in the iron and steel industry,
November 30, 1934, in which they had been developed for purposes
of that study in cooperation with the Code Authority of the American
Iron and Steel Institute.
Acting Chairman King. Had there been any departures from the
situation revealed in the documents to which you refer?
Dr. deChazeau. The document at that time did not break down
the analysis by products, but covered all products, and, secondly,
it did not break it down by producing areas but covered only ship-
ments from the Pittsburgh area, plants within 50 miles of Pittsburgh.
It covered the second quarter of 1934.
Acting Chairman King. Do you tliink a document of the vintage
of 1933 ^
Dr. deChazeau (interposing). 1934, second quarter.
Acting Chairman King. Of 1934 would be a fair standard for now?
Dr. deChazeau. If the analysis in 1934 had enabled one to compare
producing areas, and if it had broken down individual products, then
I should agree with you that there would be no point in getting a
more recent record, except of course, that there has been a change in
the basing-point structure of considerable magnitude, namely, in June
1938.
Mr. O'Connell. With reference to 1934 you referred only to the
breaking down of the districts?
Dr. deChazeau. That's right.
Mr. O'Connell. You are not introducing anything that has to do
with that?
Dr. deChazeau. Nothing of that sort. I understood the Senator
to question why we should make another analysis in view of the fact
that that study had been made. My answer was responsive to such a
question. All we took from that study was the delineation of consum-
ing districts. These were defined in terms of counties.
Actmg Chairman King. Are the consuming districts the same now?
Dr. deChazeau'. The consuming districts which we have used in
this analysis are identical with those consuming districts; yes, sir.
Through the courtesy of the United States Steel Corporation, I call
your attention to this map, prepared by its staff, in which the consum-
ing districts which transgress State lines are blocked in colors. "With
the exception of those that are blocked in colors, the consuming
districts are states, or, in cases where the consuming districts overlap a
State line, the remainder of such States. In the western part of the
United States, only California is shown on this map. In the western
area separate States were used as consuming districts with the excep-
tion of California, which was divided into two areas, northern and
southern.
It is of particular interest in connection with this map to note the
size of the consuming districts with relation to the location of mills.
For example, in the so-called Pittsburgh area, which you will note
overlaps certain counties in West Virginia, Ohio, and Maryland, Alle-
gheny County, here, is of course the primary location of steel mills.
14132 CONCENTRATION OF ECONOMIC POWER
But the consuming district is rather broad with relation to such mill
location. Confusion, therefore, is likely to occur in analyzing ship-
ments in this area in which you have high concentration of mills.
Mr. Wooden. Mr. deChazeau, does that map purport to sho\v that
no shipments are made outside of the districts that are shown in the
respective colors by the mills within those districts?
Dr. deChazeau. No, sir. This map implies nothing about ship-
ments; otherwise I would not use it. It merely indicates visually the
various districts which were in fact used in this analj^sis. In all cases
in which color is not blocked in, the consuming districts are bounded,
by State lines, such as Massachusetts, Rhode Island, Vermont, New
Hampshire.
Acting Chairman King. Well, of course that color map represents
consuming districts as well as producing districts, as I understand you,
at least some of the consuming districts — —
Dr. deChazeau. (interposing). For purposes of this analysis we
considered consuming districts or combinations of consuming districts
as producing areas, since it was not practical to take individual mills.
Mr. Reynders. I don't think we understand the significance of the
particular areas. Perlbaps you will '"^'n that a little bit so we will
understand what it is all about.
Dr. deChazeau. I am not sure that I get the import of the question.
The basis of the division of the various consuming districts was, of
course, their relative importance as consuming areas for steel. This
leads, for example, to setting off a district here called Metropolitan
New York as contrasted, say, with this district here called Phila-
delphia. You will find no New Jersey area. These two metropolitan
areas absorb the state.
Mr. Reynders. Tak« the area around Chicago. Why do you
limit it to that extent, or why don't you go beyond the area that is
indicated?
Dr. deChazeau. With the details which were considered by the
National Recovery Administration and by the Code Authority in
delimiting these districts, I am not familiar. There were two reasons
for adopting their district break-down: first, I have faith in those who
worked on it, particularly Prof. J. M. Clark of Columbia University;
and second, some companies have used these areas for the break-down
of their own shipment records. Therefore, if we were to use any
definition of areas less than States, these seemed appropriate.
Now one other thing. It is obvious, of course, that markets for
steel do not conform necessarily with State lines. Hence areas which
extend beyond State lines often give a far better picture of distribution
with relation to a given mill or group of mills. On the other hand it
is quite clear that, no matter how one breaks down distribution with a
single group of districts one cannot delimit the most important market
areas for every group of mills and for each product. Selection of
districts must be made on an average basis. It must be arbitrary; but
it permits a more significant study than state areas alone would
provide.
Sixteen companies, the records of which would permit a report by
States only — I am still talking about Form A — reported on that basis,
and 1 1 other companies reported by sales districts. All reports were
made separately for each plant in each year — 1936, 1937, 1938.
Minor adjustments made to facilitate reporting need not be discussed
at this time.
CONCENTRATION OF ECONOMIC POWER 14133
FORM B QUESTIONNAIRE
Dr. deChazeau. Form B, on the other hand, required an invoice
analysis. In addition to tonnage shipped into each consuming dis-
trict, each reporting company recorded— for shipments into each
district— total delivered value, total freight from basing point to
destination, total freight paid or allowed from point of shipment to
destination, and total extras included in the delivered value.
I should note in passing that such data enable one to compute
"phantom freight" as opposed to '-freight absorption," that is the
freight from the basing point to destination, minus the freight allowed
from the mill to destination. It likewise enables one to determine a
computed base price— i. e., the deHvered value less the freight added
from the basing point, less the extras — which, per ton, should be
comparable to the pubhshed base price. There are other relations
that may be worked out.
Separate, reports were required for each plant and for each of 10
products as well as for each basing point on which price was computed.
To minimize the burden of the work, reporting plants were selected
independently for each product on the basis of their location and
their importance in terms of capacity. That is, each plant did not
report on every one of the 10 selected products for which it had capac-
ity, but only on a selected number for which it was judged especially
important. For all 10 products, there were roughly 175 "plant
product" reports made by 55 companies in all.
Most of these companies reported on a single product for a single
plant. Again, to render the project feasible, a single current month.
February 1939, was selected as the period for which reports were
required.
Acting Chairman King. Was there any significance in the selection
of those 2 months?
Dr. deChazeau. In the selection of February 1939?
Acting Chairman King. Yes.
Dr. deChazeau. We wanted a month for which we could expect,
returns as soon as possible; but the reason for choosing February
rather than January was that it is a middle of the quarter month.
These two questionnaires were sent to the industry on December
23, 1938 (Form B), and January 19, 1939 (Form A). The last repHes
were received by the department during the latter part of August
1939.
February was preferable to January because the probability of
shipments at past-quarter prices is reduced. It is not eliminated,
but to the extent that it is reduced, the middle of the quarter month
would permit less ambiguous conclusions.
Of course, we took a risk that prices might be altered during the
month. Fortunately, this did not occur so far as pubhshed prices
were concerned, or so far as we have been able to check the actual
prices published by the companies during that period.
Mr. Wooden. What proportion of all shipments during the month
of February do you think this covers?
Dr. deChazeau. I am going to take that up, Mr. Wooden.
The burden of the task shouldered by reporting companies was
great, especially for the large integrated companies, and I want
publicly to acknowledge the splendid cooperation evidenced by them.
14134 CONCENTRATION ol' StJONOMIC POWER
ANALYSIS OF DISTRIBUTION OF SELECTED STEEL PRODUCTS
Dr. deChazeau. The analysis of these data is not complete. A
machine tabulation of both Form A (with the exception of reports by
sales districts) and Form B was made to permit an analysis of the
data by a series of classifications for each product; for example, by
grouped plants in each consuming area, by grouped plants within 25
miles of basing point and within 50 miles of basing point; by grouped
plants according to degree of plant integration and company integra-
tion; by basing points on which products were priced, and by various
other combinations. Because of a grave limitation of staff, it has
been possible to complete the analysis for selected classifications of
only 6 out of the 10 products reported on Form B. Two of these,
sheet and tin-plate bars and cold-rolled sheets, have not been finally
checked and therefore are not presented this mornmg. The distri-
bution of products under Form A (i. e., tonnage distribution in the
3 years 1936-38) has been analyzed only to the extent of providing
a check on the representative character of the distribution during the
month of February 1939 for the Form B products studied. The
presentation this morning therefore is in the nature of an interim
report.
The primary object of the Form B study of distribution was to
provide a factual answer to many questions which have been raised
with regard to the effects of the basing-point system of pricing in the
steel industry. From this point of view, it was considered both un-
necessary and unwise that the Department of Justice should encroach
on that part of the investigation reserved to the Federal Trade Com-
mission, namely, the social or economic desirability of a basing-point
system of pricing as contrasted with any other pricing system.
In the construction of tables for summary presentation of results
before this committee, therefore, no attempt has been made to delimit
the economic market of any mill or group of mills either under a
basing-point system of prices or any other pricing system, nor is any
judgment implied as to the desirability of any given pricing system.
Rather, we have tried to present these data in as many alternative
ways as time and staff would permit to the end that they might be
most useful for tliis committee and the various parties in interest in
this investigation. Finally, although this study provides a more
accurate statistical measure of the relative importance of certain con-
tentions with respect to pricing practices of the steel industry under
the basmg-point system, the underlying conditions in the industry are
so complex that it cannot be considered definitive. In fact, I doubt
whether one could ever arrive at a definitive conclusion in the statisti-
cal sense.
Acting Chairman King. Permit an inquiry: In your study for the
presentation data, did you have before you the investigations which
were made and the conclusions reached and the action taken by the
government during the N. R. A. period?
Dr. deChazeau. I have made an extended study of those, Senator.
The analysis which I present to you this morning covers four hot-
rolled steel products: heavy structural shapes, plates, sheets, and
strip. Two heavy steel products, both of primary importance in
construction (including shipbuilding) and two light steel products,
for which the automobile industry is the most important user, al-
CONCENTRATION OF ECONOMIC POWER 14135
though there are many otlier uses. This study is incorporated in 18
tables for each product wiiich, I hasten to add, I do not intend to
discuss in detail.'
I call your attention, first, to the table before you entitled "Form B
Summary." In this table is shown for each of the 10 products re-
ported on Form B the total tonnage of shipments analyzed. This
figure of tonnage shipped is substantially lower than the actual total
of each product sliipped by reporting companies in the period. F. o. b.
mill sales, shipments to plants or warehouses of the same or affiliated
companies (includmg fabricators of the same or affiliated companies),
shipments to jobbers' warehouses, and exports were excluded from the
detailed analysis of shipments to consuming districts. Some of these,
obviously, were not shipped to consuming districts as we have defined
them, while others presented complications in the compilation and
also in the evaluation of price information which would have confused
the other shipments. Shipments in these categories excluded from
the distribution analysis are shown separately in table 4a. ^ In addi-
tion to tonnage in this summary table are shown various over-all
averages per ton including delivered value, calculated base price, mill
net, extras, and freight absorption.
For comparison with computed base prices the published base
prices during February 1939 are shown in an accompanying table.
Neglecting plates, cold-rolled strip and tin plate for the moment, the
over-all computed base price for cold-rolled sheets was slightly over $5
per ton less than published base price, those for sheet and tin bars and
hot-rolled sheets were $4.62 and $4.22 below published base price;
wire rods and hot-rolled strip were $3.63 and $3.76 below. All prices
are for net tons. Heavy shapes and wire averaged lower by $1.68
and $1.46.
The reduction below base of 70 cents for plates is undoubtedly an
understatement. From the detail tables, it is clear that some com-
panies must have included floor plates in their reported shipments of
plates. Floor plates take a much higher price, $67 as contrasted with
$42 for regular plates. With cold-rolled strip, a similar error has
occurred. That is, commodity strip, a higher priced product ($62 as
contrasted with $59 for a cold-rolled strip) has been included by some
companies. These can be eliminated by going back to individual
records, but they have not been eliminated in this over-all presentation.
The effect, in cold-rolled strip, is an average computed base price of
$1.18 in excess of published price. V/ith tin plate, the anomaly is only
apparent. This product is priced per base box of a given number and
dimension of plates. Pu^blished base prices are per 100-pound base
box while the 95-pound box (a lighter gage product), for which data
were requested, takes a negative extra of 10 cents. Thus the equiva-
lent base price of a 95-pound box for comparative purposes would be
$4.90 per box, or $103.16 per net ton. An apparent excess of 36
..mts per ton in the computed over the published base price becomes m
fact a reduction of $2.80 below equivalent base price per ton.
I call attention, especially, to average freight absorption as a percent
of delivered value.
Mr. Feller. May I just see- if I get that point made clear to the
committee? What you have just been pomting out is the calculation
' "Exhibit No. 2197," appendix, pp. 14348-14421.
> Of "Exhibit No. 2197"; appendix, pp. 14421-14423.
14136 CONCENTRATION OF ECONOMIC POWER
which has been made on the basis of the questionnaire by the com-
panies, to indicate the extent to which these products were sold on price
which deviated from the published base price.
Dr. deChazeau. That is right.
Mr. Feller. You have shown that in each of the products listed
here the product was sold by the industry generally at less than the
published base price. In some places the deviation was large, in some
places it was relatively small.
Dr. deChazeau. Yes, with the exception of cold-rolled strip, in
which commodity strip is undoubtedly included, and with the ap-
parent exception of tin plate, which is not a true exception because
we have taken a 95-pound box rather than a 100-pound box. I should
point out that tin plate is sold on the base box, which is defined in
terms of a given number of sheets of given dimension. Therefore
with changes in the weight you get differentials above or below the
published price per 100-pound box.
Acting Chairman King. There is no uniformity, then, in the size of
all the tin plates.
Dr. deChazeau. There is no uniformity in gage (weight per unit
of area) and for that reason we took a single category, a 95-pound box
after discussion of the matter with the officials of the United States
Steel Corporation and Carnegie Illinois Steel Corporation.
Acting Chairman King. As I understand your testimony with re-
spect to the point that you are now discussing in reply to the question
propounded by Mr. Feller, there were deviations from the posted
price by the vendors of steel products above and below the posted price.
Dr. deChazeau. The only average deviation above published
price which we found in these 10 products is in cold-rolled strip,
and in that product we know it to be a fact that, in some cases, com-
modity strip was unfortunately included. Commodity strip takes a
higher base price. That would affect the height of the average
computed base price.
Acting Chairman King. Those departures from the reported price
were made by various reporting companies?
Dr. deChazeau. That is right.
Acting Chairman King. And their prices were not exactly uniform,
not uniform?
Dr. deChazeau. That is right. This, Senator, is the over-all
average on all shipments priced on basing points between wliich
there was no price differential. One couldn't make an over-all
statement of this kind where a differential was involved; rather, one
could only after corrections which have not been made here. These
averages apply to shipments priced on basing points at which there
was no price differential. The computed base price is derived from
the delivered value less the freight from basing point to destination
less the extras divided by tonnage shipped. One has to deduct the
extras, of course, to get a figure comparable to published base price.
Mr. Wooden. Does not the amount above base price and below
base price reflect the range, so to speak, of the mill-net?
Dr. deChazeau. Not directly, Mr. Wooden. Obviously with a
range you would get variation in the mill-net. We have shown the
mill-net less extras per ton.
Mr. Feller. Is your question this: le this figure which we have
just been discussing the equivalent of mill-net?
OONCENTRATION OF ECONOMIC POWER 14137
Mr. Wooden. Does it reflect the range of mill-net above the base
price and below?
Dr. deChazeau. No.
Mr. Wooden. What does it reflect in that regard?
Dr. deChazeau. The computed base price will have no direct
relation to the mill-net. To get at the computed base price one
deducts from the delivered value the freight from the basing point,
whereas to get at the mill-net one deducts from the delivered value
the freight allowed or paid from the mill to the destination. They are
two quite different figures.
Mr. Wooden. If more freight is allowed than actually incurred,
then the mill-net falls below the base price. Is that right?
Dr. deChazeau. If more freight is allowed?
Mr. Wooden. Than is actually paid.
Dr. deChazeau. I'm sorry. That would depend upon whether
or not there was a differential.
Mr. Wooden. Yes.
Dr. deChazeau. If there were no differential among basing points,
then with freight allowed in excess of freight from basing point you
would have a reduction -in the mill-net.
Mr. Wooden. If the freight charged is less than the actual freight,
then the mill-net is less than the base price.
Dr. deChazeau. If I get your question now, you are suggesting
that the freight allowed to the customer is less than the actual freight?
Mr. Wooden. Yes. That decreases the mill-net by that much,
doesn't it?
Dr. deChazeau. If such a situation existed that would be true.
Generally speaking, the freight allowed is the actual freight from mill
to destination, since the freight allowed is in fact paid in that case by
the customer to the railroad company.
Mr. Wooden. I am talking about where the freight figured on the
invoice is less than the freight from the basing point, then the mill-net
is increased by that much.
Dr. deChazeau. Oh, than the freight from the basing point. That
depends upon whether there is a differential or not.
Mr. Wooden. Assuming there is no differential.
Dr. deChazeau. Assuming there is no differential, then to the ex-
tent that the freight allowed from mill to destination is greater than
freight from basing point, there is freight absorption. To the extent
that it is less there is
Mr. Wooden (interposing). I think we understand each other. We
may be talking at cross-purposes by using slightly different language,
but one is a converse of the other, and that is why I asked my question
as to whether the range of mill-net was not reflected by the amount
above base price that you speak of here and the arnbunt below.
Dr. deChazeau. No ; because you are dealing with more than one
phenomenon. For example, if you have a price cut at a given destina-
tion, Mr. Wooden, it itself will affect the delivered value and will have
nothing to do with the freight from basing point or the freight allowed
to destination. Therefore, your mill-net will be reduced in that area
when you have phantom freight as well as when you have freight
absorption. Now those two are just two different things entirely.
Mr. Wooden. But you do have phantom freight and freight absorp-
tion even though the delivered price is identical, don't, you?
14138 CONCENTRATION OF ECONOMIC POWER
Dr. deChazeau. Even though the delivered price is identical from
v^arious points?
Mr. Wooden. Yes.
Dr. deChazeau. Quite right.
Acting Chairman King. You use the word "differential." That
word was employed frequently when we were discussing the situation
in Birmingham. Do you use it in the same sense?
Dr. deChazeau. In the same sense; that is, it is a published price
at a given basing point which is other than that at the lowest basing
point. Todaj, it would apply primarily to Gulf ports and Pacific
ports, since most of the differentials have been eliminated. That
isn't entirely true; there are still some differentials in certain products.
I call attention especially to average freight absorption as a percent
of delivered value, in this case adjusted for interrbasing-point price
differentials. This percentage is, roughly, 1 percent or less for sheet
and tin bars, cold-rolled strip, and tin plate. It is approximately
2 to 3 percent for all other products shown ; that is, it varies within
that range. I have noted percentages on the adjusted basis. When
sales are made into areas in which there is a price differential, from
the point of view of the mill, the adjusted basis as contrasted with
the unadjusted indicates whether the "freight absorption" is real or
whether it is nominal (i .e., its effect on the mill net.).
Already submitted for the record is an illustration of the method of
adjustment presented by the Steel Corporation, which I refer to merely
as an illustration. If, for example, we deal with
Acting Chairman King (interposing). You had better identify it
if it is in the record. *
Dr. deChazeau. It is entitled "Explanation of Unadjusted and
Adjusted Freight Absorption." ' I understand it is in the record.
I wish to call your attention merely to the way in which the adjust-
ment is made. If we assume, for example, that the actual freight paid
on a shipment to destination — ^from Chicago, say, into Texas' — is
$17.60 and that the freight from the nearest basing point, which is
Houston, to this particular destination is $8.40, that would show on
the unadjusted basis, a freight absorption of $9.20, that is, the "differ-
ence between these two items.
The basing-point price at Houston, however, is $49 whereas that at
Chicago is $42, providing a differential of $7.
Now, from the point of view of the mill, that freight absorption of
$9.20 is a purely nominal matter. The actual adjusted freight
absorption is that amount less the basing-point price differential, or
$2.20 per ton. This is what is meant by the adjusted basis.
I want to add that so long as one is dealing with a basing point
at which there is no capacity and a price differential exists, or so long
as the price differential is purely nominal (i. e., it does not measure a
difference in cost), then the comparative advantage of various mills
shipping into that area will be indicated correctly either by the adjusted
figures or by the unadjusted figures. But from the point of view of a
given mill, and particularly if you are relating freight absorption to
delivered value, the adjusted figure is the real and the unadjusted is the
nominal figure.
Now, this summary, of course
Mr. Feller (interposing). Have you concluded the discussion on
freight absorption?
1 "Exhibit No. 1418."
. CONCENTRATION OF ECONOMIC POWER 14139
Dr. deChazeau. I have concluded the explanation of the adjusted
basis for freight absorption used in this summary.
Air. Feller. Well, I just again wanted to summarize. . You have
been explaining the results which have been obtained to show the
importance of. freight absorption and the result which you have
obtained is that it varies from product to product from about 1 per-
cent of the delivered value to about 3 percent of the delivered value?
Dr. deChazeau. That is right.
Mr. Wooden. Doctor, what is the reason for comparing the per-
centage of freight absorption to the delivered value?
Dr. deChazeau. I consider that the significant basis for comparison
because the delivered value represents what the buyer pays.
Mr. Wooden. What is the reason for comparing the extras to the
delivered value? Are they not expressed in terms of base price plus
or minus?
Dr. deChazeau. Yes. You can compare them in any way you
like, but again my reason for comparing them to the delivered value is
because that is the price which is paid. You could compare them to
the mill net yield if you liked; you could compare them to the pub-
lished price)^ although there are some difficulties in that; or you could
compare them to delivered value. You can change the percentage
depending on what basis you use.
Mr. Wooden. Ordinarily your percentage would be higher figured
on the mill net?
Dr. deChazeau. It would be higher on the published base and it
would be still higher on the mill net. That is right.
This summary, of course, is an inadequate basis for the evaluation
of the effects of the basing-point system under consideration. The
figures in the table do provide an approximation to the order of
magnitude of the items considered. As an over-all average, however,
they may conceal important disparities among consuming regions and
producing areas which are of crucial significance from certain points
of view. It is to supply a basis for evaluation of these more detailed
questions that the 18 tables on each product have been constructed.
May I interpolate at this point that many of these tables are in a
fundamental sense not final but working tables. By that I mean that
they do not at the moment make a part of a finished memorandum on
distribution from which final conclusions have been drawn and policy
recommendations made. This work of evaluation in which tables
may be derived from these data but not necessarily identical with the
tables here used, is a function, undoubtedly, of a final report. Not
only staff limitations but also considerations of fairness to the industry
hp,ve dictated the procedure used here. Obviously, in summarizing
these data, unless we present the basic material, the industry would
have no way of checking up on the conclusions that we have drawn.
The data presented in the 18 tables submitted on each product '
give the following information. (I propose merely just to characterize
the kind of information.) The first two tables describe the basing-
point structure, the changes in price and in number of basing points
that took place in June 1938, and the location of plant capacity,
according to the 1938 Iron and Steel Works Directory of the United
States and Canada, with respect to such basing points.
I "Exhibit No. 2197." ■
124491— 41 ^pt 27 2
14140 CONCENTRATION OF ECONOMIC POWER
The second group of tables (3 through 7, inclusive) is concerned
primarily with the stability of geographic distribution of products
and the representative character of the actual distribution analyzed
in February 1939.
The third group (tables 8 through 11 and table 13) analyzes in
detail the shipments made to all areas receiving 2 percent or more
of the total shipments in the period. Shipments from grouped plants
in producing areas are analyzed in terms of the extent to which they
supplied the receipts of consuming areas into which they shipped at
the lowest average freight absorption for any producing area. In
other words, the ability to reach a consuming area with a lower
freight absorption per ton than any other producing area has been
employed as a criterion of the so-called natural market of that pro-
ducing area. Computed base prices on shipments of each producing
area into each consuming area according to the basing point on which
they were priced are also compared with the published base price in
order to give a very rough measure of the extent to which the basing-
point formula of pricing was observed. This measure was likewise
applied to total shipments, irrespective of source, priced on each
basing point. Finally, the extent to which each producing area sup-
plied the requirements of its own immediate consuming district (iden-
tical with the producing area in most cases), was analyzed.
Four possible ways of delimiting the "natural" market of each
producing area were analyzed in tables 12 and 14 through 16. The
four measures applied to all sales of each producing area — shipped
into all consuming districts in this case; not merely the most im-
portant, but all consuming districts — were respectively: 1, ship-
ments priced on the nearest basing point; 2, shipments into areas
in which average freight absorption per ton was equal to or less than
that on all shipments by that producing area priced on the nearest
basingpoint; 3 is identical with 2 except that we have used as the cri-
terion the average mill net On such shipments and finally, 4, ship-
ments to areas in which the average freight paid or allowed from a
given producing area was lower than that from all other producing
areas.
Tables 17 and 18 merely list all instances in which shipments re-
ported as priced on a given basing point were shipped into areas
which could not have been "governed" by the basing point reported
(in terms of published freight schedules and basing-point prices).
These tables list all out-of-line results for which there may be many
possible explanations, some of which I have indicated on the sup-
plement to those tables. All instances in which computed base
prices were in excess of published base prices are likewise listed.
To permit a ready comparison of results obtained for these four
products, a table has been prepared which contrasts in parallel col-
umns the data and computations from the data for each. This is
the large table which you have before you.
Acting Chairman King. That is the summary of analysis of Form
B, distribution of selected steel products, February 1939?
Dr. deChazeau. That is right, sir.
Acting Chairman King. That is the document to which you are
now referring?
Dr. deChazeau. Yes, sir.
Acting Chairman King. Has it been identified?
Mr. Fellep ^' !:as been admitted.
CONCENTRATION OF ECONOMIC POWER 14141
Dr. i>eChazeau. It is meant to be no more than an aid for the
study of the more detailed tables and is entitled, as the Senator just
noted, "Summary of Analysis of Form B Distribution of Selected
Steel Products, February 1939." The comparisons are segregated in
eight groups, identified A to H, inclusive, in conformity with the
classification just discussed.
To discuss the preliminary conclusions reached, together with
supporting evidence and limitations would be an imposition on the
courtesy of the members of tliis committee, since it would take a very
extended period of time. To indicate no conclusions would be unfair
to ourselves and to others who are interested in this analysis. Subject,
therefore, to limitations with the detail of which I shall not burden the
committee at this time, I will venture nine generalizations.
1. With the change in the basing-point structure in June 1938, it
may be said that, for these four products, basing points, generally
speaking, are well adapted to the location of capacity in the industry,
especially so for shapes and plates, less so for sheets and strips. Lo-
cated at base or within 25 miles of base is capacity varjdng from 58
percent for sheets to 85 percent for shapes; within 50 miles, from 78
percent for sheets to 96 percent for shapes.
2. The geographical distribution of the products in February 1939,
may be considered fairly typical for the industry as indicated by similar
distribution during the calendar years 1936, 1937, and 1938. Total
shipments of reporting plants in that month varied in general con-
formity with their relative capacities for the product in question.
3. Out of the 64 consuming districts, those receiving 2 percent or
more of total shipments varied from 12 for strip to 18 for plates but
accounted for from 66 percent of all shipments in the case of shapes
to 89 percent in strip. This shows not only a concentration of ship-
ments but justified the use of such selected areas for more detailed
analysis.
4. Producing areas for which shipments to selected consuming dis-
tricts averaged the lowest freight absorption per ton accounted for a
substantial proportion of the total receipts of those consuming dis-
tricts, 62 and 50 percent for shapes and plates, but Only 34 and 41
percent for sheets and strips at an adjusted freight absorption varying
from 14 cents per ton for plates to a "phantom" freight of 92 cents
for strip. "Phantom" freight appears when the freight from basing
point to destination is greater than the freight allowed from mill to
destination. The percentage of the market thus served is probably
understated, because of the large size of consuming districts with
reference to the location of mills and the small volume of shipments
by some of the producing areas showing lowest freight absorption.
What I have in mind is this : A given plant or plant group, over a part
of the consuming area may have an apparent advantage in freight
absorption which would disappear if it tried to serve the entire area.
Therefore, the 62 to 34 percent estimated percentage participation of
"governing" mills in such markets is on the low side.
5. A comparison of computed base prices with published base prices
indicates that, notwithstanding possible error in the averages, the
basing-point formula of pricing was honored more in the breach than
in the observance during the,period.
(a) Price cutting, thus revealed, appeared to be more prevalent and
more drastic in sheets and strips than in plates and shapes, perhaps
14142 CONCENTRATION OF ECONOMIC POWER
partly because of uncompleted contracts for the former made when
prices were slashed for a short time during the fall of^938.
Acting Chairman King. When yoii say "price cutting" you mean
departures from the posted prices?
Dr. deChazeau. Departures from the posted prices; yes, sir.
Mr. Wooden. That completion of unfinished orders, you wouldn't
call thatvprice cutting, would you? That would be simply carrying
out of contracts made at another level of prices?
Dr. deChazeau. That is quite right. That is why I inserted the
qualification. To the extent that there were shipments on contracts
wJiich overlapped the previous quarter and which were made at a
price quoted during the price cut, such shipments would tend to
reduce the computed base price during the sample period.
(b) Especially noteworthy for shapes and plates was a tendency
for the home plants in important producing areas to be responsible
for the lowest computed base'prices in their own areas, even when they
did not cut prices drastically in each other's areas. Again I wish to
state that by "cut prices" I mean computed base prices lower than
published base price. Examples are Chicago, Pittsburgh, eastern
rennsylvania for shapes.
fabrication-in-transit rates and price cutting
Dr. deChazeau. The explanation of this phenomenon, I believe
is probably to be found in part in- the fabrication-in-transit rate
structure applicable to these structural materials. Thefee so-called
f-i-t rates on structural products permit steel to move out of line, from
the steel plant to the fabricator's shop and, as fabricated material,
to final destination, at the through rate from the steel mill to final
destination, plus a slight charge for stop-over which varies among
freight areas and railroads but is about 3 cents per hundredweight.
That is on the order of 60 cents per net ton.
Acting Chairman King. If yoii will pardon me for interrupting
Dr. deChazeua. Yes, sir.
Acting Chairman King. The rise and fall in our business barometer,
if I may use that expression, is not uniform. That is to say, there
may be great activity in certain manufacturing lines and domestic
undertakings in certain sections of the United States, whereas in
other sections of the United States there may be but little activity
In other words, business is spotted.
Now with those variations resulting from causes which it isn't
necessary to inquire about now, it would seem to me— and I am asking
your opinion — that that would necessitate or, at any rate, result in
considerable variations in prices, whether posted or not — variations
much to the disadvantage of the company, sometimes to its advantage,
much to the advantage of the consumer, and at other times of dis-
advantage to the consumer. In other words, you can't apply a rule,
can you, or a formula which determines exactly the price of a com-
modity at all times in all parts of the United States?
Dr. deChazeau. I should agree with you, Senator. Perhaps you
misunderstand the implication of the presentation here.
Acting Chairman King. Oh, no; perhaps what I inquired about
was not germane to your presentation, which I am listening to with
CONCENTRATION OF ECONOMIC POWER 14143
a good deal of interest. But as a sort of practical matter it occurred
to me to ask that question now.
Dr. deChazeau. It did not surprise me
Acting Chairman King. I beg your pardon.
Dr. deChazeau. It did not surpise me to find this variation in
computed base prices with relation tq published base prices. It was
somewhat surprising for me, and it might be for others, to find that
the computed base price for a mill, say, in Chicago, on sales in its own
(i. e., Chicago) area was lower than that for any other producing area
selling in the Chicago area. Again, for example in eastern Pennsyl-
vania, the computed base price for shipments into that area was
lowest for the home'plants, the plants located in that area and quoting
on their nearest basing point. The computed base price was lower for
those home plants quoting on their nearest basing point than for their
quotations on any other base and it was also lower than those for
any other plants shipping into the Eastern Pennsylvania market.
It is that phenomenon which I think requires some additional ex-
planation. The fabrication-in-transit rate structure is a possible, or
partial source of price cutting in one's own immediate market. In
shapes, for example, it was particularly interesting that Chicago was
responsible for the low quotation in the Chicago area, Pittsburgh was
second lowest in the Pittsburgh area. North Ohio being lowest. But
these two latter areas are, as you can see, contiguous.
Despite that fact, on all shipments made by Pittsburgh into Chicago,
the computed base price was considerably higher than that of other
mills in the market, and vice versa for Chicago shipments into Pitts-
burgh. It is that phenomenon which calls for some explanation.
Mr. Wooden. There were shipments by Chicago mills into Pitts-
burgh of the same products and shipments by Pittsburgh mills of the
same products into Chicago?
Dr. deChazeau. Yes, sir.
Mr. Wooden. To what extent did that occur?
Dr. deChazeau. Of course it varies with products. It was not very
important, but the interesting thing to me was that the computed
base price in those instances was not lower than the computed base
price on shipments from other areas or even on shipments from the
home producing area.
Incoming waybills (i. e., waybills on the shipment from mill to
fabricating plant) may be accumulated by the fabricating plant and
used on outgoing shipments of equal tonnage which permit the greatest
saving to the fabricator. So long as foreign mills are willing to quote
him, therefore, it is profitable for the fabricator to purchase his steel
from the foreign rather than from the home mill. For example,
through the application of incoming way-bills on shipments to par-
ticular areas, the fabricator may save up to five or six dollars a ton.
Obviously the saving depends entirely on the destination, on the
freight rate structure, and on the source of supply; but the advantage
(for purposes of f-i-t) in buying from a contiguous mill is very small.
The price to the fabricator at his plant is the same from both mills.
But if he is at Neville Island, say (within the switching limits of Pitts-
burgh), and he bm^s from a Pittsburgh plant, there is no advantage in
f-i-t. The maximum difference between the through rate from the
Pittsburgh mill to destination *of the fabricated material and the sum
14144 CONCENTRATION OF ECONOMIC POWER
of the two local rates is not more than a few cents. However, if he
can get his steel from Chicago in shipments to certain destinations the
difference will be substantial and effects a reduction in the cost of
steel to him at ultimate destination. The saving varies up to about
five or six dollars a ton. I don't assume that is the average; the
average is likely to be considerably less. Thus, if the home mill is
to retain its business, it must cut the price to compensate the fabri-
cator for foregoing his f-i-t privilege.
This explanation is consistent with the small proportion of the total
receipts of the home consuming district supplied by the local plants
in plates and shapes (roughly 49 percent for each) as contrasted with
the high proportion supplied in sheets and strip (82 and 78 percent).
On the latter there are no fabrication-in-transit rates.
6. Using shipments priced on the nearest basing point as a criterion
of natural market, then for strips, sheets, and plates slightly more
than 50 percent of receipts in those markets were supplied by the
"governing" producing area. Over two-thirds of this market was
supplied by "governing" producing areas in the case of shapes. The
advantage in mill-net yield for producing areas on sales within this
market as contrasted with outside sales averaged $1.57 per ton for
strip and around $2.00 for the other three products. The advantage in
average freight absorption on shipments to the former areas was sub-
stantially higher than that in mill-nets for every product. This fact
indicates relatively greater price cutting in the home market by home
miUs than in outside markets.
7. Using average freight absorption on shipments priced on the
nearest basing point by each producing area as a criterion of its market,
then roughly 27 percent of shipments of shapes and plates by producing
areas were made into their markets so defined; 34 percent of sheet
and only 14 percent of strip shipments. But it is interesting to observe
that many of the most important producing areas are excluded en-
tirely from their home consuming areas on such a criterion. That is,
freight absorption on shipments by such producing areas into their
home consuming areas W8s greater than the average on all sales.
One reason for that is, of course, shipping across the basing point
within one's own area. If the area is large, one may expect a fairly
high proportion of such sales.
8. Using average mill-nets received on sales priced on the nearest
basing point as a criterion, the percentage of total shipments by pro-
ducing areas shipped into their markets, so defined, is increased sub-
stantially for all products except sheets. That is, for shapes it be-
comes 33 percent, plates 49 percent, sheets 36 percent, and strip 34
percent. Average advantage in mill-net to producing areas selling
within rather than outside this market ranges from roughly $2.50 for
strip to $3.66 for sheets.
9. Using the lowest average freight paid or allowed from steel plant
to destination as the criterion of the natural market, producing areas
sold 58 percent of their total shipments of shapes into such markets,
67 percent of their plates, 43 percent of their sheets, and 44 percent
of their strip. This measure of market area conforms most closely,
although very crudely, to that defined in terms of an f. o. b. mill price,
if such mill prices were equal for all mills.
_ It is interesting to note that if all shipments received by consuming
^stri(^s in each^ such market, irrespective of source, were in fact sup-
CONCENTRATION OF ECONOMIC POWER 14145
plied by the governing producing area (i. e., that producing area
closest freight-wise), some of the most important producing areas
could not have confined themselves to that market without dras-
tically curtailing, their total shipments. For example, such markets
would have provided an outlet in shapes for only 23 percent of ship-
ments made by Buffalo; 41 percent of those by Colorado; 62 percent
for Pittsburgh-North Ohio River Plants; 94 percent for Chicago. In
plates, a larger producing area had to be employed (e. g., Pittsburgh,
Youngstown, North Ohio River plants were grouped). For the
group, the percentage was 61 percent; for Birmingham 63 percent.
Producing areas not mentioned were areas for which the total require-
ments of consuming districts "governed" were equal to or greater
than total shipments actually made by such producing areas. In
sheets, Pittsburgh- Youngstown-North Ohio River plants could have
shipped only 14 percent of their actual shipments; Middletown-
Newport- Ashland, 77 percent; Chicago, 79 percent; Buffalo, 85
percent. In strip, Pittsburgh- Youngstown-North Ohio River, 30
percent; St. Louis, 68 percent; Chicago, 82 percent.
In presenting these percentages I emphasize that the ability or the
inability of mills in a given producing area to market their output in
areas most cheaply reached in terms of freight costs constitutes, by
itself, an argument neither for nor against a basing point system of
pricing or any other pricing system. What I have presented here,
within the limits of the type of data available, is a market fact. As
such, it must be reckoned with. Given the actual location of mills
with respect to areas of important consumption, some mills and
groups of mills must seek business farther afield than lowest trans-
portation costs permit. This situation may be consistent with maxi-
mum efficiency and lowest over-all cost, or it may represent a funda-
mental maladjustment of capacity. The judgment must rest on
other evidence, and that is, as I see it, a problem for the Federal
Trade Commission hearings.
Mr. Wooden. Do I understand. Dr. deChazeau, that you think
your presentation on the facts outlined by you does not tend either
to establish or to disestablish the degirability of the so-called basing
point system?
(Mr. O'Connell assumed the Chair.)
Dr. deChazeau. That is my statement. I have attempted to give
in terms of relative magnitudes some answer to questions with regard
to freight absorption, to mill nets and to price cutting. I have indi-
cated the extent to which producing areas do or may supply — and still
maintain their shipments — the requirements of certain areas or certain
markets defined in different ways.
I do not say, and I certainly am not to be understood to imply,
that these data are irrelevant to the issue. I consider them very
vital to the question. My contention is that they constitute market
facts, and before reaching a final judgment as to the economic or
social desirability of the basing point system, other considerations
must be taken into account.
Mr. Wooden. Do you mean that this freight absorption and
phantorn freight, so-called, are market facts just like the basing-point
system itself may be a market fact?
Dr. deChazeau. They are facts in the actual market; yes, sir.
14146 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. And assuming the existence and continuance of the
basing point system, these market facts that you referred to should
be taken into account?
Dr. deChazeau. Most certainly.
Mr. Wooden. Would you say that the amount of freight absorbed
represents the amount that the shipper is willing to take less than the
base price?
Dr. deChazeau. Under the conditions which exist at that particu-
lar moment for that pai"ticular shipment.
Mr. Wooden. That's right; that is what I mean.
Dr. deChazeau. Yes, quite right; otherwise, he would not do it.
Mr. Wooden. And on the other hand, would you also say
Dr. deChazeau (interposing). Pardon me, but may I make just
one qualification to that? Business is not usually conducted one
little job at a time. One has customers and those customers take a
variety of products. For that reason, a mill might at a given time
take a loss on a particular shipment which it would not take if that
were a new customer, but being a good customer and a continuing
customer, certain losses are taken in that way.
Mr. Wooden. Would you also say that the amount of phantom
freight, so-called, would represent how much more than the base
price the shipper can get in a particular
Dr. deChazeau (interposing). 'Given a particular pricing situation,
it does not represent how much more he can get because it does not
determine his mill net. It represents the extent to which the actual
transportation costs are lower than the transportation costs from the
basing point to destination.
Mr. Wooden. He gets an increase
Dr. deChazeau (interposing). My reason for saying that — may I
add, if you will pardon me? — is-,that, as I pointed out before, what he
gets (his mill net), is primarily determined by the delivered price
if there is price cutting. Now, if you ask your question on the
assumption that the basing-point formula is always followed by all
mUls, I could give you a definite answer, and it would be "Yes."
Mr. Wooden. Well, assume that -it is followed in some particular
case, the answer would be "Yes"?
Dr. deChazeau. My answer would be "Yes."
Mr. Wooden. I see. If freight absorption, then, represents how
much less than the base price the shipper is willing to take in his
mill net, and the phantom freight, so-called, represents how much
more than the base price, which, in other cases, he can get, why isn't
the logical thing to do to figure the percentage on both "those items
against the base price rather than against the delivered price?
Dr. deChazeau. It depends entirely on what you want to do. In
the first place, I should say that you have set up a situation which is
significant only so long as the basing, point formula is in fact followed.
The result of our analysis is, that it is honored in the breach. I
should say, for that reason, that that sort of computation would be
of academic interest only.
Mr. Wooden. Well, every system is departed from at times, I
take It?
Dr. deChazeau. I beg you pardon?
CONCENTRATION OF ECONOMIC POWEIl 14147
Mr. Wooden. Are we considering a system as a system' or the
extent and nature of departures from it?
Dr. deChazeau. We were concerned not with the system as a
theoretical system, but with the system as an operating system.
Mr. Wooden. As for the month of February, 1939?
Dr. deChazeau. That is right. Of course, you reahze yourself
that our first objective was to have not a single month, on which I
recognize limitations, but a month in a quarter of very high produc-
tion in the industry, prior to the basing-point change, namely, May,
1937, and a month during a period in wliich there was very low utiliza-
tion, and therefore possibly much greater price-cutting, namely. May,
1938. It was only the large amount of work involved that
Mr. Wooden (interposing). I may have overlooked it in your
statement, but I still do not have any idea of what percentage of all
shipments made during February, 1939, is represented by your
tabulations.
Dr. deChazeau. You mean made by all mills?
Mr. Wooden. Made even by the mills that are excluded in your
survey. What percentage of all shipments during that month?
Mr. Feller. All shipments of all steel products?
Mr. Wooden. Yes; and what percentage of all shipments for these
particular products?
Dr. deChazeau. Well, that would have to be answered for each
product separately. In tables 4 and 4-A for each product,' you will
find figures wliich provide an answer to your question. For example,
I am looking at tables 4 for shapes. The total toimage shipped
(i. e., analyzed by us), which represents, with the exception of f. o. b.
mill sales, exports, shipments to plants of the same or affiliated com-
panies (which are often merely changes in inventories), and shipments
to jobbers' warehouses, all of the shipments distributed by the sample
group of companies, was 79,921 tons, as contrasted with aggregate
shipments of 144,184 tons.
Mr. Wooden. And do those represent shipments into all territories
or shipments only into these districts that you have outlined?
Dr. deChazeau. The 144,184 tons is the total shipment of heavy
shapes by all reporting plants to any place in the world.
Mr. Wooden. And your 79,000 is into these districts only, is that
right?
Mr. Feller. No; I think there may be some misunderstanding here.
Mr. Wooden. Well, I just want to clear it up.
Mr. Feller. The districts include the entire continental United
States. Those colored districts on that chart are merely those
districts which are smaller than a State. All other points of the
United States were included within a State. Now the reason for the
difference between the 79,000 tons, which is the amount of shipments
included in this analysis, and the 140,000 tons, which was .the total
shipment, was this, that there was excluded from this analysis exports,
f. o. b. sales, their f. o. b. mill sales, of which there may be some, and
shipments to jobbers' warehouses.
Now, all those types of sales, like exports, shipments to jobbers'
warehouses, are sales which are not made on any bosing
Dr. deChazeau (interposmg). T think I can give you that.
1 Appendix, pp. 14c(49, 14365, 14380, 14406, 14421-M423.
14148 CONCENTRATION OF ECONOMIC POWER
Mr. Feller. They are out of the basing-pomt system. There-
fore, in shapes, all those
Dr. deChazeau (interposing). No; that isn't entirely so. I give
you actual totals for shapes in table 4-A.^ Our domestic shipments to
consuming districts which were analyzed, is 79,921, about 80,000.
F. o. b. mill sales were 3,702. Clearly, those may be distributed but
they are sold f. o. b. mills. Shipments to plants or warehouses of the
same or affiliated companies are 49,346. That is the largest item.
Shipments to jobbers' warehouses are 5,030 — giving total domestic
shipments of 137,999, plus exports of 6,185, which gives you your total
figure.
Now, you understand, I am sure, that in excluding shipments to
plants or warehouses of the same or affiliated companies, we were
primarily interested in making our results meaningful. Those
shipments, if included, would so increase our tonnage — often they are
mere inventory transfers — that they would be meaningless from a
price basis. Therefore our computations as to computed base price
would be completely thrown out, and utterly valueless.
The same considerations or similar considerations led us to exclude
sliipments to jobbers' warehouses, since often there are special jobber
discounts which, if excluded, would again make our figures less
significant when reduced to a tonnage basis.
Mr. Wooden. Do you understand that shipments to jobbers'
warehouses are not figured on a basing point?
Dr. deChazeau. They are figured on a basing point so far as I
know, but in addition to the regular extras, there are special jobbers'
discounts.
The jobber item is a relatively small item in all these products.
It would be especially small in shapes, as contrasted with other
products. I believe that the real answer to the point which you have
raised, Mr. Wooden, is provided by comparison 6f total ship-
ments by area on our Form A analysis for these products, in
which many of these items were included, with our Form B distri-
bution. Making that comparison, we find that we can use the
February '39 figures as quite typical; that is, with very few exceptions
the percentage distribution in February '39 falls witnin the range of
the distribution over the 3 years on the Form A sample. Since there
is great stability in the relative distribution on Form A, we can
conclude that the February distribution is not atypical.
Mr. Wooden. What inferences would you draw from the fact that
on some shipments there are certain amounts of so-called phantom
freight and on other shipments there are certain amounts of so-called
freight absorption, by the same shipper?
Dr. deChazeau. What inference would I draw?
Mr. Wooden. Yes. In other words, what is the significance of
there being phantom freight consisting of a difference above the base
price and freight absorption consisting of a difference below the base
price? What is the significance of it?
Dr. deChazeau. For one thing, it represents the direction in which
the shipment moves with relation to the location of the mill and the
basing point. I take it that isn't the answer that you want. What
you want me to discuss is what conditions lead a mill to make a vari-
able price on its products.
2 Appendix, p. 14421.
CONCENTRATION OF ECONOMIC POWER 14149
Mr. Wooden. You mean a variable mill-net.
Dr. deChazeau. A variable mill-net.
Mr. Wooden. Yes; that is what I meant to ask.
Dr. deChazeau. In a general way I think I can answer that without
getting too far into the subject matter, as I understand it, of your own
hearing; and I have tried to avoid that. In the production of steel,
unlike the production of certain agricultural products, one produces to
order, and, therefore, the additional cost involved for an additional
shipment of a particular specification imder a given set of conditions
will differ, depending upon the level of output at that time. Hence,
the variations in the mill-net with relation to that variable cost may
make profitable a given shipment — by profitable, I don't mean a
return on total investment, but a, return in excess of the variable
cost — which would not be profitable for the entire business. I have
already indicated another source of such variation in miU-net ; namely ,
that business is not carried on from moment to moment but from year
to year and over a period of years. Therefore, one meets, the require-
ments of a given customer for a particular product, even at a disad-
vantage to oneself, rather than to incur ill will and lose business.
Mr. Wooden. Assuming that the basing point system is in opera-
tion, wouldn't you expect to find these phenomena of so-called phan-
tom freight and so-called freight absorption?
Dr. deChazeau. Now you are asking a question whicli I can answer
very briefly. To the extent that the basing-point system exists, some
"phantom" freight, (that is variation of the mill-net) is a necessary
condition of the operation of that system as a formula.
Mr. Wooden. Both freight absorption and phantom freight.
Dr. deChazeau. That is right. Mill-net will vary and one may
have freight absorption.
Mr. Wooden. Was the participation of the Federal Trade Com-
mission in this study anything more than cooperation with regard to
the form of the questionnaires to be sent out?
Dr. deChazeau. Well, in that I hope I have not given the Federal
Trade Conunission too little credit. The whole project was discussed-
with the Federal Trade Commission. I may say that the Federal
Trade Commission was primarily interested in the Form A distribu-
tion and the Department of Justice was primarily interested in the
Form B distribution.
Mr. Wooden. Did the Commission do anything more than coop-
erate with the preparation of forms of the questionnaire?
Dr. deChazeau. That is right. The analysis has been entirely by
the Department, which has handled all phases.
Acting Chairman O'Connell. Are there other questions?
Thank you very much. Dr. deChazeau. I think your presentation
has been very, very interesting.
The committee will recess untU 2 o'clock.
(Whereupon, at 12:15 p. m., the committee recessed until 2 p. m.
of the same day.)
after recess
The committee resumed at 2:05 p. m. on the expiration of the
recess.
Acting Chairman McConnell. Dr. Yntema, are you ready?
The conmiittee will please be in order.
14150 CONCENTPvATTON OF ECONOIMIC TOWER
Mr. Feller. Mr. Chairman, may I just say that the program is for
Dr. Yntema to make a brief statement with relation to Dr. Ezekiel's
testimony of the other day, and Dr. Ezekiel may desire to reply
briefly to that.
Subsequent to that, I shall turn the counsel's chair over to Mr.
Ballinger, who shall proceed with the basing point inquiry.
Acting Chairman O'Connell. Will you proceed, please?
TESTIMONY BY DR. THEODORE OTTE YNTEMA, UNIVERSITY OF
CHICAGO, CHICAGO, ILL.— Resumed
RELATIONSHIP BETWEEN STEEL PRICES AND PRODUCTION AND
GENERAL INDUSTRIAL ACTIVITY
Dr. Yntema. In his testimony before this committee on January
24, Dr. Ezekiel undertook to evaluate the effects of a reduction in
steel prices upon the general level of business activity and also upon
the cost of producing steel. He then attempted to show the possi-
bilities of concerted price reductions by many industries.
In an effort to estimate the effect of a reduction in the price of
steel upon general industrial activity, Dr. Ezekiel argued that any
increase in the production of steel resulting from such price reduc-
tion must be paralleled by a general rise in business activity.
To make liis point, he presented this chart, "Exhibit No. 2183,"^
showing that there has in the past been a very close relation between
fluctuations in steel production, industrial steel sliipments, and iii-
dus trial production excluding iron and steel. In fact he said that this
chart "shows how absurd it is to assume that steel output could
change without a corresponding change in the level of industrial
activities as a whole." From this, if I understood liim correctly, he
inferred that the effect of steel prices on steel consumption would
spread out to cause a corresponding increase in other industrial ac-
tivity, and argued that this general increase in business activity would
in turn further increase the demand for steel. I submit that this is
erroneous reasoning. In homely but adequate terms I believe it may
be described as a case of the tail wagging the dog.
Now there is no question at all that in the past steel production
has been very closely related to other industrial activity. That's the
relation exhibited in this chart. There have, however, been from
year to year small deviations in this average relationship, and in one
or two years large deviations. The general relation shown in this
chart affords no basis whatsoever for assuming that an increase in
domestic steel shipments causes an increase in general industrial
activity. Wlien questioned specifically on the point, Dr. Ezekiel
recognized that either might be cause and either might be effect.
In liis testimony, if I understood him, I think he did make use of an
assumed causal relationship of domestic steel shipments upon other
business activity.
I submit, however, that there is good reason ^o suppose that the dog
can wag the tail, and that general business activity does determine
the amount of steel produced. Furthermore, the effects of changes
in the price of steel are reflected in small deviations of steel production
' Included in Hearings, Part 20.
CONCENTRATION OF ECONOMIC P0^^ EU 14151
from the levels which would normally be associated with given levels
of general business activity.
Dr. Ezekiel has failed completely to establish the magnitude of the
secondary effects on general business activity, due to reductions in the
price of steel. By his confusion of cause and effect he has reached the
implausible inference that sales would increase so rapidly that the
gross income of steel producers would rise as the price of steel fell
or was reduced.
There would, of course, be some secondary effects on general business
activity resulting from a reduction in the price of steel. The magni-
tude 01 these, however, cannot be estimated from the evidence which
Dr. Ezekiel has introduced, and I repeat that I should still be grateful
to Dr. Ezekiel or to anyone else who would show me how we might
make a reasonable approximation of these secondary effects. We
know, however, that in comparison with the direct effect of a reduction
in the price of steel on steel production, which is itself not large, that
the secondary effects must be still smaller because the steel industry
proper constitutes only a small fraction of all business. The total
value of its products is only about 4 or 5 percent of the total value of
all goods and services produced in boom times and considerably less
than that in time of depression.
To establish his second point, that reductions in the price of steel
would decrease the cost of producing steel, Dr. Ezekiel attempted to
demonstrate that a reduction in the price of steel would cause scrap
prices to go down. Observing that in the past scrap prices and steel
prices tended to move in the same direction, Dr. Ezekiel concluded
therefrom that cheaper steel would mean probably less expensive
scrap. Had he considered the matter more carefully I am inclined to
think that he would have recognized his mistake.
The significant relationship is that between steel production and
scrap prices. Wlien steel production has been high, scrap prices
have been high; when steel production has been low, scrap prices have
been low. As steel operations rise the demand for scrap rises, but
without a corresponding increase in supply the price naturally goes
up. Therefore, insofar as a reduction in the price of steel would
cause steel operations to rise, it would also cause the price of scrap to
rise. Tliis would increase, not reduce, the costs of producing steel.
For the short-run period in which we are interested the effects of a
reduction in steel prices upon the prices of other commodities in the
economic system and ultimately, then, upon the prices of goods and
services which the steel industry buys are too small to affect substan-
tially the results of our cost analysis. In fact, they may not even
be sufficient to offset the increased cost of scrap. I use, as Dr. Ezekiel
has, the words "may" and "might" in this connection, because neither
he nor I can predict with accuracy what would happen.
Dr. Ezekiel has, I fear, created a fictitious dilemma by reading into
our statements ideas which are not there. While it is true that in
the short run the steel industry would sustain a reduction in profits
or an increase in losses by reducing its prices and would obtain an
increase in profits and a reduction of losses by increasing its prices,
within moderate limits, we did not suggest tnat all industries could
make more money by producing less product and selling it at a
higher price. If this dilemma has existed in the mind of anyone
14152 CONCENTRATION OF ECONOMIC POWER
besides Dr. Ezekiel, because of preconceptions in approaching the
problf-m or because of our mifortunate terminology, I hope that this
statement may dissipate the misapprehension which has existed.
Dr. Ezekiel fails entirely to recogniz"fe that individual companies
in the steel industry are not able to charge any price which they
choose, but are limited by competitive forces in the market. Without
recognition of this fact, the low profits in the industry and the evidence
submitted in our studies do indeed constitute a real dilemma. With
recognition of the facts, the dilemma evaporates.
Finally, Dr. Ezekiel points out that we did not consider in the
documents submitted to the committee, the effects of general reduc-
tions in the prices of a large range of commodities. As I said in my
first statement to the committee, we undertook seriously to study
this problem but we were unable to reach conclusions of sufficient
scientific value to warrant a presentation of them before this com-
mittee. I might say that we abandoned our plans to submit a
statement on this subject only after consultation with economists
whom we considered to be" among those best qualified to deal ade-
quately with the subject.
At the conclusion of his statement. Dr. Ezekiel presented his plan
for concerted action to reduce prices in a large number of industries.
I have already said that I do not feel competent, and I have not been
able to find anyone else whom I regard as competent, to evaluate
with reasonable certainty the economic consequences of such a
program. That, of course, is a personal opinion and I offer it as such.
I doubt that we possess, much less would use the collective wisdom
necessary to decide when, where, -and how to reduce prices. The com-
plexities of the administrative problems which would be involved in
such a plan are almost beyond comprehension. Nor is it realistic to
assume that a great number of business enterprises would voluntarily
engage upon a concerted program of price reduction. Even though
such a plan might have desirable economic effects, if it would work, I
am inclined to think that it is not only administratively unworklable,
but fraught with grave social and political consequences, to our demo-
cratic way of life.
Before I leave the stand, I want to express my thanks for the court-
esy whicK has been extended to me by Dr. Kreps and by the commit-
tee.
(Senator King assumed the Chair.)
Acting Chairman King. Do I imderstand your statement which
you made just a moment ago, that you are rather apprehensive, and
I know I am, of trying to repeal the law of supply and demanti, and to
set up a sort of super-government in industry to fix prices and to regu-
late jDroduction? I don't want a totalitarian state, I don't want to
superimpose upon industry and upon the American people any form of
Federal control which would interfere with private initiative and with
those fine qualities which have made this the greatest country in the
world.
Proceed.
Mr. Feller. I should like to ask you just one question. Assuming
that it were found that in a number of important industries, there were
artificial restraints on competition which, while not entirely eliminat-
ing competition, had the effect of diminishing its area, and thereby
sustaining the price above the level that it would reach in the event
CONCENTRATION OF ECONOMIC POWER 14153
that competition could be restored to the fullest extent consistent
with the structure of the industry, do you think that the removal
by action under the antitrust laws, simultaneous removal, of such
artificial restraint, would have the effect of increasing production
through a decrease in price?
Dr. Yntema. Well, Mr. Feller, that is a very general question and a
very large question. I am no lawyer; I have not had experience with
the antitrust laws. I should, after some study, be willing to comment
on some particular situation, but I am very hesitant to generalize on
subjects as diverse as those to which you refer,
Mr. Feller. I should just like to make the purport of my question
clear, although perhaps your answer is sufficient. Dr. Ezekiel advo-
3ated the plan which is chiefly associated with the name of Dr. Owen
W. Sprague, of concerted action by industries to reduce prices. You
are apprehensive, as a good many people are, of the effects that that
sort of concert might have on the democratic system.
Now, assuming that the same effect could be achieved, not through
this concerted action by industry, but through enforcement of the anti-
trust laws, you would have presented squarely the problem which both
Dr. Ezekiel and Dr. Sprague raise, namely, whether simultaneous re-
duction in price, assuming it could be brought about by the enforce-
ment of the antitrust laws, would have such an effect on volume that
it would result in greater profits for industry.
Dr. Yntema. I don't believe economists are able to give a con-
clusive answer to that question.
Mr. Feller. Again, my question was somewliat narrowing. I
take it there are two parts to the problem. The first part is, can we
bring about simultaneous reductions in price? The second is, assun-
ing that you did have a simultaneous reduction in price, would it
have this important economic effect that both Dr. Ezekiel and Dr.
Sprague claim for it?
Dr. Yntema. That's correct; there are these two aspects to the
problem.
Mr. Feller. It seemed to me that you had answered by casting
doubt on the feasibility of the first part.
Dr. Yntema. No; I don't think that you got the full import of
the statement I made earlier and the statement I have just made. I
said that we recognized that problem and that we have attempted
seriously to study it. There is in this problem a sufficient area of
difference of opinion so that we at least hi.av6 not been able to reach
conclusions which we think can be established with satisfactory
validity. As a matter of fact, if you want my personal opinion I am
quite willing to offer it. I don't think that we can eliminate busi-
ness cycles through flexibility in prices. Now there are situations, I •
have no doubt, in which we should improve our economic situation
through price reductions. I don't think anyone would deny that.
Finally, may I say that I greatly appreciate the criticisms and the
suggestions we have received, and particularly the opportunity for
open discussion of these studies which has been afforded us by the
committee.
Acting Chairman King. I think the committee is indebted to you
for a very clear exposition of the views that you entertain and the
views of the organization for whom you have testified.
Mr. Feller, Dr. Ezekiel would like to make a brief comment.
14154 (lONCENTT'vATTON OF ECONOMIC POWER
TESTIMONY OF DR. MORDECAI EZEKIEL, ECONOMIC ADVISER
TO THE SECRETARY, DEPARTMENT OF AGRICULTURE, WASH-
INGTON, D. C— Resumed
Dr. EzEKiEL. If the committee is willing, I woiild like to refer
just very briefly to two or three of the points Dr. Yntema has just
discussed.
First, in presenting the statistical evidence which I did in the chart
that Dr. Yntema has already called your attention to, "Exhibit No.
2183," I made no attempt to measure bow much mcrease in general
industrial production could be expected to follow a given increase in
steel production. I merely pointed out that if a reduction in steel
prices did materially increase the output of steel, it was inconceivable
that that would take place in view of the past experience without
some corresponding increase in activity through other associated
industries, and that if you did have the increase in activity in other
associated industries, that would produce a secondary increase in
the demand for steel in addition to that for which Dr. Yntema made
measurement. I made no attempt to measure how much that in-
crease might be, but simply pointed out that the failure to allow for
it left one factor which the analysis presented by Dr. Yntema had
failed to take into account.
Likewise, in referring to the relation of steel prices to scrap prices,
Dr. Yntema is correct in his criticism in one sense. I used the phrase
"steel prices" in my testimony when I should have used the
phrase "products of the iron and steel industry." I assumed that a
reduction in steel price and a reduction in pig-iron price would occm'
as part of a general reduction in prices of the products of the industry,
both semifinished and finished, and that a reduction in pig-iron
price in general was associated with a reduction in scrap prices. Dr.
Yntema questioned some of my conclusions at that point, but neither
he nor I have made any effort to introduce testimony as to how far
changes in steel or in iron prices are associated with scrap prices;
without such material we are both rather conjecturing as to the
exact relationship.
Acting Chairman King. In the realm of speculation or conjecture?
Dr. EzEKiEL. Conjecture based on examination of data in both
cases, but without an attempt, I believe, to measure the exact nature
of the relationship. As far as Dr. Yntema's comments on the general
proposal for concerted expansion in production, I take it that he is
criticizing more the possibility of bringing such operations intb action
rather than the economist's view as to whether, if taken, they would
work or not. I believe he as an economist would agree that assum-
ing the administrativ ^^ problems could be solved, a general increase
in production and increase in employment secured through reductions
in prices, if properly brought about, would aid very greatly in solving
the problem of unemployment.
He, several times, has referred to the possibility of eliminating
business cycles; My testimony was directed on that point not so
much to business cycles but to the fact that we have had heavy un-
employment ranging around a quarter of the entire city potential
working population, over most of the last decade, and that continuous
heavy unemployment is a chronic problem far beyqnd business cycles,
so-called. The price policy of city industry, where organized in large
CONCENTRATION OF ECONOMIC POWER 14155
units, is believed by most economists who have studied that problem
to have a great deal to do with the problem of continuing heavy un-
employment.
Acting Chairman King. Thank you very much, Doctor.
Dr. EzEKiEL. Might I make one other comment, sir?
Acting Chairman King. Certainly.
Dr. EzEKiEL. As a professional student of price statistics and pro-
duction and price behavior, I would like to express a word of appre-
ciation both to Dr, Yntema and to the Steel Corporation for the
material they have made available in these studies. So far as I
am aware, it is the most thorough study' ever made of the facts
pertaining to industrial behavior in a single great industry and will
lead, I believe, to a great deal of new information and new light on
these problems of industrial price behavior.
Acting Chairman King. May I ask one question. Doctor? Do you
not think that economists, as well, as businessmen and all American
citizens, in their formulation of plans for development and for industry
and for employment, ought to take into account the fact, or recognize
the fact, that we have a dual form of government? We are a democ-
racy; we are not in Germany; we are not in Russia; we are, as I have
stated, a dual form of government, and there are limitations upon the
power of the Federal Government. The Federal Government may not
superimpose its power in violation of the written Constitution and of
the rights which belong under our written Constitution to individuals
as well as to States.
Dr. EzEKiEL. Yes, Senator, I certainly agree that any economic
plans should be so constituted as to preserve democracy. In my
statement I believe I pointed out how coordination of production
could use democratic procedures, and evidenced some illustrations
from AAA experience. Might I also sdy that I also am very much
worried- about the abUity of democratic forms to be maintained if we
are to continue to have one-quai-ter of all our people unable to find
means of providing for themselves. I beUeve that the continuing
unsolved problem of work for our people in the cities is also a threat to
democracy, and we need very intensive studies as to how that may be
solved through democratic procedures.
Acting Chairman King. Thank you very much. Are you through,
Mr. Feller?
Mr. Feller. I am through with Dr. Ezekiel. I just wanted to
make one statement to clarify the record a bit. I made a rather
flippant comment yesterday concluding the hearing. I hope no one
takes it too seriously. I do want to point out this, that the testimony
which the committee has heard the last 3 days constitutes the most
important effort to state in measurable terms some of the most
difficult problems of industry, the relation between price and volume,
concepts of cost; and while it may be that the results at this timd seem
inconclusive, I am confident that the material here presented will
become of increasing importance as time goes on and as more and
more students have access to it.
I should like also to state that the area ot agreement among the
gentlemen who have testified is perhaps larger than the committee has
appreciated, and I understand that Dr. Kreps and Dr. Yntema are
attempting to work out a statement that they would like to present
124491—41 — pt. 27 3
14156 CONCENTRATION OF ECONOMIC POWER
for the record at some other time, which will indicate just exactly how
far they do disagree and how far they agree. Thanli you.
Acting Chairman King. When they present it we may want to
interrogate them.
FEDERAL TRADE COMMISSION'S ANALYSIS OF UNITED STATES STEEL
corporation's REPORT ON THE BASING POINT SYSTEM
Mr. Ballinger. Mr. Chairman, on March 6, 7, and 8 of 1939, the
Federal Trade Commission introduced expert testimony before the
Temporary National Economic Committee to show that producers of
steel in the United States were operatmg under a pricing system which
we. observed eliminates price competition in the steel industry.^ It
was the opmion of the experts who appeared on the Federal Trade
Commission program that the steel industry was therefore monopo-
listic. At the conclusion of- the Commission's testimony there was
offered for the record a document entitled "Monopoly and Compe-
tition in Steel," which described how the basing point system in the
steel industry operated to-suppress price competition in this industry.
Subsequently the United States Steel Corporation asked and obtained
leave of the Temporary National Economic Committee to reply to
the expert testimony offered by the Federal Trade Commission in
March of last year. The Corporation has prepared a document
entitled "The Basing Point Method of Quoting Delivered Prices in
the Steel Industry, Exhibit No. 1418." ^ This document has been
analyzed by the staff of the Federal Trade Commission.' It is now
my desire, Mr. Chairman, to have Mr. Walter B. Wooden, Assistant
Chief Counsel of the Commission, question some of the parties respon-
sible for the Corporation's document on the conclusions reached
therein. Mr. Wooden is one of the veteran experts of the Com-
mission on the basing point system.
Inquiry by the Commissioli as^ to the authorship of this document
elicited the information from the Corporation that it had been pre-
pared by a great many people, including officials of the Corporation,
lawyers, and economists.
For the purpose, therefore, of questioning those responsible for the
document, I request that Mr. Wooden be permitted to examine
Mr. Fairless, President of the Corporation, and Mr. Adams, Vice
President of the United States Steel Corporation of Delaware.
Acting Chairman King. Proceed. Mr. Adams, you were sworn,
weren't you ?
Mr. Adams. Yes.
Acting Chairman King. Mr. Fairless was sworn.
1 See Hearings, Part 5, pp. 1657-1680, 1861-1894, 1903-1946, 1951-1982; "Exhibit No. 358," a Federal Trade
Commission report on Monopoly and Competition in Steel, appendix, p. 2192.
' Appendix, p. 14619ff.
CONCENTRATION OF ECONOMIC POWER 14157
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT UNITED
STATES STEEL CORPORATION, NEW YORK CITY— Resumed '
AND AVERY C. ADAMS, VICE PRESIDENT UNITED STATES
STEEL CORPORATION OF DELAWARE, PITTSBURGH, PA.—
Resumed
Mr. Wooden. Mr. Chairman and members of the committee, in
taking up this subject of the basing point system in the steel industry
I want the committee to understand that every effort will be made to
confine the presentation -to tangible, concrete matters of fact, and to
avoid, so far as possible, abstruse or abstract criteria and abstruse
theoretical considerations. After having gone into the subject from
a factual standpoint, however, it will be necessary to pay some atten-
tion to the theoretical considerations because the Corporation in sub-
mittiiig its documents on the basing pomt system has made use of a
great many of these theoretical abstractions which we have beard for
the last few days.
There are only two fundamental factual issues involved: First,
whether the basing point system in the steel industry is the embodiment
of some form of collusive methods of price control, and if so what
forms and methods; and, secondly, whether the objections to the
basing point system are based, as the Corporation contends, upon
abstract criteria or whether they are based upon tangible, concrete
evidence. Only after that factual exposition has been made will
any attempt be made to go into the theoretical side of the subject.
The theoretical aspect of the basing point system in the steel
industry is likewise two-fold: First, whether the use of that system
is consistent with the economic concepts of a competitive economy
or conforms to the economic concepts of a monopolistic situation; the
second theoretical question is simply whether or not the basing- point
system in the steel industry should be permitted to continue as a
matter of pubUc interest.
Now, I should like to approach this subject further from a common
groimd, which the Corporation itself states in one of the exhibits
presented, namely, "Exhibit No. 1410," entitled "Some Factors in
the Pricing of Steel," ^ in which it states: "Price competition is neces-
sary in any industry operating in a capitalistic system. Is the steel
industry competitive? Efforts at such determination too easily
lead into the realms of economic sophistry. Criticism and defense
of competition in the industry should not be based on abstract criteria
which fail to take into account the fundamental phenomena involved ;
it should be based on tangible evidence."
As I say, that is a common ground on which the Corporation and
we can approach the subject.
And now I should like to ask some questions of Mr. Fairless.
Mr. Fairless, will you state for the information of the committee,
in as few words as possible, just what are the mefchanical or physical
features of the basing-point system in the steel industry?
Mr. Fairless. Mr. Chairman, I should like all questions that have
to do with basing-point matters, particularly as they pertain to the
1 For Mr. Fairless' previous testimony see Hearings, Parts, 19 and 20.
'Included in Hearings, Part 26, appendix, p. 13893.
14158 CONCENTRATION OF ECONOMIC POWER
studj which we have presented to this committee, to be directed to
Mr. Adams. In respect to policies and poUcy questions and matters
pertaining to the United States Steel Corporation, I should prefer
that those questions be directed to me. At the same time, I offer
myself at any time for any question and will attempt, to the best of
my limijbed ability, to answer it.
Mr. Wooden, Before we go ahead then on that basis, which is at
least partially acceptable to me, I should like to ask a few questions
about the preparation of the Corporation's pamphlets which are in
the record as "Exhibits Nos. 1418 and 1410." '
You have already stated, I believe, Mr. Fairless, that quite a group
of persons worked together on the preparation of those pamphlets?
Mr. Fairless. You are referring nov^ to the basing-point pamphlet,
are you, or all the pamphlets?
Mr. Wooden. No. I am talking only about these two, one, "Exhibit
No. 1418", "The Basing-Point Method of Quoting Dehvered Prices
in the Steel Industry," and, two, "Exhibit No. 1410", "Some Factors
in the Pricing of Steel."
Mr. Fairless. You are correct in your statement.
Mr. Wooden. And this latter pamphlet, "Some Factors in the
Pricing of Steel," contains a section on the basing-point system, does
it not?
Mr. Fairless. I believe that it does.
Mr. Wooden. Will you state just how those two pamphlets that
I have referred to were prepared?
Mr. Fairless. On the basing-point pamphlet, a man by the name
of Becht, Amo C. Becht, was the leader in the preparation of this
particular study. Mr. Becht at the present time is an instructor at
the University of Georgia, and is no longer connected with this
particular activity.
In addition to Mr. Becht, various members of the U. S. Steel
Corporation's official family and subsidiary companies, together with
members of the firm of Governor Miller, and Irving S. Olds,
together with outside economists, all participated to some extent in
the preparation of the pamphlets that you have referred to. ■
I might, for further clarification, make the statement that Mr.
Becht worked approximately 1 year iu the preparation of the data and
information that is contained in the basing-point study which has
been presented to this committee.
Mr. Wooden. You mean "Exhibit No. 1418"?
Mr. Fairless. Well, yes, if that is the proper number. It is the
basmg-point study. There isn't any mystery about it.
Mr. Wooden. Yes, and what about "Exhibit No. 1410"? How
was that prepared?
Mr. Fairless. It was prepared largely in the same manner by the
same group, supplemented by Corporation people, of the subsidiaries
and the Corporation itself, and was headed, I believe, by Mr. Edward
T. Dickinson, Jr.
Mr. Wooden. Were there any other economists beside this Dr.
Becht who participated in the preparation of these two pamphlets?
Mr. Fairless. I said yes.
Mr. Wooden. Can you name any other?
' "Exhibit No. 1410" is included in Hearings, Part 26, appendix, p. 13893; "Exhibit No. 1418" is
included in this Part, appendix, p. 14619 S.
OONCBNTRATION OF ECQNiOMIC POWER 14159
Mr. Fairless. Well, Dr. Yntema had a place in these studies.
When they referred to economic problems, he was consulted.
Mr. Wooden. Did he review or participate in the final preparation
of the pamplilets as they were submitted?
Mr. Fairless. I can't answer that. Dr. Yntema is here and he
can answer that for himself.
Mr. Wooden. Any other economist besides the two that you have
named?
Mr. Fairless. Bradford Smith, who happens to be an economist,
and is directly associated with the United States Steel Corporation at
71 Broadway. He participated in these studies and conclusions.
Mr. Wooden. Did you have any other outside economist?
Mr. Fairless. I don't believe so.
Mr, Wooden. Do I understand that after the first draft of the
pamphlets was prepared, it was then reviewed by various officials
of the Steel Corporation?
Mr. Fairless. Well, I wouldn't put it in just those words. Various
officials of the United States Steel Corporation and subsidiary com-
panies were consulted all through the preparation of this particular
study or studies.
Mr. Wooden. And who made the final review and approval of
the pamphlets?
Mr. Fairless. You mean as an individual?
Mr. Wooden. Individuals, if there were more than one.
Mr. Fairless. Why, the T. N. E. C. group who have been working
now for [a year and a half, in conjunction, of course, with the official
family of the United States Steel Corporation.
Mr. Wooden. Well, the pamphlets are submitted as the statements
of the Steel Corporation?
Mr. Fairless. Definitely so, yes.
Mr. Wooden. And you would assume responsibility for any of the
statements contained therein?
Mr. Fairless. Any of the statements?
Mr. Wooden. Yes.
Mr. Fairless. Yes; certainly. Otherwise, we would not have
presented them to the committee.
Mr. Wooden. Mr. Fairless, can you tell me whether or not these
pamphlets on the basing-point system were submitted to any other
companies or representatives of companies in the steel industry?
Mr. Fairless. To the best of my knowledge; no.
Mr. Wooden. They do not then represent the statements even
inferentially or indirectly of any part of the steel industry, other than
the United States Steel Corporation and its subsidiaries, is that correct?
Mr. Fairless. This is tllie statement of the United States Steel
Corporation.
Mr. Wooden. I beheve you are the president of the Corporation?
Mr. Fairless. That is correct.
Mr. Wooden. How long since?
Mr. Fairless. Since January 1, 1938.
Mr. Wooden. And prior to that time, you were?
Mr. FA.IRLESS. President of the Carnegie Illinois Steel Corporation.
Mr. Wooden. And how long had you been with the Carnegie
Illinois?
Mr. Fairless. Since 1935; October 1st.
14160 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. And prior to that time you were in the steel industry?
Mr. Fairless. Twenty-five years, all together.
Mr. Wooden. In what connection?
Mr. Fairless. I was executive vice president of the Republic Steel
Corporation at the time I came up to the United States Steel Corpora-
tion.
Mr. Wooden. Have you held any ofl&cial place in the American
Iron and Steel Institute?
Mr, Fairless. Yes, sir.
Mr. Wooden. What?
Mr. Fairless. Vice president.
Mr. Wooden. When?
Mr. Fairless. Now.
Mr. Wooden. And were you at one time, chairman of the Institute's ,
committee on commercial matters?
Mr. Fairless. No; not the Institute's. I was chairman of the
commercial committee under the Code Authority during the N. R. A
Mr. Wooden. Now during your experience in the industry, have
you been in the sales end of the business?
Mr. Fairless. In an official capacity?
Mr. Wooden. Yes.
Mr. Fairless. Never; I never held a sales position.
Mr. Wooden. Mr. Adams, may I ask you how long have you been
connected with the Corporation and in what capacity?
Mr. Adams. October 1, 1939; vice president of sales of the United
States Steel Corporation of Delaware.
Mr. Wooden. And before that time you were?
Mr. Adams. With the Inland Steel Co., as vice president and
assistant general manager of sales.
Mr. Wooden. And how long have you been in the industry in a
sales capacity?
Mr. Adams. Since 1923, with the exception of 8 years during which
I was vice president in charge of sales of the General Fire-proofing
Co., at Youngstown, Ohio.
Mr. Wooden. You had occasion during your sales experience in
the steel industry to become familiar w ith what sometimes is referred
to as the basing-point system?
Mr. Adams. From a practical standpoint, yes, sir.
Mr. Wooden. Will you tell the CommitlBC, in as few words as you
can, what are the main features — physical and mechanical features —
of the basing-point system?
Mr. Adams. It is a method which we use in calculating our deUvered
prices which we quote to our customers. We have found that in
dealing with perhaps some 500,000 customers, who are users of steel,
they prefer to have us quote delivered prices.
Mr. WoodejJ. Will you — I don't mind your enlarging upon the
point, but I want the physical aspects, and mechanics, of the system,
rather than the reasons for it. Just a skeleton outline of what the
system" is.
Mr. Adams. If I understand your question cor ectly, we follow a
method of arriving at delivered prices wliich is '^Jiown as the basing-
point system. We publish base delivered prices at our points of
production.
OONGBNTRATION OF ECONOMIC POWER 14161
Mr. Wooden. That means delivered at the point of production,
doesn't it?
Mr. Adams. Yes, sir.
Acting Chairnian King. May I ask a question there? Is that
system one which has been approved by your customers and by the
consumers of steel throughout the United States, if you know?
Mr. Adams. I would say very definitely, Senator, that our customers
favor this method of quoting prices, the delivered-price method — and
as evidence of that I would like to offer for the record an article from
Iron Age of April 1939, which is the result of a survey made by Iron
Age and conclusions reached by Iron Age.
Acting Chairman King. It will be exhibited to counsel and we will
take the views of counsel before it is admitted. Personally, I see no
objection to it but I think counsel ought to have a chance to examine
it, if he cares to.
Mr. Wooden. Well, of course, we are familiar with the general
situation that in the basing-point system customers who are in com-
petition with each other naturally do not want their competing
rivals to buy any more cheaply than they do, and that may account
for such desire or such favoritism as there is on the part of customers
toward the system, because it does put them on an equality as to the
delivered price.
Acting Chairman King. Well, Judge, do you object to it? If
you do
Mr. Wooden (interposing). I haven't any objection but it is sub-
ject to
Acting Chairman King (interposing). Perhaps it can be put in
at the conclusion of the testimony.
Mr. Wooden. I think that would be better; yes.^
Mr. Davis. Mr. Chairman, I would like to ask a question in this
connection. With respect to your assertion that it is definitely de-
sired by the customers, I want to ask you if it isn't a fact that your
organization has on numerous occasions refused to grant a miU price
when it was requested?
Mr. Adams. I wouldn't say that we had done that on numerous
occasions, because we have not had numerous requests for mill prices
in that sense of the word.
Mr. Davis. You have invariably refused to give such a price when
it was requested, have you not?
Mr. Adams. I would say that we have not refused in every case.
There may be exceptions to every policy, but the policy of the United
States Steel Corporation is to quote delivered prices.
Mr. Davis. Only? That is true, is it not?
Mr. Adams. No, sir. I won't say that because there have been
exceptions to our policy, in connection with instances where condi-
tions justified making that exception.
Mr. Davis. Will you state one of the recent exceptions?
Mr. Adams. I think one of the recent exceptions was where a cer-
tain oil company asked for an f. o. b. mill price and we refused to
devi 'te from our policy and quote on that basis. Our policy, how-
ever, is to quote delivered prices at the point of consumption where we
believe competition exists; in other words, we think that that is the
market for our product.
' Introduced Infra, p. 14229, as "Exhibit No. 2202"; appears In appendix, p. 14430.
14162 CONCENTRATION OF ECONOMIC POWER
Now if you want to go into exceptions at this time, that would
invoke our pohcy regarding various products and methods of trans-
portation, but I didn't realize that that was what you
Mr. Davis (interposing). Well, I will refrain from developing it
further, with this additional question: Is it not a fact that you have
expressly refused to grant mill prices to the Federal Government,
when requested to do so?
Mr. Adams. Is that the exception you have reference to, in con-
nection with our negotiations with the Government? Is that it?
Mr. Davis. Yes; where they have asked for bids or prices.
Mr. Adams. On the contrary, we do grant mill prices to the Gov-
ernment, and have in a great many cases. The Government does,
however, in appraising their bids, appraise them on the basis of the
delivered" price value, , because the United States Government, like
all the rest of our customers, is interested in the cost of the material
delivered at the point where it will be used.
Acting Chairman King. Proceed, Judge.
Mr. Wooden. I understand that your general practice and poUcy,
however, is to quote only in terms of delivered prices?
Mr. Adams. That is correct.
Mr. Wooden. Now you spoke of quoting base prices at your points
of production. Are all your points of production known or recognized
as basing points?
Mr. Adams. No, sir; there are a few exceptions. We have a few
small mills located at what might be called nonbasing points, insofar
as the operation of the Steel Corporation is concerned, but the total
tonnage produced at those nonbasing points is very small.
Mr. Wooden. Now, there are a number of other producing points
in the industry, are there ijiot, that are not basing points?
Mr. Adams. There are a few. According to my information,
there are 52 published basing-point prices in the United States today
and when you multiply that number by the number of products
involved, that list of 52 may be expanded up to 125 or 150.
Mr. Wooden. Isn't it true that for some products, there are a
comparatively small number of basing points compared with the
total number of producing points?
Mr. Adams. Will you repeat that question?
(The question was read.)
Mr. F airless. For example?
Mr. Wooden. Well, how about structural shapes? How many
basing points are- there for structural shapes and how many producing
points?
Mr. Adams. We have no nonbasing points for structural shapes,
Mr. Wooden. I am not referring only to the Steel Corporation's
points but to the industry's.
Mr. Fairless. Well, this is the U. S. Steel Corporation hearing,
not the steel industry hearing.
Mr. Wooden. I understood it was to be about the basing-point
system in the industry.
Mr. Fairless. As applied to the United States Steel Corporation.
Mr. Wooden. Well, I don't understand it that
Mr. Fairless (interposing). We certainly didn't have any idea
that we were here representing the steel industry at any time or point
during these hearings.
CON€.BNTRATION OF ECONOMIC POWEK 14163
Mr. Wooden. You brought out that you do not represent the steel
industry in presenting these statements, but the title of your "Exhibit
No. 1418" is, "The Basing Point Method of Quoting Delivered Prices in
the Steel Industry."
Mr. Fairless. That's right.
Mr. Wooden. And you describe it from the industry standpoint
as well as the Corporation standpoint.
Mr. Fairless. Well, from the standpoint that we must brmg out,
in presenting our evidence, the basing points which we are confronted
with in transaction of our daily business.
Mr. Adams. Mr. Wooden, we would be glad to present a map at
this time, if you care to have us do so, to show the basing points for
structural shapes and the nonbasing points, so that we can determine
here and now just how many nonbasing points thsre are on structural
shapes.
Mr. Wooden. Well, it is already in evidence before the Committee,
I think — the number of basing points and the location ojf the basing
points and the products to which each applies. Now from the
general knowledge that you have of the system in the industry don't
you know that as to some products there may be only five or six
basing points, as to a given product?
Mr. Adams. Well, we have scattered through the steel industry a
range of products and a range of mills. There are some products
that are made by 4 or 5 mills, there are other products that are made
by 30 mills; so that with that as a premise, you would naturally find
a varying number of basing points published in this industry.
Actmg Chairman King. May I ask a question there? Are there
basing points — and I assume there are, as far as the steel industry as
a whole is concerned^that are not the basing points of your company?
Mr. Adams. Yes, sir.
Acting Chairman King. I am asking this for my own information.
Judge, I don't want to interfere with you; but for my own informa-
tion, are you testifying with respect to basing points alone or ex-
clusively, which are used or employed by your company or by all of'
the steel industry?
Mr. Adams. When the question is asked as to the number of non-
basing-point mills' there are m the country, we answer in terms of
United States Steel Corporation and we make the statement that
practically all of our tonnage is sold at producing points where prices
are published, delivered prices are published, at our points of pro-
duction.
Mr. Wooden. And which are basing points.
Mr. Adams. And which are basing points.
Acting Chairman King. Are there basing points that other com-
panies use which j^ou do not recognize or employ in determining
prices?
Mr. Adams. We do not publish delivered prices at competitors'
basing points, but, because of the prices that exist at those points,
we find it necessary to compete with the mills located at those points,
and when we have to reduce our delivered price at the point of delivery
by an amount necessary to meet that competition, then our mill net
return is reduced and the amount that it is reduced is so-called
freight absorption. We don't recognize that as a term; it is an evi-
dence of competition that exists in this industry.
14164 CJONCENTRATION OF ECONOMIC POWER
Mr. Wooden. In your pricing you sometimes base your delivered
price, do you not, upon the basing point prices of competitors?
Mr. Adams. We try to guess as to what the delivered price will be
at the point of consumption. If a competitor is quoting in accordance
with his published price we will try to ascertain what that price is by
guesswork and beat that particular price at the point of consumption.
In many cases that means that we have to reduce our price.
Mr. Wooden. But after you ascertain the competitor's base price
and that base price happens to control the destination price where
you happen to be figuring, then you figure on that competitor's base
price plus the freight from that basing point, do you not?
Mr. Adams. No, sir; we do not.
Mr. Wooden. How do you do it?
Mr. Adams. The price that we quote is a delivered price and that is
dependent upon the competition that exists at that particular point.
Mr. Wooden. Well, do you not know what the competitor's base
price is?
Mr. Adams. No, sir.
Mr. Wooden. You have no knowledge of
Mr. Adams (interposing). What his base price or his delivered
price is?
Mr. Wooden. His base price.
Mr. Adams. We think in terms of delivered price.
Mr. Wooden. But don't you know what his base price is?
Mr. Adams. We might know what his published base price is.
Mr. Wooden. You publish your base prices and competitors
publish theirs?
Mr. Adams. We publish base delivered prices at our points of
production.
Mr. Wooden. And competitors publish theirs?
Mr. Adams. Yes, sir.
Mr. Wooden. Your principal competitors publish theirs?
Mr. Adams. They notify their trade; I don't know whether they
publish their prices each quarter on all products.
Mr. Wooden. There are some territories, are there not, where your
base prices govern or control the delivered prices?
Mr. Adams. If our problem is predicated entirely upon the question
of published base prices and transportation costs involved, we might
arrive at that assumption, but that presupposes the absence of com-
petition.
Mr. Wooden. Yes, but it is a fact that your base price plus the
freight from your basing point controls the delivered price in some
territories?
Mr. Adams. I wouldn't say that it controls the delivered price, no,
sir, because we have competition in the territories located close to our
mills just as we have competition in territories located closer to a
competitor's mill.
Mr. Wooden. Of course you have competitors coming in there,
but if they follow the basing point system they come in there at your
base price plus freight from your basing point, do they not?
Mr. Adams. They might assume, and the assumption would be
predicated upon the fact that we publish a base delivered price, that
the price that we might quote at a point near our mill would be the
sum total of our published base price plus the actual freight to destina-
CONCENTRATION OF ECONOMIC POWER 14165
tion, but they would assume then that we never deviated from our
published delivered prices, and that, of course, is not the fact in the
picture, because we do deviate.
Mr. Wooden. Have you deviated from your base prices as a con-
sistent policy, or has it been an exception for you to deviate from
your base prices?
Mr. Adams. Our policy is to be competitive naturally. Now the
records will show that our average price over a long period of time,
with the exception of the code period, was lower than our published
price.
Mr. Wooden. Well, that includes the item of freight absorption,
does it not?
Mr. Adams. Again I must say that the term "freight absorption"
is a term that has been coined by the critics of the basing-point method.
Freight absorption from a steelman's standpoint is a transportation
cost that is included in our delivered prices. Someone has to pay
that freight. The railroads publish tariffs and rates of freight. Now
someone has to pay that freight, so there is no technical absorption of
freight. If we reduce our delivered price in competing for a piece of
business at a point closer to a competitor's mill than ours, then we
have to meet that competition by reducing our mill net return.
Mr. Wooden. That's what I meant.
Mr. Adams. And that in itself is an evidence of the competition
that exists in the steel industry today.
Mr. Wooden. Do you reduce yom* mill net by the amount neces-
sary to make your delivered price the same as that of the competitor?
Is that right?
Mr. Adams. We do that and in a great many cases reduce it still
further in order to meet what is known as price absorption, or price
rediiction, in order to be competitive beyond the competition that
develops from difference in transportation costs.
Now I would like to make this point in connection with transporta-
tion costs. When we build a steel mill and select a location for that
mill, we have to bring in 4 tons of raw materials for every ton of steel'
produced. The transportation costs in assembling those raw materi-
als is a figure that exceeds the average transportation cost on finished
products, so that transportation cost can be compared with the trans-
portation cost involved in transporting our finished steel products to
the points of consumption.
Mr. Wooden. Do you make it a practice to cut your base prices,
published prices, without making a public announcement of your
change?
Mr. Adams. We find it necessary to reduce our base prices in order
to meet competition.
Mr. Wooden. Without publishing the change?
Mr. Adams. Yes, sir.
Mr. Wooden. Do you attempt, however, to meet such things at
times by republishing the base prices to meet the situation that you
refer to?
Mr. Adams. Certainly. If competition breaks out at a certain
point where one instance or two instances or a limited number of
cases are involved, we will deviate from our published price in order
to meet that competition. If it becomes general — we make a study
of the use of that word "general" — then we do reduce our published
prices.
14166 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Will you tell me in what respects, if any, the state-
ment or description that I give now of the basing-point system in
steel is maccurate or inadequate?
There are a number, let us assume, of producing points and some
points not of production known as basing points, and at those points
so-called base prices apply. There are a number of other producing
points that are not basing points for the particular products that are
produced at other basing points. In figuring prices, ordinarily de-
livered prices are quoted. The delivered price quotation is made up
of the base price on the particular product, plus the all-rail freight
ordinarily to destination, and which base price controls the delivered
price depends upon wliich one makes the lowest delivered price when
the freight is added. Is that correct so far?
Mr. Adams. That is generally correct, assuming the absence of com-
petition from the standpoint of price reductions in the base price.
Mr. Wooden. Well, I'm not going into that; I am trying to get at
these physical, mechanical aspects of the system.
Further, when one basing-point mill goes into a territory where
another basing-point price plus freight from that basing point to the
destination makes a lower delivered price, then the first basing-point
mill meets that delivered price, does it not?
Mr. Adams. Yes, sir.
Mr. Wooden. And in doing that it adopts, for the purpose of that
transaction, the basing-point price of the other mill plus the freight,
all-rail freight, from that basing point to destination. Is that correct?
Mr. Adams. We don't look at it from that viewpoint, Mr. Wooden.
We consider that in a case like that we reduce our mill net return in
order to meet competition at that point of delivery.
Mr. Wooden. But in essence your delivered price is made up of the
other basing-point price plus freight from that other basing point, is
it not?
Mr. Adams. I don't see how you can arrive at that conclusion,
because as I said before, the freight in your delivered price is a trans-
portation cost wliich has to be assumed by the successful bidder, so
that the actual freight in that particular case from the standpoint of
the Corporation is the freight from our producing mill to the point of
consumption.
Mr. Wooden. Yes; but that is deducted from the delivered price,
leaving you a smaller mill net. Isn't that correct?
Mr. Adams. That is correct. It reduces our mill net return.
Mr. Wooden. And the delivered price in that instance is the
equivalent mathematically of the other basing-point mill's base price
plus freight from it to destination, isn't it?
Mr. Adams. That is correct, providing our competitor doesn't
reduce his published base price in order to meet some other competitor.
Mr. Reynders. Is it correct to say that that constitutes a ceiling at
that point?
Mr. Adams. That is correct, Mr. Reynders.
Acting Chairman King. May I ask a question? Assume that a
producer finds a market within a radius, say, of 100 miles, and another
producer who is perhaps four or five hundred miles away but desires
to ship into that area where the area is small, and the freight rate, of
course, would be a great deal higher from the four- or five-hundred-
CONCENTRATION OF ECONOMIC POWER 141j67
mile producer than that of the producer that was within the small area,
what would be the basing point there?
Mr. Adams. Well, there would be two basing points involved as
such. The man located farthest away from the point of consumption
would receive a lower mill net return.
Acting Chairman King. He would have to pay more freight?
Mr. Adams. His transportation costs would be higher; yes, sir.
Acting Chairman King. That would necessitate, if he competed
with the producer witliin the small area, a reduction in his profits if
profits are made, at least a reduction in the price?
Mr. Adams. Yes, sir, in the mill net return.
Mr. Wooden. If each mill should calculate its delivered price in
terms of a basirg-point price on the particular product from the
basing point to any particular destination on an all-rail freight basis,
the result would be that the mills would get into that particular
destination at an identical delivered price, would it not?
Mr. Adams. That would depend entirely upon the, relation of their
published base prices and the relation of the transportation costs. If
two mills published identical prices and were quoting to a consumer
who was exactly 200 miles from each mill and neither mill deviated
from their published base prices, the delivered prices would be
identical.
Mr. Wooden. But even if the consumer were 50 miles from one
mill and 150 miles from the other, the delivered price would be
identical if the same base price was used by both and both added
the same freight element from the base price to the destination, would
it not?
Mr. Adams. Well, I think you are assuming something, Mr.
Wooden, that is a little different from our practical analysis in the
situation that exists. We still think in terms of delivered prices
because our customers prefer to have us quote the delivered price.
Now when we reduce our delivered price so as to be competitive in
that market, the result is a reduction in our mill-net return. We
don't take a competitor's basing-point price and add his freight.
That isn't the freight that interests us. The freight that interests us
is our actual transportation cost, and we analyze our actual trans-
portation cost just like we analyze our costs of labor and materials
and other things that go into the build-up of our delivered prices to
determine whether or not we want to be competitive at the point of
delivery. We may have a level of prices, in the steel industry such
that we would not want to compete in that market.
Mr. Wooden. By beiiig competitive do you mean making your
delivered price at a given df^stination the same as that of your, com-
petitors?
Mr. Adams. We believe that delivered prices are an indication of
fair competition in a great many cases.
Mr. Wooden. Can you answer my question?
(The question was read.)
Mr. Adams. In our negotiations with our customers, if the customer
should say to us, "We have a delivered price which is $2 a ton below
the price that you have quoted, we will place that business with you
if you reduce your price $2 a ton and be competitive," then we
normally, under a normal set of conditions, would reduce our price
14168 CONCENTRATION OP ECONOMIC POWER
to a price equal to his. We would assume that after we had made
that reduction we were then competitive from a price standpoint.
Other things enter into the consideration, quality, service, factors of
that kind.
Mr. Wooden. Do you consider that unless your delivered price is
the same as that of your competitors there is a noncompetitive
situation there?
Mr. Adams. That question has to be broken down into two parts.
If our price is higher we are noncompetitive from the price stand-
point; if our price is
Mr. Wooden (interposing). The others are noncompetitive? You
are noncompetitive; yes, that is right.
Mr. Adams. If our price is higher at the point of delivery than our
competitors we would be noncompetitive from a price standpoint.
If we went through a series of negotiations which resulted m our
reducing our delivered price to a competitor's level we would assume
that we were competitive. If our reduction exceeded the price
quoted by competition we would assume, too, that we were highly
competitive.
Mr. Wooden. What if you went below the delivered price of your
competitors? Would that be competitive?
Mr. Adams. Well, I would say that in that case we would be in a
very competitive position from a price standpoint.
Mr. Wooden. In other words, you are in a competitive position
when your delivered price is the same as that of competitors and also
competitive when it is below that of competitors. Is that right?
Mr. Adams. Yes, sir.
Mr. Wooden. As to other physical aspects of the basing point
system, does it not result that frequently when you are selling in the
territory of another basing point mill and meeting the delivered price
at destination there, that you are absorbing substantial amounts of
freight, so-called, meaning by that that you realize a mill-net return
that is less than your own base price?
Mr. Adams. We still don't talk or think in terms of absorbing
freight, because the freight is constant. If we do meet competition
at a point of delivery and the result is to reduce our mUl-net return,
then we njight have a mill-net return which is lower than the mill -net
return reflected by quoting in a nearby territory where that type of
competition did not exist.
Mr. Wooden. And that is a very frequent and day-to-day occur-
rence, isn't it. Your realizing smaller mill-nets when you go into
territory of other basing point mills?
Mr. Adams. That is true ; yes, sir.
Mr. Wooden. And assuming that your delivered price in such a
case is the same as that of your competitors, the reduction in your,
null-net return is just the amount needed to meet that delivered price
of the competitor, isn't it?
Mr. Adams. Unless our delivered price should be below that of our
competitor, unless we have the other factor in the pictm-e, which is
price absorption, price reduction.
Mr. Wooden. Then it would be reversed, if your base price was
the controlling base and a competitor came in he would absorb freight
in the same way and to the same extent, wouldn't he?
Mr. Adams. Yes, sir.
dONCENTRATION 01' ECONOMIC POWER 14169
Mr. Wooden. Then another point. Even as a base mill, figuring
your delivered price, as you do, in terms of all-rail freight, ordinarily,
if you make an actual delivery by some cheaper mode of transportation
such as water or truck, you have there, do you not, an increment in
your base price represented by the amount of the difference between
the transportation element that you figure and the transportation
element that you actually use for the shipment.
Mr. Adams. You mean that our mill-net return might be increased?
Mr. WooDEisr. Yes.
Mr. Adams. That, of course, as you know, Mr. Wooden, breaks
itself down into several different cases.
Mr. Wooden. All right.
Mr. O'CoNNELL. If you use a means of transportation which is less
expensive than rail transportation and your delivered price is on a
basis of all-rail freight, I take it then that it would invariably result
in higher mill-net, would it not?
Mr. Fairless. If you did.
Mr. O'CoNNELL. That is what I understood his question to be.
Mr. Adams. The answer is yes, but again we are talking In terms of
an occasional exception,, because that question raises the question of
our over-all policy regarding water shipments, truck shipments, and
methods of transportation which in some instances might be less than
the aU-rail freight. It also raises the question as to whether or not we
charge the rail rate or charge the water rate.
Mr. Wooden. But assuming you charge the rail rate in the quo-
tation of the delivered price and ship by a cheaper mode of transpor-
tation, you thereby increase your miU-net return above the base
price, do you not?
Mr. Adams. That is correct, but I want to make the poLcrt in passing
that the few cases that we have been able to find on our books cover
a very, very limited amount of tonnage. When we reach the ques-
tion of water transportation I would like to have the opportunity of
going into that further so that we can get down to facts.
Mr. Wooden. I want to go into it further also.
Referring to section C in "Exhibit No. 1409" ' which is the Cor-
poration's exhibit of charts, I note that in a number of instances the
mUl-net yield, for instance for bars at Chicago, exceeded the base
price by a substantial amount. For instance, take the month of
June, 1935. Do you have that?
Mr. Adams. I have it now, Mr. Wooden. - It is Chart C-6 in "Exhibit
No. 1409." 2
Mr. Wooden. Does that show that for the month of June, 1935,
your mill-net on bars at Chicago exceeded your base price by 18
cents per hundredweight?
Mr. Adams. We believe that these figures are accurate. The
period that you have pointed out in the first place is the code period.
In the second place, these charts are predicated upon a comparison
between the mill-net yield, which includes extras, and the reported
base price, so that when the mill-net yield is below the reported
base price in periods other than duricg the code period, we have
made reductions in our base prices which exceed the amount of the
extras involved.
' Included in Hearings, Part 26, appendix, p. 13743.
» Ibid, p. 13805.
14170 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Is it your explanation, then, that that 18 cents per
hundredweight excess over the base price, or $3.60 a ton excess over
base price, is the result of extras being- included?
Mr. Adams. That would be my explanation of it now without
going into the detailed data which we're used in connection with the
preparation of the charts.
Mr. Wooden. Are you sure that none of such excess of mill-net
over base price could be the result of shipments by water?
Mr. Adams. When you use the word "none", Mr. Wooden, of
course that means that there might be a few cents involved, or more
likely fractions of cents involved, that can be traced to that.
Mr. Wooden. I should add also by truck or any cheaper mode of
transportation than all rail.
Mr. Adams. Yes, sir; my reply would be the same.
Mr. Wooden. Isn't it possible, also, that such excesses of mill-net
yield over the base price at a place like Chicago would be the result
of your use of an arbitrary switching charge there, which would be
in excess of the actual switfchihg charge?
Mr. Adams. That is perfectly possible.
Mr. Wooden. As a matter of fact, you do have these arbitrary
switching charges at certain basing points, do you not?
Mr. Adams. We include in our published base delivered price at
Chicago a charge of 3 cents per hundred pounds. Now you mentioned
trucks a ninute ago. The actual trucking charge in the Chicago area
is 12}^ cjnts, and we charge 3 cents, so our mill-net return in that
particular case would be reduced rather than increased.
I think that with your permission, inasmuch as we are talking about
the possibilities that exist in the steel industry of raising mill-net
returns by methods of transportation wliich cost less than the rail
rate and charging the rail rate, I would like to say that we made a
study for the benefit of this Committee of our shipments in 1937, and
we found that we shipped 12,700,000 tons of finished products by all
means of transportation. We actually shipped 1,200,000 tons by
water and charged the water rates. There were 18,000 tons out of a
total of 12,700,000 tons that we shipped by water and charged the
rail rate. Now when you break that down you find that the subject
we are taljdng about amounts to a very, very infinitesimal amount.
Mr. Wooden. These figures that were put in this morning by Dr.
deChazeau showed amounts of several dollars per ton representing so-
called phantom freight and several dollars per ton representing so-called
freight absorption, did they not?
Mr. Adams. I don't know what figure he might have mentioned.
I would like to take any particular figure that you have in mind, any
particular case, and break it down.
Mr, Wooden. Well, are there not frequent instances where you do
reduce your mill-net return by the amount of the difference between
the actual freight from your shipping point and the freight calculated
from another basing point to destination?
Mr. Adams. It is the approach that you follow to that subject that
draws the distinction. We still quote delivered prices, and whien we
find it necessary to reduce those delivered prices in order to meet
competition at point of delivery our mill-net return goes down.
Mr. Wooden. By the amount necessary to make your price com-
petitive at destination.
CONCENTRATION OF ECONOMIC POWER 14171
Mr. Adams. To make our price competitive at destination ; yes, sir,
Mr. Wooden. We will come later on to some of those subjects in
more detail. I just wanted to get the general picture.
Mr. Fairless, it is the stated opinion of the Corporation in "Exhibit
No. 1418" ^ that the purpose of the pamphlet is to establish that the
basing-pouit method is the natural result of basic economic conditions
in the steel industry and does not result in the absence of price com-
petition.^ Is that correct substantially?
Mr. Fairless. That is right.
Mr. Wooden. And it is also the position taken, I believe, that the
delivered price competition natm^ally takes" the form of meeting the
delivered prices of competitors, is that correct?
Mr. Fairless. That is in the only definition of being competitive
that I know. There may be others.
Mr. Wooden. Mr. Gregg, I believe, is the vice president of U. S.
Steel Corporation?
Mr. Fairless. He is president of one of our leading subsidiaries,
the Tennessee Coal, Iron, Railroad Co., and was at one time, vice
president of the Corporation.
Mr. Wooden. Mr. Chairman, I have here a printed transcript of
testimony given by Mr. Gregg in hearings before the Senate Com-
mittee on Interstate Commerce in 1936, and I should like to read a
portion of it, if I may?
Acting Chairman King. Proceed.
Mr. Wooden. This was in hearings before the Senate Committee
on Interstate Commerce in March of 1936, on Senate bill 4055. - Mr.
Gregg was being questioned about the basing-point system. He
testified :
That has been the general merchandising plan in the industry.
The Chairman. So that if the plan is followed, there is no competition so far
as price is concerned?
Mr. Gregg. On the contrary, there is competition. To answer your questio^n
specifically, if that plan were universally followed, there would be no competition
in so far as one element of competition is concerned, namely, price.
That is on page 207 of the record that I referred to.
Now, Mr. Fairless, do you think Mr. Gregg was right in saying
that if the basing-point system were followed, there would be no
competition in price?
Mr. Fairless. It seems to me that it would be perfectly obvious
that if every steel producing company in this great industry posted
their prices applying to their particular basing points, and that they
and all their competition in quoting prices to consumers of steel used
the nearest basing point and quoted the base price which had been
published by the producer for that particular basing point, and added
to that price the extras that applied to the products involved, and
added to that the transportation cost to the point of consumption,
obviously there would be a one-price set-up in the steel industry.
Now, the results that we have previously prodilced, I would think
and I hope, are suJB&cierit, of course, to prove that that is a theory and
in practice it does not result, and never has resulted, to the best of
my knowledge, except at one time, and I think you all know tjie
period, and that happens to be the period when the realized price of
bars at Chicago was higher than the announced vprice.
' Appendix, p. 14619fl.
' Further testimony on this subject appears infra, p. 14174 et seq.
124491— 41— pt. 27 4
14172 CJONCENTRATION OF EC50N0MIC POWER
Acting Chairman King. Was that under the N. R. A.?
Mr. Fairless. That is right.
Mr. Wooden. Well, is it your position, Mr. Fairless, that the
result of an identical delivered price at a given destination, arrived
at by using a base price plus extras, plus freight from the base to the
destination, is price competition or is not?
Mr. Fairless. The basing-point system of arriving at delivered
prices is only a method by which the U. S. Steel Corporation, and to
a great extent the steel industry, merchandises its products. Now,
so far as the actual operation of the multiple basing-point system is
concerned, it is purel;^, highly competitive. Why? Because any
producer can name at his particular basing point any price he chooses,
and even after naming his price, he still reserves the right to use it or
not use it as he sees fit.
It seems to me that for all practical purposes and for the conserva-
tion of time, which I believe is important to all of us, we will concede,
if that is the point that you are trying to make, that if base prices as
announced were followed in every transaction, and that the nearest
basing point to the consumer governed, and that the rail freight was
added from that point, and the delivered price arrived at in that
manner, there wouldn't be any competition in the steel industry. It
would be a one-price industry, pure and simple.
Mr. Wooden. Well, then, do you mean to say
Mr. Fairless (Interposing). What I do mean to say is that prac-
tically speaking, and this is after spending 25 years in this industry,
that does not exist except in theory.
Mr. Wooden. You mean to say
Mr. Fairless (Interposing). Practically every company is out
fighting for business and it is attempting to get business on a com-
petitive basis.
Mr. ^ Wooden. Do you mean to say that competition in price
exists when the system is departed from and when the system is
adhered to there is no competition in price?
Mr. Fairless. Well, I only know one way to state the things and
that is in the simple and direct manner.
Mr. Wooden. That isn't answering my question.
Mr. Fairless. I know that if my price of bars is $40 and I get
only $38 for them, I know that my price has been reduced $2. I also
know, and the exhibits that we have presented here conclusively
show, not from any theory standpoint, but actual developments of
our business, that we do not realize, and this industry, I am sure,
does not realize its announced prices. I say, "Why?" or somebody
says "Why?" It is due to conapetition.
Now, when we quote our prices, Mr. Wooden, in the newspapr^rs,
the trade papers, those are the prices we want to get. We think they
are fair, and my previous testimony has shown how our prices were
arrived at. They are not picked out of the air on the basis of how
much profit we can exact from an unsuspecting public; they are
based on our costs and a reasonable profit that we think we sifiould
get for those goods.
Mr. Wooden. I wanted to ask you-
Mr. Fairless (Interposing). But when we find — pardon me, but
when we find that we cannot get those prices, even as fair as they are,
due to competition, we reduce them. We reduce them how far? It
CONCENTRATION OF ECONOMIC POWEH 14173
is dependent upon the conditions involved in the particular trans-
action.
Mr. WooDE^r. I take it, Mr. Fairless, that you are in agreement
with Mr. Gre^g to the effect that if the system is followed, and to the
extent that it is followed, there is no competition in price ; is that right?
Mr. Fairless. Well, I thought I had made myself clear.
Mr. O'CoNNELL. Well, the answer is "Yes," but you say that as a
practical matter, the system is not followed?
Mr. Fairless. I have answered it that way. All the things you
said, Mr. Wooden, if they were true, then your conclusion or the
conclusion I assume that you are striking for, would be true.
Mr. O'CoNNELL. May I interrupt? So that as one who looks with
favor on price competition, I can be thankful that the system which
the steel industry has set up does not work, is that right?
Mr. Fairless. Well, although I wasn't present at the time the
basing-point system was devised, I still think it is a good method for
merchandising steel products, but I say that the United States Steel
Corporation would welcome a better method for merchandising its
products. It would welcome it.
Now, the fact is that we have this plan. When you stop to con-
sider that here is an industry, and you are talking about sixty or sixty-
five millions of tons of steel capacity, how in the world could these
products — and there is a multipUcity of them — how could they be
merchandised without a plan? How could the architect who was
trying to arrive at the possible cost of a business buUdmg, structure
or bridge, do it if he didn't have any basis for knowing how steel was
sold? When it comes to the actual transaction, that becomes a
matter between buyer and seller, and if there ia any man seated at
these tables who ever bought steel in any ciuantitj, and who isn't
convinced that there is definite competition in this mdustry, I would
be very much surprised. Likewise, if there is anyone who doubts that
there is competition in the industry, I would suggest that he put
himself in a position to buy, either for himself or someone else, a
reasonable quantity of steel.
Mr. O'CoNNELL. Well, my comment was merely that, as it appears
to be the fact, we can be a little bit encouraged about price com-
petition because the basing-point system doesn't work to perfection.
Mr. Wooden. Mr. Fairless, as a matter of fact^ haven't there been
periods of time when the basing-point system did work exactly to
bring about the identical deUvered prices which it is normally cal-
culated to produce?
Mr. Fairless. It didn't work, you say?
Mr. Wooden. Haven't there been periods when it did work?
Mr. Fairless. Did work?
Mr. Wooden. Yes.
Mr. Fairless. It worked beautifully imder the N. R. A. Steel Code.
Mr. Wooden. And as a matter of fact, the basiiig-point system was
incorporated in the N. R. A. code, was it not?
Mr. Fairless. The Code Authority accepted it, yes; definitely.
Mr. Ballinger. Mr. Fairless, if the system does not work and the
system of pricing in steel is therefore competitive, because ot depar-
tures from the system, would you be willing to endorse legislation to
outlaw the basing-point system?
Mr. Fairless. Well, why?
14174 CONCENTRATION OP ECONOMIC POWER
Mr. Ballinger. Well, it doesn't work; why have it around?
Some day you might make it work.
Mr. Fairless. It does work. The basing-point system was never
designed to prevent competition, Mr. Ballinger. It was not so
designed and it isn't so used today.
Mr. Wooden. It was designed, however, to
Mr. Fairless. It is only a method of merchandising our products.
Mr. Wooden. It was designed, was it not, Mr. Fairless, ^according
to your own testimony, to produce an identical delivered price when
followed?
Mr. Fairless. My testimony?
Mr. Wooden. Yes. In other words, I thought you agreed with
Mr. Gregg that if it were followed you would not have any competition
in price.
Mr. Fairless. On the one hand you are asking me how the system
is designed ; then you go from that to how the system works. I would
like to answer either question.
Mr. Wooden. I don't mean originally intended by design, but I
mean calculated to produce certain results.
Mr. Fairless. Well, it is definitely my opinion that the multiple
basing point system for the distribution of steel products was not
designed to prevent or preclude competition.
Acting Chairman King. Sort of a merchandising formula?
Mr. Fairless. That's right.
Mr. Wooden. And yet it produced the effect, as Mr. Gregg said,
that if it works, in other words an identical delivered ptice and no
competition in price.
Mr. Fairless. I should like to clear up Mr. Gregg's testimony —
which, of course, I am not responsible for.
Acting Chairman King. He was testifying under the N. R. A., was
he not?
Mr. Wooden. No ; subsequent to that.
Mr. Fairless. As I read from'the record, Mr. Gregg said substan-
tially what I have just said.
Mr. Wooden. That's what I thought. As a matter of fact, do you
not, in your pamphlet, "Exhibit No. 1418,"' quote from the N. R. A.
report with approval, to. the effect, that '"The outstanding characteris-
tic of the basing point system is the fact that it puts rival producers on
a footing of price equality with each other in all the consuming points
over a wide area"?
Mr. Fairless. That's a true statement, but it still doesn't preclude
competition in those areas.
Mr. Wooden. Are you intending to defend the system itself by show
ing that there are departures from it?
Mr. Fairless. Well, I didn't know that I was here particularly to
defend the system at all. I am here to answer any questions about it.
My greatest defense for the multiple basing-point system in this in-
dustry would be that I have yet to see any substitute for it that is
equal to it, let alone better.
Mr. Wooden. As a means of doing what?
Mr. Fairless. Of transacting our business in an orderly manner.
Acting Chairman King. What are the widest fluctuations in prices
of steel during the past 10 or 15 years?
• Appendix, p. 14619ff.
CONCENTRATION OF ECONOMIC POWER 14175
Mr. Fairless. You mean as between the prices of a certain
product?
Acting Chairman King. Yes. Have there been very wide
fluctuations?
Mr. Fairless. Oh, yes. In a 10-year period? Yes.
Acting Chairman King. Have there been fluctuations within a year
among the producers of steel?
Mr. Fairless. There have been some, but substantially the prices
that are in effect today, Senator, are those announced June 24, 1938,
substantially. So far as announced prices are concerned, that is.
Now the realized prices fluctuate. Obviously with the industry
operating at almost capacity, as it did in the fourth quarter of 1939,
the more nearly were those announced prices realized insofar as the
United States Steel Corporation was concerned, but even in that
period our records will show that the announced prices were not
realized.
Mr. Wooden. Mr. Fairless, in that connection, even when the
basing point system is working 100 percent and producing an identical
delivered price, your mill net realizations fluctuate even then, do
they not?
Mr. Fairless. The basing point system works 100 percent every
day, 24 hours of every day, but it doesn't result in uniform prices,
because that isn't the reason that the system is in vogue or practice.
Mr. Wooden. Would you say that the present purposes of it are
different from what they were when it was originated?
Mr. Fairless. I haven^t any idea when it was originated — I
wasn't in the picture at that time. But I do know, from 25 years
experience, how it works.
Acting Chairman King. During your connection with the steel
industry, have the prices in various parts of the United States at the
same time, same day, same month, same week, same year, varied
with respect to steel commodities?
Mr. Fairless. Yes.
Acting Chairman King. So that the costs for instance in San Fran-
cisco for steel would be different fr6m the costs for steel, say, in
Pittsburgh or New York?
Mr. Fairless. Yes.
Mr. Wooden. The delivered price, of course, varies according to
the delivery charge, does it not?
Mr. Fairless. We announce
Mr. Wooden (interposing). You have different delivered prices at
an innumerable number of destinations?
Mr. Fairless. Certainly.
Mr. Wooden. Depending on differences in freight?
Mr. Fairless. Well, freight and other considerations. Not en-
tirely freight.
Mr. Wooden. But freight alone would produce innumerable
variations?
Mr. Fairless. Certainly.
Acting Chairman King. And the cost of production, aside from the
freight, would be different, would it not, in the various parts of the
United States?
Mr. Fairless. Yes.
14176 CJONCENTRATION OF BOONOMIO POWER
Acting Chairman King. A steel mill in Provo, Utah, the cost of
producing steel there might be very much different from the cost of
producing steel in some other parts of the United States?
Mr. Fairless. Certainly.
Acting Chairman King. And, of course, the transportation costs
from Provo to San Francisco or Sacramento or Los Angeles, where
probably the greater part of the steel is consumed, would be greater
than the transportation costs from Pittsburgh to some of the consum-
ing areas nearby Pittsburgh?
Mr. Fairless. Steel could be — can be produced in Provo, Utah.
It is one of the lowest-cost spots in the United States.
Acting Chairman King. That's because of the proximity of coal?
Mr. Fairless. And ore.
Acting 'Chairman Kjng. And what?
Mr. Fairless. And iron ore.
Acting Chairman King. The iron ore being a little more than 150
miles away, with fine railroad communications?
Mr. Fairless. That's right.
Acting Chairman King. So that that's an element then?
Mr. Fairless. That's right.
Acting Chairman King. The cost of ore, then, is quite an impor-
tant factor in determining the price of the finished product?
Mr. Fairless. Definitely.
Mr. Davis. Mr. Fairless, what percentage of total tonnage is sold
at quoted prices and what percentage at lower than quoted prices?
Mr. Fairless. What percentage?
Mr. Davis. Yes, sir.
Mr. Fairless. Do you have some particular period in mind?
Mr. Davis. You can take any period you want to.
Mr. Fairless. I wouldn't have that information available. Do
you have it, Mr. Adams?
Mr. Adams. We don't have those statistics available. It depends
upon your approach to the subject. Mr. Wooden raised the question
as to whether there is competition under the basing-point system, if
it works perfectly. From a sales standpoint I would like to say that
under Mr. Wooden's definition of the perfect functioning of the
basing-point method of calculating delivered prices, that we have
competition.
Mr. Wooden. You mean that the delivered price is different even
under the perfect functioning of the basing-point system?
Mr. Adams. I would say that even if we had identical delivered
prices at the point of consumption, that there is still competition in
the picture by the amount that we would have to' reduce our mill-net
return in order to compete in a territory farther removed from our
market.
Mr. Wooden. But so far as the buyers are concerned at that
particular point, the delivered price is the same?
Mr. Adams. It might be, but by the same token, under any method
of calculating prices you are apt to have identical prices, or uniform
prices at the point of consumption, because in your negotiations with
a buyer, if he tells you that a competitor has reduced his price and
gives you an opportunity to meet that price and take the business,
then you have two identical prices.
CONCENTRATION OF ECONOMIC POWER 14177
Mr. Davis. There is no competition in price so far as the buyer is
concerned, is there, in your industry?
Mr. Adams. Our industry is full of competition from the buyer's
standpoint. We^are constantly calling upon the larger buyers of steel
and we are constantly being told that our prices are not low enough.
We have breaks in the market, had one a short time ago where the
price went off $8 a ton.
Mr. Wooden. A good deal depends upon the general conditions of
demand and supply in that connection, I suppose, whether business is
active and plenty of it, whether the prices are well maintained or not?
Mr. Adams. Well, of course the elements of supply and demand
enter into any competitive situation from a practical standpoint.
Mr. Wooden. Have there not been instances even during such per-
iods as you refer to, where the basing point system wasn't working and
prices were being cut, where some buyers continued to pay the full
basing point price plus freight from the basing point?
Mr. Fairless. Mr. Chairman, can I answer that question?
Acting Chairman King. Yes.
Mr. Fairless. I would like most emphatically, if I have that ability,
once and for all to state our position insofar as the basing point system
is concerned. Our contention is that breaks in prices are not a break-
down to any degree of the so-called basing point system. We contend
that the basing point system was in effect and worked just as well
when sheets and other flat rglled products sold for $8 a ton under the
market as it did when they sold definitely on the market. There is
no relationship, and constantly to be asking us the question about the
break-down of the basing point system we don't believe is a fair presen-
tation. Everybody, of course, is entitled to his own opinion of the
basing point system, but we contend that the basing point system is
only a vehicle which we use to merchandise our products. We have
told you we use it because we know of no better method to merchan-
dise our products. There might be, and if out of these hearings could
come that, we would be the first to welcome it.
Now so far as competition is concerned, the fact that you have bas-
ing points and that prices are quoted as applying to those basing points
for various products, and the fact that those prices are not maintained
or are maintained or are reduced, so many dollars one time and more
or less dollars at another time, are in no way in relationship to the
basing point system. That is our contention, and I would like to make
that clear if I can,
Mr. Wooden. But is it not true, Mr. Fairless, that if price reduc-
tions are made that are made, say, secretly, that they constitute a
reduction from the delivered price that would be effective if the basing
point system were followed?
Mr. Fairless. Well, in the first place there are no secrets in the
steel industry.
Mr. Wooden. No secret price cutting?
Mr. Fairless. No, no secrets. When we talk about the prices of
flat rolled products being reduced $6 or $8, whatever they were last
year, that apphes to the United States of America.
Mr. Ballinger. In other words, there is no chance for somebody
to slip one over on you in the steel industry? There is no chance for
someone to slip one over and cut the price without your knowing it?
14178 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. I didn't say that. I didn't say that. Of course a
seller of steel could go to you today, if you happen to be in the market
to buy steel, and reduce his price. I don't claim that I would know
anything about that. But I do claim that if prices are being reduced
on that particular product or products which might be involved for
any period of time, I think our people in the field, I think they would
know about it. That's what they are engaged for.
Mr. Ballinger. Well, at any point where you are selling steel there
do the prices differ? I mean have they differed, one producer got a
lower price than another one?
Mr. Fairless. Certainly.
Mr. Ballinger. Many times?
Mr. Fairless. Yes; daily.
Mr. Ballinger. Tl^ey aren't the same price at destination generally?
Mr. Fairless. Generally? WTiat is generally?
Mr. Ballinger. I mean all producers are offering at the same price
at destination, practically, in general.
Mr. Fairless. I don't like to answer that question generally. I
don't know; I couldn't answer that. I wouldn't know. Obviously,
if markets are not reasonably maintained, then we have new markets,
don't we?
Mr. Wooden. Is it your position, Mr. Fairless, that unless the
delivered prices at given destinations are the same from various com-
petitors, that there is not a competitive situation?
Mr. Fairless. Well — repeat the question, please.
(The question was read by the stenographer.)
Mr. Fairless. Well, I really do not know what you mean by that
question. What is your poijit?
Mr. Wooden. It's simply whether prices at destination have to be
the same in order to be competitive from your point of view.
Mr. Fairless. No; they don't have to be the same. I have jio
control over whether they are the same.
Mr. Wooden. Are they competitive at given destinations when they
are not the same?
Mr. Fairless. What is your question?
Mr. Wooden. Are they competitive at given destinations when the
prices are not the same?
Mr. Fairless. Why certainly.
Mr. Wooden. And competitive also when they are the same?
Mr. Fairless. They could be.
Mr. Wooden. .Yes; all right. Haven't you advanced the theory
in your pamphlets that they should be the same at destination in
order to be competitive?
Mr. Fairless. I don't think so.
Mr. Wooden. You quoted from N. R. A. to the effect that that was
the outstanding characteristic of the basing point system, didn't you?
Mr. Fairless. Generally speaking, the general policy was that if
we are selling a group of steel consumers an identical product that we
should charge each of those consumers the same delivered price in that
particular locality. As a matter of fact, the law also says we should.
Mr. Wooden. Do you mean by the same delivered price the same
as the delivered price of competitors?
Mr. Fairless. Well, it may or may not be. I tried to make that
point. I will be very glad to repeat it if you choose.
CONCENTRATION OF ECONOMIC POWER 14179
Mr. Wooden. That is all right.
Acting Chairman King. If you fix the price at which you would
sell, for instance, in Pennsylvania, in Philadelphia, that wouldn't
preclude a competitor from selling at a higher or lower price.
Mr. Fairless. No, sir; not at all. However, at no point and at
no time do we ever attempt to get higher than our announced price.
Mr. Davis. Mr. Fairless, was there any variation in delivered
prices quoted by the different steel companies under the operation of
the N. R. A. code?
Mr. Fairless. I couldn't answer that. I couldn't answer that.
Obviously I couldn't myself know.
Mr. Davis. Can you answer that, Mr. Adams?
Mr. Adams. No, I can't answer that. I wasn't in the steel in-
dustry then.
Mr. Wooden. Mr. Fairless, in that connection I believe you
testified here in November, referring to the Birmingham differential,
that it was a rare instance when you got the full Birmingham differ-
ential in a period of the last 7 years. Do you recall that?
Mr. Fairless. I don't think I made that statement in my testi-
mony. Seven years? I said that generally speaking the differential
had been eliminated prior to the abolition by our announcement of
June 24, 1938.
Mr. Wooden. If you did make such a statement did you intend to
include in it the N. R. A. Code period?
Mr. Fairless. No, I did not.
Mr. Wooden. Seven years would have included it.
Mr. Fairless. Did I make a definite 7-year statement?
Mr. Wooden. I so read it myself.
Mr. Fairless. Myself?
Mr.. Wooden. Yes, that's the way I read it. I believe you said
the basing point system was incorporated in the N. R. A. Code.
That code, did it not, specified the basing points for various products
and provided that the delivered prices should be fixed according to
basing points plus all rail freight to destination.
Mr. Fairless. Correct.
Mr. Wooden. And were you chairman of the Committee on
Commercial Matters that functioned during that period?
Mr. Fairless. Part of tbe time.
Mr. Wooden. Did that committee have to do with implementing
the code by promulgating or preparing a series of rules and regulations
or recommending such a series of rules and regulations?
Mr. Fairless. Well, that committee which was appointed by the
Code Authority and was responsible to the Code Authority dealt
with all commercial matters pertaining to the steel industry during
the duration of the steel code.
Mr. Wooden. Didn't that Code Authority you refer to cpnsist of
the Board of Directors of the American Iron and Steel Institute?
Mr. Fairless. And others.
Mr. Wooden. What others?
Mr. Fairless. Government officials.
Mr. Wooden. Didn't the code itself provide that the Institute
Board of Directors should be the Code Authority?
Mr. Fairless. Yes, but the Board of Directors was augmented in
order to provide a place for certain Government representation.
14180 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. When the code passed out under the Supreme
Court decision in the Schechter case in May 1935, the industry, did it
not, passed a resolution to continue the commercial provisions of the
code in effect as well as some other provisions?
Mr. Fairless. I can't answer that. I was not a director of the
institute at that time.
Mr. Wooden. Were you not in a position in the industry to know
whether or not the industry did adopt such a formal resolution to con-
tinue the code after June 1935?
Mr. Fairless. Continue the code?
Mr. Wooden. Continue the Standards of Fair Competition which
are described in the Steel Code?
Mr. Fairless. As I say, I was not a director of the institute and
I am not familiar with what happened at that time. I became a
director in 1937.
Mr. Wooden. Are you without knowledge on that subject?
Mr. Fairless. Well, I'm certainly not without practical knowledge.
I know, and the performance of the industry will certainly show, that
immediately upon the abolition of the Steel Code and the N. I. R. A.
that steel prices became highly competitive almost overnight, and the
results as shown in our charts will prove iust that assertion.
Mr. Wooden. Do you recall working as chairman of the Committee
on Commercial Matters on various resolutions or regulations to sup-
plement and implement and make more effective the working of the
code?
Mr. Fairless. Yes, sir.
Mr. Wooden. One of those resolutions related, did it not, to the
charging of certain arbitrary switching charges at certain basing
points?
Mr. Fairless. Arbitrary?
Mr. Wooden. Yes.
Mr. Fairless. Well, I recall, that a switching charge of 50 cents
was established for Pittsburgh and 60 cents for CI '^ago.
Mr. Wooden. Those arbitrary switching charges "^^e promulgated
in the form of a commercial resolution, were they not.''
Mr. Fairless. I believe they were.
Mr. Wooden. And was that a matter that you handled as chairman
of this Committee on Commercial Matters?
Mr. Fairless. I don't remember whether that came up at the
time I was chairman or not. I was a member of the committee and
later, in the latter days of the code, became its chairman.
Mr. Wooden. Those arbitrary switching charges that were included
in that resolution have continued in effect, have they not?
Mr. Fairless. Yes, sir.
Mr. Wooden. You state that, I believe, in your Exhibit 1418,
page 64, footnote. You state that that practice has generally been
followed dince the code.
Mr. Fairless. That is right.
Mr. Wooden. That, I take it, means that not only you but ypur
competitors follow that practice?
Mr. Fairless. Generally speaking.
Mr. Wooden. And those arbitrary switching charges are in some
cases more and in some cases less than the actual switching charges,
are they not?
C50NCENTRATI0N OF ECONOMIC POWER 14181
Mr. Fairless. In most cases less.
Mr, Wooden, Yes; but they run both ways to some extent.
Mr. Fairless. In most cases the actual switching charge is higher
than the rate charged.
Mr, Wooden. But there are some cases where it is lower.
Mr. Fairless. There might be, undoubtedly are.
Mr. Wooden. What is the purpose of having a switching charge
added to the base price which is not the actual switching charge?
Mr. Fairless, In our case it is the desire to treat all of our cus-
tomers in a given territory on the same basis and reflect in their
deUvered prices a constant charge for transportation within the basing
zone. Many times those customers are competing one against the
other.
Mr. Wooden. And isn't it true that the producers at some of these
basing points where the arbitrary switching charges apply have vary-
ing actual switching charges?
Mr. Fairless. Have actual?
Mr. Wooden. Yes.
Mr. Fairless. I would assume so.
Mr. Wooden, And does not this arbitrary switching charge unify
the switching charge which the various producers in' that area may use,
rather than using their own actual and varying switching charge?
Mr. Fairless. Well, there isn't any mystery about ii, it is simply a
standard charge that is made for switching in these big switching
areas as represented in Chicago and Pittsburgh. It was designed to be
fair to the consumers of steel in those particular territories. It was
designed so that on the average it would actually cost the steel pro-
ducers in their territories more than they received for transportation
in order to make it 100-percent fair.
Mr. Reynders. If there were different switching charges in that
area, wouldn't automatically all the producers assume the low one,
whatever it might be? There would be uniformity as a matter of
automatic conditions.
Mr. Fairless. That is right.
Mr. Wooden. But under this rule or regulation or resolution
whatever one calls it, the switching charge was standardized on this
arbitrarv basis, was it not?
Mr. Fairless. I have answered that, yes.
Mr. Wooden. Do you recall the resolution which set up that
arbitrary switching charge and the reasons given in the preamble to it?
Mr, Fairless. No, I can't remember that.
Mr. Wooden. It is Resolution No. 20. Do you recall that it was
cited that there was a great diversity in the switching charges at
various basing points?
Mr. Fairless. I don't recall. I am wilhng to accept it if you have
the resolution; we can save a lot of time,
Mr. Wooden. Do you recall that the resolution stated that the
reason for making an arbitrary switching charge was to insure uniform
practice?
Mr. Fairless. Well, that would be a very good reason, if given.
We have all these customers in the same territory, buying the same
steel, using it for the same purposes in many cases. It certainly would
be a proper reason for bringing about uniformity in their ^osts.
14182 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Unless you had a standardized switching charge you
would not be able to have an identical deHvered price in that switching
area, would you, with the actual switching charges varying?
Mr. Fairless. Obviously, obviously.
Mr. Wooden. There was another of those commercial resolutions
under the code which I understand your pamphlet to state represents
the general practice, and that is with reference to the figuring of
delivered prices when dehvery is taken by truck.' Under the code the
resolution provided that where the buyer took delivery by truck, in his
own truck, that he should be allowed 65 percent off of the rail trans-
portation, did it not?
Mr. Fairless. He would be quoted a delivered price and then he
would be credited with 65 percent of the all-rail transportation charge
involved in the transaction.
Mr. Wooden. Meaning that he would be quoted a delivered price
on all-rail delivery and then when he brought his own truck to take
delivery he would be allowed 65 percent off the all-rail delivery, mean-
ing that he paid a premium or an excess of 35 percent in order to take
delivery in his own truck? Is that correct?
Mr. Fairless. Do you want me now to explain all about this?
Mr. Wooden. I want you to tell me if that is correct.
Mr. Fairless. Again there isn't any mystery about handling our
truck deliveries.
Mr. Wooden. Is my statement of it correct?
Mr. Fairless. No; it wasn't correct. The inference behind your
statement isn't correct.
Mr. Wooden. Will you tell me what the factual situation is?
Mr. Fairless. That is what we would like to do. Mr. Adams can
do that very hurriedly .-
Mr. Adams. On truck deliveries where we contract with a common
carrier, the truck company, to deliver our products to destination,
we charge the all-rail rate of freight. We do that because in our
analysis of rail rates versus truck rates we find that there is practically
no difference. There may be a difference of a few cents here or there,
but generally speaking they are approximately the same.
If we sell our material on a delivered-price basis, as we always do,
and a buyer wants to send his truck to our mill to pick up that mate-
rial, we quote the delivered price predicated upon a transportation
cost which is equal to the rail rate and we deduct from that 65 percent
of that rate. Our object in doing that is something that we do not
attempt to conceal. We are attempting to discourage the use of
trucks in the transportation of our products for many reasons. In
the first place, our production facilities are not laid out to haul all
of our products by truck, small truck loads. We couldn't possibly
ship 12 to 15 million tons of finished products throughout this coun-
try each year and use trucks. There is not enough space in our plants
to handle trucks on that basis, so it is an attempt on our part to dis-
courage the use of trucks in the handling of steel products. Also
there is the question of the material being damaged in transit, and
other items of that character.
Mr. Wooden. If a buyer takes delivery in his own truck, why
should you worry about damage in transit?
' Further testimony on this subject appears infra, p. 14184 et seq.
CONCENTRATION OF ECONOMIC POWER 14183
Mr. Adams. Well, we don't worry about that, Mr. Wooden, to
much of an extent. Our main objective is to discourage the use of
trucks because our investment in production facilities is an invest-
ment which does not provide for the use of trucking facilities in and
out of our plants. Our costs of loading into trucks exceed the cost
of loading into freight cars, not only the actual cost but the indirect
cost. We can call upon a railroad to deliver a car to our siding and
we can be sure that that car will be there at a certain time, but if a
buyer sends his own truck to our plant, that truck might arrive at
10 o'clock one morning or at 10 o'clock the next morning, and we have
to change our loading programs all around to accommodate that
situation.
Now, we do it in certain instances as a convenience to our customers,
but again, going back to our records for the year 1937, we actually
did ship 313,000 tons of steel by trucks in 1937.
Mr. Wooden. Charging the 35 percent additional or the 65 percent
allowance, depending on how you look at it?
Mr. Adams. We haven't that, statistical data available, Mr.
Wooden.
Mr. Wooden. Well, this practice of adding 35 percent or deducting
65 percent from the all-rail, just according to how you look at it, is a
practice that originated by rule under the code, is it not?
Mr. Adams. Well, I can't answer that.
Mr. Faieless. I can answer, that. It wasn't so much by rule as
it was by a study that was made by various producing companies of
the actual differences in cost to the steel companies in handling truck
shipments versus rail shipments. Also, as I remember, the results of
the study established the 65 percent figure, and also it established a
saving within, I believe, 200-mile limits, which the steel industry lelt
were about the economical limits for trucking.
Mr. Davis. Are you talking about your own companies or about
your own companies and competing companies? Are you talking
about your cost of production?
Mr. Fairless. At the moment, we are talking about a matter that
came up in the industry during the application of the Steel Code;
therefore, it was an industry matter and it was an industry study
at that time.
Mr. Adams. The fact is, gentlemen, that there are very few of our
customers who own their own trucks and want to send those trucks
to our mills to pick up steel. On the other, hand, we try to discourage
that practice.
Mr. Wooden. You would do the same, would you not, in case he
hired a truck to come and get his own purchase?
Mr. Adams. That is true, but here again, we are dealing with a
relatively small portion of our business. The man who owns his
truck and sends it to our mills to pick up steel is competing against
his competitor at the point of delivery. One man is charged the all-
rail freight; the other man who owns his own truck, if he doesn't
own it, he hires one and sends it in, whichever the case may be, is
charged the all-rail freight, less 65 percent of that delivered transporta-
tion cost. In that way, insofar as our own company is concerned,
there is apparently no discrimination as between customers, because
we are seUmg our products on a delivered price basis, and we try to
14184 CONCENTRATION OF ECONOMIC POWER
avoid discrimination in dealing with our diflFerent customers at the
point of delivery, who are competing in their markets.
Mr. Wooden. Didn't the use of trucks by some buyers who were in
competition with buyers who bought all-rail, tend to unsettle the price
between those buyers; in other words, didn't the truck buyer own his
purchase at destination cheaper than the one who bought all-rail?
Mr. Adams. There might be that tendency, of course, but we have a
Robinson-Patman bill in this coimtry.
Mr. Wooden. Isn't the disturbing effect upon that delivered price
figured on the all-rail basis, one of the reasons that you adopted this
truck rule — this 35-65 percent?
Mr. Adams. I would say the first reason was the few requests
that we have had from our customers who come to our mill and pick
up material with their own trucks. Now, naturally, it follows that
we are interested in the delivered price level at the point of delivery.
Mr. Wooden. And the truck delivery tended to disturb or upset
that deUvered price, didn't it?
Mr. Adams. I would say that it might tend to do that. I wouldn't
say that it does, because when you avoid discrimination at the point
of consumption by allowing 65 percent of the rail rate, then our deliv-
ered prices to the two customers involved, one taking his merchandise
by all-rail and the other taking it by his own truck, are approximately
the same, taking into consideration the costs involved in the picture.
Acting Chairman O'Connell. You used the word "discrimina-
tion." There is an element of discrimination- as against trucks in
comparison with railroads, isn't that a fact? In other words, in
order to compete with the railroads in trucking steel, the truck has to
operate on 35 percent less, is that right?
Mr. Adams. It would be infinitesimal. It would be very small.
We tried to avoid — when I used the word "discrimination," I used it in
connection with two customers competing against each other at point
of delivery so that we would
Acting Chairman O'Connell (interposing). I understand. I was
raising a httle different question, because as I understand it, for a
truck to compete with a raihoad in trucking steel, it has to be able to
operate on 35 percent less revenues for any given job; isn't that right?
Mr. Ad.ams. Well, we would allow the buyer who owns his own
truck, and there are relatively few of those, 65 percent of the rail rate
if he used his own truck.
Acting Chairman O'Connell. And that same 65 percent would be
all that would be available to him if he were to hire a truck?
Mr. Adams. That is right.
Mr. Reynders. And as a practical matter, I will ask, your shipping
yards are rarely equipped with roads on which a truck could get
admission under traveling cranes and so forth, and moreover, in loadr
ing a truck, you would be dealing with 5- to 10- ton quantities, whereas
with a railroad car, you are deahng with 50- or 100-ton quantities,
which must affect the situation in your shipping yard very materially,
I should think.
Mr. Adams. That is absolutely correct. Our direct and indirect
costs involved in loading trucks versus cars
Mr. Reynders (interposing). For instance, dropping a 5- or 10-ton
load on a truck might injure that truck very seriously, but in the case
of a railroad car, that wouldn't be the same situation.
OONCENTRATION OF ECONOMIC POWER 14185
Mr. Adams. That is correct, Mr. Reynders.
Mr. Wooden. As a matter of fact, though, Mr. Adams, there are
some products that are shipped rather heavily by truck, are there not?
Mr. Adams. Well, I can only answer that by saying
Mr. Wooden (interposing). Your pamphlets say so.
Mr. Adams. That in the boom year of 1937, we shipped 313,000 tons
by truck, out of a total of roughly 12,700,000 tons of finished products.
Now, that is a relatively small percentage of the total. You might say
that a large volume of one single product was shipped, when you com-
pare that volume to any one customer's total requirements, but from
an over-all picture, the percentage /actor is low.
Acting Chairman O'Connell. Would this be a convenient place to
recess?
Mr. Wooden. Any time would be all right.
Acting Chairman O'Connell. Several members of the committee
want to leave, and as Senator King said, we have only one session
tomorrow. We will try to start it at 10 o'clock and continue until we
are all in a mood to stop for the week end.
We will recess now until 10 o'clock tomorrow morning.
(Whereupon, at 4:30- p. m., a recess was taken until Saturday,
January 27, 1940, at 10 a. m.)
INVESTIGATION OF CONCENTKATIONOE ECONOMIC POWER
SATURDAY, JANUARY 27, 1940
United States Senate,
Temporary National Economic Committee,
Washington, D. G.
The committee met at 10:05 a. m., pursuant to .adjomnment on
Friday, January 26, 1940, in the Caucus Room, Senate Office Building,
Mr. Joseph J. O'Connell presiding.
Present: Mr. O'Connell (acting chairman), Senator King, Mr.
Davis.
Present also: John V. W. Reynders, representing the Department of
Commerce ; WiUis Balhnger, Director of Studies for the Federal Trade
Commission, and Walter B. Wooden, assistant chief counsel, repre-
senting the Federal Trade Commission.
Acting Chairman O'Connell. The committee will be in order.
Mr. Wooden.
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL, CORPORATION, NEW YORK CITY— Resumed
AND OF AVERY C. ADAMS, VICE PRESIDENT, UNITED
STATES STEEL CORPORATION OF DELAWARE, PITTSBURGH,
PA. — Resumed
the basing point system in the steel industry and deviations
FROM IT
Mr. Wooden. Mr. Fairless, you testified yesterday afternoon that
when one competitor made a lower dehvered price than another com-
petitor, that that was a competitive situation. Is that correct ?
Mr. Fairless. It certainly indicates that price competition exists.
Mr: Wooden. Then why, in your pamphlet ["Exhibit No. 1418"']
did you quote from the N. R. A. to the effect that if a competitor with
lower freight costs gives his customer any benefit "he is giving a lower
price than competition forces him to give. In other words, he is
following some sort of a noncompetitive principle rather than a
competitive one"?
Mr. Fairless. That isn't my quotation.
Mr. Wooden. But the Corporation quoted it from the N. R. A.
report, didn't it?
Mr. Fairless. If it is in the report I assume we did.
Mr. Wooden. Well, how do you reconcile your putting forward that
quotation in your pamphlet with the statement that you have just
made, that for one competitor to make a lower dehvered price than
another is a competitive condition?
> Appendix, pp. 14619 fl.
14187
124491—41 — pt. 27 5
14188 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Mr. Chairman, I believe that this particular
quotation is clothed in the language of the economists, and I think I
have testified before this committee previously that I am not an
economist and I don't at any time pose as one, and therefore I have no
comments to make on this particular quotation.
Mr. Wooden. But that's the statement of the Corporation, isn't
it, by quotiug the N. R. A. report to that effect?
Mr. Fairless. I am not questioning the statement if it is in our
exhibit — and I assume it is. I haven't read it completely.
Mr. WoornN. Now I also recall that you testified yesterday after-
noon that you agreed with Mr. Gregg, vice president of your company,
when he testified that L' the basing point system were fully operative
there would be no competition in price. Is that correct?
Mi". Fairless. That is not correct.
Mr. Wooden. What is your position with reference to that?
Mr. Fairless. My position in respect to Mr. Gregg's testimony, is
first, that I am not responsible for his testimony. I haven't it before
me, and I don't believe it's fair, and I think the committee will agree
that it is decidedly unfair to take from any witness' testimony just a
part or a paragraph or a phrase that you care to use in anjr way that
you choose, and it seems to me that if this committee is going to pass
any opinion in respect to Mr. Gregg's testimony, it should have Mr.
Gregg's entire testimony.
In respect to my agreeing, agreeing to what?
Mr. Wooden. Here is what I read from the Gregg testimony before
the Senate Committee on Interstate Commerce in 1936. The chair-
man asked the question: "So that if the plan is followed," referring
to the basing pomt system, "there is no competition so far as price is
concerned."
"Mr. Gregg. On the contrary there is competition. To answer
your question specifically, if that plan were universally followed there
would be no competition insofar as one element of competition is
concerned, namely, price."
Mr. Fairless. My contention is that competition exists even
although two or more companies arrive at the same price or have
identical bids, providing, of course, that the conclusion is arrived at
legallj^. It seems to me that when two or more companies are inter-
ested in getting a piece of business, tonnage, a contract, that has to
do with steel, you immediately have competitioji. The fact that each
of those companies has announced prices to the public certainly
prevents them from charging any price that they might choose to
charge.
Mr. Wooden. Didn't you
Mr. Fairless. Pardon me while I answer. Therefore, the ceiling
has been established. Now competition begins.
Competition is a very broad term, gentlemen, as you know. We
steel people, probably wrongly, but simply because it has been the
practice, generally refer to competition as meaning price and refer to
it in that manner. Competition, of course, has many factors other
than price. To begin with, these various companies are in competi-
tion when they name their base prices. United vStates Steel Corpora-
tion can't name as a base price for steel products in Chicago or Pitts-
burgh or Birmingham any price
Mr. Wooden. Pardon me-
Mr. Fairless. I am trying to answer your question.
(X)N<JENTKATION OF ECONOMIC POWER 14189
Mr. Wooden. I don't think you have; either you have or you
haven't.
Mr. Fairless. Mr. Chairman.
Mr. Wooden. Mr. Chairman.
Acting Chairman O'Connell. What was the question?
Mr. Wooden. I will have to read it; but since we have the inter-
ruption, I think there ought to be, even in this informal forum, some
degree of control over what a witness may say and when he may say it.
I haven't any objection to anything being said at any time, but for
the witness to start making a long speech in justification of the system
as a whole rather than answering a particular question seems to me
out of place.
Acting Chairman O'Connell. The committee have at all times
given witnesses a reasonable degree of latitude and I don't believe
that this witness has intentionally or unintentionally taken advantage
of the latitude we have given.
Specifically, the question as I recall it was a rather broad one and I
think Mr. Fairless under the circumstances was answering it at
that length. On the other hand, I think Mr. Fairless would agree
that it is necessary so far as is possible to limit his answers to the
question asked so that the examiner may have an opportunity to
develop whatever he wants to develop along the lines he has thereto-
fore laid out.
Mr. Fairless. Yes; I agree, Mr. Chairman, except I do not intend
to submit myself to answer questions in just the way that the examiner
would like to have them answered.
Mr. Wooden. I think we had better read the r^uestion and see
where we are.
Acting Chairman O'Connell. I think you can repeat it and see
if he understands the question.
Mr. Wooden. It was with reference to his testimony yesterday
afternoon. I asked him if he hadn't testified he agreed with Mr.
Gregg in saying that if the system were universally followed, that there
would be no price competition. I think the record will speak for itself
on that.
Mr. Fairless. I am trying to answer the question, Mr. Chairman.
Acting Chairman O'Connell. Maybe I can shorten this a bit.
My understanding of what you said yesterday was that if the system
operated to perfection and all companies charged their own base
prices or the base prices of others where others had established the
base price, that in that theoretical situation — you call it theoretical
because you don't believe it works — in that situation there would
hp as you put it a one-price situation and no price competition.
Mr. Fairless. No; I didn't say it like that, and I at no time
meant to say that. To begin with, I have said not once but several
times during my testimony — and the record speaks for itself-t— that
the multiple-basing-point system was simply a vehicle designed for
the purpose of merchandising the various steel products of the steel
industry. It was never designed, and it certainly isn't used, for the
purpose of arriving at base prices or delivered prices or anything
having to do with prices.
Acting Chairman O'Connell. If I may interrupt, the design isn't
what I am talkingjabout. I would be perfectly willing to concede
it might have been designed as a method of merchandising steel, but
14190 CONCENTRATION OF ECONOMIC POWER
it is also possible that a thing designed for one purpose may result
in something else.
Mr. Fairless. What I did say, Mr. Chairman, was this, that if
all steel companies — if all steel companies — had basing points and
posted their base prices, whicl: to begin with is a competitive situation,
but if they did post their prices and they did quote in respect to
steel tonnage in a particular territory, or any territory, and they
used the nearest basing point and applied the base price that had been
published by the company that governed or controlled that basing
point, and added all the charges, extras and all the transportation
charges, obviously there would be a uniform price arrived at, but that
doesn't mean that that would not still be a competitive price so far
as competition is concerned, because the basis to begin with, the
base price, was competitive, bound to be competitive.
Mr. Reynders. Would you explain that, because it seems to me
the base price necessarily is the lowest base price that any com-
petitor submits; that is, automatically when a steel maker publishes
a price that is lower than has existed, all competitors must come down
to that level or they may be overloaded, but whatever happens it
will be a uniform one because it will be the lowest price which any
competitor is willing to post.
Mr. Fairless. Eventually ; yes.
Mr. Reynders. Now that is the one situation. Now with that
forming a ceiling, then I think the question whether there may result
uniform prices may legitimately occur on a rising market, that is
where the demand exceeds the supply, then you are limit;ed by your
ceiling which had formerly been established automatically on the
same level.
Mr. Wooden. Well, the basing-point system, Mr. Fairless, has
been the system used in the steel industry, has it not, as a method
of quoting — making — prices?
Mr. Fairless. The basing-point system has been in vogue in the
steel industry since — I don't know how long; many years.
Mr. Wooden. Before your day?
Mr. Fairless. That is right.
Mr. Wooden. Now referring to the matter of the base price,
how does the Corporation determine what base prices it will pubUsh
and adopt?
Mr. Fairless. It is all a matter of record in my testimony here,
my previous testimony. Do you want that all repeated?
Mr. Wooden. No; I will ask you a little more specifically: To
what extent does the Corporation figm-e its base prices based on its
cost of production at various mills?
Mr. Fairless. To begin with, the United States Steel Corporation
doesn't announce base prices at all.
Mr. Wooden. I mean its subsidiaries.
Mr. Fairless. The base prices are announced by the subsidiary
companies and those prices are arrived at by very careful study by
the subsidiary involved. The cost of manufacture of the product or
products is one factor which is given very careful consideration.
Competition in respect to the particular product or products involved
is also given very careful consideration. Now that competition comes
from within and also from without this industry. The subsidiary
before announcing prices not only considers the competition that it
CONCENTRATION OF ECONOMIC POWER 14191
has from the industry, but it also considers competing products and
competing terms.
Another factor that is given very careful consideration is the
market itself, supply, demand, at the time of the posting of those
base prices.
Mr. Wooden. Do the Corporation subsidiaries or their representa-
tives exchange views with competitors with regard to base prices?
Mr. Fairless. Exchange views?
Mr. Wooden. Yes. Consult with competitors with regard to base
prices.
Mr. Fairless. Not consult; no.
Mr. Wooden. Have you informed competitors of what base prices
you were considering announcing?
Mr. Fairless. Inform them?
Mr. Wooden. Yes.
Mr. Fairless. Officially inform them?
Mr. Wooden, Any way, unofficially or otherwise.
Mr. Fairless. Not to my knowledge.
Mr. Wooden. Mr. Adams, have you known of instances where
subsidiaries of the United States Steel Corporation have exchanged
information with representatives of other companies concerning base
prices?
Mr. Adams. No, sir.
Mr. Wooden. Not even during the code period?
Mr. Adams. I wasn't in the steel industry during the code period.
I can't speak for that particular time.
Mr. Wooden. Mr. Adams, do you know a man by the name of
A. A. Dorenbusch?
Mr. Adams. I don't recall that man at this particular moment.
Mr. Wooden. Do you know pretty widely the personnel of the
sales officials of various companies in the steel industry?
Mr. Adams. I know quite a few of them; yes. As I stated yester-
day, I was out of the industry from 1928 to 1936. From July 1,
1936, to December 1, 1938, I was manager of sheet sales for Carnegie-
Illinois, a subsidiary of the United St'ates Steel Corporation.
Mr. Wooden. Have there been any meetings attended by repre-
sentatives of various steel companies that you are aware of at which
base prices were discussed?
Acting Chairman O'Connell. During what period do you refer to?
Mr. Wooden. Since he has been in the industry; since 1936.
Mr. Adams. As manager of sales of the sheet division of Carnegie-
Illinois I would have no authority at all to discuss base prices except
with my o\vn superior officers.
Mr. Wooden. Well, have you done so? Have you attended any
meetings or discussed matters of base price with competitors?
Mr. Adams. I think, Mr. Wooden, that that subject was covered
at our hearing here in November, that it was exhausted at that time,
that question was asked and was answered at that time.
Mr. Wooden. And the answer is in the negative, is it?
Mr. Adams. Yes, sir.
Mr. Wooden. Mr. Fairless, you testified here in November *
to the effect that you didn't hestitate to exchange opinions with a
competitor about the base price of sheets, for instance, if some com-
' Mr. Fairless' testimony in November appears in Hearings, Parts 19 and 20.
14192 CONCENTRATION OF ECONOMIC POWER
petitor asked you what the base price was, that you didn't hesitate
to tell him.
Mr. Fairless. I gave no such testimony. In my testimony there'
was no discussion of that. Did you read that in my testimony?
Mr. Wooden. I did.
Mr. Fairless. I would like to have it produced.
Mr. Wooden. We wiU come back to that in a moment. Mr.
Chairman, I have here a copy of a letter dated August 17, 1935,
written by one A. A. Dorenbusch, general manager of sales of the
Newport Rolling Mill Co. and the Andrews Steel Co., which are
affiliated concerns. The letter was written by Mr. Dorenbusch to
Mr. A. K. Andrews, temporarily in Ontario, Canada, and I should
like to offer it for the record at this time.
Acting Chairman O'Connell. According to the procedure of this
Committee, Mr. Wooden, it would be necessary that that letter be
identified by the author or someone in a position to so identify it,
unless it has already been produced as a public record. Has it been a
public record somewhere else?
Mr. Wooden. It hasn't been produced, Mr. Chairman, as a public
record. I understood that unless a document was challenged as to its
authenticity that the procedure here would permit the reception of it.
Acting Chairman O'Connell. That is not true, as I understand it.
We had the same difficulty during the hearing within the past month,
and the chairman ruled that until some means was found of identifying
the exhibits of that nature, we would not permit them in the record.
Mr. Wooden. I might say in further support of the authenticity of
the document that it was obtained by a representative of the Depart-
ment of Justice, from the files of the Andrews Steel Co., and that
representative interviewed the author of the document about it.
Acting Chairman O'Connell. I don't want to be too technical,
but if it is sufficiently important that you want that introduced into
the record, I think that as a minimum the man from the Department
of Justice who obtained the letter should be brought and put on the
stand to identify the letter. I think that is entirely in accordance
with the ruling Senator O'Mahoney made during the investment
banking hearing, and I have no desire to deviate from that policy.
Mr. Wooden. I have here a photograph of a pubUc advertisement
put out by the Republic Steel Corporation which gives a map showing
the location of basing points for various products, and a key list
showing the basing points for each particular product as announced
up to August 1, 1-938. I assume that there will be no objection from
the witnesses to accepting that as what it purports to be, and
Acting Chairman O'Connell (interposing). I "think
Mr. Fairless (interposing). Mr. Chairman, we have all the infor-
mation in respect to basing points, where they exist, and so forth,
and this is, after all, the United States Steel Corporation hearing,
isn't it?
Mr. Wooden. No; it is a hearing on basing-point systems.
Acting Chairman O'Connell. If you want that put in the record
it will be admitted.
Mr. Wooden. That's what I wigh to do, your honor. I would like
to have it admitted as an exhibit.
(The map referred to was marked "Exhibit No. 2199" and is
included in the appendix facing p. 14428.)
CONCENTRATION OF ECONOMIC POWER 14193
Mr. Wooden. According to this, "Exhibit No. 2199," showing the
basing points up to August 1, 1938, there were only three basing
poLQts on pipe, one at Pittsburgh, one at Gary, Ind., and the third at
Lorain, Ohio. Is that correct?
Mr. Fairless. Mr. Adams, is that correct?
Mr. Adams. I think that's correct.
Mr. Wooden. Now there are important producers of pipe, are there
not, at other points than those three?
Mr. Adams. What kind of pipe was referred to?
Mr. Wooden. It simply says steel pipe.
Mr. Adams. What was your next question, Mr. Wooden?
Mr. Wooden. There are other important producers of pipe, are
there not, besides those located at those three basing points?
Acting Chairman O'Connell. What are the three basing poijits?
I wasn't following.
Mr. Wooden. Pittsburgh, Gary, Ind., and Lorain, Ohio.
Mr. Fairless. There are very few.
Mr. Wooden. There is an important producer at SparroWs Point,
is there not?
Mr. Fairless. No, sir.
Mr. Wooden. Don't they have the capacity to produce that?
Mr. Fairless. It aU depends on what you are talking about.
Are you talking about seamless pipe, butt-weld pipe, or standard
pipe?
Mr. Wooden. What is the character of pipe that is based on Pitts-
burgh, Gary, and Lorain?
Mr. Fairless. Largely seamless, which is not made at Sparrows
Point.
Mr. Wooden. And what is this Toncan iron pipe, with only one
basing point?
Mr. Fairless. Only one company makes it, only one producer.
Mr. Wooden. This diagram shows that, for instance, on nails,
staples, wire, and barbed wire, the basing points are at Pittsburgh,
Chicago, Duluth, Minn., and the other poiuts are all Gulf ports or
Pacific Coast points. Is that correct?
Mr. Fajrless. Well, I am assuming that the — that's the only rea-
son I objected to the introduction of another corporation's data.
I assume that it is correct.
Mr. Adams. Well, that isn't correct, because Birmingham is a
basing point.
Mr. Davis. Mr. Fairless, you said that you had full information
about basing points. That being true, why can't you answer the
question as to whether these are correct or not correct?
Mr. Fairless. There are a multiplicity of basing points, and I
didn't say that I had all that information.
Mr. Davis. That's the point — we want to get the facts with respect
to the basing points. They are not all identical as to products, of
course. There is a large number of basing points for a large number of
products, but they are not all identical, of course, as the general
public sometimes believes.
Mr. Fairless. Well, Judge Davis, we have presented to this
Committee, and it accepted, fuU and complete information in respect
to all basing points, for all principal products. It is a matter of record
of this Committee.
14194 CONCENTRATION OF ECONOMIC POWER
Mr. Davis. The Committee has received them, yes — not accepted
necessarily, but received them for the record.
Mr. Fairless. They have, I think, the information.
Mr. Davis. Mr. Wooden lias a right to examine.
Mr. Wooden. Yesterday afternoon you sought to give the impres-
sion that basing points existed at almost every point of production for
each product, and I want to show, if you will permit me, that there are
some important products that the basing points are rather limited in
number. Isn't that true?
Mr. Fairless. I ask for examples.
Mr. Wooden. I have given you examples. What about naUs,
staples, woven-wire fence, bale ties, and barbed wire? Aren't the
only basing points recognized in the industry, namely, at Pittsburgh,
Chicago, Birmingham— no ; not Birmingham.
Mr. Adams. Yes; Birmingham is.
Mr. Wooden. It isn't listed here.
Mr. Fairless. That is an example.
Mr. Adams. Birmingham is a basing point and so is Worcester,
so those are two omitted basing points.'
Mr. Wooden. Since when?
Acting Chairman O'Connell. What is the date of that, Mr.
Wooden?
Mr. Wooden. It is supposed to bring the basing points down to
date, up to August 1, 1938. The date of publication of the adver-
tisement I don't think shows on here.
Acting Chairman O'Connell. Haven't there been some additional
basing points established since 1938?
Mr. Fairless. Mr. Chairman, I am not trying to be technical and
I am at all times trying to be helpful to move along as rapidly as we
can, but doesn't it seem ridiculous to take an advertisement as the
basis for developing the basing points of the steel industry and the
varous products involved when our group here have spent the greater
part of a year and a half in getting the up-to-date, accurate data and
information and are here ready to present it to you?
Mr. Davis. Mr. Fairless, will you please state for the record upon
your own responsibility all of the basing points for the products men-
tioned?.
Mr. Fairless. You mean for me to give them verbally?
Mr. Davis. Yes.
Mr. Fairless. No, I can't do that.
Mr, Davis. Haven't you any of your numerous assistants around
you who are familiar with that information?
Mr. Fairless. I can't name
Mr. Adams (interposing). Judge Davis, yesterday I testified that
there are 52 basing points.
Mr. Davis. Yes, but you know full well, Mr. Adams, and we do,
that those are not 52 basing points for all of the steel products.
Mr. Adams. I so testified yesterday, and I also testified that if
those 52 basing points were multiplied by the various products you
would have considerably over 100 different basing point prices.
Mr. Davis. Just
Mr. Adams (interposing). Just a second, please. In the steel
industry we have 24 different classifications of steel products, that is,
the United States Steel Corporation makes 24 different lines of steel
CX>NCENTRATION OF ECONOMIC POWER 14195
products. Now those lines are broken down again by various items.
When you say pipe you are speaking about innumerable different types
of pipe. Now this advertisement was dated August 1, 1938. We
have found two mistakes in it, Birmingham and Worcester, and since
that date unquestionably there have been some basing points added.
We can testify that— —
Mr. Davis (interposing). When?
Mr. Adams. — that we have basing point prices at all of our pro-
duction points with the exception of a few, and we can name those
exceptions.
Mr. Davis. When was Birmingham made a basing point, when you
eliminated that $3 differential?
Mr. Adams. The differential itself was eliminated June 24, 1938.
Mr. Davis. And that was when Birmingham was made a basing
pouit?
Mr. Adams. On what?
Mr. Davis. On what you are talking about. You. raised the
question.
Mr. Wooden. Nails and barbed wire. When did Birmingham
become a basing point on nails and barbed wire?
Mr. Fairless. I believe it became a basing point on those products
at the time they began to manufacture them.
Mr. Wooden. When was that?
Mr. Fairless. I haven't the definite date.
Mr. Wooden. Has it been since July 1938?
Mr. Fairless. I haven't the definite date.
Mr. Wooden. Can't you say whether it has been since then?
Mr. Fairless. I can't say unless I know.
Mr. Wooden. What are the basing points on tin plate? Either
of you.
Mr. Adams. Pittsburgh and Gary where we produce tin plate.
Mr. Wooden. What about Granite City? There is one there?
Mr. Adams. In the spring of 1937 Granite City announced or noti-
fied their trade that on their products there would be a differential'
of 10 cents above the published base prices of Carnegie-Illinois at
Gary and at Pittsburgh.
Mr. Wooden. Then becoming a basing point?
Mr. Adams. Sir?
Mr. Wooden. And by that becoming a basing point?
Mr. Adams. If you want to look at it in that way, yes; there is a
differential above the Pittsburgh and Chicago base prices of our com-
pany. That is an example of a company announcing a lower base
price.
Mr. Wooden. Now there are only three basing points on tin plate.
Is that right?
Mr. Adams. If you consider Granite City a basing point on tin
plate
Mr. Wooden (interposing). And only two otherwise.
Mr. Adams. The answer is yes.
Mr. Wooden. There are oth^- points of production of tin plate
that are not basing points, are there not?
Mr. Adams. Yes.
Mr. Wooden. What companies, and where?
14196 CONCENTRATION OP ECONOMIC POWER
Mr. Adams. One of our subsidiaries, the Tennessee Coal, Iron &
Railroad Co., produces tin plate at Birmingham.
Mr. Wooden. What competitive companies produce tin plate and
where?
Mr. Adams. Well, there are a number of companies that produce
tin plate. We are testifying for our own company.
Mr. Wooden. You know the industry well enough to know what
companies produce tin plate besides yourself, don't you?
Mr. Adams. Well, we know that Bethlehem produces tin plate.
Also Republic.
Mr. Wooden. Tell us where?
Mr. Adams. Bethlehem and Republic.
Acting Chairman O 'Conn ell. W^here do those two companies
produce tin plate, do you happen to know?
Mr. Fairless. Republic at Warren, Ohio, and Bethlehem at
Sparrows Point.
Mr. Wooden. Pittsburgh is the only basmg point for tin plate,
then, in the eastern section of the country, isn't it?
Mr. Adams. That is correct.
Mr. Wooden., The prices for tin plate in the eastern part of the
country are all based on Pittsburgh as a basing point, are they not?
Mr. Adams. Well, we quote delivered prices.
Mr. Wooden. Based on Pittsburgh.
Mr. Adams. We announce a price at Pittsburgh, base delivered
price at Pittsburgh.
Mr. Wooden. And the delivered prices in the eastern part of the
country are the equivalent of Pittsburgh plus freight, all rail freight,
to destination, are they not?
Mr. Adams. Our price is composed of our published base delivered
price plus our transportation cost to destination, providing we don't
have to deviate from that price level.
Mr. Wooden. And the Bethlehem Co. producing tin plate at
Sparrows Point, if and when it follows the basing point system, adds
the freight from Pittsburgh right to Sparrows Point or Baltimore
when it is selling in that locality, does it not?
Mr. Adams. I can't testify for the Bethlehem Steel Co. as to what
prices they would quote on tin plate.
Mr. Wooden. Don't you know that the basing point system con-
templates that it v.'ill do so?
Mr. Adams. We have testified that the basing point system is a
vehicle for merchandising our products, that it works every hour of
the day, and that it does not promote uniform prices.
Mr. Davis. Mr. Adams, regardless of how you acquire them, as a
matter of fact does your company not acquire the price quotations
of your competitors and have them on hand all the time?
Mr. Adams. We would not be doing our job if we were not famihar
with the published prices of our competitors.'
Mr. Davis. Well, in fact you are familiar with them, are you not?
You know what their published prices are.
Mr. Adams. Why, certainly.
Mr. Davis. And don't you know when they deviate from them
unless they are secret rebates? Don't you keep up with that?
' Further testimony on this subject appears infra, p. 14197 et seq.
CONCENTRATION OF ECONOMIC POWER 14197
Mr. Adams. We don't believe that there are any secret rebates in
the steel industry, but it is certainly the responsibility of our salesmen
to keep us informed regarding variations in price in the field, at the
points of consumption.
Mr. Davis. In other words, as a matter of fact in actual practice
you have on hand and keep up with the quoted prices of your com-
petitors and whether or not they are deviating from those quoted
prices, as I understand it.
Mr. Adams. As nearly as we can keep up to date, with reference
to the prices which our competitors quote at points of delivery, we
do that, and certainly make every eflPort to do it every day of the week.
Mr. Wooden. Then you know whether or not Bethlehem Corpo-
ration, for instance, is maintaining the price in the eastern part of the
country, don't you?
Mr. Adams. Within our ability to ascertain that fact we do.
Mr. Wooden. And don't you find that the price is ordinarily main-
tained on the basis oi Pittsburgh base price plus freight to destination?
Mr. Adams. Are you talking tin plate now?
Mr. Wooden. Yes, yes.
Mr, Adams. I don't know that one can answer that in terms of
"ordinarily." We know that the prices of tin plate have fluctuated over
a period of time. We have alreadv testified as to the^ deviations or
the fluctuations in the price of tin plate over the last 3 years.
Mr. Wooden. Didn't you hear Mr. Grace's testimony here before
this committee that he followed the prices of the Steel Corporation
subsidiaries on tin plate?
Mr. Adams. I didn't hear Mr. Grace's testimony. I wasn't in the
room that particular day. I would say that when the subsidiary
companies of the United States Steel Coropration puhlish a price that
that is t'je ceiling price and that the BetJilehem Steel Co. couldn't
expect to make a serious attempt to get that business at any higher
price. Now I can't testify as to. the extent that the Bethlehem Steel
Co. would reduce their prices below our published prices.
Mr. Wooden. Did you read Mr. Grace's testimony?
Mr. Fairless. I did, Mr Wooden.
Mr. Wooden. Didn't he testify that he followed the prices, the base
prices of the Steel Corporation subsidiaries as announced?
Mr. Fatrless. We are discussing tin-plate, I believe. Mr. Grace
made the statement — it so reads in his testimony — that his company
did vary from their announced prices in respect to tin plate. It is a
matter of record.
Mr. Wooden. Didn't he also testify, and didn't the American Can
Co. officials testify, that the other companies followed the announced
prices of the Steel Corporation's subsidiaries on tin plate?
Mr. Fairless. In about 2 minutes I believe I could unfold the
entire method of selling tin plate.
Mr. Wooden. I am directing your attention to what you heard and
what you read.
Mr. Fairless. If the committee is interested. You have it, of
course; it is all a matter of record.
Mr. Wooden. I am asking your recollection of the testimony.
Mr. Fairless. Well, I am not going to attempt to recall the testi-
mony. I am here to give testimony and answer any questions you ask
me if I can.
14198 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. What is the difference between the way tin plate
delivered prices are calculated on Pittsburgh for the eastern part of
the United States and the way various steel products were calculated
on a Pittsburgh plus basis back some years ago?
Mr. Fairless. Well, I can't answer that except to tell you and tell
the committee, rather, how our tin plate sales are handled. We
produce tin plate at three points, at four points in the United States,
Pittsburgh, Chicago, Birmingham, and Pittsburg, Calif. Our pro-
duction at Pittsburg, Calif, is very small. It is largely at the other
three points.- We have basing points in Chicago and Pittsburgh.
We have not as yet established a basing point in Birmingham, for this
reason: We began the operation of that plant just a year ago, there is
very little tin plate business in the Birmingham district except that
which is controlled by the two large can companies. The Carnegie-
Illinois Steel Corporation had contracts and has contracts with both
of those companies, so in order to get Birmingham under production
and under way and give it an opportunity to prove its quality and the
many other things that are involved in the manufacture of this very
sensitive product, the Carnegie-Illinois Steel Corporation with the
consent of these two companies with which it had contracts, allocated
to Birmingham a certain amount of that business for production, and
that is the only business that has been produced at Birmingham since
the mill went into operation. Therefore, no basing point has been
established and our policy in respect to that has not definitely been
established as yet.
Mr. Wooden. Is the price of tin plate in Birmingham based on
Pittsburgh plus freight from Pittsburgh?
(Senator King assumed the Chair.)
Mr. Fairless. Well,- 1 don't believe there is any tin plate sold in
Birmingham, or used in Birmingham. If there is, it is just a very
few base boxes.
Mr. Wooden. Is there any tin plate sold or used in the southeastern
part of the United States?
Mr. Fairless. Yes.
Mr. Wooden. Are the prices on tin plate delivered to those places
in the southeastern part of the country the equivalent of Pittsburgh
base price plus freight from Pittsburgh?
Mr. Fairless. All-rail freight?
Mr. Wooden, Yes.
Mr. Fairless. No, sir ; not in all cases.
Mr. Wooden. Are they the equivalent of Pittsburgh base price plus
rail and water freight in some cases?
Mr. Fairless. And water in others.
Mr. Wooden. Yes. Is that right?
Mr. Fairless. That is right.
Mr. Wooden. Pittsburgh is the single basing point for tin plate in
the eastern part of the United States. Isn't that correct?
Mr. Fairless, It is the only point at which we make tin plate in
the eastern part of the United States.
Mr. Wooden. And isn't it the only basing point for the whole
industry in the eastern part of the United States?
Mr. Fairless. I can't answer that.
Mr. Wooden. Can you answer it, Mr, Adams?
CONCENTRATION OF ECONOMIC POWER 14199
Mr. Adams. I can only testify for our company.
Mr. Wooden. And do you mean to say that you don't know whether
Pittsburgh is the only basing point for the quotation of tin plate in the
eastern part of the United States?
Mr. Fairless. Well, I can answer that, Mr. Adams, So far as any
other public announcement of any basing point for tin plate in the
eastern United States, Pittsburgh is the only one. But that does not
mean, Mr. Chairman, that mills producing tin plate do not sell tin
plate on the basis of their own production point, and we wouldn't
know, we have no way of knowing that. Most of our tin plate is sold
to two customers, except for export plate, and sales to those two are
made on a contractual basis, and the conditions and terms of those
contracts are known to this Committee.
Mr. Davis. Didn't you gentlemen say that you received and kept
up with and observed the price quotations of your competitors and
did your best to keep up with whether or not they deviated from
them? Isn't that correct? ^
Mr. Fairless. No; it is not correct.
Mr. Davis. Didn't you say that, Mr, Adams?
Mr. Adams. I made the statement
Mr. Davis. Didn't you make that statement in substance?
Mr. Adams. I made the statement that it is our job to ascertain
what the published base prices are of our competitors, and further
than that I said that it was our job to ascertain to what extent the
delivered prices fluctuated from time to time. That is a measure-
ment of competition. That's part of a salesman's job. Now when
Mr. Wooden asks a question as to whether or not there are any other
base prices in the eastern part of the United States on tin plate, we
have. to say that we don't know, to make an honest statement covering
all situations. Now if he asks a question as to whether there are any
published base prices in the eastern part of the United States other
than Pittsburgh, we have to reply that we publish a base delivered
price on tin plate in Pittsburgh. We don't know of any other pub-
lished base prices on tin plate in the eastern part of the United States,
but as Mr. Fairless testified, we don't know accurately. We can't
speak for the Bethlehem Steel Corporation, or any other corporation
here, right down to the last transaction, as to whether or not they are
quotiug prices on their own producing points or prices that approxi-
mate that.
Mr. Wooden. Well, you know
Mr. Davis (interposing). Do you have in your files the Bethlehem
quotations on prices on tin plate?
Mr. Adams. We wouldn't have in our file the Bethlehem quotations
on tin plate. No.
Mr. Fairless Certainly not.
Mr, Adams. How would we secure such quotations?
Mr. Davis. Their price list?
Mr. Fairless. We might wish we had, Judge Davis.
Mr. Wooden. You know their published prices, do you not?
Mr. Davis. Their pubhshed prices, if you want to quibble over
terms.
Mr. Adams. Judge Davis, we don't want to quibble over terms.
1 See p. 14196, supra.
14200 CONCENTRATION OF ECONOMIC POWEB
Mr. Davis. I think that you are-
Acting Chairman King (interposing). Let's ask the question and
proceed.
Mr. Davis. I will refrain from saying-what I think.
Acting Chairman King. Proceed.
Mr. Davis. Haven't you already admitted that you did obtain,
we'll say, the published price quotations of your competitors?
Mr. Adams. Certainly,
Mr. Davis. And kept them and observed them?
Mr. Fairless. No, we didn't say that.
Mr. Adams. Let us get this straiglit. We try to secure it. Let us
say that we do secure a list, if you please, by some method, of all of the
published prices of our competitors. Now we secure that from trade
journals if they are published in trade journals.
Mr. Davis. Are they not always published in trade journals? Do
not the companies? always publish — are there not published in the trade
journals in the industry the prices?
Mr. Adams. If there ar6 3^0 companies manufacturing sheets, I
would say that their prices are certainly not all published in trade
journals. There are a few of the larger companies that do publish
their prices and those publications get in the trade journals, but there
is a vast distinction between a published base price and a quotation,
Judge Davis, and when you ask me if we have a record of the Bethle-
hem Steel Co.'s quotations, I certainly must answer in the negative.
Mr. Davis Do you ever see any of their quot-ations?
Mr. Adam j. Certainly we see some of their quotations.
Mr. Davis. You s6e those and you see their prices pubhshed in the
trade journals, do you not?
Mr. Adams. We see their published prices in the trade journals.
Mr. Davis. Now
Mr. Adams (interposing). Let me answer your question so that it
won't be misinterpreted. WTien I say we receive quotations of the
Bethlehem Steel Co., I have to restrict that to a very, very few cases
where we become so friendly with the buyer that he says, "Here is
the quotation that the Bethlehem Steel Corporation has made. " Now
are you seriously interested in securing our business, and if so, will
you reduce your price level to a point where you would take that
business?" — if the quotation is below our quotation.
Now we have no large list of any quotations of the Bethlehem Steel
Corporation. We probably secure one every 3 months or something
like it to that e.xtent, but we do know what their published prices are.
Mr. Davis. All of that is preliminary to an effort to get an answer
to Mr. Wooden's question. Now have you ever observed in any of
these trade journal publication of prices or any of the trade quotations
that have come to your notice from the public, where they have not
made a quotation on Pittsburgh plus freight from Pittsburgh to the
point of delivery in the eastern United States?
Mr. Fairless. Still talking tin plate. Judge Davis?
Mr. Davis. Yes.
Mr. Adams. We have testified for the record that the price
Mr. Davis (interposing). I would like for you to first answer my
question and then you can make your explanation.
Mr. Adams. Well, I can't very well answer it without stating our
position. We have testified that the prices of tin plate have deviated
CONCENTRATION OF ECONOMIC POWEK 14201
or fluctuated over the period of the last few years. There have been
reductions in the price of tin plate.
Mr. Wooden. Take some particular quarter when an announced
price is out. Haven't you found, haven't you made it a business to
find out whether the delivered prices in the eastern part of the United
States are the equivalent of Pittsburgh plus freight to destination?
Mr. Adams' We have made it a part of our job to ascertain, yes,
what the delivered prices were,
Mr. Wooden. And aren't the delivered prices of tin plate in the
eastern United States the equivalent of Pittsburgh base price plus
freight to destination?
Mr. Adams. Not in all cases; no, sir.
Mr. Wooden. In most cases?
Mr. Fairless. Absolutely not.
Mr. Adams. No, sir; we can't make a statement to that effect.
Mr. Wooden. Is it true in some cases?
Mr. Adams. Why, I assume that it would be true in some cases that
the price on tin plate in the eastern part of the United States would be
equal to our published price at Pittsburgh plus our transportation
costs but by the same, token I want to make the point that that
covers a few cases or some cases
Mr. Wooden (interposing). And you don't know what proportion
of the business it applies to?
Mr. Adams. No, sir; I do not know what proportion of the business
it applies to.
Mr. Davis. Will you prepare and present for the record a detailed
explanation of any deviations within the past 12 months by your
company or any other company from the Pittsburgh plus prices in the
eastern United States?-
Acting Chairman Ktng. Just for my own information, how would he
ascertain from other companies
Mr. Davis (interposing). Any of which he has knowledge, his own
company or subsidiaries, or any of his competitors of which he has
knowledge.
Mr. Wooden. He says he makes a business of finding out what com-
petitors do.
Mr. Fairless. Mr. Chairman, we are given credit for knowing
entirely too much about what goes on in the steel business.
Mr. Ballinger. You said there are no secrets in the steel business.
Mr. Fairless. Mr. Chairman, I wish that we did know exactly the
basis upon which every base box of tin plate was sold in the eastern
part of the United Stateis
Mr. Wooden (mterposing). Or any other part of the United
States.
Mr. Davis. Mr. Fairless, I said of which you had knowledge. I
restricted it to your own company and its subsidiaries, and affiliates.
Mr. Fairless. Well, I can answer
Mr. Davis (interposing). And of your competitors which has come
to your knowledge, and the reason I put that in was because Mr.
Adams suggested that there had been deviations.
Mr. Fairless. Well, Judge Davis, I would have to answer that
question for our Corporation in this way. We know exactly how we
sell our tin plate in the eastern part of the United States — we know
exactly. We have no definite information in respect to how any other
14202 CONCENTRATION OF ECONOMIC POWER
company sells its tin plate. Our salesmen hear that a customer is
buying tin plate for such and such a price, and it may or may not be
true. To make a statement as defimte-as you are asking for in respect
to the prices at which competitors of the-United States Steel Corpora-
tion sell their products is just asking for something we can't give you.
Mr. Davis. Will you prepare and file that information with respect
to your own company and its own subsidiaries?
Mr. Fairless. File it? File what?
Acting Chairman King. The statement, as I understand it, of
deviations
Mr. Davis (interposing). Showing any deviations within the past
12 months from the Pittsburgh price
Mr. Fairless (interposing). Plus all rail freight to destination.
Is that your question?
Mr. Davis. All rail or rail and water, transportation to point of
delivery in the eastern United States.
Mr. Fairless. Can we furnish that information?
Mr. Davis. Yes, and will you? I know you can do it. Will you?
Mr. Fairless. What is the point? Does the committee want this
information?
Mr. Reynders. Isn't that giving out a lot of trade information
in regard to their own company without corresponding information
from competitors? It seems to me that is going far afield when you
ask them to give out all their quotations.
Mr. Davis. These gentlemen are insisting -that there are many
deviations from the application of the basing point system, and I
think that this comiiiittee is entitled to know to what extent there
are exceptions. They are the ones that persist in stating the ex-
ceptions, and I think the committee has a right to know the^extent
of those exceptions, and I don't think that prices made upon goods
that have been sold is any trade secret, and that they are entitled
to keep it from this committee or the public generally.
Mr. Fairless. Mr. Chairman, in respect to tin plate the United
States Steel Corporation sells, exclusive of export, a very high per-
centage, a very high percentage of its plate to two people, to
two customers, the American Can Co. and the Continental Can Co.
Our transactions with both of those companies are governed by
contracts. All the terms and conditions having to do with price,
delivery, cash discount and all the features of sale, are parts of those
contracts, and Government representatives in getting information
relative to these hearings saw those contracts and read them.
Now, I don't know what further information we can give. You
talk about delivery of tin plate by the United States Steel Corporation
in the eastern part of the United States. It is largely to those two
customers.
Mr. Wooden. How many other customers do you have?
* Mr. Fairless. Very few.
Mr. Wooden. How many?
Mr. Fairl^ess. I don't know.
Mr. Wooden. How many, approximately. As against two, do you
"have as many as ten others?
Mr. Fairless. My answer is, I don't know the number of custo-
mers. The tonnage that we sell to customers other than these two
is a very, very small percentage of our total.
CfONCBNTRATION OF ECONOMIC POWEiR 14203
Mr, Wooden. Do you sell tin plate to jobbers?
Mr. Fairless. Some.
Mr. Wooden. You have a good many jobber customers en tin
plate in the eas*-em part of the United States, don't you?
Mr. Fairless. No; we do not.
Mr. Adams. Very few.
Mr; Wooden. What do you mean by very few. Do you have 100?
Mr. Adams. No, sir.
Mr. Wooden. Fifty?
Mr. Adams. No, sir.
Mr. Wooden. Twenty?
Mr. Adams. We might have sold a few boxes of tin plate.
Mr. Wooden. Do you have many tin plate jobbers in the eastern
part of the United States?
Mr. Adams. I don't think so.
Mr. Wooden. Do you have as ipiany as 10?
Mr. Adams. I don't think we have 10.
Mr. Wooden. How many do you have?
Mr. Adams. I would say offhand perhaps four or five jobbers of
tin plate in the eastern part of the country.
Mr. Wooden. Do you deviate from Pittsburgh plus on sales to
those customers?
Mr. Adams. We don't sell on Pittsburgh plus, we sell on a delivered
price basis.
Mp. Wooden. Which is the equivalent, plus freight to the desti-
nation, isn't it?
Mr. Adams. It is our publfehed delivered price
Mr. Wooden. At Pittsburgh, plus the freight to destination.
Mr. Adams. Plus our transportation cost to destination, providing
we don't change that price on account t)f a competitive situation. I
have testified here that there have been deviations in tin plate, and
Judge Davis said, "Will you file the list of deviations over a period
of twelve months?" My testimony was that we have had deviations,
and then Judge Davis said, "Then to that extent the basing-point
system hasn't worked. In other words, will you file a record pointing
out where the basing-point system has not worked?"
We still contend that the basing-point system is working every
day, that it is simply a vehicle for merchandising our products, and
that deviations in price or fluctuations in price, or a raising and lower-
ing of the price level at the point of delivery, does not constitute a
change in the basing-point system insofar as whether it works or
whether it does not. The basing-point system is still a vehicle for
nierchandising our products, and it is working all the time.
Mr. Wooden. Even when the delivered prices are not identical
under it, do you say it is still working?
Mr. Adams. Certainly.
Mr. Wooden. Does that mean that the base price is being cut or
that some element in the delivery price is being cut?
Mr. Adams. We tried to explain that yesterday. Now, we have
a chart here which we would be glad to introduce to show how we
arrive at our delivered prices, to show to what extent we change those
delivered prices due to the necessity to reduce them to get a piece
of business in a territory closer to a competing mill than our production
point. We also have on that chart figures which show that our
124491 — 41— pt. 27 6
14204 CONCENTRATION OF ECONOMIC POWER
reductions in price on certain products exceed the reductions necessary
to reduce our price to the level of the price quoted.
Mr. Wooden. You are talking about mill net yields now, are
you not?
Mr. Adams. Yes, sir.
Mr. Wooden. Mill net yields are continually varying, are they not?
Mr. Adams. I am talking about a reduction in our delivered price.
Mr. Wooden. Yes.
Mr. Adams. Brought about by two factors, and those factors in
eflFect make it necessary for us to reduce our mill net returns.
Mr. Wooden. You have to reduce your mill net return when you
go into the territory of another basing point, do you not? You have
to absorb freight and reduce your mill net return, is that correct?
Mr. Adams. In a great many cases that is true.
Mr. Wooden. And you absorb the freight just to the exact amount
necessary to equalize your delivered price, do you not?
Mr. Adams. We do not- absorb freight. Freight, as I testified
yesterday, has to be paid, nobody absorbs it.
Mr. Wooden. That is a quibble, if I ^^ay say so. I agree that
freight is not absorbed, but isn't that i\.^ expression that is used in
the industry?
Mr. Adams. I think you are so familiar with this subject, Mr.
Wooden, that you know that nobody absorbs any freight.
Mr. Wooden. The freight has to be paid and it is paid by the
purchaser, is it not, and deducted from the face of the invoice?
Mr. Adams. It depends upon the procedure followed, yts.
Mr. Wooden. Ordinarily isn't that the case, that freight is not
prepaid ordinarily by the shipper of plate?
Mr. Adams. That is correct.
Acting Chairman King. And is added to the price the customer
pays?
iVIr. Adams. Yes; it is a transportation cost like the transportation
cost involved in assembling our "raw materials, except that this last
transportation cost exceeds the transportation cost on the finished
product.
Mr. Wooden. The customer deducts the freight from the invoice
and pays the railroad the full freight and remits to you the balance,
does he not?
Mr. Adams. The customer pays the freight that is added in the
transaction.
Mr. Wooden. He pays it to the railroad.
Mr. Adams. We are interested — our company is interested — in the
actual transportation cost.
Mr. Wooden. The customer pays the freight to the railroad and
deducts it from the face of the invoice and remits the balance to you.
That is your mill net, isn't it?
Mr. Adams. No; our mill net is the — well, you have got adjusted
freight absorption and unadjusted freight absorption which were
explained yesterday.
Mr. Wooden. Your mill net is what you get for your commodity
after the freight is taken off and paid by the purchaser.
Mr. Adams. After the freight is taken off and after any reduction
in price.
Mr. Fairless. Cash discount allowance.
CONCEN^'RATION OF ECONOMIC POWER 14205
Mr. Adams. After cash discount allowance, that is the mill net.
Mr. Wooden. The mill net represents the actual price received for
the commodity.
Mr. Adams. Yes, sir.
Mr. Fairless. That is correct.
Mr. Wooden. I still don't understand whether we are going to
have the statement of deviations from Pittsburgh plus freight to
destination on tin plate for a 12-month period.
Acting Chairman King. I understood, Mr. Fairless, that the con-
tracts with those two large patrons would show the exact transactions
between them, and you have shown those contracts. Would that
answer the question or the requirement which was made by Judge
Davis? Would those contracts show the deviation?
Mr. Fairless. I have already stated here, Senator, that we do not
in the distribution of our tin plate charge our — keep in mind that we
do not make tin plate except in Pittsburgh in the East, so we begin
with our producing point and our basing point in Pittsburgh.
Now, one of the questions asked, I believe, was, Do we charge our
posted price for tin plate plus the all-rail charge, transportation
charge, to destination in every case? My answer is "No, we do not."
Mr. Davis. Yes; but I modified it by saying all-rail or rail and
water.
Mr. Fairless. Eventually you did.
Acting Chairman King. Make your statement, and then let him
answer you.
Mr. Fairless. Another question was, Do we sell any tin plate on
our Pittsburgh price plus our all-rail? Certainly. Certainly we do.
Then the question was asked. What percentage? I would have to go
through, or cause someone to go through, all our records to develop
that. In other words, we do not have that information available.
I will say that a very great percentage of our eastern tin-plate sales
are sold on the basis of our announced price on tin plate.
Mr. Wooden. Now then
Mr. Fairless (interposing). Pardon me. Now another question
was asked, and much time spent on it: How do your competitors
sell? I don't know. That is my answer.
Mr. Wooden. You do know, do you not, Mr. Fairless, that Mr.
Grace testified,^ and Mr. Pfeltz, of the American Can Co., testified ^
that the tin-plate price announced by the Carnegie Steel Co. and the
Carnegie-Illinois Steel Corp., was followed and adopted by the other
tin-plate manufacturers, and that the tin-plate contract of the Ameri-
can Can Co. provided that it would be so accepted; isn't that a fact?
Mr. Fairless. I don't believe I should be asked to review the
testimony of other witnesses who appeared before this committee
last November. As far as I am concerned, my own testimony is a
matter of record, and I assume theirs is also.
Mr. Wooden. Don't you know the facts to be as I stated, not what
the testimony is, but aren't those the facts in the industry?
Mr. Fairless. I shall relate again, if you want me to repeat, the
facts pertaining to how the United States Steel Corporation subsidiary
companies merchandise their tin plate.
1 Mr. drace's testimony appears in Hearings, Part 19.
• Mr. Pfeltz' testimony appears in Hearings, Part 20.
14206 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. I don't want that as far as I am concerned. I do
want to ask whether what I say is a fact.
Acting Chairman King. What is the question you ask? If you
can answer it categorically, do so ; if you can't, say so.
Mr. Wooden. Whether it isn't a fact that the other producers of
tin plate competitive with the Corporation subsidiaries for years made
contracts with the American Can Co. or other can companies pro-
viding that their price to the can companies would be the price
announced by the subsidiaries of the United States Steel Corporation.
Mr. Fairless. My answer to that question is, I do not know.
Mr. Wooden. Do you know, Mr. Adams?
Mr. Adams. No.
Mr. O'Connell. Mr. Wooden, may I interrupt for a moment?
It seems to me the committee being fairly familiar with the testimony
of Mr. Grace and some of the other people who testified here in
November, does recall that Mr. Grace did say that in general his com-
pany felt that the price announced by Carnegie-Illinois after nego-
tiating a price with the various can companies was acceptable to his
company and was what as a matter of general practice they followed.
I think the committee knows that and I don't see any real reason for
pressing Mr. Fairless on it. I think it is general custom in the
industry with which we are familiar.
Mr. Davis. I wish to observe in that connection that the United
States Steel Corporation has filed a large volume of material with this
committee, which they asked to be received by the committee, and
regardless of what Mr. Grace or any other member of the industry
may have testified, that Mr. Wooden has a right to question him, the
president of the largest unit in the steel industry, as to what the facts
are as he knows them.
Acting Chairman King. There is no one denying that, and I think
the witness has answered, but the question as Mr. Wooden just stated
it was to ask him to state his recollection of the testimony of other
witnesses. He may or may noi have been here. If Mr. Wooden
wants to ask any other question/ he may proceed.
Mr. Wooden. The witness said he didn't know.
Mr. Davis. He asked him whether he agreed with the correctness
of the statement. That was simply a basic question which is certainly
absolutely legitimate, I submit, especially when we are having as much
difficulty as we are.
Mr. O'Connell. As I understood Mr. Fairless, his answer was that
he didn't know. I was merely indicating that the committee does know
what Mr. Grace testified an4 Mr. Grace did indicate that was the
custom in the industry.
Mr. Wooden. I asked Mr. Fairless if that wasn't a fact in the
industry.
Mr. O'Connell. And he said he didn't know.
Mr. Wooden. That is correct.
Actmg Chairman King. Proceed.
Mr. Wooden. Mr. Adams, how many basing points in the industry
are there on rivets?
Mr. Adams. I can't answer that, Mr. Wooden. I wouldn't have
the slightest idea.
CONCENTRATION OF ECONOMIC POWER 14207
Mr. Wooden. This exhibit, the adverti. 3ment of Repubhc Steel,'
shows only four.
Mr. Fairless. It might interest you to know we don't manufacture
them.
Mr. Wooden. All right, I am asking about the basing points in the
industry, not merely what the Steel Corporation manufactures.
Mr. Adams. I can't answer that because there are too many prod-
ucts and too many basing points involved to be able to answer that.
We can supply that information.
Mr. Wooden. About how many are there on washers?
Mr. Adams. I couldn't answer that.
Mr. Wooden. Don't you know tliere are only three basing points
on washers?
Mr. Adams. I don't know whether there are three or thirty.
Mr. Fairless. Mr. Wooden, I believe that you are getting into the
fabricator's field rather than the steel man's field. We feel that our
particular function in respect to rivets, bolts and nuts and washers,
etc., is to sell steel to those who manufacture these products, and that
is the extent of our participation. Now when you get into the basing
points of those more or less finished products, you would have to call
in the industry that manufactures them, and it doesn't happen to be
the steel industry.
Mr. Wooden. Are they rolling mill products?
Mr. Fairless, The raw material is, but not the finished product.
Mr. Wooden. Not the finished product. Do you have such
products in mind, Mr. Adams, when you talk about the number of
basing points there are in the country?
Mr. Adams. No, sir; I only had in mind the number of basing
points on products that the United States Steel Corporation manu-
factures, really tonnage products from that standpoint.
Mr. Wooden. Now I would like to come back to the matter we
touched on yesterday afternoon regarding the continuation of the
resolution adopted during the Code period which related to the
charging of 35 percent of the all-rail rate on truck deliveries, deUvered
in the purchaser's own truck.
Mr. Adams, you testified that you imposed that 35 percent addition
to the base price on truck deliveries.
Mr. Adams. Mr. Wooden, I don't believe I testified in that way.
Mr. Wooden. I know you put it as a 65 percent deduction but
isn't that equivalent to a 35 percent addition?
Mr. Adams. I set forth yesterday the fact that the Steel Corpora-
tion shipped 12,700,000 tons of finished products in 1937, that we
shipped 313,000 tons by truck, that in those truck shipments we
contracted with common carriers to deliver certain products and cer-
tain tonnages to customers, and that in connection with that trans-
action we added transportation equal to the railroad rate of freight to
destination from our producing point.
Now that covered one part of the shipment of 313,000 tons. I
further testified that there were very few of our customers who owned
their own trucks and wanted to deliver steel to their plants by their
trucks. When they did ask us to deliver steel by way of their own
' "Exhibit No. 2199," appendix, facing p. 14428.
14208 CONCENTRATION OF ECONOMIC POWER
trucks, we charged the all-rail rate of freight and allowed 65 percent,
feeling that the customer was entitled to some credit for the use of his
own truck in that connection, and that we had two objectives in
mind in following that policy, the first being that in the market at
the point of delivery we would have two or maybe a dozen customers in
the same line of business competing one against the other. One would
own his own trucks and maybe the balance of a dozen would have
shipments come in by rail. We felt that it was a fair policy, because
it placed our customers who were competing against each other in the
market at the point of delivery on a comparable footing insofar as
their cost of raw material was concerned.
The second point I made in connection with our policy was the
added cost that accrued to our company at our producing points in
loading oiir steel into trucks when the plants were laid out to load
steel into railroad cars.
Now that is our policy, we think it is a fair policy.
Mr. Wooden. And it is the industrjr policy too, isn't it?
Mr. Adams. I can't speak for the industry, Mr. Wooden. I can
only speak for the Steel Corporation, and I say that with all sincerity
because we believe — I have reason to believe from reports that I
receive from salesmen — that there have been a good many deviations
from that policy.
Mr. Wooden. I refer you to ^age 71 of your pamphlet, "Exhibit
No. 1418," where you say that the practice generally exists in the in-
dustry of doing what you say you have been doing here.
Mr. Adams. I will accept that.
Mr^ Wooden. You state that in your own pamphlet, that that is
the general practice.
Mr. Adams. I will accept that. I would like to have the members
of the committee remember that, in compiling these pamphlets, there
were a number of people employed to secure as much information as
we possibly could secure for the benefit of this committee. Now if
there are a few statements which are not entirely accurate, there might
have been an error in the preparation of the pamphlet, and when we
use the word "general," there are always exceptions. There have
been exceptions to this policy. To what extent, I don't know. I
am only setting forth the fact that it is our policy when a customer
owns his own truck, and sends it to our plant, that we add to our px^o-
ducing-point price the railroad transportation cost and allow him 65
percent.
Acting Chairman King. You have read the paragraph to which
Mr. Wooden refers, have you not, Mr. Adams? I will read it:
A practice generally eiists in the steel industry of including in the delivered
price to a buyer, who accepts delivery by sending his own truck to the mill, the
rail freight from applicable basing point to destination, and allowing ^^m a
credit equal to 65% of the rail freight from mill to destination. This might be
construed to mean that the buyer always pays one-third of the rail freight used in
calculating the delivered price for the privilege of taking delivery by his own truck.
This is true, however, only when the mill is at the basing point freightwise nearest
to the buyers' destination. If the mill is not at any basing point, the effect of this
practice will be either to increase the amount realized by such mill in excess of the
base price at the basing point as a result of its geographical location, or merely to
decrease the freight absorption which would result from a rail shipment.
CONCENTRATION OF ECONOMIC POWEOR 14209
And then examples are given.
Do you wish to modify that statement or do you accept that
generally?
Mr. Adams. I think if we accept the word "general" to mean what
it was meant to imply, that we should accept that; yes, sir.
Acting Chairman King. You accept that statement, do you, with
the explanation you have made?
Mr. Adams. With the proper explanation of the word "general";
yes, sir.
Mr. Fairless. Mr. Chairman, I would like to clarify one phase
that I don't beheve has been cleared in respect to trucking. Here is a
customer and here is a steel i)lant. For the product that the cus-
tomer uses, the governing basing point is this producer's. Here is
our steel plant, 150 miles away. This customer sends trucks into
our plant. Keep in mind that we are governed pricewise by this
basing point here, not by our basing point, but the allowance freight-
wise is the allowance from our plant to the consumer, not from the
basing point.
Mr. Wooden. Mr. Adams, thiii 35-percent addition to the base
price, which you say is equivalent to 65 percent reduction from the
all-rail freight, that has no relation to the cost of loading on trucks,
has it?
Mr. Adams. I think we are talking about approximately the same
thing, Mr. Wooden, but we look at it from the standpoint of allowing
65 percent. Now that is 65 percent of the
Mr. Wooden (interposing). Didn't the Chairman just get through
reading the Corporation's own statement that that might be construed
to mean that the buyer pays one-tliird, but that it wasn't always
true he did, and giving the qualifications?
Mr. Adams. Yes; and the example was cited and carried on through
the rest of the paragraph.
Mr. Wooden. Now the 35-percent is applied to the all-rail freight,
isn't it?
Mr. Adams. The 65 percent.
Mr. Wooden. All right, the 65 percent is applied to the all-rail
freight.
Mr. Adams. Is allowed.
Mr. Wooden. The cost, or the amount added there, would be
varying according to the amount of the freight, being in a percentage.
Mr. Adams. Yes, sir.
Mr. Wooden. That varying percentage could have no relation to
the cost, could it, the cost of loading or things of that sort? It would
be the same all the time?
Mr. Adams. We think that it strikes an average, although you
can't say that it is predicated exactly on costs any more than you
can say that extras are constantly predicated on costs because of
changing cost conditions.
Mr. Wooden. You said yesterday afternoon that you used this
method in part to discourage truck delivery, is that correct?
Mr. Adams. That is correct; yes, sir.
Mr. Wooden. Now you state on page 70 of Exhibit No. 1418 that
manjT^ types of wire products also can be carried economically by
14210 ^ CONCENTRATION OF ECONOMIC POWER
truck. 1$id you want to discourage tlie economical delivery of wire
products by truck?
Acting Chairman King. Answer it if you can and make any explana-
tion you care to make.
Mr. Adams. We don't try to discourage any economic procedure if
it is found to be economical when all factors are analyzed.
Mr. Wooden. Do you charge the 35 percent on deliveries by truck
of wire products?
Mr. Adams. I think we allow 65 percent of the delivery cost on
wire products, Mr. Wooden.
Mr. Wooden. Which can be carried economically by truck accord-
ing to your own statement on page 70 of your Exhibit No. 1418.
Mr. Adams. We have already testified that we have shipped 313,000
tons by truck. Now the assumption is that that would not have
taken place if it was not an economical procedure.
Mr. Wooden. Did you two gentlemen, or either of you, ever read
the report of the Federal Trade Commission to the Senate on the
operation of the Steel Code with reference .to this truck-delivery
matter?
Acting Chairman King. Under the N. R. A.?
Mr. Wooden. Yes; but the practice is still in effect.
Acting Chairman King. Did either of you witnesses read that
report?
Mr. Fairless. No; I haven't.
Mr. Adams. I haven't read it.
Mr. Wooden. That report, on pages 32 to 35, describes this truck
matter and quotes the written complaints and objections of various
concerns who were adversely affected by it. The names of the con-
cerns were given, the addresses were given, quotations from their
complaiuts to the N. R. A. were given. They included shippers of
steel, they included purchasers of steel, they included trucking
companies, all complaining of the adverse effect, the damaging effect
of that 65 percent or 35 percent matter, on their business.
(Mr. O'Connell assumed the Chair.)
Mr. Fairless. Shippers of steel complained?
Mr. Wooden. Some.
Mr. Fairless. Why didn't they change it?
Mr. Wooden. It was under the code.
Mr. Fairless. Under the code?
Mr. Wooden. Yes.
Mr. Fairless. . There aren't any complaints now, are there, Mr.
Wooden?
Mr. Wooden. I am just going iuto this matter that there were.
And I would just like to ask you whether you think, in view of the
complaint from concerns like that, that the objection or criticism of
this aspect of the pricing methods of the industry are in the field of
mere abstract criteria and abstruse theory?
Mr. Fairless. I should like to attempt to reply to that question,
broad as it is. It seems to me, Mr. Chairman, that it would be
impossible to have any merchandising plan in any industry approach-
ing the size of the steel industry without having some complaints,
justified and unjustified.
Now this trucking problem that is up for discussion — I really
shouldn't have referred to it as a problem because it isn't a problem
CONCENTRATION OF ECONOMIC POWER 14211
between the United States Steel Corporation and its customers. It
is impossible for the United States Steel Corporation to establish a
principle for handling this particular phase of our business and have
it apply 100 percent in all cases. On the other hand, it would be
impossible for us to conduct our business day by day without having
some general over-all policy that dealt with this important subject.
Now when we say that we charge the customer the all-rail freight
from our producing plant to his consuming plant, and then allow
him 65 percent of the all-rail freight involved, that is our general
overall poHcy. And in administering that policy we have found
cases— a very small percentage of the total — where it works an in-
justice to certain peoi)le, due to their peculiar location, due to the
peculiarity of their business; and in each and every one of those cases,
to the best of my laiowledge, we have made adjustments in this over-
all policy to satisfy the customer completely.
Now I cite you an outstanding example. In the southwestern part
of the United States there is a great market for so-called oil-country
goods. The United States Steel Corporation's leading subsidiary in
respect to the manufacture of tubular products, the National Tube
Co., maintains a stock in Houston, Tex. That is our own stock.
We sell that to our various customers in that district, and in many
cases — as a matter of fact most cases — they send their trucks, be-
cause trucking lends itself satisfactorily to that particular part of the
country, and to that particular business, because an oil well is not
located adjacent to a railroad siding. In that case we charge those
customers simply a handling charge for placing the material out of
our stock into their trucks, so there is a big deviation from this so-
called principle.
But m defense of it in respect to this particular part of the country,
in the East and the Middlewest, this particular policy of ours appUes,
generally speaking, very satisfactorily, and while we still have some
cases that cjme up that we have to deal with on a special basis, they
are very small; and we do deal with them on a special basis.
Mr. Wooden. Are you now trying to say that it is not the genera
practice in the industry, as the pamphlet said it was?
Mr. Fairless. I am perfectly willing to have the reporter read
what I have just said.
Mr. Wooden. Well, what you mean by it is what I am getting »l.
Mr. Fairless. Just what I said.
EFFECTIVENESS OF COMMERCIAL RESOLUTIONS SINCE N. R. A.
Mr. Wooden. Well, Mr. Fairless, there are a number of other com-
mercial resolutions that were adopted during the code period, were
there not, besides these two that are discussed in your pamphlet?
Mr. Fairless. I assume so; yes, sir.
Mr. Wooden. I understand that a number of those resolutions are
still in effect in the industry. Is that correct?
Mr. Fairless. I would have to answer "no" to that question, to
give a "yes" or "no "answer.
Mr. .Wooden. Do you mean to say that none of the others, none
except these two that we have been discussing, are still in effect?
Mr. Fairless. Well, I should hke to deal with specific matters.
Now what is it you want me to answer?
14212 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Tell us whether or not any other of the commercial
resolutions adopted under the code besides these two that we have
been discussing, such as the allowance on truck deUveries and the
matter of arbitrary switching charges, whether any others are still in
effect.
Mr. Fairless. Mr. Chairman, it seems to me that before I answer
any question that Has to do with the steel Code under N. I, R. A. days,
that I should know what we are talking about. I am only asking for
the particular resolution, if there is such a thing in evidence. What
is it?
Mr. WooE»-.N. Well, you said yesterday you did not know that
there was a resolution of the industry continuing the standards of
fair competition provided for in the Code.
Mr. Faipless. I did, sir, and I gave my reasons. I was not a
Director of the Institute and how would I know?
Mr. WcoDEN. The trade press gave it out that ninety percent of the
industry joined in those resolutions, and you weren't aware of it. Is
that right?
Mr. Fairless. I have answered the question.
Mr. Wooden. I have here a letter, dated December 18, 1939, from
Mr. Irving S. Olds to James R. Brackett, Executive Secretary of the
Committee, in which he states in reply to a question as to the matter
of these commercial resolutions-
I am informed that the officials oi Jnited States Steel Corporation know of no
amendments or modifications since June 1935 of commercial resolutions and regu-
lations adopted during the NRA Code period, or similar statements or announce-
ments of commercial practice made since June 1935.
Was that matter taken up with either of you gentlemen before that
answer was made?
Mr. Olds. Don't you think I had better answer that question, Mr,
Wooden? I discussed that matter with Mr. Fairless before I wrote
that letter.
Mr. Wooden. Yes. Well then, Mr. Fairless, with that to aid you,
can you tell us whether some of these other commercial resolutions of
the code period are still in effect?
Mr. Fairless. There are no resolutions of the code period or any-
thing having to do with the code officially in effect in the United
States Steel Corporation.
Mr. Wooden. Are they in practical effect in the industry?
Mr. Fairless. Well, Mr. Chairman, I again appeal to you. I
want to be just as helpful as I can, but I can't answer these questions
that are put here for the obvious purpose of confusing the issue.
Now I am perfectly willing to answer Mr. Wooden, but I cannot
answer — he asked me a question about something that I don't know
what he is talking about. He has some particular thing in mind.
Now what is it?
Mr. Wooden. You were chairman of the committee that handled
those matters during the code period?
Mr. Fairless. Part of it; yes.
Mr. Wooden. And you can't tell me whether any particular ones
other than these two are still in effect?
Acting Chairman C'Connell. Mr. "Wooden, I think that Mr.
Fairless' point is fairly well taken. He apparently is not cognizant
in detail of the situation to which you are referring. I think that if
CONCENTRATION OP ECONOMIC POWER 14213
there are particular commercial practices which were put into eflFeot
in that period that you have reason to believe are still in effect, that
we might address ourselves more precisely to them.
Mr. Wooden. Can you tell us, Mr. Fairless, whether the resolution,
number ten, which fixed the maximum deduction of 38 cents per ton
from the base price that could be made on Southern foundry pig iron
of a certain quality is still in effect?
Mr. Fairless. I can't answer it.
Mr Wooden. Can you tell us, Mr. Adams?
Ml. Adams. I never heard of it, Mr. Wooden. I don't think it is
in effect.
Mr. Wooden. As a matter of fact, isn't the differential 38 cents a
ton between Southern pig iron of certain quality for shipment to
Northern points? Isn't it 38 cents stUl?
Mr. Adams. I can't answer that.
Mr. Wooden. I direct your attention to the Iron Age for January
13, 1938, which carried a note to the effect that that is the differ-
ential between Southern foundry pig iron for shipment to Northern
points.
Mr. Fairless. It might be helpful, Mr. Wooden, and also to the
committee, to clarify our position in respect to shipments of Southern
pig iron to so-called Northern points.
Acting Chairman King. Can you answer that question yes or no?
Mr. Fairless. I don't know. I wanted to ^ive a reason why I
wouldn't know. We do not ship Southern pig iron to Northern
points; we serve our Northern customers from Northern production
and our Southern customers from Southiern production.
Mr. Wooden. You don't know enough about the industry to know
whether a differential of 38 cents per ton is recognized still between
Southern foundry pig iron of certain quality and Northern pig iron?
Mr. Fairless. I do not.
Acting Chairman King. Mr. Fairless, do you know whether there
is any difference between the prices in the Northern field and in the
Soutliern field?
Mr. Fairless. Oh, yes; definitely.
Acting Chairman King. Do you know what the differentials are?
Mr. Fairless. You mean the schedule of prices, Northern pig
iron versus Southern pig iron?
Acting Chairman King. Yes.
Mr. Fairless. Mr. Adams has them or can get them. I don't
know what it is exactly but there is a differential, there is a difference
of quality, of course.
Acting Chairman King. Judge Wooden, is it material — I express
no opinion — to show what was done under the N. R. A. with a view
to determining what is being done or what ought to be done now?
It may be relevant.
Mr. Wooden. I am inquiring to find out if it isn't being done now.
That is the purpose.
Acting Chairman King. Would that be for the purpose of ratifying
the conduct of the N. R. A. or approving it or disapproving it?
Mr. Wooden. I wouldn't attempt to state any purpose in it, but
simply to show what the facts are, whether or not the N. R. A.
arrangements have continued since the N. R. A., and the resolutions
14214 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Well, the answer to that, just what you have ex-
pressed, is definitely no.
Mr. Wooden. I am asking you about particular resolutions.
Mr. Fairless. My answer covers any or all resolutions. Every
one of the resolutions that you are referring to went out with the code.
Mr. O'CoNNELL. Then the point is that subsequent to the invali-
dation of the N. R. A. there was a voluntary move on the part of the
industry to continue
Mr. Fairless (interposing). That was the question that Mr.
Wooden put up to me and my answer was that I was not a director
at that time and I therefore am not qualified to say.
Mr. Wooden. Can you tell me whether or not the regulation or
resolution that was specified under the code with regard to shipments
for structural use in an identified structure is stUl the practice?
Mr. Fairless. No, sir; it is not now the practice.
Mr. Wooden. Didn't it continue to be the practice after the code
for some time?
Mr. Fairless. Well, to be very specific in my answer, the provision
of that particular resolution didn't exist during the code.
Mr. Wooden. Weren't you aware of complaints being made by
fabricators of the deleterious and damaging effect of that upon their
business?
Mr. Fairless. I have answered with the statement that the resolu-
lution was never effective, even during the code.
Mr. Wooden. Haven't you seen announcements of companies in
the industry as late as 1936 specifying that condition with regard to
shipments for an identified structure?
Mr. Fairless. What condition?
Mr. Wooden. That the place of erection or the nearest place to it
should be considered the destination point, rather than the place of
fabrication.
Mr. Fairless. You are talking about f. i. t. privileges now, aren't
you?
Mr. Wooden. Yes.
Mr. Fairless. That is a big subject.
Mr. Wooden. I don't want to go into the whole subject. 1 was
asking about that particular phase of it.
Mr. Fairless. I should Hke to clear up that phase.
Acting Chairman King. Answer it as compactly as you can.
Mr. Fairless. I should like to clear up the phase I think Mr.
Wooden is trying to develop, whether or not the steel industrj^ is
carrying on in effect the resolution having to do with the f. i. t. privi-
leges during the code, and my answer to that question is short and
very definite, and the answer is no, they are not.
Acting Chairman King. Generally speaking — I use the word "gen-
erally" because it is so frequently used — were any of the activities or
proceedings under the code continued after its abrogation, after it
ceased to be effective as a legal organization, if it ever was? Can you
answer that, were the practices under the code continued after its
invalidation?
Mr. Fairless. I can answer that question probably better, Senator,
by telling you that many of the practices that were made compulsory
und er the code were practices that were already in existence for a long
time in the industry before there was a code or an N. I. R. A., and
CONCENTRATION OF ECONOMIC POWER 14215
they existed because they were fair, they were reasonable, and they
were accepted by both producer and seller. For example, we spent
much time yesterday afternoon in discussion of the freight rate within
various switching districts such as Chicago and Pittsburgh. I think
I have developed the information in respect to that. Now the mini-
mum freight rate in the Pittsburgh district to any plant^ anybody that
we do business with, is 55 cents. The raaximum freight rate is 99
cents. Our charge is 50 cents. In Chicago the minimum is 65
cents — these are actual figures taken from our records — and the
maximum is 90 cents. Our charge is 60 cents. In Birmingham, the
minimum charge is 70 cents, the maximum is $1.80. Our charge is
50 cents. In Cleveland the minimum is 42 cents, the maximum is
84 cents. Our charge is 50 cents. That had to do with a provision of
fair practices, trade practices, during the steel code and it has con-
tinued. Here is a very good reason why it has continued, because in
each case, with the exception of Cleveland, and to what extent there
I am not familiar enough with to give you the exact percentage, but in
every other case our charge is less than the minimum freight rate to
any customer in the district.
POLICY OF PRICE ANNOUNCEMENT SINCE SPRING OF 1936
Mr. Wooden. In the spring of 1936, Mr. Adams^ did the Cori)ora-
tion begin some new policy with regard to publication of base prices?
Mr. Adams. I didn't come with the Corporation until June 1936.
Mr. Fairless. I was there.
Mr. Wooden. Will you answer, then?
Mr. Fairless. What is the question?
Mr. Wooden. Whetiber or not the Corporation or its subsidiaries
began a new policy of price announcement in the spring of 1936.
Mr. Fairless. To the best of my knowledge; no.
Mr. Wooden. Did they at that time put out announcements saying
that the price for the particular quarter would be certain amounts at
particular basing points or points of production of the Corporation?
Mr. Fairless. I think that had been the practice in vogue for a
long time. Your question was a departure or change.
Mr. Wooden. Yes.
Mr. Fairless. No change so far as I know.
Mr. Wooden. Are you aware of any change in the policy or practice
of other companies about that same time, on the same subject?
Mr. Fairless. No, sir.
Mr. Wooden. I ask you whether or not there wasn't some dis-
cussion among leaders of the industry during the early part of 1936
with regard to instituting a poUcy, a practice, of published announce-
ments of base prices.
Mr. Fairless. No, sir.
Mr. Wooden. Didn't the subsidiaries of the Corporation put out
announcements in the spring of 1936 stating that only deliv.ered prices
would be quoted?
Mr. Fairless. It has been the practice, and still is, quarterly for
the subsidiary companies to announce their prices for the ensuing
quarter. There was no change in respect to that.
Mr. Wooden. Hasn't the practice been to quote only delivered
prices?
14216 CONOENTRATION OF ECONOMIC POWER
Mr. Faikless. That is our method of selling our products.
Mr. Wooden. And that is also the method of selling that is followed
by the industry generally, isn't it, only- delivered prices?
Mr. Fairless. I can't answer that, I^on't know.
Mr. Wooden. WeU, aren't these pamphlets that you offer here,
"Exhibit No. 1418",' based on the admission that that is the practice
in the industry to quote only delivered prices?
Mr. Fairless. I don't know, I can't tell you what this industry
does, how they conduct their business in individual companies.
Mr. Wooden. Doesn't this pamphlet, 1418, undertake to describe
how the industry conducts its business with regard to making dehvered
prices?
Mr. Fairless. I think it does in a general way, yes.
Mr. Wooden. WeU, then, you do know that that is the practice,
the general practice of the industry, to quote dehvered prices only?
Mr. Fairless. Generally speaking I believe the industry quotes
dehvered prices, but I have no way of knowing that that method is
covered completely, or is uSed completely.
Mr. Wooden. You have reviewed this pamphlet, have you not,
before it was submitted?
Mr. Fairless. In a general way, yeS, sir.
Mr. Wooden. Do you understand it to be an explanation or an
analysis of the delivered price system with the use of basing points
to calculate dehvered prices?
Mr. Fairless. Certainly with respect to the United States Steel
Corporation and its subsidiaries.
Mr. Wooden. And also for the, industry?
Mr. Fairi sss. Mr. Wooden, it seems to me that we could save a
lot of time, x know you are busy and I certainly am; I would like to
put aside, once and for all, the question of what our competitors do
in all cases. I don't know.
Mr. Adams. I think Mr. Wooden has the answer to his own question
if he accepts the Form B returns. The industry went to a great deal
of trouble and expense in attempting to give the committee through
the Form B returns a cross-section of just what takes place. All the
dehvered prices are in there, the question of transportation costs, and
all of those factors, so you can determine fron those returns just what
our competitors are doing, and we can't testify to that.
Mr. Wooden. I call your attention to a publication in the Iron Age
of January 7, 1937, summarizing the conditions in the industry for
the year 1936 and characterizing a certain program of open-price
announcement as being the most successfid price stabilizing move-
ment the steel industry had experienced other than the steel code.
Can you teU me what that has reference to?
Mr. Fairless. I cannot. I don't recall the article. I would
assume it would be an opinion of some writer for Iron Age.
Mr. Wooden. It is further stated in that article that Mr. Girdler,
president of Republic, initiated the movement at the beginning of
the second quarter, making his announcements for the second quarter
Does that recall anything to your mind?
Mr. Fairless. Not a thing.
1 Appendix, pp. 14619 ff.
CONCENTRATION OF ECONOMIC POWER 14217
Mr. Wooden. The Iron Age article also says that other steel com-
panies followed the RepubUc's example and announced openly their
seUing prices.
Mr. Fairless. When?
Mr. Wooden. 1936.
Mr. Fairless. My dear sir, we have been announcing openly our
selling prices for years. We didn't begin in 1936.
Mr. Wooden. That is why I am asking about it.
Mr. Fairless. The answer is, as far as United States Steel Cor-
poration is concerned, we have not adopted any new selling policies
as rumored by Iron Age or anybody.
Mr. Wooden. The Iron Age also says that other companies followed
the Republic's example. Do you know anything about that?
Mr. Fairless. I know one that didn't.
Mr. Wooden. You continued the policy you had before?
Mr. Fairless. That is right.
Mr. Wooden. As a matter of fact, didn't your company send out
announcements to its sales managers that some price announcement
program was going to be begun in May 1936?
Mr. Fairless. I haven't any idea what you are driviijg at. Why
don't you give me just exactly what you have in your mind and we
could save a lot of time?
Acting Chairman King. I think the question is proper. Answer if
if you can.
Mr. Wooden. I might say in this general connection that I have
certain extracts and portions of documents on which my questions
are based and I understand that without formal identification of them,
which I am not prepared to make at this time, I cannot oflFer them,
so I am somewhat handicapped and I am asking the questions as I
do for that reason.
Will you produce the letters to sales managers dated May 21 and
May 23, 1936? Do you have them?
Mr. Fairless. Mr. Chairman, representatives of this committee
visited many of our subsidiary companies and have gone through our
files, everything that they asked for has been presented, and if this
committee has any letters written by any of our people of which some
explanation is necessary or deemed advisable, we will be very happy
to give it.
Acting Chairman King. The judge asked if you had those letters.
Mr. Fairless. To ask us just for a letter written May 21, 1936, I
imagine there were many letters written May 21 having to do with
sales matters and sales poHcies.
Mr. Wooden. Announcing the beginning of your price announce-
ment program.
Acting Chairman King. If you have the letters here will you ex-
hibit them? If you haven't, say so.
Mr. Fairless. We have a letter of that date. Of course, I don't
know whether that is the letter.
Mr. Adams. If you have a letter, Mr. Wooden^
Mr, Wooden. I have a portion of such a letter purporting to have
been written to all managers of sales by J. H. McKown, assistant
vice president and assistant general manager of sales, Carnegie-
14218 CONCENTRATION OF ECONOMIC POWER
Illinois Steel Corporation, dated May 21, 1936, and it contains these
statements (reading from "Exhibit No. 2200"):
We will begin our price announcement program by announcing prices on bars
and small shapes, later strip, then sheets, and oTir other commodities will be given
consideration as promptly as possible.
Do you recall such an annoimcement being sent out to your man-
agers of sales?
Mr. Adams. Again I will have to say, Mr. Wooden, I wasn't with
the company at that time.
Mr. Fairless. I really don't know anything about it.
Mr. Wooden. You don't have anything in mind as to what the
beginning of your price announcement program was at that time?
Mr. Fairless. I do not, sir. The only change that I can think of
in respect to price announcements that has been made by our Cor-
poration since my connection with it had to do with deHveries during
a quarter. Now the poHcy in vogue in our Corporation for a long
time was to announce prices for a quarter, which meant that business
could be taken during that 3 months at the prices announced. Now
we have varied from that in respect to one feature, and that is that
we announce our prices for deUvery within that quarter. If that is
what you are referring to, Mr. Wooden, I can clarify it, otherwise I
can't. That was to clarify our deUveries, otherwise we would be
shipping into second and third and maybe fourth quarters, material
at the first quarter price.
Mr. Adams. I think, Mr. Wooden, that perhaps I can answer your
question.
, Mr. Wooden. My question was whether that meant anything to
you and you said you weren't with the company.
Mr. Adams. I said I wasn't with the company, but since you asked
me that question I have located the letter involved and it brings
back
Mr. Wooden. May 21?
Mr. Adams. May 21, 1936, signed by Mr. J. H. McKown, assist-
ant vice president and assistant general manager of sales, Carnegie-
Illinois Steel Corporation.
Mr. Wooden. Might we have a copy of it?
Mr. Ad^ams. Certainly, sir. Do you want me to read it?
Mr. Wooden. I would Uke to offer it for the record.
Acting Chairman King. You give us a copy.
Mr. Adams. Certainly; I will be glad to d6 that.
Mr. Wooden. You have also a circular letter to the sales nlanagers
by the same writer dated May 23, 1936?
Mr. Adams. Yes, sir.
Mr. Wooden. Will you supply a copj of that also?
Mr. Adams. Certainly. I think this is the letter you have reference
to, Mr. Wooden. Let me explain the change that took place, if I
can.
Mr. Wooden. WeU, what do you know about it if you weren't with
the company then?
Mr. Adams. It simply indicates a change in the formal method that
was followed. Prior to that time, as I understand it, the writers for
the trade journals would ask us what our price was going to be for a
quarter. We would tell them and our prices would be published in
the trade journals. About this time in 1936 we decided to not only tell
CONCENTRATION OF ECONOMIC POWER 14219
the trade journals but to advise our district sales offices in the way
of a formal letter and a ^ormal announcement, so that each of our
customers at the various points of delivery would have a definite
written formal notice from us regarding the delivered prices that we
were amiouncing for the quarter. It is just a technical change of
procedure, as I understand it. Now beyond that I can't go, Mr.
Wooden.
Mr. Fairless. You will also find that representatives of the
T. N. E. C. already have copies of this letter.
Mr. Wooden. Is it in evidence?
Mr. Fairless. You have copies. Whether it was offered in evi-
dence I can't answer.
Mr. Adams. All of these letters are in your file.
Mr. Wooden. I would like to offer them in evidence.
Mr. O'Connell. They are not in the record so far as I know, so
we might as well get them in.
Mr. Wooden. I offer them for the record.
Acting Chairman King. If on examination it i& found that they
have been introduced there will be no necessity of reproducing them.
(The letters referred to were marked "Exhibits Nos. 2200 and
2201," respectively, and are included in the appendix on pp. 14428
and 14429-14430.)
Mr. Adams. I understand these letters were given to the Depart-
ment of Justice. They are not in the record of the proceedings.
Acting Chairman King. The Department of Justice has copies of
these letters, has it?
Mr. Adams. Yes, sir.
Mr. W^ooden. Referring to the letter of May 21, 1936, which is in
the record as "Exhibit No. 2200," ^ what does it mean, Mr. Fairless,
about the statement that "We will begin our price announcement
program"?
Mr. Fairless. I believe Mr. Adams can answer the question more
fully than I can.
Mr. Wooden. He wasn't with you then.
Mr. Fairless. He is with us now, he knows our practices, obviously.
Mr. Adams. As I miderstand it, that language was simply used to
describe a change in our procedure. As I have said, the prior pro-
cedure was to notify the trade journals or if they came to us and asked
us on or about 30 or 45 days prior to the beginning of the calendar
quarter what our price would be for the quarter, we would tell them
and they would publish it. That was one method of notifying our
customers in general. Then we decided to change that procedure to
the extent of actually having printed, having sheets of paper printed,
which we sent out to our district sales offices and they in turn dis-
tributed them to the buyers of steel in their territory. In other
words surrounding Detroit you would have Lansing and Flint and so
on, and we would want to be sure that there was a formal notice from
Carnegie-Illinois Steel Co. setting forth just what our published
prices were, and that was considered, as I understand it, a change in
our published announcement program. We all know that in that way
we could accurately inform our customers what our delivered prices
would be, and they would be sure of knowing what their costs of steel
were going to be.
> Appendix, t5. 14428.
124491— 41— pt. 27 7
14220 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. What was the difference between what you did
then and what you had done previously?
Mr. Adams. I think I have explained that. As far as I know, one
method was to notify the trade journals; the second method was to
notify each customer individually on a written form exactly what his
delivered price would be on each of the products that he used or
purchased and which we manufactured.
Mr. Wooden. So you began a price announcement at that time,
May 1936, of announcing base prices on products at the base point,
didn't you?
Mr. Adams. Well, those were base delivered prices.
Mr. Wooden. Did you distribute those?
Mr. Adams. Just a minute, Mr. Wooden. In the change in the
announcement program we not only announced our base deUvered
prices at the point of production, but we carried that through to a
point where each customer would have a record from us as to what our
base deUvered prices in his town were on each of the products that he
was interested in.
Mr. Wooden. How did you pubUsh the base prices? Did you
publish them in trade journals?
Mr. Adams. They still appeared in the trade journals; yes, sir.
This was just an extra step taken to make sure that we had made it as
convenient as possible for our customers to know during each quarter
what our delivered prices would be.
Acting Chairman King. Would the letters sent to the customers
be in harmony with the prices appearing in the trade jourhals?
Mr. Adams. Yes, sir.
Mr. Wooden. Did you send these price announcements to any of
your competitors?
Mr. Adams. Not to my knowledge ; no, sir.
Mr. Wooden. Do you know, Mr. Fairless?
Mr. Fairless. No, I don't.
Mr. Wooden. Wasn't it understood they would receive them?
Mr. Adams. There would be no
Mr. Fairless (interposing). Understood by whom?
Mr. Wooden. By you.
Mr. Fairless. No, sir.
Mr. Wooden. Did you receive price announcements of a similar
character from other companies?
Mr. Adams. No, sir; not to my knowledge.
Mr. Wooden. You saw them printed in the trade journals?
Mr. Adams. We saw them printed in the trade journals if they
published them in that maimer.
Mr. Wooden. And how many companies did publish them?
Mr. Adams. Again I can't answer. As I have said, there are 30
of them and some of them publish their prices and others don't.
Mr. Fairless. A few.
Mr. Wooden. Now the Iron Age to which I referred, January 7,
1937, describing this movement in the steel industry, for a program
of price announcement, stated that after the Republic took this lead
and others followed, the last three-quarters of the year 1936 were re-
markably free from price cutting. Does that register in your mind
as to what the conditions were?
CONCENTRATION OF ECONOMIC POWER 14221
Mr. Fairless. It doesn't register in my mind and it doesn't register
on the charts of information which we have turned over to this
committee.
Mr. Wooden. Did you have an understanding with any of your
competitors that any change in pubUshed prices that were put out in
May 1936 would be similarly pubhshed?
Mr. Fairless. No, sir.-
Mr. Wooden. Had they been published as comprehensively prior
to that time by other companies as they were after the spring of 1936?
Mr. Fairless. I can't answer that; I don't know.
Mr. Wooden. Do you know, Mr. Adams?
Mr. Adams. No, sir.
Mr. Wooden. Where were you at that time?
Mr. Adams. In the spring of
Mr. Wooden (interposing). 1936.
Mr. Adams. What date?
Mr. Wooden. May 1936.
Mr. Adams. In May 1936 I was vice-president of the General Fire-
proofing Company at Youngstown, Ohio.
Mr. Wooden. Is Mr. Walter Tower here?
Acting Chairman King. Is the gentleman present?
Mr. Wooden. He was here yesterday. Mr. Chairman, I have
copies of letters, portions of letters, that only Mr. Tower could
identify, or some other witness — certainly not the gentlemen present.
Acting Chairman King. Were they letters taken from the files
of the
Mr. Wooden (interposing) . Not of the Steel Corporation, but from
either the files of the institute or concerns corresponding with the
institute. I will not try to offer any of them in the absence of more
formal identification.
Acting Chairman King. I am interested in one question, if either
of you gentlemen cares to answer it or can answer it. During the
years which you have been identified with the steel business, and
particularly with the United States Steel Corporation, has there been
active competition, genuine competition among aU of the steel
companies?
Mr. Fairless. Definite and severe competition most of that time.
Acting Chairman King. Have their annual sheets which were filed
for publication, or their returns to the Government, as far as you are
familiar witu their returns if you are familiar with any, indicated
deficits or losses or lack of profits during those years?
Mr. Fairless. Yes, sir.
Acting Chairman King. Was that general or
Mr. Fairless (interposing). Very general.
Acting Chairman King. Or just spasmodic?
Mr. Fairless. Very general.
Acting Chairman King. Have there been years, when United States
Steel Corporation has had losses rather than profits?
Mr. Fairless. Yes, sir.
Acting Chairman King. My recollection is that you or some wit-
ness has testified here to information of the large deficits during a
given period, and if that went into the record, those figures, I don't
care to recur to them now.
14222 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Do you want these figures?
Acting Chairman King. Were they put in the record?
Mr. Fairless. Yes, sir.
Acting Chairman King. That is my recollection. You need not
reproduce them.
Mr. Adams. They are in the record, Senator, and during the last
decade we have had something like 4 years of losses and 6 years of
profits, reasonable or otherwise. Over the last decade I think they
will show that we have made less than 2 percent return on our invest-
ment,^
Acting Chairman King. Those figures are in the record ; there is
no need
Mr. Adams (interposing). Of course when we talk about price
changes upwards and downwards, we wonder how anyone could
conceive that there isn't severe price competition in our industry
from the practical man's standpoint, because you can't operate on a
narrower margin than that -and exist.
Acting Chairman King. Proceed, Judge.
freight rate book of the iron and steel institute
Mr. Wooden. Now when it comes to a question or a matter of
calculating the delivery or transportation element in the dehvered
price, the American Iron and Steel Institute has put out for some
time, has it not, compilations of freight rates?
Mr. Fairless. Yes, sir.
Mr. Wooden. Those compilations were instituted during the code
period, were they?
Mr. Fairless. Yes, sir.
Mr. Wooden. And the iustitute still puts out compilations of
freight rates, both by rail and by water and rail?
Mr. Fairless. I believe I can save time by giving
Acting Chairman King (interposing). Answer yes or no, if you can,
and then make your explanation.
Mr. Fairless. Yes; but I can give the complete history of this
rate book
Mr. Wooden (interposing). The answer is yes. I don't care for
any more than that. I would like to pursue my line of questioning,
if I may. I have no objection to a statement being made at some later
time or when I am through with the subject, but just to throw the
thing open for anything he may care to say about the subject
Mr. Fairless (interposing). It is only a history, Mr. Wooden, of
just exactly what happens in respect to this rate book to which you
are referring; that's all. It is not my opinion or —
Mr. Wooden (interposing). All right.
Mr. Fairless. The American Iron and Steel Institute has a trafiic
committee composed of traffic managers of 10 different steel com-
panies. This committee supervises the institute's Freight Rate
Book. There are 4 sections to the Institute's Rate Book, and the
responsibility of keeping these sections up to date is assigned to
different members of the committee. When corrections are necessary
— and b}'- necessary I mean when rate changes take place — these
committee members have the changes made on supplementary sections
or pages, sending these section? or pages to the institute for distribu-
CONCENTRATION OF ECONOMIC POWER 14223
tion to holders of the rate book. The rate book, is available to
anyone interested in the steel business, but, peculiarly, it is not used
by all of the steel companies and is used by some manufacturing
concerns not classed as steel companies. There is a nominal charge
made for this service and thcindividual holders of the book pay these
charges to the institute.
Mr. Wooden. The freight rates are figured from the various basing
points to the various destinations, are they not, in the institute book?
Mr. Fairless. You are talking about the construction of the book?
Mr. Wooden. I am talking about the Institute's Freight Rate Book,
whether they do not show the freight rates from the basing points to
various destinations.
Mr. Adams. The freight rates in the book, Mr. Wooden, are all
rates which are secured from the railroads governing transportation
costs from various places to various destinations.
Mr. Wooden. Do they not show the freight rates from the various
basing points to various destinations?
Mr. Adams. Why, certainly, they would have to. And they also
show rates from nonbasing points to other destinations, and numerous
freight rates that are involved and are required by people not actually
producing steel.
Mr. Wooden. You say they show the freight rates from nonbasing
points as well?
Mr. Adams. I would say so; yes. It is a convenience — and that's
all — for the steel industry and for people who fabricate steel. The
rates are published by the railroads, and we are constantly checking
with our large traflBc department to determine just what those rates
are.
Mr. Wooden. Isn't it a fact that the determination of the correct
rate between one point and another is a matter on which even freight
or traffic experts will differ?
Mr. Adams. Well, I am not a traffic expert, Mr. Wooden.
Mr. Wooden. Don't you know that to be a fact?
Mr. Adams. No; I don't know that to be a fact. As a salesman I
have always secured freight rates froni our traffic department. Now,
the rate that they give me may be published in that freight-rate book
or it may not be published in that freight-rate book. It takes time
for any organization — and when I say organization I mean this com-
mittee that Mr. Fairless has talked about, composed of certain traffic
managers in the steel industry — to accumiilate that information.
Acting Chairman King. Where does this committee get its infor-
niation?
Mr. Adams. Direct from the railroads. Senator, and
Acting Chairman King (interposing). From basing points to the
consumers?
Mr. Adams. They collect all their rates from all points between
cities where the shipment of steel, or alhed products made from steel,
might be involved.
Acting Chairman King. They don't attempt to project rates or to
speculate as to what the rates are?
Mr. Adams. There is no speculation as to rates. It is public in-
formation and as Mr. Fairless just said, pecuhariy enough, all of the
steel companies do not use that freight-rate book, and also peculiarly,
other companies use it.
14224 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Mr. Chairman, I have documents which show that
the calculation of freight rates does likely produce errors, that it is
important to have uniformity in the calculation of freight rates in
order to have the delivered prices equalized. I have documents which
will show that it was understood that the published freight rates of the
institute would be recognized and used until after a correction sheet
was published.
Mr. Fairless. I object to that statement.
Mr. Wooden. And it is simply because of my inability under the
program of this committee regarding formal identification of these
documents that I am not able to use them right now.
Mr. Fairless. I object to the statement.
Acting Chairman King. Your objection doesn't determine our
course.
Mr. Wooden. I don't know just how I am going to go about the
matter of formalizing the identification of such documents.
Mr. Fairless. My objection is that it is not a true statement.
Acting Chairman King. I think before the hearing concludes, if
you deem that testimony relevant, it would seem that ample oppor-
tunity will be afforded for presenting the same to the committee.
Mr. Fairless. For further clarification I should like to make this
statement to the committee. It is of no importance whatsoever to
the United States Steel Corporation whether we use this book- or not,
and as a matter of fact any time that a rate change is made — and most
rate changes, as we know from our experience, are downward, not
upward — whether they be downward or upward they are immediately
put into effect through the offices and functions of the various traflSc
departments of the United States Steel Corporation. Many times
these supplements to this book are distributed 2 or 3 months after
a rate change has happened. •
Acting Chairman King. I presume that freight rates change fre-
quently, do they not?
Mr. Fairless. Yes.
Acting Chairman King. I know in the pe -ding bill which is in
Congress now, the railroad bill, there is a provision for the filing of
tariffs, that is for rates, changes from time to time, various applications
were made.
Mr. Fairless. Yes. And I should like to point out that this book
does serve a very useful purpose to small steel companies, particularly
nonintegrated companies, companies that do not and cannot afford
trafl&c departments such as those of the larger companies. As far as
we are concerned, this cannot be any issue with us because it doesn't
make any difference whether we have it or not.
Acting Chairman King. Proceed, Judge.
Mr. Wooden. I have to decide whether or not it will be necessary
to provide the formal identification of the documents to which I refer.
Acting Chairman King. The committee is not going to be very
exacting. Judge.
Mr. Wooden. I had supposed that unless the authenticity of the
documents were challenged that they might be received subject to such
challenge.
Mr. O'CoNNELL. Senator, you weren't here when the question
came up this morning as to whether certain documents Mr. Wooden
had could be introduced and I took the position which I believe is coti-
CONCENTRATION OF ECONOMIC POWER 14225
sisteiit with tlie position the committee has heretofore taken— I know-
it is in line with the decision the chairman marie in connection with
the investment banking hearing — that in the absejice of the witness
who could testify^to the authenticity of the document that we would
not permit it in evidence unless it was obtained from some published
source. That is the situation with which Mr. Wooden is confronted.
It seems to me it is one he can meet but I didn't feel it would be con-
sistent with what we have done before to permit the introduction of
those things at that time.
Acting Chairman King. The Senator will not overrule a member
of the committee who comes from a great department of the Govern-
ment, so we will adhere to it for the time being.
Proceed.
Mr. Wooden. Under the code, during the code rather, it was
provided that the freight rates compilations put out by the American
Iron and Steel Institute should be used, was it not?
Mr. Fairless. I can't answer thatdefinitely. You probably have
the complete and full information. 1 don't have. Your question is
whether it was compulsory?
Mr. Wooden. Yes.
Mr. Fairless. My answer is: I don't know.
Mr. Wooden. Now with, regard to the all-rail basis of calculation
of delivered prices, you and your companies use in actual shipments a
cheaper method at times consisting of truck delivery and of water
transportation.
Mr. Adams. Yes, sir.
Mr. Wooden. Under the code it was compulsory to use the aU-rail
basis, was it not?
Mr. Adams. I don't know,^Mr. Wooden. I don't think so.
Mr. Wooden. With certain exceptions which the board of directors
took care of by special regulation.
Mr. Fairless. Tliat's correct, but those certain exceptions covered
the very large bulk of steel that moved by water. I want to emphasise
rather than minimize the exceptions.
Mr, Wooden. And the institute put out compilations of freight
rates which showed those rail and watep rates as well as the rail rates,
did it not?
Mr. Fairless. Yes, sir.
Mr. Wooden. And it has continued ' to put out rail and water
compilations of freight?
Mr, Fairless. I can't answer that. You mean as a part of the
traffic book?
Mr, Wooden. Yes.
Mr, Fairless. I can't answer that.
Mr, Wooden. Or part of the traffic service, rather. Now during
the code period, efforts were made to get the industry to change from
the all-rail basis of freight computation, were there not?
Mr. Fairless. Made by whom?
Mr. Wooden. Various persons and concerns who said they were
adversely affected by the maintenance of the all-rail basis of com-
putation.
Mr. Fairless. Do you meaa officially? Are you talking about
officials, or what is your point?
14226 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Isn't it a fact that there were many commercial
interests
Acting Chairman King (interposing). Did you say "commercial,"
pardon me?
Mr. Wooden. Commercial interests consisting of shippers, pur-
chasers located on waterways and chambers of commerce, and many
similar groups that urged the abandonment of the all-rail basis of
computation of steel prices.
Mr. Fairless. I don't Icnow of such.
Mr. Adams. Mr. Wooden, if you want to
Acting Chairman King (interposing). I think you ought to wait
until Mr. Wooden asks you a question. If he asks you that, I have no
objection to your answering.
Mr. Fairless. I have stated before that almost any merchandising
policy of an over-all nature would create some dissatisfaction and some
compla-ints.
(Further discussion of this point was off the record.)
Mr. Wooden. The point is that the all-rail basis of computing
deUvered prices from basing points still 'continues in the industry.
Mr. Adams. That is not a fair statement.
Mr. Wooden. I appreciate very well that there are other compila-
tions of rail and water rates and even of water rates that make excep-
tions to that.
Acting Chairman King. Would you care to make a statement now,
or will you wait until the Judge offers proof of that?
Mr. Fairless. Well, he has said that it still exists and it doesn't
exist.
Mr. Wood EN. I didn't say it existed to the exclusion of everything
else.
Isn't it a fact that at a meeting of the members of the industry that
the protests of commercial interests that wanted the all-rail freight
basis of computation discontinued, that their requests, were rejected
by a vote of the members of the industry present?
Mr. Fairless. I attended no such meeting.
Mr. Wooden. Do you know anything about such a meeting?
Mr. Fairless. No; I do not. I take it you are going back to the
code now.
Mr. Wooden. That is right, yes, during 1934.
Did you read the report, either of you gentlemen, of the Federal
Trade Commission on the practices of the steel industry under the code
made to the United States Senate with reference to the subject of the
all raU base method of calculation?
Mr. Fairless. I am just thinking, trying to recall; I am not certain
whether I did or not. Thechancesareldid. I followed it pretty closely.
V-:. 'Vooden. Did you note there the quoted objections made by
various o. mmercial interests such as local chambers of commerce and
individual industries located on the rivers and water transportation
agencies protesting against the use of the aU-rail basis of freight
computation?
Mr. Fairless. I don't recall. We do have, we believe, a very satis-
factory record in respect to our dealings with the so-called water
movements of steel.
Mr. Wooden. Those statements appear on pages 27-35 of the Com-
mission's report to the Senate and on page 23 of its report to the
CONCENTRATION OF ECONOMIC POWER 14227
President in November 1934. Summarizing them, there were 72
protestants. Twenty-eight of them were industrial concerns, 8 were
water transportation agencies, 4 were associations devoted to improve-
ment of rivers and canals, 4 were local chambers of commerce, and
12 were United States Senators and 14 were Members of the House of
Representatives. Would you say in view of those facts that the
objections to that phase of the basing point system are based on
abstract criteria?
Mr. Fairless. I can only repeat, Mr. Chairman, that the United
States Steel Corporation's subsidiary companies have various plants
located on the inland waterways or adjacent thereto, and we believe
that we have a very clear understanding of the method of dealing with
water deliveries, and we do not charge, as has been inferred, the full
rail freight. We do give the customer the benefit of water shipments'
where it is justified in our opinion, and where it isn't justified we think
we have very definite reasons for not allowing it. Where it is, we
give due allowance for water dehveries or rail and water deliveries,
and do not charge the all rail freight, and we have the record here to
prove that statement. This is just our own record. This hasn't
anything to do with the industry; this is just the United States Steel
Corporation's record. It is important, I believe.
Total water shipments in 1937, 1,129,884 tons. Actual water
rate charged, 344,622 tons. Rail rate from nearest' basing point
less-than-water rate from mill, 725,584 tons. That is an important
point. Many people, who are not familiar with the steel business, are
of the opinion that any time steel moves by steamers and barges from
Pittsburgh down the Ohio River that it represents a savmg in trans-
portation costs, but that isn't true because of the workings of the
multiple basing point system. For example, for sheets, strip and
ot^er produ^:,s delivered to Cincinnati, which is an important con-
sammg poin from the base point of the American Rolling Mill at
Middletown, vrhich is the nearest basing pomt to Cincinnati, the rail
freight rate is less than the published water rate from Pittsburgh.
While we deliver, while we avail ourselves of the water transportation
facilities which we own and avaU ourselves of the saving, yet it is
just a matter of that much less freight absorption, and that tonnage
amounts to 725,584 tons. Price concessions made equal to water
transportation saving, 41,513 tons. By that we mean even where
we are in competition with a competitor who cannot serve a customer
by water and we can, we may make price concessions in our
base prices to cause ourselves to be competitive.
The tonnage out of that total where we actually charged the all
rail freight and delivered by water, for that year was 18,165 tons, or
1.6 percent of a total tonnage moved by water of 1,129,884 tons.
You might say, "Why?" The reasons, we believe, are very obvious
and very understandable. There are some people, some customers,
who can talce water shipments. They are located on the water, but they
have competitors whom we also serve who are located 50 miles inland ,
or X miles inland. We feel that we would not be fair to the inland
customer if we put his competitor in an advantageous position by
furnishing the same products in the same locality at a lower price.
Therefore, we charged the rail freight in those cases, out of that total
tonnage which I have given you for that year, covering 18,165 tons
for the whole United States Steel Corporation.
14228 CONCENTRATION OP ECONOMIC POWER
Mr. Wooden. You state in your pamphlet, do you not, "Exhibit
No. 1418," ' that there are occasions when by using a lower or cheaper
mode of transportation than all-rail you get an increment above your
base price?
Mr. Fairless. That would be true in these 18,165 tons to the extent
represented by transportation. It doesn't necessarily mean, however,
that we received in excess of our announced price including the trans-
portation charges.
Mr. Wooden. But doesn't your pamphlet describe how so-called
phantom freight arises out of a situation where the mode of transporta-
tion actually used is cheaper than the all-rail basis?
Mr. Fairless. Well, again I believe that you are dealing with
theories and I am dealing with facts. Now I have given you the facts.
Mr. Wooden. Is your pamphlet dealing with theories also or is it
dealing with facts? Doesn't your pamphlet show that you get what
is called phantom freight by using a mode of transportation that is
cheaper than the all-rail basis?
Mr. Fairless. It doesn't. We have issued no pamphlet showing
how we secure phantom freight.
Mr. Wooden. I am referring to Exhibit 1418 which is in evidence
here. Don't you show that very thing in that pamphlet?
Mr. Fairless. Well, anything that is in that pamphlet I will stand
back of.
Mr. Wooden. Don't you laiow whether that is in it or not?
Mr. Fairless. Not as you put it I wouldn't know.
Mr. Wooden. Do you know if there is anything in there discussing
phantom freight arising out of the use of cheaper .'^' odes of tranpn*- -•
tion than all-rail?
Mr. Fairless. Well," discussing it, I imagine, yes, of course. It
discusses every phase of the so-called multiple-basing-point system.
Mr. Wooden. And that is one phase of it.
Mr. Fairless. That is one of your phrases. It is not one of oiu*
phrases. We did not coin the name ''phantom freight."
Acting Chairman King. The committee wiU recess until Monday
morning at 10:30.
(Whereupon, at 12:50 p. m., an adjournment was taken until Mon-
day, January 29, 1940, at 10:30 a. m.)
I Appendix, pp. 14619 S.
INYESTIGATION OF CONCENTEATION OF ECONOMIC POWER
MONDAY, JANUARY 29, 1940
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 10:35 a. m., pursuant to adjournment on
Saturday, January 27, 1940, in the Caucus Room, Senate Office
Building, Mr. Joseph J. O'ConneU presiding.
Present: Mr. O'ConneU (acting chairman), Senator King, Messrs.
Davis and Ferguson.
Present also: Sumner T. Pike and John V. W. Reynders, repre-
senting the Department of Commerce; Walter B. Wooden, Assistant
Chief Counsel, Willis J. Ballinger, Director of Studies for the Federal
Trade Commission; and Hugh E. White^ economist, representing the
Federal Trade Commission.
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL CORPORATION, NEW YORK CITY, AND AVERY
C. ADAMS, VICE PRESIDENT, UNITED STATES STEEL COR-
PORATION, PITTSBURGH, PA.— Resumed
Mr. Fairless. Mr. Chairman, I have a matter I would like to call
to the attention of the committee. You will recall on Friday afternoon
we offered for the record an article from the April issue, 1939, of Iron
Age.^ The clerk now has this article, but so far it has not been received
into the record. You will recall that Acting Chairman King then
suggested that this article might be put in later. If agreeable to the
committee, I suggest at this time that the Iron Age article be now
received into the record.
Acting Chairman O'Connell. It will be received in the record and
inserted at the close of your testimony toda;v. That was the under-
standing that I had with Senator King. I think Mr. Wooden has
the article.
Mr. Wooden. There is no objection to receiving it in that way
Mr. Chairman, except I might make this observation, that it seems to
me those who are responsible for the making of the statements that
are referred to in the article should make the statement here rather
than in this indirect way through the channels of a trade magazine.
Acting Chairman O'Connell. We discussed this when Senator
King was here last week and I believe it was his judgment that it
should be included in the record, and it will be.
(The article referred to was marked "Exhibit No. 2202" and is
included in the appendix on p. 14430.)
p. 14161, supra.
14229
14230 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Mr. Fairless, I am showing you what purports to be
a mimeographed circular letter issued by the Executive Secretary of
the American Iron and Steel Institute under date of June 3, 1935, and
enclosing a copy of a draft of preamble and resolutions adopted by the
Board of Directors at a meeting held on June 3, 1935. You said the
other day that you didn't know anything about such a resolution.
Are you willing to accept the documents that I show you as containing
the text of such resolution?
Mr. Fairless. Judge, the only point that I was making was that
I was not a director of the Institute at that particular time and there-
fore I couldn't personally be acquainted with the transactions of the
board of directors.
Mr. Wooden. But you knew such a resolution had been adopted, I
presume, at the time.
Mr. Fairless. No; I did not, sir. If I did, at the moment I don't
recall it.
Mr. Wooden. I believe you said you didn't know anything about a
resolution of the industry ratifying the resolution of the board of
directors.
Mr. Fairless. That is correct; I did not.
Mr. Wooden. And I called your attention to the fact that the
trade press said 90 percent of the industry joined in those resolutions.
Didn't the Republic Co., with which you were then connected, join
in them?
Mr. Fairless. I can't answer, I wasn't President of the Republic
Steel Corporation.
Mr. Wooden. What were you in June 1935?
Mr. Fairless. Executive vice president of RepubUc.
Mr. Wooden. Yet you don't know of any resolutions extending the
code by voluntary resolutions?
Mr. Fairless. I have answered your question, Judg6.
Mr. Wooden. Mr. Chairman, I am ready to establish the source
of those resolutions by another witness unless the present witness is
willing to accept them as being authentic.
Mr. Fairless. I am perfectly willing to accept them; I don't
question them. I just simply answered the question.
Acting Chairman O'Connell. I take it that I am responsible for
the difficulty that you are having because it was my view that docu-
ments like that would, in accordance with the procedure of the Com-
mittee, have to be identified by someone in position to do so. It isn't
a question of whether Mr. Fairless will accept them or not. I think
that if you have a witness who can be called to testify to the authen-
ticity that is the way to do it and it shouldn't take more than a
minute.
Mr. Wooden. I will then call Mr. White.
Acting Chairman O'Connell. Do you solemnly swear that the tes-
timony 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 White. I do.
CONCENTRATION OF ECONOMIC POWER 14231
TESTIMONY OF HUGH E. WHITE, FEDERAL TRADE COMMISSION,
WASHINGTON, D. C.
Mr, Wooden. Mr. White, you are an employee of the Federal Trade
Commission?
Mr. White. I am.
Mr. Wooden. How long have you been such employee?
Mr. White. Since April 1922.
Mr. Wooden. Will you state whether you had occasion during
1934, '35, or '36 to visit the offices of the American Iron and Steel
Institute?
Mr. White. I did.
Mr. Wooden. Did you examine files there and obtain documents
from their files?
Mr. White. Yes.
Mr. WoodbSn. I am showing you two papers, one purporting to be a
circular letter of Walter S. Tower, Executive Secretary of the American
Iron and Steel Institute, June 3, 1935, and attached copy of draft of
preamble and resolutions adopted by the Board of Directors of the
American Iron and Steel Institute, marked "Exhibits Nos. 2203 and
2204" for identification. Have you examined those papers?
Mr. White. Yes, sir.
Mr. Wooden. Will you teU us what you know about them?
Mr. White. These papers were secured during the progress of an
investigation into the practices of the steel industry in respect to
merchandising steel sheet piling and was made in response to the
direction of the President. Whether they were given to me by Mr.
Tower personally or by his office manager I don't recall. They were
taken from the file of the Federal Trade Commission, File 1-9268,
which is the investigation file covering the subject. They were
marked by me shortly thereafter.
Mr. Wooden. Mr. Chairman, I offer them in evidence for the
record.
Acting Chairman O'Connell. They may be received.
(The documents referred to were marked "Exhibits Nos. 2203 and
2204," respectively, and are included in the appendix on p. 14434.
Mr. Wooden. Mr. White, I show you a paper entitled, "Resolution
adopted by members of Iron and Steel industry assembled at American
Iron and Steel Institute, June 6, 1935," and ask you to state what you
know about it.
Mr. White. This exhibit was received under similar circumstances
and purports to be a resolution adopted by members of the iron and
steel industry assembled at the American Iron and Steel Institute,
June 6, 1935.
Mr. Wooden. What do you know about the paper itself? Where
did it come from?
Mr. White. It was received under similar circumstances, whether
from Mr. Tower personally or from h.s office manager I do not recall.
It was marked by me at that time.
Mr. Wooden. I ofTer that document in evidence.
Acting Chairman O'Connell. It may be received.
(The document referred to was marked "Exhibit No. 2205" and is
included in the appendix on p. 14435.)
14232 CONCENTRATION OF ECONOMIC POWER
N. R. A. CODE PROVISIONS CONTINUED AFTER N. R. A, INVALIDATION
Mr. Wooden. Those resolutions ("Exhibits Nos. 2204 and 2205")
show action of the industry by the Board of Directors of the Iron and
Steel Institute continuing in effect the provisions of the Code of Fair
Competition after the code itself had been declared invahd as a result
of the Schechter decision, and I call the committee's attention to the
fact that in so continuing the code it included the so-called Standards
of Fair Competition of the code and in turn that included the opera-
tion of the basing point system of delivered prices, and we have already
in evidence the fact that some of these so-called commercial resolu-
tions implementing the code and the basing point system under the
code have been continued in effect to the present time. I refer to
the resolutions relating to the use of arbitrary switching charges at
certain basing points and I should like to. offer the resolution which is
in question about the use of arbitrary switching charges.
(Senator King assumed the Chair.)
Acting Chairman King. Where does that appear?
Mr. Wooden. It is in a volume composed of all the so-caUed com-
mercial resolutions which the board of directors of the Institute
adopted during the code period. May the reporter number this
resolution?
Acting Chairman King. Have you a separate copy?
Mr. Wooden. No.
Mr. Fairless. Mr. Chairman, I should like simply to inention, ahd
I am sure the judge will agree, that rather than refer to the American
Iron and Steel Institute board of directors during the operation of the
code, it really should be the Code Authority. It so happened that the
Code Authority was comprised of the Directors of the American Iron
and Steel Institute augmented by certain Government people, but it
functioned as a Code Authority rather than the American Iron and
Steel Institute.
Acting Chairman King. Is there any controversy as to the per-
sonnel?
Mr. Wooden. I brought this out the other day, that the board of
directors was the Code Authority and so constituted by the code
itself.
Mr. ReVnders. With the addition of several Government officials.
Mr. Wooden. They sat in on some of the operations and meetings
of the Code Authority, but at no time that I am aware was the code
amended to make them members of the Code Authority.
Acting Chairman King. Wlio were the members of the Code Au-
thority, Mr. Fairless?
Mr. Fairless. As I understand the operation, the American Iron
and Steel Institute board of directors, augmented by a certain number
of Government officials, the exact number of whom I don't remember,
functioned as the Code Authority. Now independent of the Code
Authority, the Board of Directors of the American Iron and Steel
Institute continued to function as such in respect to any matters per-
taining to the Institute that were not a part of the functions of the
Code Authority. I think I am correct in that.
Mr. Wooden. Mr. Fairless, are you willing to accept the document
under discussion as being a copy of the resolution of the board of
CONCENTRATION OF ECONOMIC POWER 14233
directors regarding the use of arbitrary switching charges at certain
basing points?
Mr. Fairless. During the code?
Mr. Wooden. Yes.
Mr. Fairless. I will accept any of the commercial resolutions that
were adopted by the Code Authority.
Mr. Wooden. You accept this one?
Mr. Fairless. I do.
Mr. Wooden; Then, Mr. Chairman, I will offer it as it stands.
Acting Chairman King. It may be received.
Proceed.
(The document referred to was marked "Exliibit No. 2206" and is
included in the appendix on p. 14435.)
Mr. Wooden. I should like to read for the committee's information
the text of this resolution which we have ascertained is still in effect,
and the pamphlet of the Corporation so states.
This is Commercial Resolution A-4 as amended June 14, 1934,
effective June 31, 1934, preamble and resolution duly adopted by the
Board of Directors as amended on June 14, 1934, with respect to
switching charges to be- added to base prices for products delivered
at basing points.
You see, this is an implement of the basing-point system.
Whereas it is provided in Section 4, Schedule E of the Code that when switching
charges for the delivery of the product at a basing point are required to be added
in determining the delivered price of such product pursuant to the provisions of
said Section 4 the Board cf Directors may by resolution fix such an arbitrary
switching charge or such arbitrary switching charges for the delivery of such
product as the Board shall deem proper with a view to preventing unequal com-
petitive conditions in respect of the sale of such product for delivery at such
basing point; and
Whereas a great diversity in the switching charges exists at the various basing
points and on that account it is practically impossible in most cases for members
of the code to ascertain in advance of the sale of any product for delivery at any
basing point, the correct published tariff switching charges chargeable thereon
pursuant to the provisions of said Section 4 ; and
Whereas the Board has been advised that the arbitrary rates prescribed in the
following resolution are fair averages of the actual switching rates now in effect in
the switching areas of the respective basing points at which such rates are to be
applied;
Resolved that the Board of Directors hereby fixes, for the purposes of the pro-
visions of Section 4 of Schedule E of the code, arbitrary switching charges for the
delivery of any product at any basing point for such product named in Schedule
F of the code, except pig iron sold for delivery in Jefferson County, Alabama,
from any furnace located in that county, as follows:
(a) for deliveries in carload lots (minimum thirty tons) at Chicago, Illinois,
and Gary, Indiana, and for deliveries in such carload lots from either of such
places to the other, sixty cents per net ton, or, if the published base price for such
product at such basing point is stated per gross ton, then sixty cents per gross ton;
(b) for deliveries in carload lots (minimum twenty-five tons) at all other
basing points named in Schedule F of the Code, fifty cents per net ton, or if the
published base price for such product at such basing point is stated per gross ton,
then fifty cents per gross ton; and
(c) for deliveries in less-than-carload lots at all basing points named in
Schedule F of the Code, and for deliveries in less-than-carload lots from either
Chicago, Illinois, or Gary, Indiana, to the other of such places, ten cents per
hundred pounds, but not in any case exceeding on any one shipment the charge
per carload at the carload rate hereinabove specified for the basing point in
question.
What is the switching area, Mr. Adams, of the Chicago basing
point?
14234 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. You mean in respect to areas, Judge?
Mr. Wooden. Yes; I mean what area is covered by the Chicago
switching district.
Mr. Fairless. We can't answer that. It is defined by the railroads,
not by the steel industry. I can give you the rates that apply.
Mr. Wooden. No; I want to know what the area covered by the
switching district is. Can you tell us, Mr. Adams?
Mr. Adams. I can't tell you exactly.
Mr. Wooden. Approximately. Does it go around to Gary on the
south of Chicago?
Mr. Adams. No; it doesn't extend down to Gary.
Mr. Wooden. Can't you tell us what area it does cover?
Mr. Adams. I can't tell you specifically ; no ; because it is established
by the railroads.
Mr. Wooden. You know what it is, don't you?
Mr. Adams. I know approximately.
Mr. Wooden. Tell us approximately.
Mr. Adams. Well, I would say an area of within 15 miles of Chicago,
the center of Chicago, would be my approximate guess, Mr. Wooden.
Mr. Wooden. Are you guessing?
Mr. Adams. I am guessing; yes, sir. I don't know exactly.
Mr. Wooden. Do you know what the switching area of the Pitts-
burgh distr'ct is?
Mr. Ad/ ms. I can't tell you exactly.
Mr, Wooden. What is your approximate answer on that?
Mr. Adams. It is slightly smaller than the Chicago area.
Mr. Wooden. But they cover the area of a number of producing
plants, do they not?
Mr. Adams. Yes; they will take in a number of producing plants.
Mr. Wooden. They take in a number of competitive producing
plants, competitive with your own mills, do they not?
Mr. Adams. I would say "Yes."
Mr. Wooden. Mr. Chairman, I just want the committee to under-
stand that here is an instance where the basing point system of
delivered prices in the switching areas of the various members have
been fixed by the action of the Board of Directors of the Institute, and
those particular switching charges are still in effect. As the resolu-
tion cites ("Exhibit No. 2206") the actual switching charges of the
different mills in those areas differ, and this resolution, standardizes
by an arbitrary imposition of what the arbitrary charge shall be in
being added to the basing point price to get the delivered prices in
those switching areas, and if the basing point price is the same for
the various mills in that area, the delivered price within those switching
areas must become identical, because here is a prescription of the
amount that must be charged, regardless of the actual switching charges .
Mr. O'CoNNELL. Mr. Wooden, if I understand your point, the,
discussion had on Saturday relative to whether or not the arbitrary
prices were below or above the actual on the average, makes no
difference. In other words, whether the arbitrary switching charge
be lower or higher than the actual, your point is that it is for the pur-
pose of establishiiig one of the elements of the selling price.
Mr. Wooden. Right, but it is higher than some actual and lower
than other actual. It is an arbitrary standardization of the switching
charge, regardless of what the actuaUty is.
CONCENTRATION OF ECONOMIC POWER 14235
Mr. O'CoNNELL. But you would think your point was well taken
if the switching charge were lower than average. It doesn't make
any difference. The point is, to stabilize one of the elements of cost.
That is your point.
Mr. Wooden. Except this: Where the arbitrary charge is higher
than the actual, as Corporation statement admits, that results in
so-called phantom freight by the amount of that difference and an
increment above the base price.
Mr. Wooden. Mr. Fairless, will you accept the document I show
you for identification as an authentic document of the Board of
Directors of the Institute, known as Commercial A-18, effective
June 1, 1934?
Mr. Fairless. I am perfectly wUling to accept any resolution that
you have to offer that has to do with the steel code. However, I wish
to state in respect to all these resolutions, and anything that has to do
with the operaton of the steel code, that they are now not in effect as
such in the United States Steel Corporation.
Mr. Wooden. But they are in effect in the industry, as your pam-
phlet states, and as you have testified — the one I have showed you.
Mr. Fairless. Our pamphlet does not state that anything haying
to do with the steel code is in effect.
Mr. Wooden. But the practice involved in this resolution is still
carried on, is it not?
Mr. Fairless. I should like simply to make a very simple statement
to the committee. When the steel code was formed, and built, irre-
spective of what any of us might think of the situation then existing,
past practices of the industry were very carefully considered and those
that were felt to be in harmony with the best interests of the pubUc in
general were adopted as principles of "the code. Also during the
building of the code and its functioning, from time to time certain
weaknesses developed and those weaknesses were covered, or cor-
rected rather, by certain resolutions, and these are the resolutions,
some of them commercial and some of them with respect to other
features.
Mr. Ferguson. Mr. Fairless, coimsel asked you whether this par-
ticular practice was stUl, in "effect, being carried out.
Mr, Fairless. Mr. Ferguson, I am just coming to explaining
exactly how it operates. Now these new resolutions covered various
weaknesses, or apparent weaknesses, and they came up for adoption
and were adopted, and they were put into effect. Now some of the
practices have been continued and I have no argument with the judge
in^ respect to this so-called arbitrary switching charge, I have no
argument about it at all, but I do say that the reason it has been
continued, and any features that have been continued — they have
been continued because they have been proven to be fair and adcept-
able to the buyers ai;d the sellers of steel, and they are not continued
in any respect on the basis of a continuation of the steel code or any
resolutions pertaining thereto.
Mr. Wooden. Not even the resolution continuing the code in
effect which you were shown a while ago? ^ You say the thing that
has been done, and continues to be done, has not been done pursuant
to the resolution that was to continue the code in effect.
> "Exhibit No. 2204," appendix, p. 14434.
124491— 41— pt. 27 8
14236 CONCENTRATION OF ECONOMIC POWER
Mr. Fairless. Is that your statement? My answer is that the
steel code is not in effect.
Mr. Wooden. But these particular outgrowths and developments
of the steel code are still in effect.
Mr. Fairless. I believe I have made my position clear,
Mr. Wooden. Mr, Chairman, I would like to offer for the record,
this exhibit, which is commercial resolution A-18, effective June 21,
1934. We have been over the subject matter but I want to bring
out the text of this resolution for the committee's information.
Acting Chairman King. It may be admitted.
(The document referred to was marked "Exhibit No. 2207" and is
included in the appendix on p. 14436.)
Mr. Wooden. Preamble and resolution duly adopted by the board
of directors on June 14, 1934, authorizing reductions in the delivered
prices for products delivered by truck provided by the purchaser:
Whereas it is provided in Section 4 of Schedule E of the Code that in any case
in which a product shall be delivered by other than all-rail transportation the
member of the Code selling si^ch product may allow to the purchaser a reduction
in the delivered price otherwise chargeable under the provisions of said Section
at: such rate previously approved by the Board of Directors and filed with the
Secretary as the Board of Directors shall deem equitable and necessary, in order
that competitive opportunity to producers and consumers of products shall be
maintained; and
Whereas on recommendations heretofore made to the Board of Directors it
approved rates of such reductions by members of the Code to purchasers of
products delivered by truck provided directly or indirectly by such purchasers
and for their account which the iSoard deemed and now deems to be equitable
and necessary, in order that competitive opportunity to producers and consumers
of products shall be maintained;
Resolved that in any case in which any purchaser shall require that any product
purchased by him from a member of the Code be delivered by truck and such
truck is provided, directly or indirectly, by such purchaser and for his account,
such member of the Code may allow a reduction in the delivered price for such
product otherwise chargeable under Section 4 of Schedule E of the Code and the
regulations .prescribed by, and the resolutions adopted by, the Board of Directors
thereunder and then in effect (a) at rate equal to 65% of the carload all-rail
published tariff freight rate on such product from the point at which transporta-
tion of such product by truck began to the place of delivery of such product by
truck to such purchaser (if such freight rate be published on a per car basis, the
ja'te per ton shall be determined by dividing such charge per car by 2.^), or (b), if
the transportation by such truck be at a basing point for such product, then at a
rate equal to 65% of the rate 'of the applicable arbitrary carload switching charges,
if any, at such basing point theretofore approved by the Board of Directors, or, if
such Board shall not have approved a rate of arbitrary carload switching charges
for such basing point, 65% of the rate per ton of the actual switching charges
(computed on the basis of the minimum carload quantity to which such charges
apply) applicable on the delivery of such product at such basing point under the
provisions of said Section 4, from the point at which transportation of such product
by truck began to the place of delivery of such product by truck to such purchaser.
There is a further proviso that I will not read, but it further requires
that the truck must be loaded within 24 hours after it has begun to
be loaded, and so on.
Acting Chairman King. Do you desire that incorporated in the
record, I mean the last?
Mr. Wooden. I offered the entire document but I don't think I
need read the balance of it.
Mr. Wooden. I would just like to have the committee understand
that here is a practice admittedly still in effect by the Corpora-
tion's own pamphlet and by the testimony that we have had. There
is an arbitrary addition of 35 percent of the all-rail freight to a destina-
CONCENTRATION OF ECONOMIC POWER 14237
tion, even when the buyer provides his own truck or hires a truck to
take it away. I have brought out for the committee's information
hitherto that shippers of steel, buyers of steel and trucking companies,
have gone on record in written protests to the effect of such a provision
upon their business, and I would like to call the committee's attention
to the fact that the amount involved in that 35 percent addition to
the basing point price, when it is figured as 35 percent in terms of the
all-rail freight, amounted in some instances to $2.50, $3.50, $3.90 per
ton. The amount of it is substantial, and important.
Mr. Fairless. Mr. Chairman, could I say a word in respect to
that?
Acting Chairman King. Proceed.
Mr. Fairless. I have no differences with the Judge in respect to
this particular resolution, but again I wish to state to the Committee
that this practice referred to in this resolution was a compulsory one
under the code. Any member of the code who did not conform in
every transaction to that resolution was subject to fine as provided
by the code.
Now the difference in today's practice in the United States Steel
Corporation and that provided by the resolution which Judge Wooden
has just read, and I have no quarrel with it at all, is simply this: To
begin with, during the code that so-called arbitrary allowance given
to the customer when he sent a truck provided by himself or others,
was one that was arrived at after very careful study, very careful
study, not by just one company, but by several companies reviewing
their own experiences having to do with truck dehveries over a reason-
able period of time.
Naturally, to take that situation and apply it to every condition
all over the United States of America brought protests, and many of
them were justified. There is no question about it. But when you
were dealihg, as we were under the code — where you had to have a
definite set-up and comply with it — naturally the big percentage, the
majority, had to be taken into consideration, and that was the basis
for arriving at this set-up. The code went out, and with it went this
resolution. The thing that continued was the practice where it prop-
erly applied, and it continues today with respect to our particular
business where it is proper. I cited to this Committee, I gave you
an example Saturday, of Houston, Tex. This particular practice
does not apply there, it doesn't lend itself, it would be decidedly un-
fair, so we do not practice it. Down there we deUver oil country
goods from our Pittsburgh and our Lorain plants. We carry them
in stock, and the customers, and they are many, come with iheir
own trucks or send trucking companies to get the goods and we charge
them only the handling charge, and it is a nominal handling charge,
covering the cost.
Many of our wire and sheet products in various parts of the country
are handled on that same basis, but as a general policy— and we say
"general" because it does apply fairly to a very large percentage of
our products — this 65 percent credit as appHed to. the all-rail freight
rate is fair and is practiced by the United States Steel Corporation,
and we have no apologies for it because it is accepted by our customers.
Any time that any customer or group of customers feels that an injus-
tice has been done or is being done, he can come to the proper oj£cials
14238 CONCENTRATION OF ECONOMIC POWER
of the subsidiary company of the United States Steel Corporation and
I ana sure he will go away a happy man.
Acting Chairman King. Were there inequalities among the con-
sumers, purchasers, under the code with respect to the switching charge
to which the Judge has just referred?
Mr. Fairless. The switching charge? No, I don't think so with
respect to the switching charge, for this reason. As I read here
Saturday, in the Pittsburgh district the minimum switching charge is
55 cents, and the maximum is 99 cents. The charge that we make for
switching in that Pittsburgh district is 50 cents, so therefore it is under
even the minimum charge.
In Chicago the minimum charge is 65 cents and the maximum is 90
cents. Our charge is 60 cents.
Acting Chairman King. I recall those figures.
Mr. Fairless. In one district — and as I stated in my earUer testi-
mony, I do not have the facts to know to what extent — our charge
is greater than the minimum. In other words, in Cleveland it is 42
cents versus our charge of 50, but the maximum, however, is 84 cents.
Where the average would fall I don't know.
Acting Chairman King. To what extent has there been a departure
by your company, and so far as you know by other producing com-
panies of steel, from the provisions of the code * to which the Judge
has just called our attention?
Mr. Fairless. The trucking provisions?
Acting Chairman King. Yes.
Mr. Fairless. Tremendous departures.
Mr. Wooden. Why then
Acting Chairman King (interposing). One moment, Juage.
Mr. Fairless. I have cited the Houston situation and it applies
to the Columbia Steel Co. on the Pacific coast. There are exceptions
all over this country.
Acting Chairman King. Then. you would say that the letter and
the spirit of that resolution is not adhered to now by your company?
Mr. Fairless. It is only adhered to now where it is a fair situation
in respect to the consumers of our products.
Acting Chairman King. Where it is practical — and of course we
have to accept your view as to what is practical, I suppose, that is,
you have given your view, you determine whether it is practical or
not — does that work any injustice to the pubhc or to the consumer?
Mr. Fairless. In our opinion it does not.
Acting Chairman King. Is it a fair rate to be charged, is it com-
mensurate with the responsibihties and the duties performed by the
company?
Mr. Fairless. We think so.
Acting Chairman King. You do not believe it to be an unjust
charge?
Mr. Fairless. No, in other words, we are not trying to make
any profits through trucking or nontrucking of our products by cus-
tomers.
Mr. Wooden. Senator, I would like to point out with regard to
the arbitrary switching rates, it isn't a question of their fairness but
the effect is to make the delivered prices within the switching areas
identical to all buyers within those switching areas.
• "Exhibit No. 2207," appendix, p. 14436.
CONCENTRATION OP ECONOMIC POWER 14239
Mr. Fairless. And we are proud of that.
Mr. Wooden. Not only for you but for the industry. Now you
make yours identical with the delivered prices of your competitors
in that industry by use of that resolution, or the principle involved
in that resolution.
Mr. Fairless. We do not admit that.
Mr. Wooden. That is the effect. Why do you say, Mr. Fairless,
that you make exceptions and departures from this when you say in
"Exhibit No. 1418"^ your pamphlet, that this practice has been
generally followed since the code, in referring to these arbitrary
switching rates?
Mr. Fairless. In referring to the arbitrary switching rates?
Mr. Wooden. Yes, you say the practice has been generally fol-
lowed. Now you say it isn't generally followed.
Mr. Fairless. No, I didn't say that with respect to the switching
rates. I admit they are followed.
Mr. Wooden. All right, you say the Corporation doesn't follow
them.
Mr. Fairless. We are talking about trucking.
Mr. Wooden. I am talking about switching now.
Mr. Fairless. My answer here has been on trucking. Did I
make it clear?
Mr. Pike. It was very clear to me.
Mr. Wooden. The Senator was talking about switching charges.
Mr. Fairless. No.
Mr. Wooden. Yes; he did at first.
Acting Chairman King. I was about to call attention, if the judge
will permit me, to "Exhibit No. 1418," and I read:
Undoubtedly the additional cost and inconvenience of loading trucks justifies
an extra charge, particuarly at older mills which were planned exclusively for car-
loading, and offer little possibility for installation of truckloading facilities.
In summary, the answers to the criticism of "phantom freight" supposedly
realized by steel mills on truck deliveries may be summarized in the following
points: first, only an extremely small proportion of steel tonnage is delivered by
trucks, partly because many products cannot be economically hauled by truck,
and partly because large consumers prefer rail delivery. Secondly, truck move-
ments frequently result in freight absorptions, sometimes because of the 65%
allowance for shipments in buyers' own trucks, and also, because of deliveries
within the switching limits of basing points, where only the "switching arbi-
traries"
Mr. Fairless (interposing). We admit they are arbitrary.
Acting Chairman King. [Reading further from "Exhibit No.
1418":]
are included in the delivered price. Third, the rates of common carrier trucks,
regulated by governmental agencies, are seldom much lower than rail freight rates,
and sometimes are higher. Fourth, at the majority of mills it costs more to load
steel into trucks than to load into railroad cars, and furthermore delivery to trucks
involves inccnvenience, loss of time, and other similar considerations which cannot
easily be translated into dollars and cents. It seems clear that the mills are not
profiting as a result of truck deliveries. The criticisms on this score are more
cheoretical than real.
Does that substantially reveal the situation now with respect to
the matter indicated in the sentences which I have just read?
Mr. Fairless. Yes, sir.
1 Appendix, p. 14619.
14240 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Senator, I. would like to point out the fact that if
some mill made an allowance of 66 percent instead of 65 percent, it
would throw off the delivered price to that 'extent, and this resolution,
still in effect, and according to the corporation's own statement in
"Exhibit No. 1418," says that generally exists in the industry.
As to the matter of cost, Mr. Adams has testified that it had
some relation to cost, but the obvious fact is that the costs of various
mills differ and this is at least a 35 percent standardization; and
furthermore the 35 percent applies to the all-rail freight rate, which
means if you apply a fixed percentage to a varying base figure, you
get all sorts of variations in actuality. It can, therefore, have no
real relation to the actual costs of any particular mill.
Mr. Reynders. Was it not brought out on Saturday, where you
arrived at a disproportionate charge, that an adjustment was made
in that allowance in case of falling prices?
Mr. Wooden. I don't know just what you mean. Do you refer to
freight absorption?
Mr. Reynders. I refer to the fact, as I remember it, that the steel
corporation, where the charge — this remnant of 35 percent, became
unreasonable, that then the corporation made an adjustment.
Mr. Wooden. I don't know about that, but the statement in the
pamphlet is that that practice of using the 35 or 65 percent, as you
view it, is generally practiced in the industry.
This resolution ^ regarding thcf arbitrary switching charges recites
that it was impossible to ascertain in advance of the sale the correct
published tariff switching charges. Why was it important to ascer-
tain that in advance of the sale unless you wanted to make the sale
at a delivered price and make it according to a stated figure for the
switching charge?
Mr. Fairless. I don't believe I understand your question. Judge.
Mr. Wooden. Read it, please.
(The reporter read the question.)
Mr. Pike. That is not the question. I think you have "important"
where the Judge said "impossible."
Mr. Wooden. Important is right.
Mr. Pike. I thought you said impossible.
Mr. Fairless. The answer, I believe, to your question is that we
sell our steel products on a delivered-price basis; we quote on that
basis. Naturally we must know the transportation costs involved or
we could not quote the delivered price.
Mr. Wooden. You don't have to know an arbitrary charge. Why
don't you use your actual charge and be done with it?
Mr. Fairless. I have given our reason. The record is complete so
far as I am concerned;
Mr. Wooden. If you used your actual switching charge, you would
have different delivered prices, would you not, from competitors using
a different switching charge rate?
Mr. Fairless. More important than that, we would have
Mr. Wooden (interposing). Is not that a fact?
Mr. Fairless. As you stated it, it is absolutely a fact, but more
important than the way you put the question is that also we would
have customers, actual customers competing with each other in the
same switching area, that we would be (^harging various prices for steel.
« "Exhibit No. 2206". appendix, p. 14435.
CONCENTRATION OF ECONOMIC POWER 14241
Our only difference, as I see it, is the basis for uniformity. Your con-
tention is that it is from a competitive standpoint, and my contention
is that it is to treat all our customers within a single area on the same
basis.
Mr. Wooden. Did not the resolution itself ("Exhibit No. 2206")
recite that it was from a competitive standpoint that this arbitrary
switching charge was to be imposed?
Mr. Fairless. During the code, when it was compulsory to arrive
at uniform prices; you must liaye some basis.
Mr. Wooden. But this practice, you state in your pamphlet, is
still generally in effect.
Mr. Ballinger. Mr. Fairless, why should j^ou be very anxious to
put the buyers of steel on the plane of eguality if for instance they have
unequal costs in transportation. For instance, I am a buyer of steel,
and I enjoy a natural advantage in transportation, namely it is
cheaper to ship to me than to ship to my competitor; why should
you be anxious to penalize me for my advantage?
Mr. Fairless. We are not, Mr. Ballinger, but the thing we attempt
to do is to treat all customers alike price-wise in their respective terri-
tories. There may be every reason, and there are, why a manufac-
turer located in Boston might not expect to realize the same delivered
price as one located in Chicago, but our policy is that all of our
customers in Boston and particularly those that are in competition
in Boston, should receive the same delivered price from us, and all
those in Chicago should receive the same delivered price from us.
Mr. Ballinger. Even if they enjoy an advantage, one buyer,
namely, that his switching charge in actuality should iie less; that is
one of the advantages he enjoys in business?
Mr. Fairless. When you get into a switching area, the advantage
is not very big, and the practical workings of this industry would bring
about a uniform charge. In other words, to make my point clear,
if we did not have this so-called arbitrary switching charge in Pitts-
burgh, my opinion and judgment — knowing the workings of this
industry — are that the charge would be 55 cents, because that happens
to be the minimum charge in the district.
That is where competition would finally finish. The minimum
charge in a particular district would be the practical charge.
Mr. Ballinger. But the maximum charge might throw you off;
wouldn't it?
Mr. Fairless. You wouldn't charge, in a practical way, that
maximum charge.
Mr. Ballinger. I thought switching charges varied with the
actual transaction, an actual switching charge for a transaction.
Mr. Fairless. Not within the switching limits. You see, this
Pittsburgh c-istrict is defined by the railroads. Your question is, if
you happen to be a buyer there, as I understand it, you have this
minimum, and a competitor of yours has ine 99, the maximum; why
should you not enjoy that advantage? Well, my answer to that is
competition. You might be my customer, at least I hope you would
be if you wore there, and the 99-cent fellow might be X company's
customer; the 99-cent fellow would ^o to his source of supply, >and I
am sure, knowing the workings of this industry, that he would finish
at the 55-ceijt charge, so your so-called advantage would vanish.
14242 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Why is it jiecessary to have a resolution defining
this with such great exactitude in that event?
Mr. Fairless. Well, Judge Wooden, I don't know why I should
keep explaining the code. You know the code, you knew the
N. I. R. A.
Mr. Ballinger. Why wouldn't competition work it out? Why
have a resolution about it?
Mr. Fairless. Every transaction, every commercial transaction, in
the steel industry during the code was handled in that manner.
Mr. Ballinger. You give a beautiful point that competition would
work this out, but then you give an arbitrary resolution about it. This
would be a beautiful chance for the industry to prove it is competitive,
let it alone, let competition settle it. Why have an arbitrary
resolution?
Mr. Fairless. It isn't a resolution. We could name, or any sub-
sidiary of the United States Steel Corporation could name, any de-
livery charge in any of these districts they choose; we are not bound
by any resolution.
Mr. Wooden. But the practice continues according to the principles
stated in the resolution.
Mr. Fairless. It does, and it does so because it is fair and because
it is practical, because it is reasonable and because it is accepted by the
buyers of steel.
Mr. Ballinger. Switching to Another point, this question of truck-
ing, if trucking is more economical, after you make allowance for all
cost and the fellow owns his own trucks, you say you don't want to
let him take his material away in trucks because it wouldn't put all
buyers on an equal plane. This raises the point a little more force-
fully because there might be genuine economies in this illustration of
considerably greater magnitude than switching charges. I ask you why
is it that you want to put a man who buys for delivery by truck and a
man who buys for delivery by rail on a parity, when there may be an
economy from trucking. You don't get the transportation charge
anyway, and if he wants to elect a cheaper method of transportation,
isn't he exhibiting what we call capitalistic initiative, and you are sort
of penalizing him at that point and saying he can't do it.
Mr. Fairless. We are not penaliziag him at all and we are not
trying to dictate to him the type of transportation that he might
select. We are only pointing out to this committee that our mills
were built and laid out, designed, to transport steel through the rail-
road method. That was the only method in existence at that time.
We are also pointing out to this committee that in respect to our
delivered prices in any particular locality, if it is cheaper for the
delivery to be made by truck it is perfectly, of course, perfectly all
right with us that delivery be made in that manner, but we do want a
method of handling that transaction that will insure imiformity to aU
buyers of our product in that locality, and if he chooses not to use
trucks it is all right.
Acting Chairman King. That is to say, if I understand you, if you
circumscribe an area, say 100 miles in diameter, and if you sell to half a
dozen plants in that field of operation, some of the purchasers would
prefer to haul from your plant by truck, others would utilize the rails,
and your view is that you should see that all of your purchasers would
have the same price for steel within that area.
CONCENTRATION OF ECONOMIC POWER 14243
Mr. Fairless. Yes.
Acting Chairman King. And that one who hauled b^r truck might
not have advantage over the man who obtained his by rail.
Mr. Fairless. Yes; and also that we would be compensated for
the extra costs that we have in handling truck shipments versus rail-
road shipments. There is an invoice for every truckload of steel just
the same as there is for every carload of steel; in one case you are
dealing with 5 tons, 3 tons, 10 tons, versus 50 or 70 tons. We would
have trucks coming in at all hours of the night disturbing our schedules
of loading. It would entail keeping billing clerks and loading forces
out waiting for a truck to arrive that had been scheduled. The
customer wants the material, and there are many additional costs.
I wouldn't testify before this committee and say that in each and
every single transaction the 65 percent allowance was perfectly
adequate and we didn't gain or we didn't lose, or that it was a break-
even in every case; it isn't, but to the best of our judgment and to the
extent to which our studies have provided the information, it is the
best reasonable average where it can be applied. There are points, and
many of them, where it can't be applied at all, and there we negotiated
with the user of steel and we arrive at a satisfactory basis.
Acting Chairman King. I assume from your statement just made
that in some cases it costs more to the company, to the mill, to take
care of the trucking exports, and so on, than it would if you shipped
by rail.
Mr. Fairless. Oh, yes.
Acting Chairman King. It is a disadvantage to the company to
ship by trucks?
Mr. Fairless. It is a disadvantage, yes, cost-wise. Then there is a
safety factor. Keep in mind if you take a plant like Gary, of course
we are all reas )nable men and we know that we are not talking about
all of Gary's production shipped by truck, no one is, but imagine if
you had to handle through the Gary works of the Carnegie-Illinois
Steel Corporation, say, 10,000 tons of steel in 24 hours and handle it
by truck. You just have a physical impossibility to deal with, it
just couldn't be done.
Mr. Reynders. Mr. Chairman, I think that they will usually have
to load the material first on a flat car in many instances and then
in another part of the plant they wiU handle that material with the
locomotive freight.
Mr. Fairless. Well, our mills are laid out in line and the steel is
finished on the finishing end and there is space provided there for
bundling and the various preparations for shipment, such as oiling,
wrapping, whatever the case might be.
Mr. Wooden. Some mills
Acting Chairman King. Let him finish his statement.
Mr. Fairless. Pardon me, and here is your railroad track, your
car is provided, it is a continuous operation. You interpose trucks
and you have quite a different problem, unless it is limited to a reason-
ably small percentage of your production. If we took our bar mills
and had to ship the complete production of the Gary bar mills — they
are all laid out, as any of you who have seen them Imow, in a row, all
feeding into a common finishing department and likewise a common
loading department; if the production of those mills running as they
happen to be running now had to be handled by truck we would
nr.PT.Qff> T would sav ohr^■•^^■ 9 r^o-r-" r. ^-op]^ That would be rav s'uess.
14244 CONCENTRATION OF ECONOMIC POWER
Mr. O'CoNNELL. Eefcrring again to the IN. R. A. period, as 1
understood the testimony, the purpose, at least one of the purposes,
of having an arbitrary switching charge and a fixed percentage reduc-
tion or addition, as the case may be, for truck transportation, and so
forth, was to arrive at uniformity in price during that period. That
was the i)ohcy with the N. R. A. philosophy, as I would understand it,
and you indicated that at that time it was a compulsory arrangement.
Mr. Fairless. It was compulsory.
Mr. O'CoNNELL. But these particular elements that we have been
discussing were for the purpose of arriving at uniformity in price.
It is no longer compulsory, but is it not fair to say that to the extent
that these practices exist in the industry today they result in the same
uniformity in price that you tried to get under N. R. A.?
Mr. Fairless. Well, in respect to that one factor in price.
Mr. O'CoNNELL. That is right.
Mr. Fairless. But keep in mind that under the N. I. R. A. it
wasn't just uniformity in respect to the switching charge or the
allowance for trucking, it also went back to the base price.
Mr. O'CoNNELL. So as of today you have a base price, you have a
uniform freight rate book, you have an arbitrary switching charge,
which is generally used in the industry, and you have a 35 percent
addition for truckage, which is ordinarily generally used in the in-
dustry, and those are about all the elements that go to make up the
price, plus the extras which are also uniform in the industry. Is that
not true? All the elements that I have mentioned
Mr. Fairless (interposing). That isn't all, there are many others,
but that is
Mr. O'CoNNELL (interposing). To the extent that the practices
are generally used it would result in the same kind of uniformity of
price that you had in the N. R. A., wouldn't it?
Mr. Fairless. I don't want to be technical, but I am not going to
admit that there is uniformity of the base price — start there, there is
no uniformity of base price in this industry today as compared with
the code.
Mr. O'CoNNELL. As compared with N. R. A.?
Mr. Fairless. Yes; so we have our competition beginning in the
first transaction that you mentioned, base price.
Mr. Ballinger. All these uniformities plus a uniform base price
would bring you out exactly where the N. R. A. was.
Mr. Fairless. Mr. Ballinger, it is my opinion — this is just a steel
man's opinion — that it would be impossible to set up rules and regula-
tions that this industry wouldn't find some way to change and be
highly competitive.
Mr. Wooden. In other words, there would be no danger, in your
opinion, in permitting the industry to get together and make any kind
of regulation and resolution it wanted to because you feel they wouldn't
follow it. Is that right?
Mr. Fairless. Certainly not. I certainly didn't say that and I
certainly don't expect to let that statement stand as coming from me.
That would be illegal. Now if we are operating this industry illegally,
why, prosecute us and put us in jail where we would belong.
Mr. Wooden. As a matter of fact, Mr. Fairless, some mills are
much better located than others or much better equipped for handhng
truck deliveries than others, are they not?
CONCENTRATION OF ECONOMIC POWER 14245
Mr. Fairless. Yes; in respect to markets.
Mr. Wooden. Some of them more or less cater to truck delivery,
do they not?
Mr. Fairless. Cater to it?
Mr. Wooden. Yes.
Mr. Fairless. They might, they might.
Mr. Wooden. When you charge 35 percent of the all-raU rate on
delivery by truck, you have there an addition, have you not, of that
amount to your base price in the form of your mill-net on that trans-
action?
Mr. Fairless. In answer to your question, Judge, the first part of
your question — I would like to answer the entire question — if I were
the owner of a mill where delivery of my product by truck was more
advantageous to me than by rail, I would certainly cater to trucking
delivery and I would sell my goods on a basis that would produce all
the sales for deUvery by truck that I could get.
Mr, Wooden. But my question is, when you charge 35 percent of
the all-rail freight for delivery by truck, that 35 percent goes to
increase or swell your base price by that much, doesn't it?
Mr. Fairless. Less the costs involved.
Mr. Wooden. Yes; but costs are involved in your base price as
well.
Mr. Fairless. Certainly. We can't run our business on the basis
of giving emphasis to everything except the cost. We must consider
costs in running this business.
Mr. Wooden. The purchaser by truck who is charged this 35 per-
cent of the all-rail freight pays you more by that amount than the
rail purchaser who takes rail delivery, doesn't he?
Mr. Fairless. Well, the delivered price is the same.
Mr. Wooden. Yes; but I am talking about what you get. You
get that 35 percent in your mill-net yield, don't you, that you don't
get from the rail purchaser?
Mr. Fairless. No, we don't get it in our mill-net yield because to
the extent that higher costs are involved it is absorbed to that extent.
That is the constant consideration.
Mr. Wooden. Outside of that factor of costs in the loading for
truck delivery. Less your cost of loading for truck delivery that 35
percent goes as an increment to your base price, doesn't it?
Mr. Fairless. Do you want me to say yes? I'll say yes.
Mr. Wooden. Do you have available here price announcements, I
think, of the Carnegie-Illinois Co. in the early summer of 1936 regard-
ing the terms on which products sold for identified structures and
fabricated-in-transit may be sold? Will you produce them?
Mr, Fairless, I believe that is one of the exhibits the Federal
Trade Commission asked for and was sent to you.
Mr. Wooden. Well, I would like to use it here. I will ask you to
produce a copy.
Acting Chairman King. Haven't you a copy?
Mr. Wooden. I have an excerpt from it. I don't have the original.
Acting Chairman King. Do you desu*e to put the excerpt in the
record? I assume there is no dispute as to the text. Put the excerpt
in subject to correction when you get the original copy, if that is
agreeable.
Mr. Wooden. I will pass on.
14246 CONCENTRATION OF ECONOMIC POWER
I submit this document for the record.
Acting Chairman King. It may be received.
(The document referred to was marked "Exhibit No. 2208" and is
included in the appendix on pp. 14437-14441.)
Mr. Wooden. Mr. Fairless, I am showing you a document marked
for identification Exhibit No. 2208. Do you recognize it and accept
it as a copy of the resolution adopted by the Board of Directors with
regard to the use of Freight Tariff No. 1 and known as Regulation
No. 4 of the code?
(Mr. O'Connell assumed the Chair.)
Mr. Fairless. Yes, I accept all these code resolutions on the basis
that I have outlined.
Acting Chairman O'Connell. If you have any more of those you
may just identify them as resolutions of the code and they may be
identOied by Mr. Fairless subject to check if there are errors in them.
FREIGHT RATE COMPILATIONS BY THE IRt)N AND STEEL INSTITUTE
Mr. Wooden. All right. The Institute has continued to keep up
to date, has it not, the freight tariffs which were compiled pursuant
to and referred to in this resolution that I have just called your atten-
tion to?
Mr. Fairless. Well, not pursuant to that resolution. They do
keep up as I have already testified, this so-called freight book.
Mr. Wooden. It does continue to put out freight rates, freight-rate
compilations, showing all-rail freights from various basing points to
destinations, and not only all-rail rates but rail and water rates to
certain portions of the country?
Mr. Fairless. To the best of my knowledge it is an up-to-date
pamphlet, or kept up to date as near as it is reasonably possible to do
so, of all transportation charges and changes, all on the basis of actual,
factual information.
Mr. Wooden. Is that the work of the traffic committee of the
Institute?
Mr. Fairless. I so testified Saturday morning.
Mr. Wooden. Mr. Adams, you said that the Institute freight books
include freight from points that are not basing points for particular
products. Are you sure of that?
Mr. Adams. That was my recollection, Mr. Wooden. I can't say,
I am not positive.
Mr. Wooden. You are not real sure?
Mr. Adams. No.
Mr. Wooden. As a matter of fact, don't the Institute compilations
show the rates only from basing points on particular products?
Mr. Adams. I said I am not quite sure of that point. I know that
the freight rate book does show the freight rates from basing points to
innumerable destinations.
Mr. Wooden. Why did you testify the other day so readily and
volunteer that it includes freight rates from nonbasing points?
Mr. Adams. That was my opinion, Mr. Wooden.
Mr. Wooden. Do you want to stand on it now?
Mr. Adams. I will say I don't know definitely regarding that one
point.
CONCENTRATION OF ECONOMIC POWER 14247
Mr. Wooden. Don't you know as a matter of fact that the Institute
freight books show freight rates only from basing points?
Mr. Adams. No, I don't know that definitely either. The Institute
freight rate book is the record, as we have testified, of the freight
rates which are public property and obtained from railroads. We
don't always use that freight rate book because you might say that
is not up to date, it takes time to get the rates back from the Institute.
Mr. Wooden. As a matter of fact, are there not a lot of producing
points that are not shown in the Institute freight books?
Mr. Adams. Well, again you are asking me a question, Mr. Wooden,
that I thought I answered. I can't say specifically just how many
basing points are shown in the freight rate book.
Mr. Fairless. Obviously Mr. Adams and myself wouldn't be as
familiar with the details of that book as our traffic people.
Acting Chairman O'Connell. You were trying to develop from
Mr. Adams if he knew whether the freight hook as compiled included
freight from points other than basing points and apparently neither
of you people are in position to say dogmatically whether that is so
or not.
Mr. Adams. I don't think we as individuals ever refer to the
freight rate book because our traffic department always supplies
us with that information as to a specific rate on a specific transaction.
Acting Chairman O'Connell. I think the question is one you
might very well have known the answer to inasmuch as it is a com-
pilation by the Institute, you are familiar with the operations of the
Institute generally, and I think the question is one you might have
known the answer to, but proceed, Mr. Wooden.
Mr. Fairless. Mr. Chairman, I don't imagine that I. have seen
the freight book more than two or three times in its existence. I
don't use it.
Acting Chairman O'Connell. But the general question as to what
would be mcluded in the rate book might very well come to your
attention as a member of the Institute, I take it.
Mr. Fairless. Not necessarily. When the book came into being
I was not a director of the Institute. Our traffic department would
be able to answer any question pertaining to it.
Mr. Wooden. I submit these tables for the record.
Acting Chairman O'Connell. They may be admitted.
(The data referred to were marked "Exhibit No. 2209" and are
included in the appendix on pp. 14442-14443.)
Mr. Wooden. Mr. Adams, wiU you look at the sheets marked
"Exhibit 2209" and which are sample sheets or some sheets taken
from the freight rate book of the Institute? Do you recognize them
as being in the form and substance of what the Institute puts out?
Mr. Adams. I think that is correct, Mr. Wooden.
Mr. Wooden. Will you look at those sheets and tell us whether
there are not a .number of producing points in the shipping area of
the destinations shown there that are not shown as the place from
which the rates are calculated?
Mr. Adams. Well, in glancing quickly through this list of towns
it is apparent that most of them are producing points and basing
points.
Mr. Wooden. I beg your pardon?
14248 CONCENTRATION OF ECONOMIC POWER
Mr. Adams. Iu glancing quickly through this list of towns I woula
say that most of them are basing points and producing points, Mr.
Wooden. That is the list across the top of this page citing Chicago,
Gary, Cleveland, Detroit, Lorain.
Mr. Wooden. Are there not a number of shipping points in the
shipping area, so to speak, of Connecticut, to which these sheets relate
that are not shown on those sheets, a number of places of production
and shipment?
Mr. Adams. Do you mean a number of points where steel is not
produced?
Mr. Wooden. Wliere it is produced and yet not shown on those
sheets.
Mr. Adams. Well, I don't know that I can answer that question
specifically because I couldn't tell you just how many locations there
are in Connecticut where various grades of products
Mr. Wooden (interposing). I am not speaking about shipments
in Connecticut but to Connecticut which those sheets give the rates
for. I am talking about places of production between Chicago and
running easward that are not shown on those sheets and yet which
produce steel for shipment into Connecticut.
Mr. Adams. Yes, there would be some such cases.
Mr. Wooden. There are quite a number of them in fact, are there
not?
Mr. Adams. I don't know honestly how many there are.
Mr. Wooden. You know the location of plants and the physical
set-up and distribution of the steel plants in the country, don't you?
Mr. Adams. Yes; generally speaking.
Mr. Wooden. Then tell us some plants between Chicago and the
east that are not shown as shipping points on those sheets.
Mr. Adams. Well, speaking for the Steel Corporation I don't see
Allentown listed there. That is a plant where we produce plain wire.
It is not a basing point plant.
Mr. Wooden. It bases on Pittsbm-gh, doesn't it?
Mr. Adams. The nearest basing point on plain wire for shipment
to certain points in the metropolitan area is
Mr. Wooden (interposing) . It bases on Pittsburgh?
Mr. Adams. The nearest basing point is Pittsburgh there. Now
let me explain that, please, Mr. Wooden. That plant is a small
plant, it manufactures plain wire only. The Form B returns for
February showed that that plant produced roughly 700 tons, only
700 tons during the month of February 1939.
Mr. Wooden. Doesn't it produce naUs also?
Mr. Adams, I have it listed here as wire products only. Of that
700 tons, 650 tons were shipped abroad for export, 54 tons went into
the metropolitan area. That is not a basing point mill.
Mr. Wooden. I want to know some of the competitive mills east
of Chicago that ship into Connecticut and whose locations are not
shown as shipping points on these Institute freight sheets.
Mr. Adams. Have you any in mind, Mr. Wooden?
Mr. Wooden. You know the industry. You have only about 12
or 15 shipping points there; there are many more places of production
east of Chicago for shipment into Connecticut, are there not?
Mr. Adams. Yes.
CONCENTRATION OF ECONOMIC POWER 14249
Mr. Wooden. Can't you give us the names of some of them and
the location of their plants?
Mr. Adams. Well, you might say Niles, Ohio, Niles Rolling Mills.
I don't see Niles listed here. That is a point of production, Niles
Rolling Mill Co. manufacturing sheets.
Mr. Wooden. How about Middletown? Is that there?
Mr. Adams. That is a basing point, I don't see it listed here.
Mr. Wooden. For some products?
Mr. Adams, On sheets.
Mr. Wooden. What about Indianapolis? Is Indianapolis on
there? Indianapolis is a producing point, isn't it?
Mr. Adams. Not a producing point for any of our mills.
Mr. Wooden. Isn't it a producing point for Continental Steel Cor-
poration?
Mr. Adams. Yes.
Mr. Wooden. The Continental Steel Corporation couldn't use
that sheet for getting the freight rate from its own plant at Kokomo.
could it? Of course, it also has an IndianapoUs plant.
Mr. Adams. No; it couldn't use this sheet for that purpose,
Mr. Wooden. It couldn't use that sheet for any purpose except to
figure the delivered price according to the basing points that are shown
on that sheet, could it?
Mr. Adams. Well, it could use this sheet to ascertain the published
tariff from one point to a destination.
Mr. Wooden. From points at which it has no shipments to make.
Mr. Adams. That is correct. Of course, we have testified that we
don't use the freight book exclusively ourselves.
Actmg Chairman O'Connell. Are there freight rates, shown for
other than basing points in that freight-rate book, assuming that the
industry uses the basing-point system?
Mr. Fairless. Not for the general use of the steel industry. Of
course, there isn't any mystery about the actual freight rates from
any 'producing point. It is available, I would imagine; I know it is
in our traffic departments, various traffic departments; I assume it is
in the offices of other companies.
Acting Chairman O'Connell. But this book to be useful in con-
nection with a basing-point system would need no rates other than
rates for basing points?
Mr. Fairless. It is an instrument that is very useful in our present
method of merchandising steel products. Now it is particularly use-
ful to smaller companies, as I testified before.
Mr. Wooden. Providing they want to quote on the basis of basing
point plus freight. We just had some cases here where the shipping
points of some companies were not included and could serve no other
purpose.
Acting Chairman O'Connell. You were trjdng to develop whether
or not there were freight rates for points other than basing points
and if, as I understand it, this freight-rate book is intended to im-
plement the basing-point system for prices it seemed to me reasonable
to conclude that there were no freight rates shown in the book other
than freight rates from basing points.
Mr. Wooden. I wouldn't want to say necessarily that there is
nothing l)ut basing-point places of shipment shown. That is pos-
14250 CONCENTRATION OF ECONOMIC POWER
sibly too wide and sweeping an assertion, but there are many places
of production and shipment that are not shown.
Mr. Chairman, I would like to read Jor the record at this time a
portion of the testimony of W. A. Il-vin, president of the United
States Steel Corporation, in 1936, from his testimony before the Sen-
ate Committee on Interstate Commerce, page 596 of the printed
record of those hearings on Senate Bill 4055. This question was
asked:
The Chairman. Do not representatives of your companies participate in
meetings with other steel companies at which market conditions and prices are
discussed?
Mr. Irvin. We talk of market conditions. That is one of the functions of the
Institute when we get together. We talk of market conditions, what the possibil-
ities are, and the prices in various localities, foreign competition, how much is coming
in at this port or that port, and at what price it is coming in; at which price foreign
materials are being sold at the various seaports, and anything that would naturally
arise in connection with the steel industry, and other industries as well.
I also would like to read from a portion of his testimony on the same
occasion from page 595 of that same document; being questioned as
to how the base prices were determined :
Mr. Irvin. I would say we generally make the prices.
The Chairman. You generally make the prices?
Mr. Irvin. Yes, sir. We generally make the prices, unless some of the other
members of the industry think that that price may be too high, and they make
the price.
The Chairman. You lead off, then, with a price charg'ed, either up or down, at
Gary. Is that correct?
Mr. Irvin Yes.
The Chai tMAN. I notice the price on March 19 at Chicago for soft steel bars
was $1.90, ^ hile at Pittsburgh the price was $1.85.
Mr. Irvin. Yes.
The Chairman. When the Iron Age printed that announcement, did they ask
Bethlehem or did they ask you, or from what company did they receive that
information?
Mr. Irvin. I do not think I can answer that.
The Chairman. At any rate, you were the one that fixed it?
Mr. Irvin. We fixed our own price at $1.90 and $1.85'; we always notify the
trade papers; I think our commercial people always notify the trade papers and
others interested as to what our prices are.
The Chairman. Then the rest of them follow that?
Mr. Irvin. I think they do. That is, I say they do generally. They may
quote the same prices, but maybe they need some business and make a better
price. We do not always know that until it is over.
The Chairman. Those are the exceptions, are they not?
Mr. Irvin. Yes.
The Chairman. Those are looked upon as the price-cutters in the industry?
Mr. Irvin. Yes; and we have them with us always.
The Chairman. They represent a comparativley small percentage, do they not?
Mr. Irvin. It depends. Senator, on business conditions. I would say that
when we are going at 30 or 40 per cent, we have more of them with us than when
we are going at 60 or 70 per cent.
And also from page 607 of that same document.
Acting Chairman O'Connell. Do you intend to examine Mr.
Fairless about this?
Mr. Wooden. No; I am putting it in at this time, Mr. Chairman,
because of Mr. Fairless' testimony that representatives of his company
and subsidiaries did not discuss prices with competitors.
Acting Chairman O'Connell. When was that testimony given?
Mr. Wooden. Saturday morning, I believe.
Acting Chairman O'Connell. I mean that which you are reading.
Mr. Wooden. 1936.
CONCIlNTtlATlON OF ECONOMIC POWER 14251
Acting Chairman O'Connell. What was your position at that
time, Mr. Fairless?
Mr. Wooden. He wasn't with the Corporation.
Mr, Fairless. In 1936? Oh yes; I was with the Corporation.
Mr. Wooden. What was your position?
Mr. Fairless. In respect to what?
Mr. Wooden. In the company, your ofl&cial position.
Mr. Fairless. President of Carnegie-Illinois Steel Corporation.
Mr. Wooden. That is the most important subsidiary of the United
States Steel Corporation, isn't it?
Mr. Fairless. Yes; it is the largest.
Mr. Wooden. The testimony of Mr. Irvin was given in March or
April 1936.
Mr. Fairless. Are you asking me a question? I haven't the
question.
Acting Chairman O'CoNNEtL. I don't believe he has asked a
question.
Mr. Wooden. On page 607 of that same document, Mr, Irvin
testified with regard to concessions:
I think by and large that a very large percentage of the steel or other commodi-
ties that are sold in that way are sold on a fair price basis to most of the users.
The customers who are apt to get concessions are those having larger orders to
place, and the ones who utilize steel in their own production.
On page 592 of the same document:
The Chairman. You spoke of these prices. Let me ask you this: If they
followed the system or the method of using the base price plus the all-rail freight,
then they would all sell at the same, price, would they not?
Mr. Irvin. If everyone would use that, without deviation, it would be the
same. They would all be the same.
The Chairman. When they do not use that system, and there is a lowering,
the man that does it is looked upon as a price cutter, is he not?
Mr. Irvin. Yes, sir.
Mr. Wooden. Will dne of you gentlemen representing the Corpo-
ration here identify these documents?
Mr. Fairless. We identify them.
Mr. Wooden. As being the tabulations underlying the statement
made in "Exhibit No. 1418" regarding the result of an examination
of records on bids to the Federal Government?
Mr. Fairless. That is correct.
Mr. Wooden. Mr. Chairman, I offer for the record these two
volumes of tabulations on Government Tonnage Records, just identi-
fied by the witness.
Acting Chairman O'Connell. They may be admitted.
Mr. Wooden. Mr. Chairman, it will be necessary through another
witness to go into these documents, but I don't know that it is nec-
essary while the present witnessess are here. We have analyzed the
showing rilade in those exhibits and we propose to show that the
statement made in "Exhibit No. 1418" is quite wide of the facts,
based upon their own underlying data which they have produced.
Acting Chairman O'Connell. I don't think it is necessary to mcke
any comment on that at this time. You intend to produce a witness
later who will analyze the material underlying this material?
Mr. Wooden. That is right.
Acting Chairman O'Connell. I am a little at a loss.
124491 -41 — |.f. 27 — n
14252 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. The statement in "Exhibit No. 1418," to which I
refer, reads:
Identical quotations probably occur more frequently in sealed bids to govern-
mental bodies than in private sales of steel products. There are two reasons for
this: (1) The sealed bid practice required by statute prevents public agencies
from bargaining individually with producers as is usually done by private buyers;
(2) Sealed bids are eventually pubhshed and although a producer may be willing
to quote a lower price on a private sale he is reluctant to do so when he knows
that such lower price will soon be published and possibly may have to be made
applicable to every similar ton of steel sold by him in the future. Nevertheless,
in spite of this tendency, identical bids on governmental contracts are by no means
the general rule. An examination of records covering Federal Government awards
for steel products made at Washington, D. C, during 1938 and the first quarter
of 1939, indicates that such awards aggregated approximately $10,500,000, of
which about 80 per cent in value went to the lowest bidder and only about l6.5
per cent in value by lot on account of identical bids. The balance of 3.5 per
cent was awarded on a basis other than of price.
Acting Chauman O'Connell. As I understand, it is yoitr desire to
have this testimony that you have just referred to at a later time so
that we may complete our examination of Mr. Fairless as soon as
possible?'
Mr. Wooden. Yes; that is right. I want to get through.
Mr. Fairless. This is our record and we let it stand.
Acting Chairman O'Connell. These are the documents just identi-
fied which are the underlying data also from your records, are they not?
Mr. Fairless. We identified these records.
Acting Chairman O'Connell. As I understand it, Mr. ^Wooden is
going to have another witness make an analysis of that data.
Mr. Fairless. These were prepared by us and submitted to Judge
Wooden at his request.
Mr. Wooden. The Corporation takes the position, does it not, Mr.
Fairless, in "Exhibit No. 1418," that the basing-point system was a
natural- result of basic economic conditions and that it evolved over a
long period of time to meet th6 peculiar characteristics of the industry?
Mr. Fairless. I don't recall just the exact wording but I assume
that you are quoting from the pamphlet.
Mr. Wooden. In substance, yes. I refer to the foreword of "Ex-
«hibit No. 1418" and page 26 of "Exhibit No. 1410."' I believe you
said the other day that as far as you were concerned you didn't know
how the system originated. Is that correct?
Mr. Fairless. Yes, or when. I understand it has been in effect
about 50 years.
Mr. Wooden. Do you agree that the same principle in effect, or the
basing-point system in principle has been in effect that length of time?
Mr. Fairless. It is a simple statement that the basing-point system
or rather the multiple-basing-point system is in effect, it began and
grew with the industry, it developed with the industry, I believe.
Mr. Wooden. Have you gone into the history of it? Have you
made any study of the history of it?
Mr. Fairless. With respect to what?
Mr. Wooden. As to how the basing-point system originated?
Mr. Fairless. Well, I have read a lot about the basing point,
naturally.
Mr. Wooden. Did you ever read the testimony in the Pittsburgh
Plus Case before the Federal Trade Commission?
' Both exhibits arc included in Hearings, Part 2G.
CONCENTRATION OF ECONOMIC POWER 14253
Mr. Fairless. Not in its complete form.
Mr. Wooden. In what form did you read it?
Mr. Fairless. I don't know. If you want to discuss the Pitts-
burgh Plus Case — I am not a lawyer, it seems to me we are getting on
legal groimds when you start discussing the Pittsburgh Plus Case.
Mr. Wooden. No; I merely want to know whether the Corporation
in making the statements that it did about the natural economic origin
of the basing point system took into account the evidence in the
Pittsburgh Plus Case or the findings of fact made by the Federal Trade
Commission in that case.
Mr. Fairless. Here is a footnote on page 15, section B, entitled
"Historical Material." The footnote reads
Mr. Wooden. My question was not that.
Mr. Fairless. I believe it is.
Material in this section was largely drawn from the Trial Examiner's report
on the facts in the Pittsburgh Plus Case before the Federal Trade Commission
of 1924.
Mr. Wooden. Did you take into account the findings of fact of
the Federal Trade Commission itself as distinguished from the trial
examiner's findings?
Mr. Fairless. Judge Wooden, I did not prepare this pamphlet.
As I explained to you, in your original question, the man who was
largely responsible for its preparation is not here. I couldn't under-
take to discuss intelligently before this committee every statemeijt
made in this pamphlet.
Mr. Ballinger. Well, before the pamphlet was pubHshed you
undoubtedly went over it with the expert who prepared it and he
rather convinced you that it was all .right, didn't he; that is, he
showed you all of his evidence in making those statements.
Mr. Fairless. I went over it not with the man himself but with
Mr. Olds and other members of our special group. This is fully
documented here.
Mr. Wooden. Did it come to your attention that the Federal
Trade Commission found in its findings of fact in the Pittsburgh Plus
Case that the system originated in an early form among the beam
producers away back about 1880 and that it was for the purpose of
fixing identical delivered prices?
Mr. Fairless. No, sir.
Mr. Wooden. Was it brought to your attention that the findings
of fact of the Commission were to the effect that until after 1900 the
basing-point system was not in effect except sporadically and on a
very limited number of products?
Mr. Fairless. I can't discuss that.
Mr. Wooden. WeU, the Corporation says this is a natural economic
evolution. I am directing your attention and asking you if you' have
considered some of these other things that don't quite square with that
contention.
Mr. Fairless. WeU, to make our position perfectly clear, we have
submitted for the record this pamphlet having to do with this impor-
tant subject and that is our testimony. This particular Pittsburgh
Plus Case you refer to I understand is under appeal at the moment;
in other words, it is ill the counts, so I am not a lawyer and I couldn't
go into the legal phases.
14254 CONOEN'I'RATION OF ECONOMIC POWER
Mr. Wooden. I am merely discussing matters of fact. Isn't it a
fact that until the N. R. A. code put it into effect that there was no
basing-point system on pig iron?
Mr. Fairless. Pig iron, Judge, has in my experience
Mr. Wooden (interposing). Can't you answer my question?
Mr. Fairless. I am going to answer it, but some of these questions
can't be answered by "yes" or "no."
Mr. Wooden. That can.
Mr. Fairless. By me it can't, so I have to answer the question as
I know it and understand it. It has been my experience in the steel
industry that generally speaking pig iron has been sold f. o. b, pro-
ducing furnace, generally speaking.
Mr. Wooden. Until when?
Mr. Fairless. I said generally speaking, that is forever as far as I
am concerned.
Mr. Wooden. Isn't it a fact that pig iron was put under the basing-
point system at the time the N. R. A. code went into effect?
Mr. Fairless. Well, the merchandising of pig iron was put under
the Steel Code it was a product under the Steel Code.
Mr. WooDEiN. Weren't the various producing points for pig iron
specified as basing points under the code?
Mr. Fairless. They were for iron and steel.
Mr. Wooden. And prior to that time pig iron had been priced and
sold f. o. b. furnace, hadn't it?
Mr. Fairless. Not entirely, but generally speaking; not entirely,
I bought a lot of pig iron that wasn't purchased on the basis o' the
producing furnace, but rather the producing area.
Mr. Wooden. You have a basing point on pig iron at Provo, you
say?
Mr. Fairless. Do we have?
Mr. Wooden. Yes.
Mr. Fairless. I believe we haye. We sell very little iron, as you
know.
Mr. Wooden. But you do sell some?
Mr. Fairless. We sell some. We consume most of our iron.
Mr, Wooden. You sell some from Provo?
Mr. Fairless. Some; a small percentage of the production.
Mr. Wooden. And some other points from which you sell pig
iron?
Mr. Fairless. We sell pig iron in Cleveland, Pittsburgh, and
Birmingham.
Mr. Wooden. I thought you testified Saturday that you did not
sell any pig iron.
Mr. Fairless. I don't think I gave any such testimony.
Mr. Wooden. All right, the record will show.
Acting Chairman O'Connell. He diti not testify to that? Did hel
Mr. Wooden. It was my understanding.
Acting Chairman O'Connell. My recollection was
Mr. Wooden. I asked about pig iron differential and he said, "I
can't tell because we don't sell it."
Mr. Fairless. I said the reason I could not answer your question
was because any pig iron we sold in the South was from our Southern
production, and in the North from our Northern production; there-
CONCENTRATION OF ECONOMIC POWER 14255
fore, if there was a differential for Southern iron deHvery in the North
it didn't register with me; that was my testimony.
Mr. Wooden. The record will show.
COMPARISON OF PACIFIC COAST AND BIRMINGHAM PRICES
Mr. Wooden. Is it not a fact that the price of bars on the Pacific
coast at the Pacific coast ports is equivalent to the Birmingham base
price on bars, plus the freight out there?
Mr. Adams. I cannot say exactly; I don't think, it is.
A^r. Wooden, I said the freight; I did not say all-rail freight, but
I said the freight from Birmingham by water.
Mr. Fairless. Yes; by water. It is an arbitrary delivered price on
the Pacific coast ports; whether it represents the all-water, published
rate from Birmingham or not, I cannot answer.
Mr. Adams. Here appears the actual freight.
Acting Chairman O'Connell. Did not we have testimony about
that in November? My recollection was that the freight on these
items delivered on the West coast was in amomit the Birmingham
price plus the amount which was slightly less than that.
Mr. Wooden. On different products. In some cases it was less and
others it was slightly more.
Actmg Chairman O'Connell. But it varied from the Birmingham
price; that is in .he record.
Mr. Adams. Here are the actual figures. The rail and ocean rate
from Birmingham to San Francisco is 69 cents per hundred pounds.
Our San Francisco basing point price is 50 cents higher than our an-
nounced published Birmingham price.
Mr. Wooden. Fifty cents higher?
Mr. Adams. Yes, sir. So the actual rail and ocean rate from Bir-
mmgham is 19 cents per hundred pounds higher than the rate or the
transportation cost that we use in arriving at our delivered prices on
the Pacific coast.
Mr. Wooden. Is not the Pacific port price on bars based on Bir-
mingham, plus, rather than on Pittsburgh?
Mr. Adams. It is not based on either, from that standpoint. We
announce a price on the Pacific coast covering several ports. It has,
you might say, a relationship to our Birmingham prices or Pittsburgh
prices, but it is a relationship which I define here insofar as Birming-
ham is concerned as being 19 cents lower than the actual rail and ocean
rate from Birmingham to the Pacific coast.
Now we have done that, of course, because of foreign competition.
We have the same problem at the Gulf coast ports.
Mr. Wooden. You add a considerable amount of freight, do you
not, from Birmingham in order to arrive at your Pacific coast port
base price?
Mr. Adams. No, sir; I don't think I can say that, because we an-
nounce delivered prices at certain points on the Pacific coast and de-
livered prices at cer.tam points on the Gulf coast. Now the prices
that we announce are less than the base prices plus the actual trans-
portation costs, and the reason they are less is l)ecause of this fereign
competition.
Mr. Wooden. Are they not built up witli reference to the eastern
base prices, plus transportation?
14256 CONCENTRATION OF ECONOMIC POWER
Mr. Adams. I have just cited an example, Judge Wooden, and I
don't know how you can say that you arrive at 50 cents as a transpor-
tation cost when it is actually part of a published base price and the
actual transportation cost is 69 cents.
Mr. Wooden. On some products it is more than the actual trans-
portation cost from the East, is it not?
Mr. Adams. I don't know of any. If that is so I would like to
know about it.
Mr. Fairless. It could not be, Judge.
Mr. Wooden. Well, you produce bars on the Pacific coast, do you
not?
Mr. Fairless. Yes, sir.
Mr. Wooden. And you have in your Pacific coast base price an
element that is pretty close to the freight or transportation cost from
the eastern producmg points, do you not?
Mr. Fairless. It is less than the actual transportation cost, Judge
Wooden, but our assembly costs of course, on the West coast, that is
the actual transportation cost involved in assembling our raw materials
on the West coast, is higher than it is on the East coast, and of course
the demand on the West coast is less than it is in the East.
So you can't develop economies from the standpoint of having a
large, completely integrated plant on the West coast, and when I say
integrated I moan a plant which would produce all of the products
that are produced in some of the large integrated plants in the eastern
part of the country.
Mr. Wooden. Did there come to your attention in connection with
your statement that the basing point system evolved out of the natural
economic conditions — did there come to your attention the findings
of the Federal Trade Commission to the effect that the basing pomt
system was not applied to the sale of tin plate until 1903?
Mr. Fairless. I am not familiar with it.
Mr. Wooden. That did not come to your attention? Did it come
to your attention
Mr. Fairless (interposhig). I would imagine there were very few
producers of tin plate in the United States in 1903.
Mr. Wooden. Did it come to your attention that prior to 1903 the
corporation subsidiaries sold tin plate f. o. b. mill and not on a basing
point system?
Mr. Fairless. The corporation was formed in 1901, so you are
speakhig about a 2-year period there that I am not familiar with.
Mr. Wooden. Did it come to your attention that the Conxmis-
sion's findings of .fact showed that the Pittsburgh plus system was
adopted in 1900 by the National Tube Co. and that its competitors
also adopted it about that time?
Mr. Fairless. I am not familiar with that historic review.
Mr. Wooden. Did it come to your attention that the Commission
found that plate and structural shape producers met and agreed upon
the Pittsburgh plus system in September 1903 and 1904; that the
large wire producers, including one of your corporation subsidiaries,
agreed on the Pittsburgh plus system as a method of maintaining
uniform prices?
Mr. Fairless. One answer, I think, would cover all of these (|ues-
tions. I am not familiar with this particular historical review that
you are giving.
CONCENTIIATION OF ECONOMIC TOWER 14257
Mr. Wooden. As a matter of fact, so far as you are concerned, you
don't know whether the basing point system originated as a natural
result of economic conditions or just how it originated, do you?
Mr. Fairless. I am very confident that its development was due
to the economic development of the United States.
Acting Chairman O'Connell. We will recess now until 2 o'clock.
(Whereupon at 12:35 o'clock the committee recessed until 2 p. m.)
AFTERNOON SESSION
The hearing was resumed at 2:20 p. m. upon expiration of the recess.
Acting Chairman O'Connell. The committee will be in order. All
right, Mr. Wooden.
TESTIMONY OF BENJAMIN F. FAIRLESS, PRESIDENT, UNITED
STATES STEEL CORPORATION, NEW YORK CITY, AND AVERY
C. ADAMS, VICE PRESIDENT, UNITED STATES STEEL CORPO-
RATION OF DELAWARE, PITTSBURGH— Resumed
Mr. Wooden. I was asking this morning for a copy of the Carnegie-
Illinois Steel Corporation price announcement of June 4, 1936, cover-
ing concrete reinforcing bars, and I believe it was suggested that if the
excerpt which I have here were presented, it might be received and
conceded to be an authentic statement of a price announcement of
that corporation.
Acting Chairman O'Connell. I think it can be received on that
basis.
Mr. Olds.^ I will be glad to send Mr. Wooden one tomorrow when
I get back to New York.
Acting Chairman O'Connell. Let's introduce the excerpt now, and
if it is inaccurate we can correct it. I assume it is accurate."
Mr. Wooden. I have a copy of the excerpt.
Do you recognize that statement as one that appeared in your
price announcement of Carnegie-Illinois?
Mr. Adams. I don't recognize it; no.
Mr. Fairless. I don't recognize it as such, but I am willing to
assume that it was a part of the announcement.
Acting Chairman O'Connell. Is it satisfactory to you that we
proceed on that assumption, and we will have a complete copy of the
price announcement put in the record tomorrow? I don't know what
line of questions Mr. Wooden means to pursue.
Mr. Olds. I don't know whether I can get it here tomorrow. I w ill
mail it tomorrow when I get back to New York.
Mr. Fairless. On that assumption, I am willing to proceed.
Mr. Wooden. Now this relates to the method of making dehvered
prices on products sold for fabrication for an identified structure, does
it not, Mr. Fairless?
Mr. Fairless. Apparently ; yes.
Mr. Wooden. And provides that the place of delivery shall be con-
sidered to be the railroad station nearest to the place where the struc-
ture is to be assembled or erected; that is correct, isn't it?
Mr. Fairless. It so states.
•Irving S. Gids, counsel, U. S. Steel Corpoialion.
2 Admitted infra, p. 14259, as "Exhit)it No. 22)2"; included in the appendix on p. Hr^rtfi.
14258 CONCENTRATION OF ECONOMIC I'OWEll
Mr. Wooden. The alteriiq.tive to that would be to make the price
effective at the point of fabrication, not at the point of the erection
of the structure, or to make the price f. o. b. mill?
Mr. Fairless. The reason for the announcementfis that many times
these structures are not located on any railroad siding, and also that
the fabricatioQ takes place at that point. I really have to explain
what is involved.
Mr. Wooden. Can't you answer my question before you proceed
to give the reasons for the practice?
Mr. Fairless. I can^t answer just as you put it; there may be other
alternatives; you have named two possible alternatives; there might be
others.
Mr. Wooden. Can you name any others?
Mr, Fairless. Offhand, no- 1 cannot.
Mr. Wooden. This practice originated under the N. R. A. Code,
did it not?
Mr. Fairless. I can't answer that specifically. In our method of
selling our products, which is at a delivered price, we have to have
some basis for calculating that delivered price, and we are simply
stating our method in respect to concre<te bars for fabrication.
Mr. Wooden. What was it before the code? Wliat was the prac-
tice in quoting delivered prices for use in identified structures?
Mr. Fairless. In the United States Steel Corporation?
Mr. Wooden. As you knew it in the industry.
Mr. Fairless. Well, prior to — of course I was not with U. S. Steel
Corporation prior to the code, or during the code. I believe that
generally speaking the company that I was with, Republic Steel Cor-
poration, while we were not. large factors at that time in concrete
bars, I believe as I recall our policy that it wns to the best of 'our
ability to quote delivered prices.
Mr. Wooden. But what was its policy with regard to quoting de-
livered prices for products sold for fabrication in an identified struc-
ture? Was it the place of the erection or the place of the fabrication?
Mr. Fairless. Well, the Republic Steel Corporation was not a factor
in the so-called identified structures business because it was not
engaged in fabricated structural business. That company sold its
concrete bars largely tlu-ough jobbers.
Mr. Wooden. Well, you were chairman of the committee on com-
mercial matters that formulated many of these resolutions during the
code period, were you not?
Mr. Fairless. I have so testified.
Mr. Wooden. And can't you tell us then whether or not, or what
the practice was prior to the code with reference to quoting prices
on an identified structure?
Mr. Fairless. No, I cannot. I would say that there was no single
method.
Mr. Wooden. Some companies did one way and some another?
Mr. Fairless. That would be my judgment; yes, sir.
Mr. Wooden. And this proviso to which we are referring in exhibit
2212 standardized that practice, did it not?
Mr. Fairless. Under the code?
Mr. Wooden. Yes.
Mr. Fairless. Yes, sir.
CONCENTEATriON OF ECONOMIC POWEJl 14259
Mr. Wooden. Now here in 1936 Camegie-Illinois was still carrying
on that method of quoting prices on products sold for fabrication for
an identified structure; that is correct, is it not?
Mr. Fairless. It so states there.
Mr. Wooden. Don't you know that is correct, of your own knowl-
edge?
Mr. Fairless. In 1936?
Mr. Wooden. Yes.
Mr. Fairless. Well, it may or may not be; I don't believe it was
true in all cases.
Mr. Wooden. Wliat about it, Mr. Adams? Wliat do you know
about it?
Mr. Adams. I don't know that it was true in all cases. I presume
it was done in certain cases. I know the practice today is to quote
on the basis of the delivered price at the point of fabrication.
Mr. Wooden. How long has that been the practice?
Mr. Adajms. I can't answer that as to the exact date.
Mr. Wooden. Can't you tell us approximately?
Mr. Adams. No, I can't tell you approximately.
Mr. Wooden. Has it been 6 months or how long? A year or what?
Mr, Adams. You are asking me to guess now and I don't want to
make a guess because I don't know the exact date of the change in
that practice.
Mr. Wooden. Well, wUl you ascertain the date and report?
Mr. Adams. Certainly.
Mr. Wooden. I don't believe, Mr. Chairman, that I offered this
exhibit. I will do so now.
Acting Chairman O'Connell. It will be admitted.
(The excerpt from the price announcement referred to was marked
"Exhibit No. 2212" and is included in the appendix on p. 14506.)
Acting Chairman O'Connell. Let me see if I understand this.
As I understand it, in 1936 the practice was adopted or continued by
your company of quoting delivered prices on steel for identified struc-
tures on a basis of the location of the structure itself, but at the present
time you quote on that type of material f. o. b. point of fabrication?
Mr. Adams. Delivered price at the point of fabrication, yes, sir.
Acting Chairman O'Connell. But you don't know when after
1936 the practice was changed?
Mr. Adams. No, sir, and I don't know because I was manager of
sales in the sheet division and we didn't have that problem in the
sheet end of our business at that time.
Mr. Fairless. We will develop the definite date.
Mr. Wooden. Can you tell us what the practice is with regard to
Detroit delivery for hot rolled strip, as to how the basing point value
is determined?
PRICES IN THE DETROIT AREA
Mr. Adams. There is a company located in Detroit, Great Lakes
Steel Corporation, which is part of National Steel, and they publish a
price at Detroit which at the present time happens to be $2 a ton
above our published price at our points of production, where we make
strip, which ,'iTe at Pittsburgh and Gary.
14260 CONCENTKATION OF ECONOMIC POWER
Mr. Wooden. Isn't the basing point value for Detroit delivery on
hot rolled strip deterniLned by deducting 20 cents a hundred pounds,
which is $2 a ton from the delivered price?
Mr. Fairless. Twenty cents a hundred pounds is $4 a ton.
Mr. Adams. To get at that particular question, the actual freight
rate from Pittsburgh to Detroit is 29 cents. From Gary to Detroit is
28 cents, and the price of Great Lakes, published, is 10 cents higher
tha;n our Pittsburgh and Gary prices, so if we were making that ship-
ment, making a shipment into the Detroit area from our Gary mill,
we would have to reduce our delivered price to an extent equal to that
published in Detroit, which in that case would be $3.60 a ton.
Mr. Wooden. You mean you would have to do that in order to
make your Detroit delivered price the same as the Great Lakes?
Mr. Adams. We would have to reduce our price at least to that
extent if we were seriously interested in securing business in the
Detroit area. It doesn't follow that that delivered price has not been
reduced further in a great many cases.
Mr. W^ooden. But in doing that you would be seeking to make
your delivered price the same as the delivered price at Detroit of the
Great Lakes company?
Mr. Adams. No; that would not be our primary objective. Our
primary objective would be to
Mr. Wooden (interposing). That would do it, wouldn't it?
Mr. Adams. Would be to get the business. If we reduced it just
to that extent our prices would be equal to those of Great Lakes?
Mr. Wooden. That is what you do, isn't it?
Mr. Adams. We do that and we do other things, Judge Wooden;
as you know, we have already submitted for the record figures showing
that our average reaUzed prices are at a level below our published base
prices.
Mr. Wooden. But your average realized prices have, no relation to
the delivered prices, that is are not the same as 5'Our delivered prices
at all, are they?
Mr. Adams. No, sir; because we have transportation cost involved.
Mr. Wooden. You get a different transportation cost from each
delivered price, do you not, each destination?
Mr. Adams. Yes
Mr. Wooden. So you get a varying mill-net dependmg on the
destination to which you quote and ship.
Mr. Adams. Our delivered prices iaclude, of course, our transporta-
tion costs. We have to change our delivered prices to various levels
in order to maintain our position from the standpoint of competition.
Mr. Wooden. You mean by that, do you not, making your de-
livered price the same as the delivered price of your competitors?
Mr. Adams. No; I don't mean that. Judge Wooden. I have tried
lo explam that
Mr. Wooden (interposing). Well, you mean that by being com-
petitive, do you not?
Mr. Adams, if we are seriously interested in a piece of business at
the point of delivery we have to quote prices or a price level which is
equal to or better than that of our competitors. Now when you
break it right down mto that broad question you have to take a
specific case because a good many times our prices will be lower at the
point of delivery than those quoted by our competitors.
CONCENTRATION OF ECONOMIC POWEll 14261
Mr. Wooden, Do you make secret cuts in your published prices?
Mr. Adams. May I ask what you mean by secret?
Mr. Wooden. Without publishing. Do you make cuts in your
base prices without publishing the cuts?
Mr. Adams. We have testified to that effect.
DEVELOPMENT OF THE PITTSBURGH PLUS SYSTEM
iVIr. Wooden. I would Uke to ask whether or not with reference to
the statement in the pamphlet ^ that the basing point system is the
outgrowth of natural economic conditions, you took into account the
findings of fact of the Federal Trade Commission to this effect:^
No systematic Pittsburgh Plus system had been adopted by the steel producers
at the time of Pittsburgh's greatest predominance in the steel industry or until
after 1900. From 1873 or earlier to 1903 steel producers attempted generally
with some success to fix prices for steel products through pools, price fixing trade
meetings, and later on through what are known as the Gary Dinners. From
1903 to 1909 the Pittsburgh Plus- system of quoting and selling steel products
was used in connection with and as a basis for the price fixing activities of the
steel producers. From 1909 to the present time, with minor interruptions, the
Pittsburgh Plus system has been used by the steel producers independently of
such pools, price fixing trade meetings and Gary Dinners for the purpose and
with the effect of reaching uniform delivered prices. In 1921, with the advent
of price competition on plates, shapes and bars, the Pittsburgh Plus system was
discontinued by the Chicago district mills in their sales of those products, but
not in their sales of sheets and tin plate and wire and wire prdducts, in which
articles in that district and everywhere else Pittsburgh Plus prices still prevail.
Did you take into account any such statement in the Commis-
sion's findings when you made your statement that the basing point
system was a natural economic evolution?
Mr. Fairless. I can't answer that.
Mr. Wooden. Did you take into account the findings of fact of
the Federal Trade Commission to this effect freading further from
''Exhibit No. 343"! :
The wire nail producers, including the Respondent American Steel and Wire
Company, agreed on zone prices in May, 1898. In 1904 the large wire producers
agreed to maintam uniform prices by means of the Pittsburgh Plus system.
Did you take any such evidence as that into account?
Mr. Fairless. I know no tiling about it.
Mr. Wooden. Did you take this into account as further shown by
the findings of fact of the Federal Trade Commission:
Prior to the year 1900 sheet steel was not sold on the Pittsburgh Plus system,
and even after the absorption of a large number of sheet mills by the American
Sheet Steel Company, which was later taken over by Respondent American Sheet
and Tin Plate Company, that company sold its sheets in the Chicago district
f. o. b. its mills in that district. In the fall of 1900, however, that company
inaugurated the Pittsburgh Plus system in selling its sheets,^and the respondent,
American Sheet & Tin Plate Co. has followed the system erer since, practically
without exception.
Did you take anything like that into consideration?
Mr. Fairless. May I ask, Judge Wooden, what do you mean by
taking into account?
Mr. Wooden. Wlien you made your statement in this pamphlet
that the basing-point system originated as a matter of natural eco-
' "Exhibit No. 1418," included in Uearings, Part 26.
- Reading from the Federal Trade Commission's Cease and Desist Order in the I'tUsfjuryh Ptits Case,
introduced in Hearings, Part 5 as "Exhibit No. MV and placed on file with the Committee.
,14262 CONCKNTKAllON <JK ECONOMIC FOWEK
nomics in the steel industry, did you take those things into account
when you made that statement?
Mr. Fairless. I can't answer that question. You are going back
to a period earlier than the date of the formation of the United States
Steel Corporation.
Mr. Wooden. To some extent, not altogether.
Did you take into account the Commission's findings that
Prior to 1900 to 1903 tin mills sold their products generally f. o. b. mill, but
after absorption of many tin mills by the American Tin Plate Company, which
was shortly after taken over by Respondent American Sheet and Tin Plate
Company, that company inaugurated tlie Pittsburgh Plus system in selling its
tin plate from its various mills. In -1903, it announced as to its Indiana mills
that tin plate would no longer be sold f. o. b. the Indiana mills but would be sold
thereafter on the Pittsburgh Plus system because of the higher cost of production at
the Indiana mills. The Respondent American Sheet and Tin Plate Company
has continued the Pittsburgh Plus system ever since on tin plate.
Did you take any such evidence into account?
Mr. Fairless. What was the latter statement?
Mr. Wooden. This was in 1924, these findings, and to the effect
that the American Sheet & Tin Plate Co. had continued the Pitts-
burgh Plus system ever since on tin plate.
Mr. Fairless. As I understand it, these findings that you are
referring to are under review, are still in litigation.
Mr. Wooden. Yes, but as a matter of fact the Corporation did not
take those findings up for review from 1924 until 1938,
Mr. Fairless. I would refer that to our General Counsel.
Mr.- Wooden. Don't you know that is a fact? Isn't it a fact that
it was 1938 before steps were taken to have those findings and the
Commission's order reviewed in the courts?
Mr. Fairless. Are you asking me?
Mr. Wooden. Yes.
Mr. Fairless. I submit all legal questions to a lawyer.
Mr. Wooden. That is a matter of fact as to time I am asking you,
whether that didn't occur in 1938, 14 years after the findings and
order were made.
Acting Chairman O'Connell. I think it is in the record before
this committee that it was in 1938 that the Steel Corporation appealed
from the order in the Pittsburgh plus case. There is no reason why
you should know that. I happen to know that, I think it is in the
record.
Mr. Fairless. It keeps me quite busy, lyTr. Chairman, to keep up
with the practical problems of making and attempting to sell steel
without getting into the legal or economic fields.
Mr. Wooden. But the Corporation undertook to state in these
pamphlets which you present that the basing point system originated
in the natural economics of the industry. I am calling these matters
to your attention to see whether you considered them when you made
those statements.
Did you ever read or have called to your attention any of the
testimony in the Pittsburgh plus case before the Federal Trade
Commission?
Mr. Fairless. Not recently.
Mr. Wooden. Did you ever read the testimony of Col. Henry
Bope in that case?
Mr. Fairless. Not to my knowledge.
CONCENTRATION OF ECONOMIC POWER 14263
Mr. Wooden. Did you know who Colonel Bope was?
Mr. Fairless. In a general way.
Mr. Wooden. He was one of the early pioneers in the industry, was
he not?
Mr. Fairless. I believe he was.
Mr. Wooden. And prominently identified with the Carnegie
interests and until the Carnegie Corporation was taken over by the
Steel Corporation? I understand that he was vice president of the
Carnegie Co. before it was taken over by the United States Steel
Corporation.
(Senator King assumed the Chair.)
Mr. Wooden. Wasn't Colonel Bope vice president of the Carnegie
Corporation after it was taken over by the United States Steel
Corporation for many years?
Mr. Fairless. I haven't any idea.
Mr. Wooden. Did you ever read or have called to your attention
the testimony of Colonel Bope in the Pittsburgh plus case as follows:
Q. Going back to the original organization, what connection did the Pittsburgh
base system have with that?
That has to do with pool meetings.
A. The price was made, based upon Pittsburgh, because the Carnegie Brothers
and Company were the largest manufacturers, and it was felt they should have
the say as to what the price should be, and how it should be established at the
main point, so as to give stability of prices, which had been fluctuating all over the
lot.
Q. By that do you mean to get uniform prices?
A. To get uniform prices.
Q. Before that time what was the practice?
A. The practice was generally to quote F. O. B. mills. Every mill was a law
unto itself.
Q. And the difference In prices between the mills, did that amount to the
freight rate, or was it entirely independent?
A. Each mill made whatever price seemed necessary to take the business.
Mr. Fairless, What is the date of that?
Mr. Wooden. The testimony was given in the Pittsburgh plus case
on November 7, 1922, the transcript of the testimony pages 10857-
10870.
Did you ever read or have called to your attention Colonel Bope's
testimony to this effect in the same case:
Q. Would you mind giving the dates when you became associated with each
association?
A. Do you mean as to what I knew about them from actual association with
them?
Q. Yes, that is what I mean.
A. I sat in what was known as the Bar Association from 1897 on. That was
what was called a gentlemen's agreement. It was not a popl. It was nothing
more or less than an association to help stabilize prices, but more particularly
to stabilize extras, which had been very unscientific in their manner, and we
went to a cost basis in order to establish scientific extras, which were almost
more important than the base price, and many of the associations dealt with
matters of that kind quite as much or more than they dealt with prices; but
the structural association existed in one form or another from 1880, excepting
in 1893, when the panic produced such a chaotic condition of affairs that practi-
cally all the associations were dissolved; but they came together again after
things began to get a little bit more stabilized.
Q. What was the necessity for a basing point? Could they maintain prices
without a basing point?
A. No. They tried it once in 1909 and got into such chaos in a short time
that the mills were glad to get back to the old base. Ever}'- system has to have
14264 CONCENTRATION OF ECONOMIC POWER
some stabilizing point, and Pittsburgh from its natural location, its natural
advantages, and everything of that sort seemed to be the natural basing point.
And further:
Why, I do not see how it would have been possible to have maintained stability
in the steel market under the conditions of its growth without having some
point on which they could base their method of operation.
Q. And by stability do you mean uniform prices?
A. That did give a stability to the general market.
Q. Is that what you meant by stability?
A. Yes."
You never took into account any of that sworn testimony in
making the statement that the basing point system originated in the
natural economics of the industry, is that correct?
Mr. Fairless. I have read very httle, if any, of that testimony,
and I fail to see its significance. There may be a great significance
which I am overlooking.
Mr. Wooden. Then wh}^, if it is not significant to you, did you
make the statement in your pamphlet that the basing point system
originated in the natural economics of the industry and not in the
cooperative, concerted activity such as I have referred you'to?
Mr. Fairless. Well, it seems to me that the steel industry, to
begin with, grew with the United States of America. Now when
you go back to 1890, which happens to be the year I was bom, I
wouldn't know very much about the basing point system at that
time, and I lon't think I was very much concerned about it, or even
in 1900, or e ^en in 1901, the year the United States Steel Corporation
was formed, but it does seem reasonable to me that as this industry
grew — it grew like a mushroom as we all know because of the demands
of this great country — there had to be some method for merchandising
its products.
Now, there were many changes, there have been many changes
in the make-up of the steel industry. I believe the records will show
that in 1901, the year of the formation of the United States Steel
Corporation, that it produced somewhere around 60 or 65 percent
of all the steel that was produced in the United States in that year,
so that was the United States Steel Corporation of 1901.
Mr. WaoDEN. It wasn't that liigh, really, Mr. Fairless, on the total
production but merely on some products it ran that high.
Mr. Fairless. That may be, but now we come to 1.939 and the
United • States Steel Corporation is a much larger company today
than it was in 1901, but its percentage participation in the steel
business in 1939 was in the thirties, in the low thirties, so we have
had many changes, competition has grown, and so has our country.
So far as the multiple basing point system is concerned, again review-
ing my previous testimony, it grew; it grew with this industry, and
many changes have been made. At one time there was a single
basing point, and then there became a basing point in Chicago.
Why? Because of the tremendous producing facilities that were
built in Chicago about 1906, I believe, or '07. And the next phase
of the basing-point system — this is just a general observation — were
the differentials that were established. Why were they estabhshed?
They were established probably because of two things: First, the
market would permit it; and secondly, the consumption of steel in
that particular territory was greater than the producing facilities.
CONClONTIlA'riON OF KCONOMICI TOWKll 14265
Now those are general statements. They changed because facilities,
producing facilities, were augmented. Then we come to more com-
panies and more basing points, more basing points on all products.
Our next step, and I think a very important one, which we took on
June 24. 1938, was the elimination of the differentials, practically —
practically the elimination of the differentials insofar as basing points
applied to the United States Steel Corporation subsidiary companies.
So the statement that you refer to in our pamphlet expresses the opin-
ion of those that had to do in a general way with the preparation of
this statement, that the multiple basing-point sj^stem was a natural
development as a merchandising vehicle for the steel industry.
Mr. Wooden. Do you want to stand on that statement in the
pamphlet, notwithstanding this evidence of its origin to wliich I have
called your attention?
Mr. Fairless. We have submitted this pamplet for the record and
that is my stand, of course.
Mr. Wooden. I would like to know whether you took into account
or had called to your attention in the preparation of this pamphlet
the testimony of one Edward Worcester, formerly vice president of
National Tube Co., appearing on pages 11270-278 of the testimony
in that case, where Mr. Worcester says
x^cting Chairman King (interposing). He was former vice president
of the National Tube Co., which as I understand it was a Corporation
subsidiary.
Mr. Fairless. And still is.
Mr. Wooden. Mr. Worcester testified:
By the manipulation of freight rates we were often obliged to ship pipe from
Pittsburgh to Richmond ox M'Qmphis as a destination. We delivered at Rich-
mond^ and they had a lower rate from Richmond than they had from the nearest
crossing to that, which would be Cincinnati or Louisville. So pipe used to travel
in that roundabout way. That was the condition when we took hold of it in
September, 1899.
Q. At that time you got together and considered plans for the future?
A.' Not with anybody except ourselves.
Q. I mean those eighteen companies that then organized — was that the idea,
that they met together?
A. Oh, no, those companies were already the National Tube Company in
September, 1899, and the only ones who had anything to do with it were our
executive officers and myself. I was General Sales Agent at that time.
■ Q. What changes did they make, if any, at that time?
A. There were several plans proposed, and I proposed that in order to have a
price perfectly definite to everybody any where, . that we should sell delivered,
freight prepaid, so that there could be no interference with our freedom of action
as to shipments, and no doubt in the mind of the customer what he was going to
pay for his pipe, and in order to do that we had to select a leasing point to work
from. So we established what was known as the Pittsburgh basing discount.
That was under discussion from September, 1899, until February, 1900, and was
finally agreed to among ourselves and put out on March 1,' I think, 1900;. but
theretofore the list price of pipe — pipe is all sold on the basis of list and dis-
counts—the list price of pipe took care of the various costs of the various sizes, so
that pipe could be sold at one discount practically. That would have been a
very cumbersome thing for us to handle. There was nothing to base your freight
on. So we changed that and made our list ten cents a pound.
Q. Made your list ten cents a pound?
A. Made our list ten cents a pound, so that if three inch pipe weighed ten
pounds the list was $1. If four inch pipe weighed ten pounds, it was $1. If it
weighed twelve pounds it was $1.20. So that every ten cents a hundred weight,
which would be $2 a ton, would be one per cent of discount. As you'- list was
$200 a ton, one per cent of discount would be $2 a ton; so that when we published
a Pittsburgh basing discoimt, we published it with these lists, and with a tariff
14266 (;«)N(JKN'L'KA":'OJM of economic POWEli
book giving the rate of freight from Pittsburgh to every point iii the United
States, which was all distributed freely, and anyone anywhere wishing to know
what pipe would cost him where he was had simply to take the Pittsburgh basing
discount and the freight rate. Supposing thff basing discount was 50 per cent
and the freight to where he was was 50 cents, that 50 cent rate meant five per
cent of discount, so that he knew that his price, if it cost him fifty at Pittsburgh
would cost him forty-five there.
^''hat plan has been in operation without any trouble from that time to this
time.
Q. Have the competitors of the National Tube been using Pittsbu.-gh as a
basing practice since?
A. They have followed our practice in quoting, I believe.
That method of quoting pipe in terms of discount and length
rather than weight still obtains, does it not?
Mr. Fairless. It d(-pends on what kind of pipe you are talking
about, Judge. Standard pipe
Mr. Wooden (interposing). Some kinds of pipe. You tell us what
kinds.
Mr. Fairless. I am willing to admit that some grades of pipe are
sold as you outline and others are sold on the ton basis, the weight
basis.
Mr. Wooden. Which lands are sold on the discount basis that I
have outlined?
Mr. Fairless. The discount basis?
Mr. Wooden. Yes.
Mr. Fairless. All pipe is sold on a discount basis, "if it is cash
discoimt you are talking about.
Mr. Wooden. I m^ant a discount from a high list such as the $200
that was mentioned.
Mr. Fairless. Standard pipe is sold on the discount basis. That
is because of its distribution largely through jobbers. Standard pipe
is very seldom sold directly from any producing mill. It is distributed
through jobbers because of the necessity of the wide distribution of
standard pipe.
Mr. Wooden. That is the reason the pipe lists are based on the
high list of discount, because it is sold through jobbers?
Mr. Fairless. Largely, that is standard pipe. Seamless pipe is
n jt sold that way. Line pipe is sold direct to the customer at a definite
price, the s'ame as plates or any other product.
Mr. Wooden, Large oil compar es, for pipe lines and natural gas
companies?
Mr. Fairless. Right.
Mr. Wooden. Will you look on page 50 of "Exhibit No. 1418?" »
Do you see there the statement to the effect that the location of mills
in the industry cannot be attributed to any pricing method?
Mr, Fairless. Yes, I have it.
Mr. Wooden. How do you reconcile that statement with the state-
ment appearing on page 47 of the same document which says: ^
However, it can be pointed out that in many respeci„ the existence of the
Pittsburgh plus method would have a natural tendency to encourage location of
mills outside of rather than at Pittsburgh?
Mr. Fairless. Let me get through with this first one first. I should
like, Mr. Chairman, to reply to the statement made on page 50.
which reads as follows:
Thus a location —
' Appendix p. 14619.
» Ibid, p. 14648.
CONCIONTUATION OF KCONOAllC I'OVVlOlt 14207
of the steel mill —
cannot justly be called "uneconomic" unless some other location can be shown to
be better. The benefits of proximity to a large consuming market may be offset
by high assembly costs. A large steel mill cannot limit its operations to the few
products for which there might be a local demand, and the small scale operations of
the smaller mill would undoubtedly result in high operating costs with no saving
to its customers. The location of n ills upon the sole basis of nearness to a market
would always subject them to local and seasonal variations in demand, and might
well be disastrous if the market should subsequently move away because of labor
difficulties or other causes. Concentration of facilities necessarily results from
the nature of the steel industry, and present locations of mills are based upon a
proper consideration of the economic factors involved. They cannot be attributed
to any pricing metliod.
Mr. Wooden. It is that last sentence that I want you to consider
in connection with the sentence on page 47 and ask you to reconcile
them.
Mr. Fairless. What is the next one?
Mr. Wooden. Page 47, where you say, "It can be pointed out that
in many respects the existence of the Pittsburgh plus method would
have a natural tendency to encourage location of mhls outside of
rather than at Pittsburgh."
Mr. Fairless. The Pittsburgh plus method, of course, is not in
existence.
Mr. Wooden. But the mills were located, many of which were in
existence during the Pittsburgh plus period.
Mr. Fairless. Let's read it and see what it says.
Acting Chairman King. Proceed.
Mr. Fairless. "Under the Pittsburgh plus method delivered
prices all over the country were higher'
Mr. Wooden. Just before that, the sentence before that.
Mr. F.-viRLEss. The paragraph before.
Mr. Wooden. The sentence before it.
Mr. Fairless. I don't want to read just a sentence. Can't I read
the entire paragraph?
Mr. Wooden. All right; simply amplify what I have called your
attention to.
Mr. Fairless. "An accurate appraisal of this criticism—" what
is the criticism? The heading — probably better read the entire article.
Mr. Wooden. I don't think that is' necessary in order to call
attention to these two apparent contradictions.
Mr. Fairless. I have found it quite convenient to read an entire
article, Judge, oftentimes, rather than just a sentence that one might
pick up.
Acting Chairman King. If the entire article is not necessary to
answer ttie question, don't read it, but if you consider that it is quite
necessary because of tlie language which would show upon the question
involved, I think perhaps it would be relevant. I will let you be the
judge for the moment, but if I think you are going far afield I will
check you.
Mr. Fairless. I don't care to read it at all, but just tiying to
clarify it.
Acting Chairman King. We will try to clarify it.
Mr. Wooden. Let me ask another question that you can clarify
at the same time.
Mr. Fairless. Let's see if I can do anything with the one you have
already asked me..
124491— 41— pt. 27 10
' 14268 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. It is the same thing in another form; maybe you can
answer them both at once. On page 47, amplifying about the Pitts-
burgh plus method, it says —
This encouraged the location of mills at Chicago, Buffalo, Bethelhem, Sparrows
Point, Cleveland, Birmingham, and so forth, and made possible the constant
expansion of their facilities.
Mr. F AIRLESS. That is right.
Mr. Wooden. How do you reconcile that with the statement on
page 50, that the location of mills cannot be attributed to any pricing
method?
Mr. Fairless. Well, I should like to cover both, if I may.
Acting Chairman King. You may, as briefly as you can.
Mr. Fairless. Yes; I will. In my early testimony in November
you recall that I presented to the committee the reasons for locating
a steel plant. It isn't market, except to a limited extent; it is raw
materials and their cost of assembling, fuel, iron ore, flux. That is
why Pittsburgh, with its wonderful fuel and its transportation fa-
cilities, became a steel center.
Now in respect to markets, markets are ever changing, so therefore
you cannot buUd a steel plant in respect to a market. Detroit today
is the center of automobile production, but 20 years from now Detroit
may not be the center of automobile production, and so it goes with
rubber, and so forth. Now in respect to pricing, the location of the
steel industry at Pittsburgh certainly had no relationship with prices.
Now you asked me why Chicago grew and why we make this state-
ment.
Mr. Wooden. No; I didn't ask you that; I asked you how you
reconciled the statement on page 50, that the location of mills had
no relation — couldn't be attributed — to any pricing method, with the
statement on page 47 that the Pittsburgh plus system did encourage
the location of mills at Chicago and other points named.
Mr. Fairless. Well, if the Pittsburgh plus were in effect — in other
words, if we only had one basing point and that was Pittsburgh — that
is what we are talking about — obviously it would encourage locations
such as Chicago and Birmingham and other locations to develop steel
plants.
Mr. Wooden. Then the statement on page 50 that the location of
mills cannot be attributed to any pricing method is not correct, is it?
Mr. Fairless. I think it is correct.
Mr. Wooden. You just got through saying that Pittsburgh plus
encouraged location of mills at Chicago and elsewhere.
Mr. Fairless. Well, you are turning it around the other way and
looking at it — I am simply stating that you don't build a steel plant
and locate a steel plant with respect to price of the pr6duct that you
are going to make; it is to put the idea in mind of the costs to produce
those products.
Mr. Wooden. All right.
Acting Chairman King. Then the basing point is not the mother
and father of any particular steel plant at a given place?
Mr. Fairless. No, certainly it is not.
Acting Chairman King. The raw material is essential to the devel-
opment, to the production of steel, then, as an important factor in
determining where the mill shall be located?
CONCENTRATION OF ECONOMIC POWER 14269
Mr. Fairless. Market is a factor, but not the predominating
factor.
Mr. Davis. Isn't it a fact, though, that one of the effects of the
basing point system is to maintain plants at locations which are no
longer economically situated?
Mr. Fairless. I don't believe so, Judge.
Mr. Davis. And haven't some of the members of the industry from
time to time given that reason and stated that if the system was
abolished it would eliminate plants located at some of these uneconomic
points because the materials supplying the mills originally have been
exhausted, and so forth?
Mr. Fairless. Would you care to give an example of an uneconomic
point where a steel plant is located?
Mr. Davis. Well, I am no technician ; J. think we can do that.
Mr. Fairless. I only ask the question to clarify.
Mr. Davis. I am speaking generally on that subject.
Mr. Fairless. Do you agree we have producing plants in Pitts-
burgh, Chicago, Birmingham — speaking of districts now, and the
Pacific coast? Are q.ny of those uneconomic?
Mr. Davis. I am not on the stand.
Mr. Fairless. I was just asking the question,
Mr. Davis. If Mr. Wooden or members of the committee ask you a
question they are entitled to an answer and then if you want to make
any pertinent explanation, why of course you are at liberty to do so,
but I don't care to argue the matter with you. If you are not prepared
to answer the question, it is all right.
Acting Chairman King. I think perhaps the question would imply
that you are the judge of whether it is economic or uneconomic, and
if Judge Wooden or any of the memberS of the committee think that
your determination of a given point is economic or uneconomic, then
we might ask for further explanation.
Mr. Fairless. We feel every one of our producing plants is located
economically. Now there are comparisons, of course. Some are more
economic than others in respect to assembly costs of raw materials.
Obviously it costs us more money to assemble raw materials on the
Pacific coast than it does in Birmingham, and in some instances in
respect to some raw materials it costs us more money to assemble
raw materials in Pittsburgh than it does in Chicago. Chicagp has a
decided advantage in respect to ore, but that is offset to a great extent
by its disadvantage in respect to coal.
Pittsburgh has a great advantage in coal and has a disadvantage in
respect to ore comparable to the transportation costs from lower lake
ports to Pittsburgh.
Acting Chairman J^ing. Have some of the plants of your company,
by reason of changes in the market or changes in the facilities of
obtaining ore or for other reasons which are material iii the production
of the finished commodity, become uneconomic to maintain so that
you are compelled to abandon them, or if you haven't ab«i-ndoned
them that the costs of production are so great as that those costs
impinge upon those plants where tbi costs are much less and where
the returns, are much greater?
Mr. F-AiRLESS. Exactly as you have put' il, we have abandoned
two steel producing plants wimin tjie last year or 18 months for that
very reason.
'14270 ' CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Mr. Fairless, will you agree that the natural and
logidal effect of an interference with or suppression of price competi-
tion is to encourage, to tend to encourage, the location of plants that
are relatively uneconomically located?
Mr. Fairless. I believe that question could be simplified? I
would like to have it repeated.
Mr. Wooden. I will try it again. Would you agree that the natural
and logical tendency of any long-continued interference with price
competition is to cause mills to be located in relatively uneconomic
locations?
Mr. Fairless. I believe that if there was no competition in the steel
industry and prices could be named at any level and maintained that
there would be a so-called umbrella held over uneconomic operations
in various parts of the country.
Mr. Wooden. And the effect of the umbrella would be, would it not,
to encourage the location of mills that are relatively uneconomically
located?
Mr. Fairless. If it existed it would.
Mr. Reynders. On the other hand, you would not locate a new
plant in such a location.
Mr. Wooden. Not all plants can be equally well located.
Mr. Reynders. There may be an existing plant which gradually
had become uneconomic which is being maintained in operation. I
don't believe that it is an economical thing, as far as natural economy
is concerned, because of the community which has been built around
that plant, to scrap a plant like that; it not only scraps the facilities,
but it also scraps the whole community which has grown up around
that plant.
Mr. Fairless. Steel plants when built in many cases were eco-
nomically sound. It might have been that the assembling cost of the
raw material at that particular point was higher than the lowest or
lower cost competitors, but it probably had a market, it probably
had a labor condition or many other factors that have to do with costs
other than just the assembly cost of raw materials, important as it is,
and as time went on they lost those factors, they lost their markets,
or the methods employed in making their particular products were
changed, technological developmeiits came. I cite you the many tin
mills, tin-plate plants, that have been forced to close down because
of the technological development over the last 10 years approximately
in the manufacture of tin plate.
Acting Chairman King. Do many plants in the steel industry, not
only in your company but the industry generally from your knowledge
of that industry, become obsolete because of technological develop-
ments or because of the exhaustion of raw materials or higher freight
rates which have resulted from modification of railroad activities,
and for other reasons?
Mr. Fairless. Many plants of individual companies and in some
cases entire companies have gone out of business.
Acting Chairman King. If I may put a personal statement in the
record, I loiow of a number of smelters in the West that have been
compelled to close down that cost large sums of money because of the
exhaustion of mines or because of different freight rates, because of
technological development. I was wondering if there would be any
analogy between that situation and the steel industry.
CONCIKN'J'KATION OF KCONOMIC PpWKK 14271
Mr. Fairless. There is, definitely.
Mr. Wooden. Mr. Fairless, didn't some representatives of the
steel industry testify before the Senate Committee on Interstate Com-
merce in connection with the so-called antibasing point bill that the
abandonment of the basing point system would result in abandon-
ment of some plants, some resultant injury to communities where
those plants were located?
Mr. Fairless. I am not going to testify in respect to someone else's
testimony. I will, however
Mr. Wooden (interposing). You were present, were you not, at
those hearings?
Mr. Fairless. I would like, however, to make this observation,
which I believe answers the question, that in respect to the basing
point system it has grown with this industry, it is about 50 years
old, I believe. The United States Steel Corporation does not take
the position that there aren't any criticisms, justified criticisms, of
the basing point system. Our position is that it is the best mer-
chandising medium for our steel products that has been called to our
attention, and also that if a better method is called to our attention
we would be the first to adopt it, but I would like to call to the at-
tention of this committee at this time — and I think it is appropriate
to our discussion — that very careful consideration must be given not
only by the steel industry but by Government to the effects of a
change in the present multiple basing point system. It isn't some-
thing that can be discarded and some untried method to replace it
made without very, very careful consideration. Now we have com-
munities, and someone just referred to plants, in what Judge Wooden
read, that would be dislocated, but I don't know what that partic-
ular witness meant by plants; it might have been a steel plant, it
might have been a fabricating plant, but we do know in the many
locations where we have steel plants located, we also have many
fabricators of steel that are located adjacent to those particular plants.
Now if some change were made, were forced upon this industry b}''
legislation, that caused a complete change in the merchandising of the
products that tliis industry produces, there would undoubtedly be
some very severe repercussions.
Acting Chairman King. To what extent?
Mr. Fairless. To what extent I am not able to answer because I
haven't had any definite replacement of the multiple basing-point
system put before me, and if there were a proposed system put before
me I couldn't say yes or no to it without very careful study.
Acting Chairman King. I want to ask you, Mr. Fairless, if the
steel company maintains many fabricating plants, or is it engaged
rather in the production of the raw materials?
Mr. Fairless. Largely our policy is to stick to the steel business
as closely as we can. We do have a very large fabricating unit, the
American Bridge Co., and that is necessary in order to carry on our
heavy line steel business.
Acting Chairman King. There is a relation, then, an economic
relation, as well as a practical relation, between fabricating plants
and the manufacturing plant.
Mr. Fairless. Very definitely.
Acting Chairman King. A plant might become obsolete and war-
rant being scrapped, but in so doing it might seriously injure a fab-
14272 CONCENTRATION OF ECONOMIC POWER
ricating plant which furmsh,ed employment for a large number of
people.
Mr. Fairless. That is right.
Acting Chairman King. And vice versa.
Mr. Fairless. Right.
Acting Chairman King. And a plant may become obsolete and
thus call for the obtaining of ingot steel from a more remote distance,
so that the plants may become obsolete, thus injuring the fabricating
plants, the fabricating plants may become obsolete because of tech-
nological developments, and thus reduce materially the market for
the steel of the-plant.
Mr. Fairless. It is very possible,
Mr. Wooden. Are those changes in location and continued opera-
tion of mills going on as a result of technological changes?
Mr. Fairless. In some lines of this industry. That is particularly
true in the light rolled products.
Mr. Wooden. Do you see any reason why changes should not be
allowed or forced to take place because of pressure of competition?
Mr. Fairless. There is no technological development being held
back because of price competition.
Mr. Wooden. I didn't say that, but if dislocation of plants takes
place because of technological developments, why are you afraid of
any possible dislocation because of pressure of competition?
Mr. Fairless. I didn't say thftt I was.
Mr. Wooden. You are not, then?
Mr. Fairless. I am not.
Mr. Wooden. But doesn't your pamphlet take the position that the
abandonment of the basing point system would cause a great deal of
dislocation of mills and disruption of industry?
Mr. Fairless. It would. It does and it would, In our opinion.
It isn't just miUs we are talking about. It is industry. We are talk-
about the users and the fabricators of steel rather than the producer^
of steel,
Mr. Wooden. It follows from that, then, does it not, that there is
some connection between the location of industry and the plants with
the pricing method used by the industry?
Mr. Fairless. No, sir, no; not at all, Judge Wooden, because
you locate" your steel plant for one reason and then your fabricator
locates his factory because of the steel plant location.
Mr. Wooden. Didn't you say on page 47 of your pamphlet that the
Pittsburgh Plus method encouraged the location of miUs at Chicago,
BuflFalo, Bethlehem, Spiarrows Point, and other spots?
Mr. Fairless. Yes; but there is no Pittsburgh plus today.
Mr. Wooden. The mills are there, aren't they?
Mr. Fairless. Where?
Mr. Wooden. At those various points.
Mr. Fairless. Yes; and they grew during that period.
Mr. Ballinger. Mr. Fairless, you admit in the pamphlet here
that if you cjianged the pricing system in the steel industry to an
f. o. b. system that it would cause tremendous changes in the steel
industry with respect to plants, didn't you, so there must be some
relation between a pricing system in the steel industry and the
location of the plants.
CUNCENTKATION OF ECONOMIC POWER 14273
Mr. Fairless. I don't believe so, Mr. Ballinger — well, some
relation.
Mr. Ballinger. You say considerable relationship, on page 97:
The above criticisms of the uniform f. o. b. mill price system have shown that
it involves definite economic losses, it would destroy the investment in many
, plants, it would also act injuriously on many local communities whose welfare is
dependent on the steel mills at that point.
There would be a big shift in the steel industry?
Mr. Fairless. If you went to a uniform f. o. b. mill system, that
is something else.
Mr. Ballinger. It is a different pricing system than the one you
have now.
Mr. Fairless. It is a different method of merchandising, yes.
Mr. Ballinger. Then the pricing system does have some effect.
Mr. Fairless. We don't know what anyone really means by
uniform f. o. b. mill pricing system.
Mr. Ballinger. You don't know what it means and yet you say
this is going to be the result of it.
Mr. Wooden. Beginning on page 86 ' of your pamplilet, "Exhibit
No. 1418," and running over for quite a number of pages, you devote
a great deal of attention to showing the disruptive effect upon business
of a change from a basing point system of pricing to a mill system of
pricing.
Mr. Fairless. Well, I should say any new system, any new system,
whether it would be a uniform f. o. b. piiU or not, should at least be
given very careful consideration. Before you could give your answer
you would naturally have to have the details that had to do with the
new system. There isn't any mystery about the multiple basing
point system. We all know, and I think this committee knows,
pretty well how it operates. Something that would replace it I would
like to know equally as much about as I do about the present multiple
basing point system before I expressed an opinion.
Mr. Ballinger. Mr. Fairless, if it could be shown that this
system of merchandising steel did repress price competition, then
would you be willing that the system should be changed so it would
restore competition even though it resulted In dislocations in the
steel industry?
Mr. Fairless. That is a very broad question. I am not concerned
chiefly about the steel industry. I am concerned about the effect
of this problem on the economics of the United States of America.
Mr. Ballinger. But suppose the effect of the economics is repres-
sion of price competition.
Mr. Fairless. I am not going to suppose anything unless I know
what we are talking about. I am firmly convinced, and I think I
know something about the steel business — ^not too much, not enough,
but I know something about it — I am firmly convinced that the present
multiple basing point system does not control prices. I make that
as a definite statement for this record.
Mr. Wooden. Mr. Fairless, in that connection, isn't it a fact that
even when some buyers, large buyers like the automotive interests,
were getting concessions from the base price, that other buyers con-
tinued to pay the full base price?
' Of the original.
14274 CONCENTRATION OF ECONOMIC POWEli
Mr. Fairless. Not generally speaking,
Mr. Wooden. Now, it is true to a great extent, isn't it, as to smaller
buyers?
Mr. Fairless. Are you going to answer your own question?
Mr. Wooden. No, I am asking you.
Mr. Fairless. Then I shall answer it. You asked me the question
and I think you refer to the sale of sheets, strip, flat rolled products
at six and eight dollars a ton off.
Mr. Wooden. No; I am not referring to that particularly, or
exclusively at any rate,"
Mr. Fairless. Tell me what you want me to answer.
Mr. Wooden. I am asking you the general question whether or
not some buyers, particularly smaller buyers, have not continued to
pay full base price plus freight on some steel products while other
buyers, large buyers, were getting concessions.
Mr. Fairless. Well, I would have to go through or cause someone
to go through all the records of all the subsidiary companies.
Mr. Wooden. Then you don't know.
Mr. Fairless. I know my business, I believe, pretty well. I would
say this, that when we have a general price decline in any of our prod-
ucts it doesn't take very long until that becomes country-wide. Now
I wouldn't make the statement that if a price were reduced in Detroit
on Monday that on Monday simultaneously that reduced price was
effective throughout all the United States. It can't operate, this
industry can't operate, that rapidly.
Mr. Wooden. If it were published it would become operative?
Mr. Fairless. If it were published?
Mr, Wooden. Widely known. Aren't some of these concessions
made without publication?
Mr, Fairless. Wliat do you mean— not concessions, no.
Mr. Wooden. Well, reductions below the full base price figure —
aren't they made without knowledge of competitors?
Mr, Fairless. Well, I'll be very happy, if you want to take the
time, to go over our pricing policy.
Acting Chairman King. Answer the question "yes" or "no."
Mr, Fairless. I would have to have an example.
Mr. Ballinger. Mr. Ford changed frorn model T to model A. Did
he come to you and tell you you would have to knock down the price
of steel to him?
Mr. Fairless. Model T to model A?
Mr. Ballinger. Well, he changed models in 1928 and put on a new
model.
Mr. Fairless. No.
Mr. Ballinger. He didn't come to you and tell you you would
have to give him a concession on steel?
Mr. Fairless. No ; I think I told you this myself
Mr. Ballinger (interposing). I wasn't going to reveal the source.
Mr. Fairless. There is. no secret about it. What I told you in
respect to Mr. Ford was that Mr. Fo^d got into more or less difficul-
ties in '21, I believe. He came to all of his suppliers, whether it was
steel, rubber, leather, wool, or whatever the product might be, and
asked for a reduction in price. Now, the question you are asking
me is, did every user of steel get that price?
Mr. Ballinger. Yes; a similar rfeduction.
(X>N<'KN rilATlON OF lOCONOMK.' I'OWlOIl 14275
Mr. Fairless. All I can say is that at that tune — and the product
I was confronted with happened to be chrome vanadium steel, because
Ford used chrome vanadium steel and we were large manufacturers—
that automatically became the price of chrome vanadium steel to
anyone who cared to use it.
Mr. Ballinger. So he didn't get a special concession?
Mr. Fairless. No; he secured a lower price and at the same time
the price for the product moved down to that level, because obviously
we couldn't sell another automobile company at some higher price,
and it was largely the automobile companies that used that product.
Mr. Wooden. Is it not a fact, Mr. Fairless, that Government pur-
chases on sealed bids have continued to reflect quite largely the full
base price, plus the freight; in other words, to be based on the basing-
point system?
Mr. Fairless. We have the figures. Do you want them? They
are presented here.
Mr. Wooden. We are going into those, too, but is it not a fact
that your policy has been to quote the full base price on Government
bids?
Mr. Fairless. Our policy is to secure our published prices every-
where we can, and any time we do not secure those prices it is because
of competitive conditions that prevent us from doing so.
Mr. Wooden. You found the competitive conditions such that they
permitted you to quote and get your full base price on Government
bids?
Mr. Fairless. In some instances; in many instances, no.
Mr. Wooden. Those instances you refer to are covered by these
compilations which you referred to a moment ago? '
Mr. Fairless. They are.
Well, we may have been successful in some of those. We only
refer to the transactions for that period. In Washington, too. We
are not talking about Federal purchases otherwise.
Mr. Wooden. Do you know how that compilation was made up?
Mr. Fairless. Yes; it is an accurate record, so I am told, that w j
made by our Waslungton office, which follows all the lettings and all
the biddings in Federal work.
Mr. Wooden. It is based on page 34 of your statement on a basis
of value, is it not?
Mr. Fairless. That is right.
Mr. Wooden. Not upon the number of cases of bidding?
Mr. Fairless. Well, obviously many of these items are for a very
small amount, as you know.
Mr. Wooden. But you based it upon value?
Mr. Fairless. We state how we value it, and I might add it does
not include, because we thought it would be unfair to include, big
tonnage items such as armor plate and protective deck plates.
Mr. Wooden. As a matter of fact, do you not ha-ve in there many
items that are not rolling-mill products?
^ Mr. Fairless. Well, I can't answer as to the detail. The informa-
tion was furnished to our special T. N. E. C. group by our Washington
office.
Mr. Wooden. Don't you have in there many items involving quota-
tions by jobbers as distinguished from producers?
' "Exhibits Nos. 2210 and 2211," appendix, pp. 14444-14457 and 14458-H.'>n5.
14276 CONOENTRATION OF ECONOMIC POWER
Mr. Fairless. I can't answer that.
Mr. Wooden. Now, beginning on page 86 and running for a number
of pages, you devote a great deal of attention to the claim that the
ending of the basing-point system and the substitution of a mill-pricing
system would dislocate and disrupt the industiy and result in creation
of a lot of local monopolies. Is that not correct?
Mr. Fairless. That is right.
Mr. Wooden. How do you reconcile that statement made on those
pages with your statement in "Exhibit No. 1418," reading as follows:
It is' impossible to measure quantitatively the amount of transportation costs
which might be considered unnecessary from any point of view, and it is equally
impossible to measure the economic costs which would result from any interference
with present practices, or more specifically, from any direct or indirect limitation
of selling territories.
Mr. Fairless. I don't believe we could accurately measure it, but
we think it would be tremendous.
Mr. Wooden. Do you think it is impossible to measure?
Mr. Fairless. I think it is impossible accurately to measure the
results of any untried theories.
Mr. Wooden. You went ahead to attempt to measure the impos-
sible, is that right?
Mr. Fairless. All we are tiying to do, and if I am correct, all we
tried to do was to make a very careful study of these various problems
and present our findings and our opinions to this committee. We take
the position that they are not perfect; we don't take the position, and
never have, that everything we have said in every one of these pamph-
lets is 100-percent correct, that there are no errors. Undoubtedly
there are many errors, but this is the best that we could do ; we did it
honestly; we spent much time, and I might add much money, in pre-
paring it and it is submitted to this committee for whatever it is worth.
Mr. Wooden. You also stated on page 47 of "Exhibit 1418,"
"There is no way by which the present steel-producing facilities can
be compared scientifically with those which would have existed under
other conditions." Yet you attempt to demonstrate that a change in
the system wUl produce a lot of local monopolies and cause an economic
disaster, is that correct?
Mr. Fairless. Yes, sir; definitely. That is what we contend, and
that, of course, is based upon the facts as we present them, and without
any definite system, with its details all developed to replace our present
system.
Mr. Wooden. You make the statement in' your pamphlet that the
Federal Trade Commission has proposed to impose by law or mandate
an f. o. b. mill price that is uniform to all customers of a given mill.
Do you mean to say that the Federal Trade Commission proposes to
ignore the exceptions and provisos of the statute, the -Robinson-
Patman Act, that provides exceptions where the price to various
customers need not be uniform?
Mr. Fairless. Well, I would assume that the Federal Trade
Commission would at all times attempt to obey all the statutes the
same as the United States Steel Corporation.
Mr. Wooden. Then you don't mean to say that the Federal Trade
Commission proposes to impose by law or mandate a price at the mill -
that is uniform to every customer?
Mr. Fairless. To be perfectly frank, Judge, and not with any
attempt at being flippant, I really don't know what you do propose.
CONCENTRATION OF ECONOMIC POWER 14277
Mr. Wooden. Well, you state in here at quite some length what the
Commission proposes.
Mr. Fairless. There have been statements that that was your
answer to the present multiple basing point problems as you found
them. Now you may be incorrectly quoted.
Mr. Wooden. You don't know as to that?
Mr. Fairless. You have never told me personally.
Mr. Wooden. Would you think that to impose by law or mandate
a mill price absolutely uniform to every customer would be without
regard to the provisos of the law which permit differences in price to
different customers under certain conditions?
Acting Chairman King. Are you asking whether he believes in a
law of that character?
Mr. Wooden. I am asking whether he is charging in this pamphlet
the Federal Trade Commission with seeking to impose by law or man-
date the imposition of a mill price that is uniform to all customers,
when the law itself does not so provide.
Mr. Fairless. I have not suggested any such thing and have no
intention of doing so.
Mr. Wooden. Well, your pamphlet suggests it, does it not?
Mr. Fairless. Not my interpretation of it.
Mr, Wooden. Does it not say that the Federal Trade Commission
proposes by law or mandate to establish a price at thiS mill that is
uniform to all customers?
Acting Chairman King. You can't answer that question?
Mr. Fairless. I don't know. I really don't know. I beg your
pardon.
Mr. Wooden. Look at page 37 of "Exhibit No. 1418." Do you
find there the statement that the "Federal Trade Commission pro-
poses to impose by law or mandate"?
Mr. Fairless. I shall read it if you will give me time.
Mr. Wooden. Right at the top of the page.
Mr. Fairless. What is your question?
Mr. Wooden. I am asking you why you say on that page that the
Federal Trade Commission proposes to impose a uniform f. o. b. mill
price system with, the elimination of freight absorption by law or
mandate? You have said, I understood, that you did not know what
the Commission proposes.
Mr. Fairless. Well, it is generally understood that that is your
theory. Now if it is not we stand corrected, and I would like you to
tell me what your theory is
Mr. Wooden. I cannot speak for the Commission.
Mr. Fairless. Since we are looking for facts.
Mr. Wooden. I am' not speaking for the Commission; I can only
say, and I do say, that the Commission has never taken that position
that you say they have taken .
Mr. Fairless. If we are wrong it is one of the many mistakes that
we expected to make when we prepared all these articles.
Mr. Wooden. I am making that statement on the basis of his-
torical fact only, without any regard to what the Commission's posi-
tion is or may be in the future, but only as to what it has been in the
past, and 1 should like to go into that in another comiection a little
bit more fully. I am not able to locate it just now — but I want to
offer for the record another of the commercial resolutions which orig-
' 14278 CONCENTRATION OF ECONOMIC POWER
inated under the code with reference to this quoting of prices regarding
an identified structure.
Acting Chairman King. The witness having stated that those reso-
lutions are not of his Icnowledge, there would be no objection to offer-
ing it, and if Mr. Fairless wishes to make comment on it later, he will
have the opportunity.
Mr. Wooden. I can't locate it right now.
Mr. Ballinger. From the testimony read here into the record per-
taining to the Pittsbm-gh plus case, there have been periods in the
steel industry with respect to certain products when they did have an
f. o. b. mill system, did they not, on certain products? Have you not
sold products at the mill?
Mr. Fairless. That is right.
Mr. Ballinger. Well, the industry did not go to pieces, did it,
under that system? I mean there was no great catastrophe and
calamity?
Mr. Fairless. Well, Mr. Ballinger, my reply to that would be that
you can't judge the entire steel industry by one or more of its products.
Mr. Ballinger. Well, I am taking a product Uke pig iron. It
took you from 1870 to 1934 to decide you needed a basing point in
that product, did it not?
Mr. Fairless. Distribution of pig iron, of course, is not nearly as
widely spread as steel products. Pig iron normally is produced for
use by the producer.
Mr. Ballinger. That is all.
Acting Chairman King. Judge, have you any other questions of
the witness?
Mr. Wooden. I think not.
Acting Chairman King. Have you any observations to make, Mr.
Fairless, or Mr. Adams?" Judge Miller, have you any questions to ask?
Mr. Miller. No ; I have no questions.
Mr. Fairless. In respect to the letter that will be submitted sub-
ject to identification tomorrow, the letter does not refer to U. S. Steel
Corporation ; it was not written or received by anyone connected with
our company, and I wish to leave the observation with the committee
that we know nothing about it and are not prepared to comment upon
it or discuss it.
Mr. O'CoNNELL. It is intended that it will be offered for the record
tomorrow so it can be identified^ and that is all you care to say in
connection with it?
Mr. Miller. I don't think I can add anything, except to express
the appreciation of aU of us of the very great courtesy that has been
extended to us by the chairman and by every member of the commit-
tee and by counsel.
Acting Chairman King. All the committee desires is to have the
representatives of the Government or the others present such facts
as they deem relevant and material and we are very patient, and I
hope intelligent, listeners. Is that all for today?
Mr. Wooden. I want to identify some papers, but could do it
tomorrow morning.
Acting Chairman King. The committee will stand adjourned until
10:30 tomorrow "morning.
(Whereupon at 3:45 p. m. the committee stood in lecess until 10:30
Tuesday morning.)
[NYESTIGATION OF CONCENTEATION OF ECONOMIC POWER
TUESDAY, JANUARY 30, 1940
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The committee met at 11 a. m., pursuant to adjournment on
Monday. January 29, 1940, in the Caucus Room, Senate Office Build-
ing, Senator Joseph C. O'Mahoney, Wyoming, the chairman, presiding.
Present: Senators O'Mahoney (chairman) and King; Representa-
tive WilHams; Messrs. O'Connell and Hinrichs.
Present also: Willis J. Ballmger, Director of Studies for the Fed-
eral Trade Commission, Walter B. Wooden, Assistant Chief Counsel,
and Hugh E. White, economist, representmg the Federal Trade
Commission.
The Chairman. The committee will come to order. You may
proceed. Judge Wooden.
Mr, Wooden. Mr. Chairman, I should like to call to the witness
stand Mr. A. A. Dorenbusch.
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. Dorenbusch. I do.
TESTIMONY OF A. A. DORENBUSCH, GENERAL SALES MANAGER,
NEWPORT ROLLING MILL CO., NEWPORT, KY.
Mr. Wooden. Your name, I believe, is A. A. Dorenbusch.
Mr. Dorenbusch. That is right.
Mr. Wooden. And where do you live?
Mr. Dorenbusch. I live in Newport, Ky.
Mr. Wooden. What is your business?
Mr. Dorenbusch. Steel business, rolling of sheets.
Mr. Wooden, With what company are you connected?
Mr. Dorenbusch. The Newport Rolling Mill Co.
Mr. Wooden, Is there some affiliated company also?
Mr, Dorenbusch, We have the Andrews Steel Ca:, which is really
the parent company of our business, which produces the raw steel.
We in turn roll the sheets, but it is all one company,
Mr. Wooden. What are the products produced by the Newport
Rollmg Mill Co.?
Mr, Dorenbusch. They are principally sheets. In fact, the
Newport RoUmg Mill Co, produces nothing but sheet steel.
Mr, Wooden. Is there any particular kind of sheets or various
kinds?
14279
14280 OONOENTRATION OF ECONOMIC POWER
Mr. DoRENBUscH. Well, of course we start with what is known as
ordinary hot rolled sheets and any subsequent treatment that they
get produces different grades, pickled sheets, galvanized sheets; we
make electrical sheets, sheets that are known to the trade as gal-
vannealed ; long ternes.
Mr. Wooden. What is your position with the company?
Mr. DoRENBuscH. General sales manager.
Mr. Wooden. How long have you held that position?
Mr. DoRENBuscH. I have held that position about 12 years,
although I have been with the company for 25 years.
Mr. Wooden. Do you have a Mr. A. K. Andrews who is connected
with the company? And if so, what is his connection?
Mr. Dorenbusch. Mr. A. K. Andrews is the president of the
Newport Rolling Mill Co.
Mr. Wooden. Who are the principal competitors of the Newport
RoUing MiU Co.?
Mr. Dorenbusch. Well, 'I would say that everyone in the steel
sheet busiuess was a competitor of the Newport RoUing Mill Co.,
because of the diversified line of our products,
Mr. Wooden. Who are your competitors on galvanized sheets?
Mr. Dorenbusch. Well, there would be Carnegie Illinois, Conti-
nental, Wheeling, Inland, Great Lakes, Jones & Laughlin.
Mr, Wooden, Weirton?
Mr, Dorenbusch. Weirton. All galvanized, sheet producers. I
don't know whether I have named all of them or not, but those are
the princij al ones.
Mr. Wc ODEN. Does your Newport Rolling Mill Co. sell galvanized
sheets over a wide territory, and if so, what?
Mr. Dorenbusch. Yes, we sell galvanized sheets most anjrwhere
in the United States.
Mr. Wooden. You mean you actually carry on business throughout
the country on galvanized sheets?
Mr. Dorenbusch. We do. That's right, sir.
Mr. Wooden. Referring to a copy of a letter dated August 17,
1935, addressed to Mr. A. K. Andrews, Footes Bay, Ontario, Canada,
and bearing the initials at the lower left-hand corner of A. A. D., did
you write the letter of which that is a copy?
Mr. Dorenbusch. Yes, I did write the letter.
Mr. Wooden, And Mr. Andrews, I believe you said, was president
of the company, your company?
Mr. Dorenbusch. He is president of our company; yes, sir,
Mr. Wooden. At the time the letter was written was he on vacation?
Mr. Dorenbusch. Apparently he was on vacation at his home in
Canada, his summer home.
Mr. Wooden. Mr. Chairman, I would like to offer the letter in
evidence.
. The Chairman. The letter may be received.
(The letter referred to was marked "Exhibit No. 2214" and is
included in the appendix on p. 14506.)
price discussions among competitors
Mr. Wooden. I should like to read it for the information of the
committee. The letter was written by the witness under date of
CONCENTRATION OF ECONOMIC POWER 14281
Mr. A. K. Andrews,
Fooles Bay, Ontario, Canada.
Dear Mr. A. K.: It was not definitely decided until late last evening to put
into effect for fourth quarter a one-price policy allowing the galvanized sheet
price to remain at $3.10 per 100 lb. for No. 24 gauge base f. o. b. Pittsburgh. A
few of the larger interests such as Weirton and Inland were in favor of reducing
the price to $3 base for No. 24 gauge f. o. b. Pittsburgh but this was finally
defeated and it was agreed to allow all prices to remain the same as now in effect.
The announcement of no further jobber allowance after October 1 will be made
by Continental on Tuesday of next week after which all mills can announce
likewise. We, of course, in the meantime will notify our people which no doubt
will be conducive of causing an influx of jobber business for shipment prior to
October 1st.
"It is my intention to discuss this with Mr. Little this morning so that we wiU be
prepared to take care of the rush that we like others will no doubt have during
the month of September.
"I discussed the automotive situation with Neil Flora last evening and he
informed me that while some little tonnage was placed several weeks ago, nothing
more has been done and that all the mills are holding firmly to their prices and
are expecting that additional tonnages will have to be placed soon."
May I digress there and ask you, Mr. Dorenbusch, who was Neil
Flora?
Mr. Dorenbusch. Mr. Flora is the secretary of the National
Association of Flat Rolled Steel Manufacturers.
Mr. Wooden. Including galvanized sheets?
Mr. Dorenbusch, Yes, that would include galvanized sheets.
Mr. Wooden. And where was he located?
Mr. Dorenbusch. In Pittsburgh.
Mr. Wooden. I continue with the letter:
I find that our tonnage booked up to last night (Friday) amounted to 2812
tons and this morning's mail brought several additional cars so we are hoping at
least to have 3000 tons for this week.
Do hope that your stay in Canada will be pleasant and that you will be greatly
benefitted by your vacation.
Sincerely yours,
AAD:GRK.
Tliat is all I wish to ask this witness.
Mr. O'Connell. I should like to ask a question or two. Mr.
Dorenbusch, you say in the letter that "it was not definitely decided
until late last night to put into effect for fourth quarter a one price
policy." By whom was it not decided?
Mr. Dorenbusch. By whom was it not decided?
Mr. O'Connell. By whom was it decided the night before?
Mr. Dorenbusch. Well, naturally, of course, when there is a
contemplated change in price which had been talked of in all our
trade papers, and so forth, and we were naturally interested in the
announcement of whatever quarter prices that was, we were in confid-
ence among ourselves at the office trying to [determine from various
sources around through our different offices what information they
might be able to gather on the streets, and so forth, as to when the
price would be put into efffect and what it would be.
Mr. O'Connell. That doesn't really answer my question, does it?
Mr. Dorenbusch. I am sorry.
Mr. O'Connell. By whom was it decided?
Mr. Dorenbusch. It was decided by our people, our meeting at
Lome.
Mr. O'Connell. You mean a meeting at which your company
only was represented?
14282 CONCENTltATION OF ECONOMIC POWER
Mr. DoRENBuscH. Yes, our inner company.
Mr. O'CoNNELL. The next sentence says, "A few of the larger
interests such as Weirton and Inland were in favor of reducing the
price to $3 base but this was finally defeated and it was agreed to
allow all prices to remain the same as now in effect."
Could you elaborate a little on what you meant by that?
Mr. DoRENBUscH. We may get information, of course. For
instance, our Chicago representative may be in touch with the various
offices of the various other companies and get their viewpoint and
get information like this which flows very freely at a time when we
are looking for this sort of information. So that is where that may
have come from.
Mr. O'CoNNELL. But the letter says "this was finally defeated and
it was agreed to allow all prices to remain, the same."
Mr. DoRENBuscH. That word "defeated" may of course be rather
ambiguous.
Mr. O'CoNNELL. Would you say the word "agreed" was also a
little ambiguous? You said it was agreed to let the fourth quarter
prices remain the same.
Mr. DoRENBuscH. Yes, that may be, also, putting it in that light.
Mr. O'CoNNELL. How did you loiow that Inland and Weirton
wanted to have lower prices?
Mr. DoRENBUSCH. Well, that may be common talk on the street.
Our district managers in Chicago of course are in touch with these
offices and they exchange information as to what they each know.
Mr. O'CoNNELL. The next paragraph starts —
The announcement of no further jobber allowance after October 1 will be
made by Continental on Tuesday of next week after which all mills can announce
likewise.
WTiat did you mean by that?
Mr. DoRENBUscH. We may have picked up that same information,
that they were going to announce such a thing and we naturally
would follows.
Mr. O'CoNNELL. You naturally would follow?
Mr. DoRENBUscH. Well, yes, that is about the only system we
have, being located as we are down in Kentucky. We are t<5o small
to lead.
Mr. O'CoNNELL. But at this time you knew that the following
Tuesday Continental was going to announce no further jobber dis-
counts, and that aU other mills, including your own, would adopt a
similar practice at the same time.
Mr. DoRENBUSCH. Yes; we may have picked that information up.
Mr. O'CoNNELL. How would you pick that information up?
Mr. DoRENBUscH. Well, if our men in the field would hear that
that was the case, that they were going to discontinue it, and others
would also, they would convey it to us, of course, and then also the
trade papers usually carry information to that effect.
The Chairman. May I suggest that that is a conditional answer.
The question has to do with the facts as they existed.
Mr. DoRENBUscH. Well, the facts would be the same, as I see it.
That is, the means we have of getting that information, of course, is
just through contact and asking questions.
The Chairman. Of course your letter is very definite, there is
nothing conditional about it at all. "The announcement of no further
CONCENTKATION OF ECONOMIC POWER 14283
jobber allowance after October 1 will be made by Continental on
Tuesday of next week after which all mills can announce likewise."
Now that sentence indicates specific knowledge, not only as to what
Continental is to do, but as to the date, the precise day on wliich is
is going to do, it. Now do you want the committee to understand
that you just picked this up out of the air in some vague manner,
but then when you wrote your letter conveyed it to the person to
whom you were writing as a clear and definite statement?
Mr, DoRENBUSCH. Well, we may have determined that at the time
by getting some information.
The Chairman. You say you may have. Did you or did you not?
Mr. DoRENBUscH. Of course I don't just remember the exact
details. That has been so long ago that I just don't know.
Mr. Wooden. You say, Mr. Dorenbusch, that after Continental
announced withdrawal of jobber allowances the following Tuesday,
that other mills, all mills can amiounce likewise. Couldn't they do
it before?
Mr. Dorenbusch. Oh, they probably could, yes, but of course
they all try to be competitive.
Mr. Wooden. What do you mean by being competitive, having
the same policy at the same time and changing it at the same time?
Mr. Dorenbusch. Not necessarily the same time, I think.
We never Icnow the detail of these things until we see them pub-
lished and then we do follow them.
Mr. Wooden. Where was it you discussed the automotive situation
with Mr. Neil Flora?
Mr. Dorenbusch. I discussed that over the telephone, no doubt.
Mr. Wooden. Didn't you get the information over the telephone
from Mr. Flora that you put into this IStter?
Mr. Dorenbusch. You mean about the automotive situation?
Mr. Wooden. No, about the first paragraph, about leaving prices
unchanged.
Mr. Dorenbusch. No; I don't suppose I got that from him.
Mr. Wooden. You don't suppose?
Mr. Dorenbusch. Well, I never discussed prices with Mr. Flora.
Mr. Wooden. You say in your letter that you discussed prices
with him about the automotive situation and he advised you that
the mills were all holding firmly to prices.
Mr. Dorenbusch. I don't believe that letter says that I duscussed
the prices in the automotive industry; I discussed the automotive
industry with him and that may be with regard to tonnages that had
b^en placed.
Mr. Wooden. You say that Mr. Flora told you that all the mills
are holding firmly to their prices.
Mr. Dorenbusch. Well, he may have. There may have been a
specific instance that I would have had at that time where one of the
automobile buyers would have said to either our salesman or to me
that they had placed a certain piece of business at a certain price, and
in that event I may have asked Mr. Flora if he knew anything about
it. Naturally we seek that information, and he is closer to the heart
of the industry than we are down our way. I may have asked him
that.
124401 — 41 — pt •?.~-
14284 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Do you mean that when you get a report of a cut
price that you take it up with Mr. Flora to find out whether he can ver-
ify it of not?
Mr. DoRENBUscH. No; I don't mean that. I mean that in seeking
or casting about for information of that kind, if there had been a
definite sale made I may ask Mr. Flora if he had heard anything about
it and as he did in this instance, according to that letter, he told me
that he hadn't heard anything about it, that everything was all right.
Senator King. Was the N. R. A. in force at that time?
Mr. Wooden. No; N. R. A. went out with the Schechter decision
on May 27, 1935. This was nearly 3 months later.
Mr. O'CoNNELL. A few moments ago yoii indicated in discussing
this question of the withdrawal of jobber allowances, that of course
your company had to be competitive. I take it that a withdrawal of
jobber allowances is in effect a price increase, isn't it?
Mr. DoRENBUscH. Well, it may mean a greater return to the mill,
that is right.
Mr. O'CoNNELL. That would mean a price increase. Is it your
conception of competition that whatever one of your competitors in-
creases prices that you, in order to be competitive, have likewise to
increase your prices?
Mr. DoRENBUscH. Yes; we do, because we are so small down there
that we certainly couldn't get a higher
Mr. O'CoNNELL (interposing). You are so small that you can't be
competitive.
Mr. DoRENBUSCH. Well, no; we wouldn't get a higher price.
Mr. O'CoNNELL. In this case you followed on a price increase.
Had you not followed Continental you would have been selling at a
lower price.
Mr. DoRENBUscH. That is right.
Mr. O'CoNNELL. Would that not have been competitive?
Mr. DoRENBUSCH. I don't get the question.
Mr. O'CoNNELL. Wouldn't that have been competitive to sell at a
lower price? You indicated that it was competition that required
you to some extent at least to follow Continental on the way up on
'the price increase. Would you not have been competitive had you
either reduced your prices or kept them lower than Continental prices
after this increase?
Mr. DoRENBUscH. I don't think so.
Mr. O'CoNNELL. You don't?
Mr. DoRENBUscH. No.
Mr. O'CoNNELL. Then competition to your mind is following some-
one else's prices.
Mr. DoRENBUSCH. Well, that is the system that is in effect.
Mr. O'CoNNELL. I know, I understand that is the system that is in
effect, I have no doubt of that, but you used that system as being
synonymous with competition and I was curious to get your idea of
what competition involved.
Mr. DoRENBUscH. Well, I just don't quite get you, I guess.
Mr. O'CoNNELL. No ; T think we are pretty far apart on competition.
The Chairman. It might be a very practical question so far as you
are concerned. Let me ask you, do you believe that competitors
should be permitted to consult with one another with respect to the
OONCENTKATlON OF ECONOMIC POWER 14285
price to be charged the pubUc for the goods the competitors both
produce?
Mr. DoRENBUscH. No; I don't think so.
The Chairman. You don't think that they should be permitted to
confer with one another and find out what prices are hkely to be, for
example?
Mr. DoRENBTTSCH. Well, it may be my own personal opinion that
it would be all right to confer on it, but not to agree on a price.
The Chairman. Well, has it been the practice, so far as your exper-
ience goes, for competitors to confer?
Mr. DoRENBUscH. No; it never has. I never have conferred with
any of our competitors.
The Chairman. But you have attempted to find out what your
competitors are going to do?
Mr. Dorenbusch. Very definitely; yes, sir.
The Chairman. And how do you do that?
Mr. Dorenbusch. Well, by contacts on the street. We have cer-
tain customers, of course, that have been loyal to us for years, that
'when they are approached by another company and led .to believe
there is going to be a change in price this way or the other, they will
pass the information on to us quite readily. We also get it through
contacts of our salesmen on the street.
The Chairman. Well, do you ever get it by conferences with the
heads of other firms and companies?
Mr. Dorenbusch. No, sir.
The Chairman. Who was this Mr. Flora that you mentioned?
Mr. Dorenbusch. Mr. Flora, as I mentioned a while ago, is the
Secretary of the National Association of Flat Rolled Steel Manufac-
turers, which takes in sheets, of course*; that is a flat-rolled product.
The Chairman. Well, you wouldn't object to conferring with a man
holding such a position with respect to prices?
Mr. Dorenbusch. Well, I never have. I've never conferred with
him on prices, only that I may ask him if he had heard of anything
of any lower — any business being placed at lower prices, where I had
information of a specific order having been placed at a price.
The Chairman. Now do I understand that you want the committee
to get the impression, from your testimony, that the conference to
which your first paragraph in this letter refers, was a conference solely
of your own officials and employees?
Mr. Dorenbusch. That's right.
Senator King. Let me ask the judge a question: Judge, didn't the
Sypreme Court of the United States, in the Sugar Institute case, say
that there was no objection to meeting and conferring if they didn't
fix prices? They could exchange their views.
Mr. Wooden. I think that's been the opinion of the Supreme Court
in other cases, particularly the Cement and Michigan Hardwood cases,
going back prior to the Sugar Institute case. In the Sugar Institute case
a basing-point system was involved, and the Supreme Court allowed
the injunction of the lower court to stand against it.
Senator King. The case to which I have just invited attention has
not been overruled by the Supreme Court. That is the law now,
isn't it, so far as the Suprenie Court of the United States may announce
what the law is?
14286 c;(>.\("i:N'in{A'j'JON of kco.nomjc rowEU
Mr. Wooden. So far as I laiow, the mere conference in itself may
not constitute an agreement. It may be evidence, however, from
which an agreement may be inferred with other circumstances.
Senator King. The point I am trying to get at, the Supreme Court
of the United States — persons engaged in the manufacture of shoes or
hnens or tobacco or anytJiing else may confer, exchange views, biii,
they may not fix prices. ,
Mr. Wooden. I think that's
Senator King (interposing). May not enter into an agreement for
the fixing of prices, but may exchange views with respect to the in-
dustry and its condition, and probably the denjand in the industry.
Mr. Wooden. I think that was . announced by the Court in the
Cement case and Michigan Hardwood case,' back in 1925, both decided
on the same day. ^
The Chairman. In these particular questions which I am directing
to the witness now, I am not trying to imply that there was any
violation of the law or that the witness or his company jWas doing
anything which has been condemned by the law, or whether as a
matter of fact there was any violation at all. 1 am just curious to
know how the price fixing— and I am using that now merely in the
sense of determining — the price-determining arrangement actually
works. Now you tell us that you were referring solely to a meeting
of your own employees and associates. It is difficult for me, therefore,
to interpret this first paragraph which I will read for you again:
It was not definitely decided until late last evening to put into effect for fourth
quarter a one price policy allowing the galvanized sheet price to remain at $3.10
per 100 lb. for No. 24 gauge base f. o. b. Pittsburgh. A few of the larger interests
such as Weirton and Inland were in favor of reducing the price to $3 base for
No. 24 gauge f. o. b. Pittsburgh but this was finally defeated and it was agreed to
allow all prices to remain the same as now in effect. ■ • ' -
Now would a person reading that paragraph not be justified in in-
ferring that a few of the larger interests were represented at the
meeting where the decision was re'ached?
Mr. DoRENBuscH. Well, it may give you the inference, of course,
but just where we got that information, as I say, gathered here, there,
.and other places, why
The Chairman (interposing). But you are telling us that they were
not represented at that meeting?
Mr. DoRENBUscH. Not at our meeting; no, definitely not.
The Chairman. And you are telling us that it was not your in-
tention at that meeting to decide upon a price which had already been
discussed and agreed upon by other competing companies?
Mr. DoRENBUscH. W^ill you repeat that? I didn't get that.
The Chairman. Well, at the time you wrote this letter, did you
know what the other companies were going to do with respect to
price?
Mr. DoRENBuscH.,i_Well, we evidently did from the tone of things
there.
The Chairman. And did you luiow that merely because you picked
it up on the street corner, or because you had pretty good official
information from the executives of your competitors?
Mr. DoRENBtrscH. No; we didn't have that sort of information
from the executives of our coir peti tors.
CONCENTRATION OF ECONOMIC POWER 14287.
The Chairman. Well now, what sort of information did you have
actually? You see, what I am trying to do is find out how you came
to this conclusion. There is no question of law violation involved,
and I am not trying to trap you. I am just trying to find out how
this system worked, in order to make clear in my own mind how it
ought to work.
Mr. DoRENBUscH. WcU, I don't know exactly how I got the in-
formation. I recall the letter and I get your inference there all right,
but just how we got it, through our various offices or men, through
theu* contacts, where it may have been let out here, there, and the
other place. Whenever a price is ready to be aimounced, really before
it is announced, usually some of the men on the street or in these
various offices arc out with it ahead of time and they pass it on to
customers and in that way our men pick it up, and naturally they
convey it to us immediately.
Mr. Wooden. Mr. Dorenbusch
The Chairman (interposing). Mr. Wooden, would you ])crmit me?
Mr, Wooden. I beg your pardon.
The Chairman. Let me read the whole of that last sentence:
A few of the larger interests such as Weirton and Inland were in favor of reducing
the price to $3 base for #24 gauge f. o. b. Pittsburgh but this was finally defeated
and it was agreed to allow all prices to remain the same as now in effect.
Now don't you think that a person reading that sentence would be
justified in the inference that there was a debate? Why did you use
the word "finally"?
Mr. Dorenbusch. Well, I don't know.
The Chairman. Now you are telling me that there was no debate,
there was no discussion, and there was no final defeat for anybod}^?
Mr. Dorenbusch. Only as we gathered that.
The Chairman. Where were they defeated and how?
Mr. Dorenbusch. Well, I don't know that.
The Chairman. You wrote it.
Mr. Dorenbusch. I know I wrote it.
The Chairman. All right.
Mr. Wooden. Mr. Dorenbusch, can you tell us whether your own
rtien picked this information up on the street late at nigJit? You
said that it was not definitely decided until late in the evening. Were
they out on the street picking up information late in the evening?
Mr. Dorenbusch. Our people, they may have heard it tlie next
morning.
Mr. Wooden. Well, but you said it wan't decided until "late last
evening."
Mr. Dorenbusch. Yes; I said that.
Mr. Wooden. Well, now, you wrote the letter the next morning,
didn't you?
Mr. Dorenbusch. That's right.
Mr. Wooden. Do you now say that you got the iufornuitiou tlio
next morning?
Mr. Dorenbusch. Yes; probably got it the next morning.
Mr. Wooden. But you talked to Mr. Neil Flora the evening
before?
Mr. Dorenbusch. No; not necessarily. I nuiy liavo talked to
him that morning.
14288 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Well, you paid in the letter that you discussed it
with Neil Flora last evening.
Mr. DoREKBuscH. Well, that was on another subject.
Mr. Wooden. But you said in the same paragraph that Mr. Flora
told you that aU the mills were holding firmly to their prices.
Mr. DoRENBuscH. WeU, of course that is a different subject en-
tirely than involved in the first paragraph.
Mr. Wooden. Were holding firmly to the prices?
Mr. DoRENBUscH. Prices that were in effect at that time.
Mr. Wooden. And that's what the paragraph says, that they were
going to continue to be held at the same prices instead of being re-
duced. That's correct, isn't it?
The Chairman. Any other questions?
Mr. Wooden. Nothing further.
The Chairman. You may stand aside. Any other witness?
Mr. Wooden. It was established yesterday, Mr. Chairman, by
testimony, that certain resolutions establishing certain commercial
practices with reference to the method of figuring delivered prices
had been continued in operation since the code, and that they con-
tinued in operation, so far as now shown, down to the present time.
Since the code itself, as has been testified, and as is apparent on the
face of the code, provided for the incorporation of the basing point
system in the code, and since it was shown yesterday that the industry
adopted resolutions continuing the fair competition provisions of the
code in effect after the Schechter case, I think it would be in order to
have a copy of the code itself in the record, and I submit one of the
publicly printed and distributed copies for that purpose.
The Chairman. Without objection the code may be received for
printing in the record.
(Tlie document referred to was marked "Exhibit No. 2215" and
is included in the appendix on pp. 14506-14530.)
The Chairman. Anything else, Mr. Wooden?
Mr. Wooden. I should like to caU attention to section 4, schedule E
of the code which has just gone in evidence, for the provision regarding
the method of quoting prices for delivery on an identified structure,
where the material was being fabricated m transit. Yesterday I had
the impression that it was a separate resolution, but I find it is a part
of the code itself and it was shown yesterday that that particular
provision continued in effect for quite some time after the code
itself was held invalid bythe Supreme Court.
I offered yesterday also certain of the commercial resolutions
adopted by the Board of Directors ' which were continued m effect,
specifically, according to the testimony, and I should like to offer
in supplementaton of those particular resolutions the remaining
commercial resolutions that were adopted by the Board of Directors
of the American Iron and Steel lastitute during the code period.
I make that offer of the other resolutions on the basis of the letter
of the United States Steel Corporation vice president, Mr. Olds,
which I read into the record, I think on Saturday, to the effect that
the Corporation officials knew of no amendments or modifications
of those commercial resolutions since June 1935. The volumfe which
I have contains several of the resolutions to which reference was
1 "Exhibits Nos. 2206, 2207, and 2208," appendix, pp. 1443.'i, 14436 and 14437-14441.
CONCENTKATION OF ECONOMIC POWER 14289
made ou the record yesterday aud which -were received yesterday. T
am offering the remainder of the resolutions.
The CHA-tRMAN. You are offonTie; tbeni to be filed with the com-
mittee?
Mr. Wooden. To be filed. I should like to make some arrange-
ment by which at least a duplicate may be provided and the original
copy retained in the files of the Federal Trade Commission.
The Chairman. The committee will be very glad to accept that
to file with the records.
Mr. Wooden. I may say the volume contains some so-called
commercial regulations which are of the same general nature as the
commercial resolutions and adopted under the same auspices.
The Chairman. Very well.
(The resolutions referred to were marked "Exhibit No. 2216" and
are on file with the coromittee,)
Mr. Wooden. I should also like to add a small additional portion
of the testimony given by W. A. Irvin, president of the United
States Steel Corporation, before the Senate Committee on Interstate
Commerce in March 1936, just a few lines. It appears on page 607
of the printed record of the hearings before that committee on S. 4055.
The Chairman. Now you were here yesterday when Mr. Grace was testifying.
Mr. Irvin. Yes.
The Chairman. He stated there were occasions when you came into his terri-
tory and underbid his base price. Have you anj' specific examples of that?
Mr. Irvin. I think I stated this morning that I thought he made that in a
rather facetious way. If I thought he intended it I would have resented it very
much.
I would like to call Mr. Widmann to the stand.
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. Widmann. I do.
TESTIMONY OF EDWARD T. WIDMANN, ATTORNEY, FEDERAL
TRADE COMMISSION, WASHINGTON, D. C.
Mr. Wooden. Mr. Widmann, wUl you state your full name and
business?
Mr. Widmann. Edward T. Widmann. I am an attorney with the
Federal Trade Commission.
Mr. Wooden. How long have you been there?
Mr. Widmann. Since 1934.
Mr. Wooden. Will you state whether or not you had occasion as
part of your oflBcial duties of the Commission to make any investiga-
tion of conditions m the steel industry?
Mr. Widmann. I did.
Mr. Wooden. When, on what occasion, and under what circum-
stances?
IDENTICAL BIDS IN THE STEEL INDUSTRY
Mr. Widmann. In 1936, the Federal Trade Commission undertook
an investigation of identical bids submitted by the steel producers^op,
steel sheet piling, wliich bids were submitted on piling to be used in
certain P. W. A. projects.
14290 CON( !]ONT11ATION OF ECONOMIC 1•0\^•K1^
Mr. Wooden. In that connection will you state whether or not
yon made any examination of the files and records of the American
Iron and Steel Institute?
Mr. WiDMANN. I did.
Mr. Wooden. Did you select and obtain copies of documents from
their files?
Mr. WiDMANN. I did.
Mr. Wooden. I show you certain documents. Will you state what
they are?
Mr. WiDMANN. These are copies of certain letters and documents
which we obtained from the American Iron and Steel Institute,
The Chairman. Which who obtained?
Mr. WiDMANN. Which I obtained from the American Iron and Steel
Institute.
The Chairman. In what manner?
Mr. WiDMANN. Pursuant to the investigation which I was making
of alleged collusive bidding on steel sheet piling by steel producers.
The Chairman. Did you get them from their files?
Mr. WiDMANN. Yes.
Mr. Wooden. Were the copies provided for you there or how were
the copies made?
Mr. WiDMANN. Some of the exhibits which we obtained were in the
nature of duplicate copies of letters of which they had extra copies.
They, the American Iron and Steel Institute, prepared copies of certain
other letters concerning which they did not have extra copies in the
files. Those copies which they made and submitted to us were,
however, compared with the original exhibits.
Mr. Wooden. Do you vouch for the correctness of the copies that
you have identified here?
Mr. WiDMANN. I do.
Mr. Wooden. I would like to offer them for the record, Mr.
Chairman.
The Chairman. The letters may be received.
Mr. WiDMANN. Letter, dated July 12, 1935, from the American
Iron and Steel Institute to the Lukens Steel Co.
(The letter referred to was marked "Exhibit No. 2217" and is in-
cluded in the appendix on pp. 14530-14532.)
Mr. WiDMANN. A letter, dated July 6, 1935, from J. Frederic Wiese,
assistant to vice president of the Lukens Steel Co., to R. K. Keas,
Secretary, Traffic Committee, American Iron and Steel Institute.
(The "letter referred to was marked "Exhibit No. 2220" and is
included in the appendix on p. 14532.)
Mr. WiDMANN. A letter, dated October 15, 1935, from the American
Iron and Steel Institute to H. C. Devine, purchasing agent of the St.
Louis-Southwestern Railway Lines.
(The letter referred to was marked "Exliibit No. 2221" and is
included in the appendix on pp. 14532-14533.)
Mr. WiDMANN. A letter, dated July, 18, 1935, from the American
Iron and Steel Institute to J. W. Rimmer, vice president of the Boston
and Maine Railroad.
(The letter referred to was marked "Exhibit No. 2222" and is
included in the appendix on p. 14533.)
Mr. WiDMANN. A letter, dated September 9, 1935, from the Ameri-
can Iron and Steel Institute to the Lockhart Iron and Steel Co.
CONCENTRATION OP ECONOMIC POWER 14291
(The letter referred to was marked "Exhibit No. 2223" and is
included in the appendix on p. 14534.)
Mr. WiDMANN. A letter, dated September 4, 1935, from the Lock-
hart Iron and Steel Co. to R. K. Keas, secretary, Traffic Committee,
the American Iron and Steel Institute.
(The letter referred to was marked "Exhibit No. 2225" and is
included in the appendix on p. 14535.)
Mr. WiDMANN. A letter, dated January 29, 1934, from the chairman
of the traffic committee. Iron and Steel Institute, to S. E. Hackett,
chairman. Commercial Committee of the American Iron and Steel
Institute.
Mr. Wooden. I would like to call attention to several pertinent
matters in them. I would like to call attention to "Exhibit No.
2226," which is a letter from the chairman of the traffic committee of
the Institute, one H. C. Crawford. Is that correct?
Mr. WiDMANN. That is right.
Mr. Wooden. H. C. C. are the initials — to S. E. Hackett, chairman
of the commercial committee of the Institute, written on January 29,
1934, while the code was still in operation. Mr. Crawford states:
The Traffic Committee recommends the passing of a resolution making the use
of Tariff No. 2 mandatory in the figuring of prices under the Code. While every
effort has been made to figure minimum rates, it is not humanly possible to obtain
accuracy in each and every instance, bearing in mind that the half million rates
published have been compiled by some hundred and fifty men'. As errors are
discovered the incorrect rate will be changed, but until the change appears in a
supplement to the tariff it is our opinion it should not be used for sales purposes.
Certain branches of the industry have for years followed such a practice. We
urge that, if possible, it be generally adopted.
The pomt there I think is clear, that the Institute publication of the
freight rates was to remain in effect until a supplement to it was
issued making any necessary corrections. In other words, even if a
rate were found to be incorrect the incorrect rate as published by the
Institute should be used until there was opportunity to change it by
a supplement to the tariff of the Institute.
Mr. O'CoNNELL. In that connection I take it it is your point that
the purpose of doing that was to insure imiformity in that element of
price by all steel producer's.
Mr. Wooden. Yes. As a matter of fact, the recitation of the
resolution ' putting into effect these freight tarifis compiled by the
Institute so recited, that it was to implement and make effective the
calculation of delivered prices which were fixed under the code in the
basing-point system, plus all-rail freight to destination. I think it was
the testimony of Mr. Fairless that they used the freight book of the
Institute during that period. I mean by that period the period of the
code, although I believe that they haven't found it necessary to use it,
according to his testimony, since.
Mr. O'Connell. i\.ccording to his testimony they did not always
use it.
Mr. Wooden. The record will show; I am not perfectly clear on it
myself.
1 would hke to call attention also to "Exhibit No. 2220," dated
July 6, 1935, which is after the code wns invalidated, a letter by the
1 "KNliibit No. 1!208," ap|ipii(.li\, r'. I44:i7-!U1I.
14292 CONCENTRATION OF ECONOMIC POWER
Lukens Steel Co, to R. K. Keas, secretary of the traffic committee
of the Institute, July 6, 1935. It says:
As you know, we sell Locomotive Firebox and Boiler Steel to most of the
railroads in the country. From time to time the Institute has sent us figures
representing divisions and mileages incident to quoting the railroads under the
provisions of A-8.
A-8 was one of the commercial resolutions.
However, of the total railroads purchasing Lukens' steel a very few have sub-
mitted the necessary figures. Can't you possibly furnish us with the figures
pertaining to the balance of the railroads? Certainly these figures must be
available by this time as the practice of quoting under the stipulations of A-8
has been followed for a good many months.
It is most difficult to figure the proper prices and freight allowances now since
the emergency rate became eS'ective.
This is after the code.
So many individual problems come up; for instance, you have furnished us with
figures relative to the CJiicago & P^astern Illinois Railroad. That tabulation of
figures shows a 20 switching charge for Dalton, 111. This means that the balance
of the through rate from Coatesville to Dalton was considered as prorate. Has
the emergency charge increased this switching charge by 10% or has that rate
remained constant, thereby increasing the prorate by 20? Anything you can do
for us in this connection will certainly be appreciated.
I merely say that there are other letters among these exhibits re-
lating to the method of figuring freight in the Institute freight-rate
book, and which call attention to errors in them and make reference
to the necessity or the practice of getting the Institute fre^ight-rate
books corrected before the correct rates themselves were used.
Mr. Wooden. Do you identify these as obtained by you from the
same source under similar circumstances?
Mr. WiDMANN. I do.
Mr. Wooden. I offer them in evidence.
The Chairman. They may be received.
Mr. Wooden. The first is a latter, dated November 27, 1935, from
Arthur C. Garvey, general traffic manager of the Readmg Iron Co.,
to E. T. Butler, secretary of the Traffic Committee of the American
Iron and Steel Institute.
(The letter referred to was marked "Exhibit No. 2228" and is in-
cluded in the appendix on p. 14536.)
Mr. Wooden. The next letter, dated December 2, 1935, is from
W. H. Gantt, assistant traffic manager of the Bethlehem Steel Co.,
to E. T. Butler, American Iron and Steel Institute.
(The letter referred to was marked "Exhibit No. 2229" and is in-
cluded in the appendix on p. 14536.)
Mr. Wooden. Now- "Exhibit No. 2228" is a copy of a letter from
the General Traffic Manager of the Reading Iron Co. to E. T. Butler,
the secretary of the traffic committee of the Institute, dated Novem-
ber 27, 1935, which is 6 months or more after the code was invalidated.
The writer says;
Tariff No. 3 shows LCL rate, Coatesville, Pa. to Albemarle, N. C, 680.
In Eastern Points-Carolina Tariff I. C. C. 646, the LCL rate from Coatesville
to Albemarle, N. C. is 57..50.
You doubtless will desire to have the lower rate pnljlished in lieu of the 680
I'ate.
"Exhibit No. 2229" is a letter from W. H. Gantt, assistant traffic
manager of the Bethlehem Steel Company, to E. T. Butler, American
Iron and Steel Institute, dated December 2, 1935, and saying:
COJSrKNTlJATlON OF EOONOMIC rowEu 14293
In reply io your letter o[ November 29th, in connection witli which you sub-
joined a letterfrom a subscriber with reference to the proper rate on less carload
shipments from Coatesville, Pa., to Albemarle, N. C.
The less carload freight rate of 68 cents per 100 pounds, as shown in Institute
Freight Tariff No. 3, is in error. The correct basis is 57^2 cents. We are taking
the necessary steps to have this erroneous rate rectified in next supplement to
tariff in question.
In that general connection, I should like to call the committee's
attention to one of the findings of fact made by the Federal Trade
Commission in the Pittsburgh Plus Case, regarding freight tariflFs in
use at that time. It is in paragraph 14 (n) of the findings:
The freight tariffs are complicated and oft times there are two or more different
freight rates between two points given in the different tariffs. The freight traffic
expert's duty under the Pittsburgh plus system is to find the lowest rate existing
from Pittsburgh to every consuming point. Different traffic experts might not
arrive at the same results, and therefore a uniform freight rate book is absolutely
necessary in order that the steel producers may reach absolutely uniform Pitts-
burgh plus prices.
I have nothing further to ask Mr. Widmann.
The Chairman. You may stand aside.
Mr. Wooden. Mr. White.
The Chairman. Mr. "WTiite, you have already been sworn, haven't
you?
Mr. White. Yes, Mr. Chairman.
TESTIMONY OF HUGH E. WHITE, FEDERAL TRADE COMMISSION,
WASHINGTON, D. C— Resumed
Mr. Wooden. Mr. White, in the course of your duties with the
Federal Trade Commission did you also have occasion to examine the
files of the American Iron and Steel Institute in connection with the
same investigation that Mr. Widmann has just testified about?
Mr. White. Yes; I was designated by the Commission as the exam-
iner in charge of that investigation. Together we made the investiga-
tion to which Mr. Widmann referred.
Mr. Wooden. Mr. White, I show you a letter addressed to H. C.
Crawford, chairman of the traffic committee of the Bethlehem Steel
Co. and ask you to tell us what it is.
Mr. White. It is a copy of a letter, or rather a copy of a copy of a
letter which appeared in Investigation File 1-9268, which was secured
from the files of the American Iron and Steel Institute on or about
April 6, 1936.
Mr. Wooden. I should like to offer it for the record now.
The Chairman. It may be received.
(The letter referred to was marked ''Exhibit No. 2230" and is
included in the appendix on pp. 14536-14537.)
Mr. Wooden. I should like to direct the committee's attention to
the nature of this letter, the substance of it. It is dated April 11,
1935, which was just about a month before the invalidation of the
N. R. A. It is a letter from the Youngstown Sheet and Tube Com-
pany to H. C. Crawford, chairman of the traffic committee, care of
Bethlehem Steel Company. •
On February 22 we replied to your letter of February 12 relating to the disposi-
tion of fractions in the quoting of delivered prices. This proposal, as we under-
stand it, is concerned only with delivered prices, but in view of the recent develop-
ment at Canton, Mississippi, we believe that there should be included in this
14294 CONClONTJtATION OF ECONOMIC POWEU
proposal a ruling to the effect that where it is necessary to name a basing point
price for discount purposes, the same rule regarding fractions should apply.
We are sure that your Pipe Department is familiar with the Canton, Mississippi,
job, to which we refer. There was involved on a PWA project approximately
$60,000.00 of pipe, on which all bidders named a uniform delivered price, decimals
being carried in two places, in accordance with usual practice.
It was necessary to name a basing point price for discount purposes, and two
concerns carried the basing point price to three places, one concern, however,
making a mistake in figuring the price, but the successful bidder, which was
Republic, has been awarded the business because carrying the basing point price
to three places resulted in their bid being 12 cents low —
12 cents low on $60,000 by using three decimal places instead of two.
Unless you include a ruling on basing point i)rice, as well as delivered price,
this will no doubt happen again.
Now, Mr. White, I call your attention to a statement that appears
in "Exhibit No. 1418" on page 34. The statement on page 34 to
which I refer is as follows. It is a statement made by the United
States Steel Corporation in its pamphlet. It says in brief that in
spite of the tendency toward uniformity or identity of bids on Govern-
ment business, identical bids on governmental contracts are by no
means the general rule.
An examination of records covering Federal Government awards for steel prod-
ucts made at Washington, D. C, during 1938 and the first quarter of 1939, indi-
cates that such awards aggregated approximately $10,550,000, of which about
80 per cent in value went to the lowest bidder and only about 16.5 per cent in
value by lot on account of identical bids. The balance of 3.5 per cent was awarded
on a basis other than price.
Air. "White, have you analyzed the underlying data which the Cor-
poration provided and submitted as the basis for that statement which
I have just read?
Air. White. I have, and I think by way of explanation it should
be said that those data were submitted in two volumes, one for the
year 1938, which appears in the record as "Exhibit No. 2211," and
those contained in another volume, captioned "Government Tonnage
Record, First Quarter, 1939," and appearing in the record under
"Exhibit No. 2210."
We have examined these data and in order to make absolutely cer-
tain that no errors occurred in the amounts, we balanced the pages
of each of the exhibits, treated the years separately, and then treated
them in their entirety.
Air. Wooden. Will you state the results of your analysis?
Air. White. Let me say first it was observed that there were a
number of commodities here which were recognized as being other
than steel products. I believe the statement to which you referred
in "Exhibit No. 1418," page 34, referred to or mentioned only steel
and products of steel.
Air. Wooden. The statement on page 34 is as to steel products.
Air. White. First it was noticed that there were a considerable
number of other than steel products, among them being such com-
modities as cement and various others which were clearly distin-
guishable from steel.
Next it was observed that there were a considerable number of
bidders who were not listed in the Iron and Steel Works Directory of
the I"^nited States and Canada, published by the Iron and Steel
Institute as steel producers. We first indicated by symbols, in order
to bring these diflPerent categories together, those that were producers
CONCENTRATION OF ECONOMIC POWEIl 14295
of rolled steel and those that were not, then we segregated the com-
modities" that were recognized as rolled-steel products and those that
were not, and again segregated commodities that were products of
these rolled forms. All of that has been expressed in tabular fonn on
the sheets which you have before you.
Mr. Wooden. I would suggest, Mr. Chairman, that the tabulation
made by Mr. White, to which he refers, be admitted to the record,
and that the Steel Corporation have an opportunity to examine it.
The Chairman. It may be admitted.
(The tabulation referred to was marked "Exhibit No. 2231" and
is included in the appendix on p. 14538.)
Mr. Wooden. Will you proceed, Mr. White, with your statement
of the results of your analysis?
Air. White. The tabulation which has just been received is made
by using the same measurements that the Corporation used, that is
tlie volume of business in dollars and cents. I have a memorandum
here which for brevity might be ofFej'.d foj- the record, showing the
number — or rather the percentage — of the total rolled products on
which bids were made by producers of those forms which were alike
and on which award was'made by lot, and the percentage ^v^hich were
unlike.-.
Mr. Wooden. Mr. White, the figures given in the Corporation
pamphlet, "Exhibit No. 1418," show the total of $10,550,000 for
steel products. What was the total amount of rolling mill steel prod-
ucts that you were able to find in the underlying material that the
Corporation submitted?
Mr. White. The total value of the rolling mill products, both
years, was $4,193,926.55.
Mr. Wooden. Were you able to account for the remainder of
$6,000,000 in the $10,550,000 figure?
Mr. White. No; I didn't recognize any additional items as being
in the form of rolling mill products.
Mr. Wooden. Do the underlying data contain, however, a number
of other steel products than rolling mill products?
Mr. White. Yes; the aggregate amount of which is shown as
$16,080,635.26.
Mr. Wooden. What kind f^i products are included other than
rolling mill products that you found in this tabulation?
Mr. White. Well, there are large quantities of armor plate, which
to the best of my information is rather a forged product than a rolled
product. Then there are -car wheels, or truck wheels — I have forgot-
ten just exactly' how they are expressed — which may be rolled by a
different process than the rolling mill. Then there are, I believe,
listed cranes and cable; cable especially is made in a large variety, of
forms, and where the cable was not distinctly recognized as copper
cable, of which there is a considerable quantity, that was put into the
category of steel products, without any definite knowledge whether
they were entirety steel or cable with a steel center.
Mr. Wooden. You mean you put them m your analysis?
Mr. White. Yes.
Mr. Wooden. In other words, you gave the Corporation the benefit
of the doubt on th.^t point?
Mr. White. Yes. I might say hi that respect, too, that the symbols
here have been carried throughout the tabulation so if it is desireH to
check them it may be done.
14296 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. Do I understand, then, that you can Jfind m this
underlying data only some four million dollars' worth of rolling mill
products as against the $10,550,000 siated on page 34 of "Exhibit
No. 1418"?
Mr. White. Yes; something less than four and a quarter millions.
Mr. Wooden. Now did your analysis go to the point of ascertaining
the percentage of identical bids on the rolling mill products, considered
separately?
Mr. White. Yes, sir. They are not shown on the tabulation, but
in a separate memorandum here which is somewhat detailed.
Mr. Wooden. I would suggest, Mr. Chairman, that this separate
tabidation, to which Mr. White refers, be admitted to the record.
The Chairman. It may be admitted.
(The tabulation referred to was marked "Exhibit No. 2232" and is
included in the appendix on p. 14539.)
Mr. Wooden. Will you proceed to state, Mr. White, what your
analysis showed or shows as to the percentage of identical bids on
rolling mill products in the underlying data which the Corporation
submitted?
Mr. White. Referring first to the rolling mill products and the
awards made to producers of those products, the tabulation shows
that there were 514 bids, of which 138 were tie bids, or a percentage
of 26.85.
Mr. Wooden. You mean by tie bids that they were identical in
every respect?
Mr. Wh^ te. I am using the language that was used in the tabula-
tion. I assume that's what is meant.
Mr. Wooden. All right.
Mr. O'Connell. You say 514 bids. Do you mean 514 bid openings
or that many bids?
Mr. White. There were that many awards.
Mr. O'Connell. So that the number of bidders would be many
more than that?
Mr. White. Yes, sir.
Mr. Wooden. You gave the percentage.
Mr. White. Yes, the balance of course were 376, or a percentage of
73.15.
Mr. Wooden. That fs for the producers of rolling mill products?
Mr. White. Yes.
Mr. Wooden. Now did you analyze separately the underlying data
with reference to bids by nonproducers?
Mr. White. Yes. Now these nonproducers, it will be understood,
of course, are those that are not specifically listed as producers of
rolled steel shown in the Iron & Steel Works Directory of the
United States and Canada. The number of awards to nonproducers
was 182, of which 16 were tie bids, a percentage of 8.79. The unlike
bids were 166, which is a percentage of 91.21. Now taking the total
of bids on rolling mill products, we find there were 696, of which 154
or 22.13 percent were tie bids.
Mr. Wooden. Now what did you find with reference to your
analysis of the bids contained in this underlying data for steel products
other thau rolling mill products?
Mr. White. For all other steel products, number of awards to
pro(hicers of rolling mill products wns 421, of which 55 were tie bids,
CONCENTRATION OF ECONOMIC POWER 14297
or a percentage of 13.06. The number of awards to uonproducers of
those products was 784, of which 104 were tie bids, or a percentage of
13.27.
The Chairman. As I understand this testimony, Mr. Wooden,
Mr. White is testifying that he has examined the underlying data
prepared by the United States Steel Corporation.'
Mr. Wooden. Yes, sir.
The Chairman. From which whoever prepared this memorandum
on the basing point system for the United States Steel Corporation
drew the conclusion that [reading]:
an examination of records covering Federal Government awards for steel
products made at Washington, D. C, during 1938 and the first quarter of 1939,
indicates that such awards aggregated approximately $10,550,000, of which
eighty percent in value went to the lowest bidder and only about 16.5%
in value by lot on account of identical bids. The balance of 3.5% was
awarded on a basis other than of price.
Mr. Wooden. That's right.2
The Chairman. Mr. White's testimony, then, is that this data
which he has examined does not appear to support this statement.
Mr. Wooden. That's -correct.
The Chairman. May I ask whether the Federal Trade Commission
has had any of its representatives examine the original data of
Governmental awards?
Mr. Wooden. Not with reference to these particular transactions.
The entire data on which Mr. White bases his analysis are the data
furnished by the Corporation as the underlying data for its general
statement.
The Chairman. Well, of course, the facts, I suppose, could be
easily ascertained by examining the actual awards by the Federal
Government.
Mr. Wooden. It could be, yes.
The Chairman. That would determine from those awards whether
or not there were identical prices in only the proportion indicated
in this memorandum.
Mr. Wooden. Yes.
The Chairman. It is conceivable to the Chairman that there
might be an error in the compilation of this data. There might also
be an error in the examination of it, unless Mr. White and the person
who prepared the data were in agreement with respect to the meaning
of particular figures.
Mr. Wooden. That's true. Did you make your analysis, ]Mr.
White, on the basis of dollar volume or upon the number of biddings,
separate bids and lettings?
Mr. White. The analysis which has been referred to is on the
basis of volume entirely.
Mr. Wooden. In other wofds, the same basis that the Corporation
used?
Mr. White. Yes.
Mr. Wooden. Dollars and cents?
Mr. White. That's right.
M'-. Wooden. Is it entirely possible or even probable that a differ-
ent ] —rcentage would be shown if based upon the number of bid
1 "Exh. lits Nos. 2210 and 22n", appendix, pp. 14444-14457 and 14458-14505.
2 Aftei necessary corrections were made in Mr. White's testimony upon his recheck of tho un 'erlyinn
data it appears that the Corporation's statement just quoted was subsfsntially rorrcet.
1429S C().Nt;ENTUATlON OF ECONOMK" I'OWKK
invitations rather than upon the value involved in the particular
invitations?
Mr. White. A quite different showing on percent, Mr. Wooden.
I am a httle embarrassed by not having before me the facts in that
respect. I thought they had been prepared and were included with
these which came up since we arrived here, but they have not
apparently.
Mr. Wooden. Well, can you state from recollection approximately
what the difference was?
Mr. White. No; I don't thmk I should do that, Mr. Wooden.
There should be a strictly accurate reply made to that question.
Mr. Wooden. Can you say whether it was less or more than the
percentages shown on the basis of volume?
Mr. White. No; I don't think I should say they are f^ more
or less.
Mr. Wooden. You will have that material soon, will you?
Mr. White. Gladly. It will be ready for submittal this afternoon
if it is desired to have it.
Mr. Wooden, Have you finished with your statement regarding
the percentage of awards for these steel products other than rolling
mill products?
Mr. White. 1 think so. I don't think anything can be added to
what is already said.
Mr. Wooden. Can you say whether or not. these steel products
other than rolling mill products are sold on a basing point system or
whether they are sold at delivered prices, or do you know anything
about that?
Mr. White. Well, I distinctly recognize one, perhaps more, as
being sold on that basis, and I think there are one or two more which
I am a little hesitant about specifying. ^
Mr. Wooden. Will you state, if you can, how you can account for
the fact that the corporation says the value involved in these biddings
on steel products is $10,550,000 approximately, while you were unable
to find more than $4,193,000 of rolling mill products? Where would
the difference come in?
Mr. White. Well, their designation, you will notice, their category
consists
Mr. Wooden (interposing). Page 34 ^ refers to steel products only.
Mr. White. Steel products. Well, I undertook to segregate what
I recognized as rolling mill products from other steel products, and
since there is a total of only a little over four millions of rolling mill
products, they must have been referring to fabricated products as well.
Mr. Wooden. Do you know whether any of these products other
than rolling mill products are priced on a basing point system?
Mr. White. No; I don't think I should say that I know that defi-
nitely, Mr. Wooden. I suspect some '^f them are.
Mr. Wooden. Mr. White, I direcu your attention to a statement
that appears on page 99 of "Exhibit No. 1418," the corporation's
pamphlet on the basing point system, reading as follows:
The capacity of the industry, inchiding reserve capacity, is not more than suflB-
cient to supplv tlie needs of the country during periods of high demand such as
1929, 1937 and the present time.
1 Of "Exhibit No. 1418."
CONrKNTKATION OF ECONOMIC PO^^•EIl 14299
RELATION OF PRODUCTION TO CAPACITY, 1901-38
Mr. WooBEN. I will ask you if you have made any compilation or
showing of the relation of capacity to production, based upon the data
supplied by the Corporation itself in "Exhibit No. 1409."
Mr. White. I have.
Mr. Wooden. TeU us what you did, please.
Mr. White. I plotted the figures with respect to total ingot capac-
ity shown
Mr. Wooden. Pardon me, before you do that I would like to direct
your attention at the same time to the statement on page 45 of
"Exhibit No. 1418," that the total capacity of the industry "includes
reserve capacity barely sufficient to supply peak demands."
Mr. White. Well, the best answer to that, Mr. Wooden
Mr. Wooden (interposing). Just go ahead with your statement
regarding what you did.
Mr. White. 1 would say that we have plotted total capacity shown
in Exhibit 1409, ingot capacity, for the years
Mr. Wooden (interposing). Is that for the entire industry?
Mr. White. For the entire industry. It shows both the entire in-
dustry, total United States as expressed here, and also United States
Steel separately. What I have done is merely to repeat what I notice
to be substantially the graph shown in that same exhibit, page 191.
Mr. Wooden. By same exibit you mean "Exhibit No. 1409"?
Mr. White. That is correct, and added thereto a production line
which is plotted from total ingot production appearing on page 198 of
that exhibit.
Mr. Wooden. I offer for the record this chart entitled "Total ingot
capacity. United States (gross tons), years 1901-38."
The Chairman. It may be admitted.
(The chart referred to was marked "Exhibit No. 2233" and is in-
cluded in the appendix. on facing p. 14539.)
Mr. Wooden. Now, Mr. White, on the basis of this exhibit can you
find any support for the statements in the corporation's pamphlet * to
which I directed your attention, to the effect that the capacity is not
more than sufficient to supply the needs of the country during periods
of high demand and that it includes reserve capacity barely sufficient
to supply peak demands?
Mr. White. Assuming the needs of the country to be the produc-
tion, or the amount produced, I can't find a basis for the statement
Mr. W^ooDEN. Take the year 1929, to wliich the corporation refers,
what was the approximate percentage relation of production to capac-
ity in that year?
Mr. White. I haven't the result expressed in percentages, Mr.
Wooden.
Mr. Wooden. Well, the chart shows that it was a fairly substantial
amount below the capacity, does it not?
Mr. White. Yes; somewhat.
Mr. Wooden. The percentage could be worked out from the under-
lying figures, could they not?
Mr., White. Somewhat less.
• "Exhibit No. 1418."
12'149i— 41— pt. 27
-14300 CONCENTRATION OF ECONOMIC POWER
Mr. Wooden. What about 1937, to which the corporation also
refers as saying that the capacity is not more than sufficient to supply
the needs of the country during 1937?
Mr. White. That shows there was a considerable excess.
Mr. Wooden. Much more than 1929?
Mr. White. A production of approximately 52,000,000 tons whereas
the capacity was in excess of 70,000,000.
Mr. Wooden. Does this chart show any periods when the capacity
of the United States Steel Corporation alone was equal to supplying the
entire demand or production at certain periods?
Mr. White. Yes ; it shows five occasions in which that might be so.
Mr. Wooden. What were those years?
Mr. White. 1908, 1921, 1932, '33, and '34.
The Chairman. In other words, during the entire period from
1901-38 the capacity of the United States Steel Corporation by this
exhibit is shown with the exception of these years which you have just
mentioned to have been considerably less than the actual total pro-
duction of the United States during those periods.
Mr. White. That is true.
The Chairman. It is also to be observed from this exhibit that in
1901, the United States Steel capacity was slightly under 10 and the
total capacity of the United States was sHghtly over 20, so that at that
time in 1901, United States Steel's capacity was approximately 50
percent of the total capacity of the United States, and that that pro-
portion remained somewhat stable until about 1907 or 1908 and that
since that time the total capacity of the United States has grown
much more rapidly than the capacity of the steel corporation. That
is correct, is it not?
Mr. White. Yes, sir.
The Chairman. So that today the United States Steel Corporation
has the power to produce a considerably smaller proportion of the
output than the United States as a whole can produce.
Mr. White. That is true, there has been a declining percentage.
The Chairman. And in these years of 1927, '28 and '29, and in
1936 and '37, the total production of the United States was apJDarently
approximately twice as great as the capacity of the United States
Steel Corporation.
Mr. White. Yes; more than that. It wiU probably be noticed in
this graph that there has been a continuous increase from 1901 to
1938 in the total capacity of the country with the exception of the year
1926. Now it may be worth noting that there is an explanation con-
tained on page 191 of "Exhibit No. 1409" which says that that was
due to a readjustment of capacity data by the American Iron and Steel
Institute rather than an abandonment of facilities to produce steel.
That statement was corroborated by the press and it is pretty well
known what happened at that time. There was a committee of the
American Iron and Steel Institute appointed to survey or resurvey
the total ingot capacity, with the result that there was a temporary
reduction shown here in 1926.
Mr. Wooden. That showing is for the total ingot capacity. Would
there be a different showing if you took it by various products?
Mr. White. This showing is only as to ingots of which the rolled
products are made.
CONCENTRATION OF ECONOMIC POWER 14301
Mr, Wooden. Have you made any study of the situation regarding
excess capacity as to any particular product, rolling mill product?
Mr. White. Yes.
Mr. Wooden. What?
Mr. White. On hot rolled sheets and hot rolled strip.
Mr. Wooden. Will you state what you did in that connection?
Mr. White. I have listed the capacities of the p oducers of hot-
rolled sheets and hot-rolled strip, 16 of them individually, showing
each capacity for sheets and strip and the total as given in the Ameri-
can Iron & Steel Works Directory for the United States and Canada
published by the American Iron & Steel Institute for the year 1938.
Mr. Wooden. Did you plot the results of that study in chart form,
in graph form?
Mr. White. I first compiled the capacities of these 16 producers
and
Mr. Wooden (interposing). What 16 producers?
Mr. White. Sixteen producers of hot-rolled strip and hot-rolled
sheets showing that their capacity for both forms was 12,862,500
gross tons.
The Chairman. The committee will stand in recess now until
2 o'clock.
(Whereupon, at 12:40 p. m., the committee recessed until 2 p. m. of
the same day.)
afternoon session
The hearing was resumed at 2:20 p. m., upon the expiration of the
recess.
The Chairman. Are you ready to proceed, Mr. Wooden?
Mr. Wooden. Yes, sir.
The Chairman. The committee will be in order,
TESTIMONY OF HUGH E. WHITE, FEDERAL TRADE COMMISSION,
WASHINGTON, D. C— Resumed
EXCESS CAPACITY IN PRODUCTION OF SHEETS AND HOT-ROLLED STRIP
Mr. Wooden. Mr. White, when we recessed at noon you were just
on the point of making a statement with regard to your study of the
conditions as to excess capacity in the production of sheets and hot
rolled strip, I believe, is that right?
Mr. White. Yes, sir.
Mr. Wooden. Will you proceed with your description of what you
did and what you found in the course of that study?
Mr. White. I prepared a tabulation showing the total capacities
for hot-rolled sheets and hot-rolled strip as shown by the Iron and, Steel
Works Directory of the United States and Canada, published by the
American Iron and Steel Institute for the year 1938. I have also shown
the capacities of 16 of those principal producers.
Mr. Wooden. How many producers in all did you find listed in the
directory for the industry?
Mr., White. Fifty-two.
Mr. Wooden. And what did the figures show for the 16 that you
listed?
14302 CONCENTRATION OF ECONOMIC POWER
Mr. White. They showed a combined capacity of 12,862,500 tons
for 16 companies and a total capacity of the United States for 52
companies of 14,949,950 tons.
Mr. Wooden. Do you mean to say that 16 out of 52 companies had
a combined capacity that was six-sevenths, approximately, of that
of the entire sheet production, sheet and hot-rolled strip production?
Mr. W^HiTE. That is correct.
Mr. Wooden. Did you put your figures in the form of a chart or
graph?
Mr. White. I did.
Mr. Wooden. Will you let me have that, please?
Mr. Chairman, I offer for the record a table entitled "Total United
States Capacity for the Production of Hot-Rolled Sheet and Hot-
Rolled Strip Steel, 1938" and a graph entitled "Total Capacity, United
States, for Production of Hot-Rolled Sheet and Hot-Rolled Strip
Steel; Annual Capacity of the 16 principal Producers; and Production,
United States."
The Chairman. They may be admitted.
(The table and graph referred to were marked "Exhibits Nos. 2234
and 2235," respectively, and are included in the appendix on pp.
14540 and 14541.)
(Mr. O'Connell assumed the chair.)
Mr. Wooden. Mr. White, referring to "Exhibits Nos. 2234 and
2235," can you tell me whether those figures show that the 16 principal
producers of sheets and hot-rolled strip have a capacity ,to produce
more than twice what was needed during 1938?
Mr. White. That is correct. The tabulation shows production
ratio to capacity to have been 45.3 percent. That is of the 16 com-
panies. Total production to total capacity was 39 percent.
Mr. Wooden. In other words, there was about two and a half times
as much capacity to produce sheets and hot-rolled strip ais there was
need for during 1938. Is that cgrrect?
Mr. White. That is what the figures contained in the Iron and
Steel Works Directory and the production figures contained in the
annual statistical reports of the American Iron and Steel Institute
'for 1938 showed.
Acting Chairman O'Connell. You refer to need as synonymous
with production?
Mr. Wooden. Yes; I intended to say that, need as shown by the
amount of production.
Mr. Wooden. Now Mr. White, you were unable to state before
noon what the results of your analysis of "Exhibits Nos. 2210 and
were 2211" were when figured on the basis of number of invitations
rather than on the basis of value — total value.
Mr. White. Mr. Wooden, the figures given just before the luncheon
adjournment were, I find, for the number of bids received, and not
for
Mr. Wooden (interposing). You now have it for value, then?
Mr. White. Yes. The percentage of identical bids by the pro-
ducers of rolled products received on the rolled products was 12.67;
that is, column 6 divided by colurmi 2 of the tabulation shows that
ratio.
Mr. Wooden. Do I understand that 12 — what was the decimal
point figure?
CONCENTRATION OF lOOONOMlC POWKIt 14303
Mr. White. 12.67.
Mr. Wooden. 12.67 percent of the rolled steel products on » value
basis were identical. Is that right?
Mr. White. That is of tltose bids made by the rolled steel pro-
ducers.
Acting Chairman O'Connell. I am not clear. The 12.67 is that
on a basis of value of the commodity or on the basis of number of bids?.
Mr. White. That is on the basis of value.
Acting Chairman O'Connell. And the figure this morning of 26
poipt something was based on the number of bid openings. Is that
conect?
Mr. White. That's correct.
Acting Chairman O'Connell. And that in turn is based upon a
break-down of the $10,500,000 figure shown in "Exhibit No. 1418"
submitted by the Steel Corporation as showing
Mr. White (interposing). No, its
Acting Chairman O'Connell. (interposing). Percentage of Gov-
ernment purchases of steel during a given period with purchases-
Mr. White (interposing). That is not quite correct, Mr. Chairman.
It was the break-down of data furnished in response to request for
data which underlies that statement to which vou refer.
Mr. Wooden. Now Mr. White, I want to bring your attention to a
statement made by the corporation in "Exliibit No. 1418" on page 95,
to the effect that "the capital investment per ton of steel is high and
the annual turnover is relatively low compared with many other
industries." Have you made any compilation with reference to the
subject of capital investment per ton of steel?
Mr. White. I have made only a limited and rather hurried examina-
tion in response to the question asked by Senator King the other day,
and from
Mr. Wooden (interposing). Will you state what you did and what
results you have?
Mr. White. I took the financial analysis of the steel industry for
the past 11 years as published in the magazine Steel, various annual
issues of the magazine Steel for those years, 1928 to 1938 inclusive,
and I selected nine of the companies, or all of those companies having
ingot capacity in excess of 1,000,000 tons. This tabulation purports
to show the rated ingot capacity of those companies for the respective
years, the capitalization per ton of ingot capacity, total earnings per
ton of ingot capacity, and percent of total earnings on capitalization.
Of course I don't vouch for these figures; they are merely indications
and submitted just in response to that quesion by Senator King.
Acting Chairman O'Connell. Can you tell me in a general way
what this indicates? The Senator's question was rather general.
Mr. White. The Senator asked, I believe, something about the
returns upon
Acting Chairman O'Connell (interposing). About the what?
Mr. White. The percentage of return on invested capital, or upon
capitalization rather, and this table purports to show that.
Mr. Wooden. It shows, does it not, Mr. YvHute, a rather wide
variation among the nine principal producers of their capitalization
on the basis of per ton ingot capacity?
Mr. White. Yes.
14304 CONC^ENTRATION OF ECONOMIC l^OVVER
Mr. Wooden. It shows quite a wide variation on their earnings per
ton of ingot capacity, does it not?
Mr. White. It does, with a noticeable difference in rate of return
to the rather smaller companies.
Acting Chairman O'Connell. Do you wish this offered for the
record?
Mr. Wooden. Yes.
Acting Chairman O'Connell. Let it be admitted.
(The tabulation referred to was marked "Exhibit No. 2236" and is
included in the appendix on pp. 14542-14543.)
Mr. Wooden. Now Mr. White, I believe you were connected with
the trial of the Pittsburgh Plus case before the Federal Trade Com-
mission. Is that correct?
Mr. White. That is correct.
Mr. Wooden. Did you make compilations and submit tabulations
and graphs in that case?
Mr. White. I did.
Mr. Wooden. Did you mfike any study of the manner in which the
price load and the cost load, cost of production load in the industry,
was distributed in various sections of the country?
Mr. White. I made a limited study to the extent that data, reliable
data, were available.
Mr. Wooden. WiU you state what the data were and what you did
with them?
COMPARISON OF COSTS AND PRICES AT PITTSBURGH, CHICAGO, AND
BIRMINGHAM
Mr. White. The United States Steel Corporation, in response to a
request, submitted what purported to be a statement of the relative
mill cost figures of certain of the principal forms of rolled steel, that
is plates, shapes, bars, and black sheets, for the year 1920, and I think
for two months of 1921. Nineteen twenty was a year of rather high
production, part of which time the mills were running at practical
capacity, some of them at least.
At that time the prices of steel in every part of the country, at least
of these forms, except in the Birmingham district, were based upon
the Pittsburgh price plus the then current freight rate from Pittsburgh
to destiiiation. That was the general situation. The complaint in this
Pittsburgh plus case, so-called, grew out of the fact that there was a
feeling on the part of some of the western consumers of these products
that they were being saddled with an undue proportion of the total
burden of steel prices. They based that largely upon the fact that they
had some competition, in the Chicago district in the shape of a sub-
sidiary company of the International Harvester Co., who as I recall
produced about 340,000 tons a year, a proportion of which was used
in their own producti'^n — about 50 percent it was estimated — and the
balance of it was sold to the trade or to their competitors on a Pitts-
burgh plus basis. That is, the Pittsburgh price plus the equivalent of
the freight rate to destination. That, it was thought, gave Interna-
tional Harvester a rather clean-cut advantage over its competitors in
that district.
After these figures were received from the United States Steel Cor-
poration, these cost figures, they were put in evidence and I computed
CONCENTRATION OF ECONOMIC POWER 14305
from those figures a table put in as exhibit No. 6852 in that case, a
copy of which you have before you, Mr. Wooden, which resolved the
production costs of the corporation at the various points on various
forms, PittsburghjT. Chicago, and Birmingham, into a net ton price, and
resolved that again into a hundredweight base price, the unit basis
on which those rolled forms were sold.
From the Pittsburgh base price was subtracted the mill costs of
producing bars, and that was found to be $2 per net ton. , From the
Pittsburgh plus price on those same forms at Chicago was deducted
the production cost at Chicago as shown by the statement furnished
by the corporation, and we found there a margin of $13.80 per ton.
The same thing was done with respect to the other forms. Specifically
on plates, the margin between production costs and sales prices at
Pittsburgh was found to be $9.60 per net ton, and the spread between
the same elements at Chicago was $17.80 per ton.
(Senator O'Mahoney, resumed the Chair.)
Mr. Wooden. Is that summed up in the statement that the prices
are higher at Chicago although the cost of production at Chicago was
lower than at Pittsburgh?
Mr. White. Yes, that is what it means. I have referred to the cost
statement which was put in as Commission's Exhibit 6851, which
you may want.
Mr. Wooden. Did you make a chart for use in that case represent-
ing graphically the statement that you have just made?
Mr. White. I did.
Mr. Wooden. Mr. Chairman, I would like to have these three
charts in the record.
(The charts referred to were marked "Exhibits Nos. 2237, 2238,
and 2239" and are included in the appendix on pp. 14544-14546.)
Mr. Wooden. You were telling us, Mr. White, about the dispro-
portion between cost and price compared between Pittsburgh and
Chicago on what products?
Mr. White. Shapes, plates, bars, and black sheets.
Mr. Wooden, What about the disproportion between prices and
costs at Birmingham compared to Pittsburgh?
Mr. White. The spread between production costs at Birmingham
and the Birmingham price was $8 per ton, on bars.
Mr. Wooden. Does that mean that the cost at Birmingham was
lower but the price higher?
Mr. White. Yes. The net ton mill cost of bars at Birmingham
resolved into $44 per net ton, whereas the cost of the same product
at Pittsburgh was $45. I think it should be noted here that Birming-
ham at that time had a price that was not the full Pittsburgh price
plus the rate to Birmingham on any of these products.
Mr. Wooden. It was known as the Birmingham differential?
Mr. White. Known as the Birmingham differential.
Mr. Wooden. That was what, $3?
Mr. White. Five dollars, as I recall it.
Mr. Wooden. Mr. Chairman, I would like to state that we have
no present information as to the cost of production of any particular
product in any particular, plant. It is information that is rather
jealously guarded by the industry, but I would like to ask Mr. White
whether assuming that there are differences in cost of production per
14306 CONCENTRATION OP ECONOMIC POWER
ton on given products today, would the same showing in principle
result that you have shown in these exhibits?
Mr. White. Assuming the same differences of cost exist.
Mr. Wooden. Assuming some differences in cost exist — I am not
trying to get you to measure what the situation would be today because
you don't have the factors, but if there were some differences in cost
today, would this disproportion exist as between the cost and price
burden in different sections of the country?
Mr. White. Some difference would exist, but not to this extent
because since that time equal base prices have been announced at
all of these producing points.
Mr. Wooden. Was a considerable part of tliat disproportionate
showing referred to in those exhibits the result of so-called phantom
freight, in other words adding freight from the basing point when in
fact there'was no actuail freight to be paid?
Mr. White. Yes; of course that was true.
Mr. Wooden. Would you say that wherever and to whatever extent
there is phantom freight added today under the basing point system,
consisting of a freight charge where there is no freight or a freight
charge that is greater than the actual* freight, then you have that
same disproportionate distribution of the price and cost burden?
Mr. White. Yes; of course. What I have here is merely illustrating
this opportunity under this method of merchandising for somebody
arbitrarily to decide as a substitute for competitive processes how
much of this burden of total steel prices is to be assessed on any
particular part of the country at any point. That is an outstanding
fact.
Mr. HiNRiCHS. Mr. White, I take it that you are indicating that
this lack of relationship between cost and price is a possible indication
of a lack of competitive price fixing.
Mr. White. That together with some other facts which of course
are not shown.
Mr. HiNRiCHS. Well, have you indicated in the record whether or
not Chicago, for example, is a steel export or a steel import market?
Mr. White. That was developed very exhaustively in the Pitts-
burgh basing case. I might say the defense in that case was that the
cost of steel to the Chicago consumer would be the cost of material
at Pittsburgh plus the cost of shipping into Chicago. All of that
assumption would be nullified by what they did. Numerous ship-
ments were shown out of Chicago to a point halfway between Pitts-
burgh and Chicago, specifically Cincinnati. It was shown that a
certain number of large concerns purchased 95 percent of their re-
quirements from the Corporation and the Corporation put in ex-
hibits showdng that in some cases 100 percent of that supply came from
Chicago rather than Pittsburgh.
Mr. HiNRiCHS. Well, that evidence with reference to where goods
originate needs to be tied in as you have just done to your discussion
of cost and price; does it not?
Mr. White. Yes. AU I was attempting to show by these exhibits
was the fact as to production cost, relative production cost, and how
it illustrates that one who has the power can arbitarily substitute for
the competitive processes his judgment as to how much different sec-
tions of the country should pay of the total burden of steel prices.
CONCKNTItATlON OF K<H>N().MIC i-OVVKR 14307
Mr. Wooden. I might say that Dr. deChazeau in testifying the
other day pointed out tliat a recent study by the Department of
Justice showed tluit sliipmonts of the same pi-ochict were being made
between Pittsl)urgli and Chicago, in other words shipments from
Pittsburgh to Chicago and shipments by Chicago mills to Pittsburgh
of the same product.
I liave nothing further to ask Mr. "Wliite.
The Chairman. Do the members of tlie conmiittee desire to ask
Mr. Wliite any additional questions?
(The witness, Mr. White, was excused.)
Mr. Wooden. I would like to call Mr. Custer for a very short
examination.
The Chairman. Do you solemnly swear that the testimony you are
about to give in this proceedhig shall be the truth, the whole truth,
and nothing but the truth so help you God?
Mr. Custer. I do.
TESTIMONY OF A. B. CUSTER, ADMINISTRATIVE OFFICER,
PURCHASE DIVISION, BUREAU OF SUPPLIES AND ACCOUNTS,
NAVY DEPARTMENT, WASHINGTON, D. C.
Mr. Wooden. Will you state your occupation, Mr. Custer?
Mr. Custer. Administrative officer in the Purchase Division of the
Bureau of Supplies and Accounts, Navy Department.
Mr. Wooden. How long have you held that position?
Mr. Custer. About 20 years.
Mr. Wooden. In the course of your duties have you had to do
with the buying and obtaining of bids on rolled steel products?
Mr. Custer. Yes, sir.
Mr. Wooden. Do you obtain sealed bids on such products?
Mr. Custer. All bids are sealed bids.
Mr. Wooden. Is that required by statute?
Mr. Custer. It is required by law.
Mr. Wooden. I show you two documents. Will you state what
they are?
Mr. Custer. Those are abstracts of records of bids received in the
Bureau of SuppUes and Accounts.
Mr. Wooden. And were they handled under your supervision and
in your office?
Mr, Custer. They were.
Mr. Wooden. WiU you vouch for the correctness of these papers
as representing the bid figures actually received on sealed bids on
those two occasions?
Mr. Custer. I can.
Mr, Wooden. I would like to offer the tables for the record.
(Mr. O'Connell assumed the Chair.)
Acting Chairman O'Connell. They may be admitted.
(The documents referred to were marked "Exhibits Nos. 2240 and
2241" and are included in the appendix on pp. 14547-14548.)
Mr. Wooden. Referring to the bid opening of November 19 and
which is represented by "Exhibit No. 2240," can you state, Mr.
Custer, just so that we get an over-all picture of it, how many bidders
participated there and what their bids were? I don't think you have
to give many figures.
14308 CONCENTRATION OF ECONOMIC POWER
IDENTICAL BIDS RECEIVED BY THE NAVY DEPARTMENT
Mr. Custer. Fifty bidders put in a uniform price of $45,683.48.
Mr. Wooden. Were tliere some bidders who didn't quote exactly
that figure?
Mr. Custer. There are several exceptions.
Mr. Wooden. How many?
Mr. Custer. Seven, 1 find.
Mr. Wooden. Seven out of the number you gave or seven in
addition?
Mr. Custer. Seven out of the number.
Mr. Wooden. Now referring to the abstract covering the bids
opened May 26, 1936, "Exhibit No. 2241," I believe, how many bidders
were there, and what were their bids?
Mr. Custer. Thirty-one bidders quoted a uniform price. of $20,-
727.26.
Mr. Wooden. Were there any exceptions to the quoting of that
figure?
Mr. Custer. There are no exceptions in this list.
Mr. Wooden. Are these two cases that you have testiiied about
typical? Have you received many bids of a similar nature so far
as the degree of identity in the bid price is concerned?
Mr. CusTEP. We have received a number of identical bids. This
is comparatively a large list. It is a long list of bidders, longer than
the average.
Acting Chairman O'Connell. To what use is the type of steel
.covered in those invitations put, is it armor plate or what is it?
Mr. Custer. It is not armor plate, it is for general purposes. Not
being a technician, I am not prepared to give you the details.
Acting Chairman O'Connell. You say you oftentimes receive
identical bids though often not with as many bidders as there indi-
cated. Do you have any general understanding as to how often you
receive that t,ype of bids in connection with steel products? We were
discussmg steel products primarily.
Mr. Custer. Including within that group those classes or lots
where there are some tie bids and some that are not tie bids, approxi-
mately 60 to 70 percent fall in that group.
Acting Chairman O'Connell. Sixty to seventy percent of bid
openings involving steel?
Mr. Custer. Yes.
Acting Chairman O'Connell. And I take, it that where you get
not all tie bids but where the low bids are tied, you have to resort to
that matter of drawing lots, is that the way you make the award?
Mr. Custer. That is correct.
Acting Chairman O'Connell. In a situation such as appeared in
that later bid opening where you had 31 bidders, in that particular
case would you merely put the 31 names in a hat and draw out the
successful bidder?
Mr. Custer. In substance that^we have a system of putting names
or numbers in uniform capsules to guard against the possibility of a
selection, and then draw from the group.
Mr. HiNRiCHS. Don't you think it would be more appropriate to
use loaded dice against the Treasury?
CONCENTRATION OF ECONOMIC POWER 14309
Mr. Custer. We have used other methods of drawing which give
exactly the same results as the system of enclosing the names in
capsules.
Mr. Wooden. Mr. Custer, can you tell us whether or not these
seven exceptions in "Exhibit No. 2240," seven exceptions from the
identity of bids put in by others, includes any producers or whether
some of them were jobbers?
Mr. Custer. I recognize all, with the possible exception of one as
jobbers or dealers.
Mr. Wooden. Each of the seven, you mean. You recognize each
of the seven except possibly one?
Mr. Custer. Yes.
Mr. Wooden. And that one is what?
Mr. Custer. The Wheatland Tube Co. is a manufacturer, but I am
under the impression that they also handle some materials in the
capacity of a dealer.
Representative Williams. What variation was there in the price
of those seven that were exceptions?
Mr. Custer. These variations are slightly under the uniform prices
bid by the larger group, except in the case of Wheatland Tube.
Acting Chairman O'Connell. In that case, then, you did not have
to resort to drawing lots, or did you?
Mr. Custer. We would not in that case, assuming that the bids
were unmodified. If they were responsive to the advertisement, that
is, offering material according to specifications it would not be nec-
essary to resort to drawing lots.
Mr. Wooden. Did you ever have any experience with jobbers who
were awarded a contract on the basis of a low bid being imable to
furnish you with the goods after you had awarded the contract?
Mr. Custer. We have had some experience, but as a general rule
the jobbers are able to fulfill the contracts.
Mr. Wooden. I call your attention to the bid of the Pahner Supply
Co., $45,682.38. How much off is that from the identical bid put in
by most of the others?
Mr. Custer. $45,682.38 agamst $45,683.48— $1.10.
Mr. Wooden. I think there is nothing further I have for Mr.
Custer.
Representative Williams. That was the point I had in mmd.
Wliat was the range in those prices, what was the difference, whether
they were all just practically the same thing or whether there was
any material difference in any of them.
Mr. Custer. The lowest bid under the group is $43,188.46 as
agamst $45,683.48.
Representative Williams. Well, there would be a right substantial
difference.
Mr. Custer. That is a substantial difference. This bid of $45,-
682.38 is very probably accounted for by adding or dropping fractions.
One bidder will add on the half cent, another may drop it off. The
unit prices are probably identical. But the other bids, I think, the
differences are accounted for otherwise, other than by the adding or
dropping of fractions.
Mr. HiNRicHS. Mr. Custer, do you handle the bids on commodities
other than steel?
14310 (:;oNO>Iil^:'^UATroN of econoimic poweh
Mr. Custer. All materials,
Mr. HiNRiCHS. All materials?
Mr. Custer. Yes.
Mr. HiNRicHS. Does that include the apparel purchases that are
made as well, purchases of apparel?
Mr. Custer. Power?
Mr. Hjnrichs. Apparel, clothing of one sort or another.
Mr. Custer. Yes, sir, it does.
Mr. HiNuiCHS. Now it's an old economic maxim, of course, that
under con.petitive conditions only a single price can prevail in market
at any one tiine, and that maxim is very frequently misquoted as
justifying this kind of identical sealed bid. That is, the single price
does in fact prevail, therefore by reference to all autliority it becomes
apparently competitive. Now in the purchase of clothing, is it your
experience that you receive identical bids if you advertise for articles
of clothing? Is it common to receive identical bids?
Mr. Custer. When you say clothing, there are not a great many
articles of clothing purchased. The materials are purchased and
made into clothing.
Mr. HiNRiCHS. Well, let'^ take the materials. Do you buy cotton
textiles?
Mr. Custer. Yes.
Mr. HiNRiCHS. Do you frequently receive an identical bid for
rotton textiles?
Mr. Custer. That I would answer only from general observation.
Over a period of time wo do receive identical bids in almost every line
of material, which would include textiles.
Mr. HiNRicHS. In almost all lines where bids are advertised for?
Mr. Custer. At some time or other.
Mr. HiNRiCHS. Well, now, are those identical bids in a case of that
sort apparently the result of chance or the result of — is it customary to
have identical bids in cotton, cotton textiles?
Mr. Custer. That would be largely a matter of opinion. I would
have no way to determing that as a fact. It does appear rather
strange that identical bids would appear frequently by chance.
That I have no way of verifying or determining.
Mr. HiNRiCHS. What lines do you expect to find different bids in if
you advertise, or do you expect as a matter of course to have the
differences only a matter of typographical error?
Mr. Custer. Well, from the standpoint of expectation we would
expect competitive bids in all lines.
Mr. HiNRiCHS. Well, but obviously that expectation you have to
entertain because it would be a violation of the law; but just as a
human being you must have gotten rather used to seeing bids come in
in identical form in the case of steel. You say 60 or 70 percent of your
cases come in with identical bids. There you would hardly open up
an envelope in the normal expectation of seeing different bids.
Mr. Custer. We would expect some tie bids generally in steel.
Mr. HiNRicHS. And you would expect tie bids in almost every
instance where bidding occurs, or are there any lines in which yOu
expect when you look at an envelope, you open the thing with a
certain curiosity not to see just what level is being bid but what the
differences in bids are.
CONClON'rilATlON OF ECONUMKJ l*OVVKll 14311
Mr. Custer. That expectation would be present in most any class
of steel.
Mr. HiNuicHS. Even steel?
Mr. Custer. In steel.
Acting Chairman O'Connell. Wiiat ^xpeptation do you mean?
Mr. Custer. That there would be tie bids.
Mr. HiNRiCHS. And in almost any line you would expect to find
tie bids, that the majority of the bids would be tie?
Mr. Custer. I wouldn't want to say just that. Steel, of course, is
an item which is bought for Navy purposes in large quantities and
frequently, and it is an item which is more often before the eye. The
occasional purchase would not attract much attention. Well, I
might mention plumbing fixtures, merely as it comes to mind. I am
not in a position to say whether plumbing fixtures would come within
the tie bid group or not.
(Senator O'Mahoney resumed the Chair.)
Mr. HiNRiCHS. They very well might. Do you ever buy socks?
Mr. Custer. Yes.
Mr. HiNRiCHS. Do those ordinarily come to you as tie bidfe?
Mr. Custer. I think they are more often competitive.
Mr. HiNRicHS. Well, are there other items of that sort that
ordinarily come to you with differentiated bids?
Mr. Custer. I would hesitate to answer that without making a
survey or a review of some examples, and I haven't had occasion to
check outside of the larger and more frequent purchases for some
time.
Representative Williams. Is there an}'' reason that you can think
of why there should be identical bids on one article an}'-, more than
on another that your department buys?
Mr. Custer. I would answer that as it has been answered generally
to me, that the items of materials which have published prices,
prices of common knowledge to the industry and the trade, are more
likely to be tie bids, such as steel. Any trade paper will give you the
market quotation of steel; there are any number of trade papers.
Representative Williams. Did you ever get a bid from the steel
companies or on any article of steel that was below the published
price?
Mr. Custer. That's rather difficult to answer. The pubhshed
prices are based on Pittsburgh or some other basing rate. Our
prices are all quoted on a delivered price at our navy yards, and
the only way to determin.e that would be to deduct freight to arrive
at the base price.
Our prices generally are very close to the published prices, allowing
for the differentials in the quoted market prices.
Mr. Wooden. Published prices?
Mr. Custer. On the published prices. They are more often under
than over.
Representative Williams. It seems to me we had some evidence
here that there were a great deal of sales in the steel industry that
were decidedly below the i^ublished price to everybody except the
Government, is that true?
Mr. Custer. Well, only to tlie extent that I just answered. Our
prices when reduced to the same basis are more often lower than the
published prices, market prices, than higher.
14312 OONCKNTRATION OF ECONOMIC POWER
Mr. Wooden. Are you aware, Mr. Custer, that the mill net return
at various mills, even though figured on the base price, the full base
price, frequently comes out less than the base price because of the
fact that their actual freight is greater than the freight rate on which
the delivered price is figured?
Mr. Custer. I would not be in a position to give the reason for it.
Mr. Wooden. How do you account for the fact that these various
concerns located at various widely scattered points of production and
shipment get such a close identity of delivered price when their actual
freight rates must differ substantially ^
Mr. Custer. I am not in a position to give that answer.
Mr. Wooden. Does that factor in the situation have any bearing
upon your conclusion as to whether or not the tie bids in such a situa-
tion are competitive?
Mr. Custer. From our standpoint, we are concerned with a de-
termination only of what is a fair and reasonable price, not so much
the cause for that price, and we do not go beyond the reasonableness
of the price.
Mr. Wooden. The only basis upon which you have to consider the
reasonableness is whether it is competitive or not, isn't it?
Mr. Custer. Competitive, or in the range of published market
prices.
Mr. Wooden, You assume the pubUshed market quotations are
competitive, is that it? How do you know that-?
Mr. Custer. I would say that we do not know. We assume it.
Mr. Woo )EN. You have to assume it, don't you?
Mr. CusiER. We have to assume it.
Mr. Wooden. In order to get your steel.
Mr. Custer. That is right.
The Chairman. Are there any other questions? If not, you may
stand aside. Thank you so much.
(The witness, Mr. Custer, was excused.)
FEDERAL TRADE COMMISSION'S SUMMATION OF THE MONOPOLISTIC
CHARACTERISTICS OF THE BASING POINT SYSTEM
Mr. Ballinger. Mr. Chairman, at this point I want to offer for
the record a document which has been prepared by Mr. Wooden and
Mr. Hugh White of the Federal Trade Commission who have been
associated with the Commission's activities for many years with
respect to the basing-point system in the steel industry. This docu-
ment is addressed to a detailed consideration of the documents pre-
pared by the Corporation, including some additional factual matter
relating to the basing-point system.
In my opinion, Mr. Chairman, this document, prepared by Mr.
Wooden and his associates, is perhaps the most complete and compre-
hensive document that has been prepared by the Governinent on the
monopolistic nature of the basing-point system in the steel industry.
Mr. Wooden is going to take the stand very briefly, Senator, just
to point out some of the high lights in this pamphlet, but before Mr.
Wooden starts in ^o tell you about that I want, if possible, to sum-
marize very briefly what we think this hearing has shown from the
standpoint of the Federal Trade Commission, where this hearing has
taken us, because we made the charge that the basing-point system
CONCENTRATION OF ECONOMIC 1'<:)WER 14313
was monopolistic, and we would like to point out to the conmiittee
that we don't think that conclusion has been upset.
I will start in this way. Back in 1924 the trial staff of the Federal
Trade Commission contended in the Pittsburgh plus case that the
basing-point system was a monopolistic device in that it repressed
price competition in the steel industry. The steel industry stoutly
denied this, and, of course, the Commission made a decision and issued
a cease and desist order against the system. There was no appeal
from that order for 15 years. Then the industry went into the
multiple basing-pomt system.
The Chairman. There was no appeal for 15 years. What hap-
pened during that 15 years?
Mr. Ballinger. The industry went over into what is known as the
multiple basing-point system.
The Chairman. Then the industry abandoned the basing-point
system?
Mr. Ballinger. No; multiple basing-point systems are many Pitts-
burgh plus systems, I mean operating in certain territories, the way
we see it.
Mr. O'CoNNELL. Do I understand that the cease and desist order
of the Federal Trade Commission merely prohibited a Pittsburgh
plus system based on destination prices? Do you know the answer
to that?
Mr. Wooden. The answer is that the order ran against the making
of prices or quoting of prices on any other base than the point of
production and shipment.
The Chairman. Pardon me, Mr. Wooden, I suppose you ought to
be sworn, according to pur proceeding.
Do you solemnly swear the -testimony you are about to give in
this proceeding will be the truth, the whole truth and nothing but the
truth, so help you God?
Mr. Wooden. I do. ^
TESTIMONY OF WALTER B. WOODEN, ASSISTANT CHIEF COUNSEL,
FEDERAL TRADE COMMISSION, WASHINGTON, D. C.
Mr. O'Connell. To pursue that just a little further — —
M£. White (interposing). It is understood that order was against
the United States Steel Corporation.
Mr. O'Connell. It was against the United States Steel Corporation
and its subsidiaries, is that all?
Mr. Wooden. That is correct.
Mr. O'Connell. Under the tenns of the cease and desist order,
the multiple basing point system was prohibited by the order of 1924,
so long as the basing prints included points other than points of
production.
Mr. Wooden. Yes. Of course the more multiple basing points
there are, the more points of production there are included.
Mr. O'Connell. Do you understand that the United States Steel
Corporation and its subsidiaries obeyed or complied with the cease
and desist order from 1924 until they appealed from the order?
Mr. Wooden, Their report of compliance was to the effect that
they would obey the order so far as practicable. How far that was
practicable and how far it was obeyed, I am not able to state.
14314 CONCENTRATION OF ECONOMIC POWER
Mr. O'CoNNELL. The Commission took no action pursuant to 1924?
Mr. Wooden. Meantime the N. R. A. came along and incorporated
the basing point system as it then existed into the code.
The Chairman. What was the date of the original order to which
Mr. Ballinger referred?
Mr. Wooden. I think it was July 1924.
The Chairman. From 1924 to 1933, when the N. R. A. was passed,
what did the Federal Trade Commission do to supervise the enforce-
ment of its cease and desist order?
Mr. Wooden. 1 am not able to answer that. I wasn't handling
that phase of the business, in fact I was not connected with the
Pittsburgh plus case.
The Chairman. How about you, Mr. White, were you familiar
with it?
Mr. White. In a general way.
The Chairman. What did the Trade Commission do to supervise
the enforcement of its cease^ and desist order?
Mr. White. Mr. Chairman, I don't think it is appropriate for me
to make any statement as to what they did. I am just an employee
of the Commission and I am not familiar in all respects with what
they did.
The Chairman. I think it is perfectly appropriate if you know.
Mr. White. Well, it had under investigation the merger of the
Betlileham, Lackawanna, and Midvaie properties, and the question
was somewhat involved in that case. That case was never decided,
and whUe the Commission made some supplemental investigations
and ascertained what was being done generally in the trade, there
were no complaints about the multiple basing-point system.
The Chairman. Perhaps these questions are a little premature.
Mr. Ballinger was making a statement.
Mr. White. In other words, Senator, the system was somewhat
modified. They had abandoned the so-called Pittsburgh basing sys-
tem by which the single origin at Pittsburgh as a basing point was
used.
The Chairman. As I understood the statement of Mr. Ballinger,
it was that the Pittsburgh basing plan was abandoned after the issu-
ance of this order in 1924, and that a multiple basing system, which
is from the point of view of the Trade Commission equally objection-
able, wos adopted.
Mr. White. It made no comprehensive investigation along that line.
There were people connected with the Federal Trade Commission
who toolv that view but the Commission made no comprehensive
investigation and didn't find out what the effects of that practice were.
Mr. Wooden. I might add this, that the Pittsburgh plus case arose
out of complaints of a certain group of Western rolled steel-consumers
who were being injured, they felt, by the Pittsburgh plus practice.
The adoption of the multiple basing point system served to allay and
satisfy in large part those injured Western rolled steel-consumers.
The Chairman. Those particular complaints were satisfied and the
Federal Trade Commission was not acting as a complainant.
Mr. Wooden. The Pittsburgh plus case was a formal case and in
all formal cases tlie Commission does appear as the formal complainant.
The Chairman. Yes; technically; but I am referring now to the
initiation of complaints.
CONCENTRATION OF ECONOMIC POWER 14315
Mr. Wooden. In other words, that complaint did not originate out
of any abstract theories and criteria, but out of the cry of complaint
from definitely injured business mterests, very strongly organized
business interests.
Mr. O'CoNNELL. I don't want to pursue this too far, maybe we are
far afield, but I would hke to get clear in my own mind what the
Pittsburgh plus order did and what it was supposed to do. As I
understood you just then, it was my understanding of the order that
it prohibited a pricing system based upon any other than points of
production or shipment. Now I understand also that in 1938, the
United States Steel Corporation appealed from the cease and desist
order of the Federal Trade Commission issued in 1924. Between
1924 and 1938, as I understand it, another system, although with
some characteristics somewhat similar, grew up in the industry and
it is now what we call a multiple basing point system, so there are
various systems rather than the one that existed in the Pittsburgh
plus case.
Now at the present time I understand the Steel Corporation is
challenging the order of the Federal Trade Commission in the Pitts-
burgh plus case, is that correct?
Mr. Wooden. That is right.
Mr. O'CoNNELL. And now it is before the circuit court of appeals?
Mr. Wooden. That is right.
Mr. O'CoNNELL. I had an opportunity to glance at a brief, and you
may correct me in this if I am wrong, but I was under the impression
one of the grounds advanced by the Steel Corporation in their pro-
ceeding before the circuit court of appeals for requesting that the
order be set aside was that the order had never been complied with
anyway.
Mr. Wooden. I believe such a contention is made.
Mr. O'Connell. If the steel company takes that position, wouldn't
it be fair for us to assume that the order was not complied with in fact
after 1924?
Mr. Wooden. Well, speaking personally I think that is a fair
inference. It is my own inference anyway.
Representative Williams. After all, is there any difference in the
principle of the system?
Mr. Wooden. I think the multiple basing point system is in
principle the same thing as a single basing point system, as illustrated
by the fact, as brought out by testimony of Mr. Fairless and Mr.
Adams within the last few days, that on tin plate there are only three
basing points at present in the country. Pittsburgh is one of them,
and for the entire eastern United States there is a single basing point
system in effect with Pittsburgh as the only basing point for that whole
area. Formerly the Pittsburgh plus system applied to the #hole
country.
Mr. White. Mr. Wooden, might I ask if the Corporation or the
industry hasn't itself said that they were the same in principle?
Mr. Wooden. The American Iron & Steel Institute in a published
statement made in March 1935 stated that the multiple basing point
system was the same m principle as the pricing system used by the
industry for the past 40 years.
Mr. Ballinger. When the industry went over, Mr. Chairman, to
the multiple basing point system, it wasn't long before the Federal
124491 — 41— pt. 27 13
14316 CONCENTRATION OF ECONOMIC POWER
Trade Commission said that this system, too, repressed price com-
petition m the steel industry. Last March when we put on our hear-
mg before this committee we charged that the multiple basing point
system repressed price competition in the steel industry. Then in
the interim the Corporation prepared two documents in which it said
that the basing point system did not repress price competition. Then
when Mr. Fairless came before this committee he made some very
astonishing admissions, at least they seem very happy to us because
they seem to clear up the controversy that has existed between the
Federal Trade Commission and some of the experts in the steel
industry.
Mr. Fairless admitted that when the basing point system was
followed, that it eliminated price competition in the steel industry.
That was a very significant admission. Now with that admission,
I want to show just how that was brought about. Mr. Wooden
brought into the record a statement of Mr. Gregg, vice president of the
United States Steel Corporation, m which Mr. Gregg admitted when
the basing point system worked, it did repress price competition in the
steel industry.
Mr. Gregg. To answer your question specifically, if that plan were univer-
sally followed there would be no competition in so far as one element of com-
petition is concerned, namely, price.
Then Mr. Wooden asked Mr. Fairless:
I take it, Mr. Fairless, that you are in agreement with Mr. Gregg to the effect
that if the system is followed, and to the extent that it is followed, there is no
competition in price; is that right?
Mr. Fairless. Well, I thought I had made myself clear.
Mr. O'CoNNELL. Well, the answer is "Yes," but you say that, as a practical
matter, the system is not followed?
Mr. Fairless. I have answered it that way. All the things you said, Mr.
Wooden, if they were true, then your conclusion, or the conclusion I assume that
you are Striking for, would be true.
So he conceded the point, and. we think that is a very significant
admission.
Now it becomes a question of how much the basing point system is
followed in the steel industry, as Mr. Fairless' whole defense was that
'the basing point system is sort of a shadowy thing that stands there
and nobody takes advantage of it, they are always departing from it,
and naturally that suggests, why have it in the first place?
The Chairman. The committee is aware that I was necessarily
away all last week while the presentation was being made by the
steel industry. Am I to understand from what you say now that the
steel industry defended the basing point system but said at the
same time that it was not followed?
Mr. Ballinger. Apparently, as I get it, they did not defend the
basing point system. They said competition existed in the industry
because of departures from it.
Mr. Wooden. They defended, of course, the basing point system.
They put in these two pamphlets
Mr. Ballinger (interposing). I say Mr. Fairless' testimony.
The Chairman. I am talking about the industry. This pamphlet
which was offered for the record by the industry was a defense of the
basing point system, was it?
Mr. BALLif>fGER. Yes, of the basing point system.
CX)NCENTRATION OF ECONOMIC POWER 14317
Mr. Wooden. It was not offered by the industry, Mr. Fairless was
careful to emphasize, but by the Corporation; but it is a defense of
the system from the industry standpoint, not from the Corporation
standpoint.
The Chairman. But at the same time, the testimony was that the
basing point system thus- defended is not followed, is that right?
Mr. Wooden. That is true.
Mr. Ballinger. It is this way. They said in the pamphlet
which they prepared ^ when the basing point system worked that a
system of identical delivered prices was still a competitive price
situation in the steel industry. Th^n Mr. Fairless testified that if
the basing point system were fol tved, it eliminated price com-
petition. In other words, Mr. Fairless' testimony was in direct
opposition to what the document had said. He had taken an entirely
new position in defense of the basing point system, maintaining it
did not repress price competition because it was departed from, not
because it was adhered to, conceding if it was adhered to it was
monopolistic in that it eliminated price competition.
If we had known Mr. Fairless was going to say that, we wouldn't
have taken all the trouble we did to prepare Mr. Wooden's document
and Mr. White's document, trying to prove when the basing point
system operates, it represses price competition. We got that con-
cession from Mr. Fairless. We think that is significant because it
brings the Steel Corporation and the Federal Trade Commission into
agreement on the theory of the system.
Now the question is how far the system is departed from in actuality.
I think some significant things have been introduced here. First
Mr. Fairless admitted during the N. R. A. period the basing point
system worked beautifully, so we may 'assume from that that, price
competition was eliminated in the steel industry during the N. R. A.
days. Then Mr. Wooden read a statement into the record by Mr,
Irvin where he said as late as 1936 that Mr. GracCj president of the
Bethlehem Steel Corporation, must have been speaking facetiously
when he said that U. S. Steel would cut below the base prices of
Bjthlehem Steel Corporation. I think that is rather significant, be-
cause it shows it would be rather a joke in the steel industry if anybody
did that.
Then Mr. Wooden showed that many of the provisions of the N. R.
A. code which are absolutely necessary if you are going to make the
basing point system work, that there are certain things that you have
to have standardized if you are going to get identical delivered prices,
ar^e still in existence. You have to have standard switching charges
and you have to prevent trucks from breaking up the price structure,
and you have to implement it various other ways. Mr. Wooden
showed many of those provisions were carried on after the expii-ation
of the code and many of them are still in force today.
Finally, we come down to identical bids on Government business and
I think Mr. Wooden showed this morning in the case of the figures
used by the United States Steel Corporation, that about 90 percent'^
of the bids were identical delivered prices, showing I think that the
basing -point system was working very well on those bids.
The question remaining, therefore, is, how serious and how numer-
ous are the departures in private business? We can't answer that
' "Exhibit No. 1418", appendix, p. 14619.
' Mr. Ballinger subsequently submitted a letter and memorandum for inclusion in the record in con-
nection with his statement, see p. 14330.
14318 CONCENTRATION OF ECONOMIC POWER
question, but if the basing point system works as well in private busi-
ness as it does when the steel industry does business with the Govern-
ment, you might say the steel industry is 90 percent monopohstic and
10 percent competitive.
I will let Mr. Wooden go on and explain the high lights of this
pamphlet.
Mr. Wooden. Mr. Chairman and members of the committee:
I think really the fundamental issue is not so much what the actual
results at any given time of the system are, but what its potentiaUties
are, what its intentions are, and what it normally works out to if
permitted to function and if favored by conditions of general trade and
business that are conducive to the proper working out of the system.
On the question of how far the basing point system is adhered to
and how far it is departed from, I would say that there is no method of
determining that question short of an examination of sales records of
the members of the industry, with the particular idea in mind of
ascertaining the answer to that question.
To take mere general assertions and opinions of members of the
industry, who when the system is called in question merely say, "Why,
it is more honored in the breach than in the observance," the inevitable
psychological tendency is to exaggerate the degree and extent of
departures from the system, and there is no check on it unless you go
to the sales records.
Each competitor has to base his opinion as to others departing or
adhering to the system largely on rumor and hearsay and suspicion.
He IS inclined probably to minimize the extent of his own departures
and to exaggerate the extent of the departures of his competitors, and
so I think it is an onerous task to undertake to answer that particular
question. It seems to me the question really has to be decided upon
the potentialities and natural tendencies and natural results, and to
a large' extent the actual results, which have worked out over the
years, and not as of any particular limited period of time, such as the
depression years.
Any kind of a system, no matter how well organized, no matter how
powerful the forces back of it, may have to yield at times to the pres-
"sure of adverse business conditions. If the demand totally fails, even
a strong monopoly will have to yield to it in its prices at times. In
this industry we have, as the corporation shows itself, about 81 percent
of the total production controlled by nine companies, and the steel
corporation itself is the largest among them with probably a control
of 35 percent or mpre of the total possible output.
I would like to say that the subject of the basing point system in
steel has been debated for years and to my mind, my personal mind,
it has been debated long enough. If debate on the subject can be pro-
longed indefinitely we can expect the system itself to be prolonged
just as long as those who employ it find it profitable to employ it.
I should hope that the last word on the subject might be said before
this committee and that the only thing remaining to decide is whether
the Government will continue to tolerate the basing point system in
steel or take some steps to substitute a better condition for it.
I would like to say in just a very few woids what the basing point
system is like — in my own words. It is a formula method of pricing
which when appropriately observed and implemented by certain
methods, which have been brought out here, automatically produces
CONCENTRATION OF ECONOMIC POWER 14319
identical delivered prices for all sellers at any given destination. The
success of the system depends in the first place upon a common require-
ment that each seller sell only at delivered prices and a common refusal
to quote or sell f.-.o. b. mill and allow the purchaser to take his pur-
chased anywhere he likes and in -any mode of conveyance he likes.
Ordinarily, except as otherwise provided by arrangement in the in-
dustry, the all-rail freight basis is the basis of calculating the delivered
price. The delivered price is not calculated from the actual shipping
point as such, but from a number of basing points. Some of these
basing points m^y not even be producing points; most of them are.
For each product there is a basing point. The numbier of basing points
in total may be considerable, but it does not follow that the basing
points for any particular product are considerable in number. As to
many of them they are quite limited, as I cited in the case of tin plate
in which there are only three I believe; on pipe there are only a few,
and on other products there are only a few. Of course on pig iron
there are a great number because they went directly under the code
from the f. o. b. furnace system to a basing point system with almost
every point of production a basing point. But that makes no differ-
ence in the ultimate result. It sunply means that if every producing
point were a basing point there would be no so-called phantom freight
but there would be the so-called freight absorption. When each pro-
ducing point went into the sales territory of another producing point
they could still match their deUvered prices by absorbing the freight
necessary to put them in there at the identical delivered price.
The actual cost of transportation of course may be greater or less
than the cost of transportation figured from the basing point. For a
number of non-basing-point mills their actual shipping charges for
transportation might be either greater or less. If they charged more
in the delivered price than the basing point rate of freight, they have
what is called phantom freight. It is an increment and increase in
their actual mill-net realization. If their actual freight from the
particular shipping point at a non-basing mill is more than the
imputed rate, then there is freight absorption — they net less than the
base price by the amount of the difference between the actual and the
imputed rate of freight.
Mr. O'CoNNELL. You don't think there is anything necessarily
wrong with freight absorption or phantom freight in all situations, do
you?
Mr. Wooden. No; the question here immediately before the com-
mittee in the basing-point system is one of a systematic pattern of
freight absorption and phantom freight with the end and result of
matching the delivered price and making it identical. In that process
freight absorption arises and phantom freight arises.
Mr. O'CoNNELL. Let us suppose I were in a highly competitive
industry and it happened to be steel, there would be nothing wrong
with my using a formula for arriving at a deUvered price which would
in effect cause stoie of my customers to pay less than the actual
freight and some c^f them to pay more. In an industry, it seems to
rate, that sells its commodities on a dehvered price basis it necessarily
giv V jome of its customers the benefit of freight allowance and some
customers it charges more.
Mr. Wooden. That gets into a field of economics that I would
prefer not to get into, but I would say that the basing point system is- '
14320 CONCENTRATION OF ECONOMIC POWER
not that kind of a situation, ]t>ecause it represents a systematic pattern
of freight absorption and phantom freight with the result and intent
of making the deUvered price identical.
Mr. O'CoNNELL. Well, it is a formula adopted by an industry
which results in identical prices rather than some customers having a
freight advantage and some a disadvantage.
Mr. Wooden. I think that is true.
On this phantom freight matter, the corporation freely admits in
its phamphlets that there is phantom freight and takes great pains
to point out the types of phantom freight and how it may arise.
They freely admit the existence of freight absorption and point out
how it arises, but they do not give very much space or attention to
the importance of those two complementary phases of the de-
Uvered price. They are just the alter ego of the delivered prices
themselves, the freight absorption on the one hand and the phantom
freight on the other. The corporation does not give much idea of the
extent or importance of those items, but this report which I am
presenting here shows many cases where it is extremely important as
to the quantity or the amomit in dollars and cents that is added to
or deducted from the base price by those two things, phantom freight
and freight absorption.
The corporation makes it plain in their pamphlets, if it hadn't
been made plain by Mr. Fairless, and it quotes N. R. A. reports to the
effect, that the outstanding characteristic of the basing-point system
is the fact that it does put rival producers on a footing of price equality
with each other in all the consuming points over a wide area. That is
openly defended as a means of putting competition on a basis that
would yield higher prices than would result without it. You will
find those statements quoted on pages 30 and 37 of the corporation
pamphlet "Exhibit No. 1418."
These pamphlets, "Exhibits Nos. 1410-1418," take the position
throughout that the critics of the basing-point system in the steel
industry are basmg their criticisms largely if not wholly upon abstruse
and abstract criteria and theoretical considerations rather than
tangible evidence. To meet that contention, which is repeated over
and over again and is impHcit throughout the pamphlets of the cor-
poration, I would suggest that the committee take into account the
facts developed here in the last few days showing that the basing-
point system was made a matter of formal agreement under the
N. R. A. code. It was incorporated in the code itself, the basing
pomts were named, and very detailed and elaborate provisions were
set up for implementing that basing-point system, so that the delivered
prices would be identical to the nth degree. It has been fehown here
in the last 2 days that, the basing point system has .continued since the
code, that the industry after the code was invalidated adopted resolu-
tions to the effect that they would continue the provisions of the code
including the basing-point system as a voluntary agreement ("Ex-
hibits Nos. 2204 and 2205"), and the evidence is that they have con-
tinued to do that and the basing-point system still exists.
It has been shown here in the last few days that some of the detailed
methods of implementing and making more effective the basing-
point system of the code period have been continued in effect. I
refer, for illustration, to the matter of an arbitrary switching charge
at basing points which was put in under the code by resolution of the
CONCENTKATION OF ECONOMIC POWER 14321
board of directors of the institute ("Exhibit No. 2206"), and which the
corporation itself says in its pamphlet is the general practice in the
industry, yet. I refer also to the resolution relating to the charging
of 35 percent of the all-rail freight rate upon shipments or sales made
for truck delivery ("Exhibit No. 2207").
A man bringing his own truck or hiring a truck to go to the mill to
buy steel — they will figure the carload freight rate to the place of his
destination and then although his own truck is at the mill, charge him
35 percent of that all-rail freight rate to the destination and load it on
his truck. But he gets it. And it was testified, too, that that was for
the purpose, or at least that one of the things they meant to correct
by it was the use of truck delivery that interferred with the identity
of price figured on the all-rail basis. It is admitted in the corpora-
tion pamphlet that for many products the delivery by truck is most
economical and yet Mr. Adams testified that they put this into
effect, so far as his company was concerned, in order to discourage
truck transportation of steel.
There are any number of these commercial resolutions. Another
one has to do with the method of figuring the freight. The board of
directors approved definitely under the code a compilation of freight
rates which the traffic committee of the institute has compiled and
formulated ("Exhibit No. 2208"), and under the code the industry was
definitely required, compelled, to obey it. Well, that compilation of
freight rates is still being put out by the Institute, and we have put in
evidence here today showing that after the code was invalidated they
carried on the same understanding that that compilation was to be
used in figuring the delivered prices. That's very important, because
the matter of interpretation of freight tariffs is a matter on which
even freight experts will differ, and when you have some standardized
compilation that puts down the figure to be used — whether correct
or not doesn't matter, just so it's uniform — then you get your identical
delivered price. The evidence put in here today shows that they
were to use this institute compilation, even though a particular rate
might be in error, until they could correct it through the institute book.
Sometimes if the correct rate were lower than the published rate in
the institute book anyone who used the correct rate would get a lower
delivered price than his competitors. But to prevent that they made
this rule or understanding that until the corrections were put out
through the compilation itself, the Institute compilation, they should
foUow that Institute compilation and not the correct freight rate.
The effect of this 35 percent addition — you may call it a 65 percent
reduction, but it's the same thing, just using different words for it —
the obvious effect of that is that if some mill added only 34 percent of
the all-rail freight to the base price it would be giving the purchaser
the advantage of a lower delivered price. So 35 percent is the rule
for all members of the Institute. The Corporation says in its pam-
phlet that that practice is still being generally followed.
We had this morning an example of how base prices themselves
can be and are arrived at, in the letter from Mr. Dorenbusch to the
president of his own company ("Exhibit No. 2214"), describing how
it was decided to continue the base price on a certain product in effect
for the next quarter, and stating definitely in that respect that some
of the interests in the industry wanted a lower price, but that that was
finally defeated and it was agreed to let the base price continue.
14322 CONCENTRATION OF ECONOMIC POWER
Representative Williams^ Does the evidence show how many-
were in on that conference mentioned in that letter? That was the
most remarkable letter I have seen yet, I think.
Mr. Wooden. The witness' memory was rather meager on that
subject. As a matter of fact, he testified that the conference referred
to was one among the members of his own organization.
The Chairman. The witness denied the implication of the letter.
Representative Williams. I was not here. That was the reason
I was asking. I wondered if the evidence showed the men of the
organizations that were" in on. that conference..
Mr. Wooden. Now there was another provision adopted imder the
code requiring that on sales made for use in the erection of an identified
structure and on which work was to be done on the products in transit,
known as fabrication in transit, that you had to figure the delivered
price according to the nearest place to the structure rather than the
place of the fabrication. The commission pointed out the effect of
that rule in its report to the Senate in 1934. It pointed out that the
effect was to give information to the integrated producers who also
operated fabricating plants, as to where a particular structure was
going to be erected and enable them to <have an advantage in having
that information for use in competition against fabricators who didn't
have the affiliations with the integrated producers. That rule was
shown here in the last day or two to have continued at least as late as
1936, a year or more after the code, and to some as yet undetermined
later time. We were unable to ascertain how much later.
I would call the committee's attention also to the testimony here
in November which showed considerable interesting and significant
evidence concerning the discussions that take place among producers
in connection with determining the base price of tin plate and of pipe.
There is considerable evidence from which the inference can be drawn
that there is an exchange of opinion among the competitors before
they decide what prices shall be published.
Then in the same connection there was evidence put in here in
November by Mr. Adams, a vice president of the Corporation, and
Mr. Fairless, showing how competitors work together and consult with
each other with regard to what the proper extra charge shall be, extras
being placed on products which are somewhat variant from the base-
price quality, either above or below. Many of them are above.
The importance of extras may be gained from the fact that the Com-
mission's report to the Senate, I think, showed increases under the
code in extras, in quantity extras, I believe, of — oh, three or four
hundred percent. . And the obvious fact is that a change in the price
of extras may be as important as a change infthe base price itself.
It is possible by changing the price of the extras to greatly affect the
real net prices returned or received by the industry, as distinguished
from these published base prices.
Mr. O'CoNNELL. Mr. Wooden, I take it that a standard book of
extras is important or necessary in arriving at uniform prices in the
same way that the standardization of other elements of cost or freight
or the base price itself are important.
Mr. Wooden. That's right.
Mr. O'Connell. In other words, in order to arrive at identical
prices you must have uniformity in each of the elements that go to
-xn.ake up the final price to the purchaser?
CONCENTRATION OF ECONOMIC POWER 14323
Mr. Wooden. That's right.
Mr. O'CoNNELL. And the standard-freight-rate book is one way,
the standard book of extras is another, arbitrary switching charge is
another, and the base price itself is the one with which you start.
Mr. Wooden. That's true, and under the code the Institute, the
American Iron and Steel Institute, put out a standard book of extras.
I understand that since the code the extras are still standard, but
each company puts out its own book. But it was brought out here
before the committee, I tliink in November, that these competitors'
representatives worked out' cooperatively and collaboratively the
type and extent and amount of extras to be imposed, and that in fact
the extra charges made by each company in the steel industry are
identical with those made by the others.
(Mr. O'Connell assumed the Chair.)
Acting Chairman O'Connell. As I recall it, you testified that as to
that particular element of cost the producers in the steel industry
thought it proper to consult with each other for the purpose of arriving
at a standard rate for all extras, and I think one of the witnesses
indicated that in that connection they relied upon an opinion of counsel
that insofar as that particular element of cost, it was perfectly proper
for them to agree. Do you recall that?
Mr. Wooden. Yes; I do. I should like to point out that the effect
of this all-rail basis of figuring the transportation cosjb was frankly
defended by the industry on the ground that it put inland producers
on an equality with producers located on the waterways. It was
thought to be unfair competition for the producers located on water-
ways to be allowed to give the benefit of waterway transportation,
cheaper waterway transportation, to their customers to the detriment
of the inland producers. That is what accounted for the all-rail
base. Despite the protests ot concerns that were located on the
waterways, both sellers and buyers, transportation companies,
chambers of commerce, Senators and I^epresentatives, the industry in
1934 took a vote and overwhelmingly defeated the proposition of
shifting from the all-rail base to meet those protests. That all-rail
base still continues with the exception that the Institute publishes*
some compilations, of freight rates that show rail and water and rail-
ocean-rail so as to figure rates out to the Gulf ports and to the Pacific
Coast ports.
Representative Williams. If that were carried out, shouldn't
there be differential freight?
Mr. Wooden. I can't see any escape from the logic of the proposi-
tion that a purchaser, or a seller either, that is located on water, for
instance, should be allowed to have the benefit of his location even
though it may be a little bit hard upon someone who doesn't have a
similar location or as good a location. Otherwise, it seems to me, that
is a perfect example of deprivation of natural advantages which are
one of the outstanding features in any competitive system. If
people are not allowed to exercise their natural advantages of location
on water or otherwise, the implication is very clear that it is an inter-
ference and an arbitrary interference with competitive advantages.
I won't do more than mention the fact that the Corporation con-
tends in these pamplilets that the basing-point system was the natural
economic outgrowth of natural conditions in the industry. Mr.
Fairless could not give any support for that statement, and on the
14324 CONCENTRATION OF ECONOMIC POWER
contrary he had not even considered the detailed specific findings of
fact made by the Federal Trade Commission in the Pittsburgh Plus
case based upon evidence taken in that case that showed the origin
of the system was clearly one in which competitors united to fix
prices and prevent competition by using the basing-point system plus
freight from the basing-point and thereby getting an identical delivered
price.
I should like to advert for a moment to this matter of phantom
freight, and I should like to make the point that it is not merely the
existence of the phantom freight itself but the conditions out of which
it arises. Under the basing-point system it is all merely the natural
expression of the sj^stem itself, and it is necessary to the system that
it be maintained fully or the system itself breaks down. Some of this
phantom freight is very important. The Corporation itself has a mill
at Allentown, Pa., that makes, 1 think, nails and something else, with
prices based on Pittsburgh. The freight from Pittsburgh to Allen-
town is about $6 a ton. Under the system it must add that freight
from Pittsburgh to Allentown. If it adds less than the full amount of
that freight then there is a monkey-wrench in the machinery and some
competitors are not going to know just what the delivered price at
Allentown ought to be. They won't have an identical delivered price
unless the Allentown mill adds the full freight from Pittsburgh to its
destination. It is the systematic pattern, as I said before — this
phantom freight — that is characteristic of the system.
It has been infeiTed, I think, in a good many quarters that the
changes in base prices in 1938 and the abolition of some of the dilTer-
entials that existed before that time between basing points had done
away with phantom freight, but I think that is entirely a misconcep-
tion. Phantom freight will always exist under the basing point system
as long as the actual freight from a shipping point is less than the
imputed freight which is added in for purposes of quoting prices and
making prices. The Corporation admits that phantom freight arises
out of the use of truck transportation and out of the use of water
transportation, because the delivered price is figured on the all-rail
basis. Therefore there is a difference between the actual and the
imputed freight which goes to swell the base price.
There is a mill out in Colorado, the Colorado Fuel and Iron Co.
It is the only one in a wide area there, but it produces large quan-
tities of heavy structural shapes, light structural shapes, universal
plates, hot rolled strip, merchant bars, concrete reinforcing bar ,
billets, blooms, blooms for forging, plain wire, nails and staples,
barbed wire, wire fencing, and bale ties. It bases prices for all those
products on Chicago and Gary. That means that for the local pur-
chasers in Colorado, the addition of phantom freight from those basing
points is required by the basing-point system and it amounts to $19.60
a ton. You may say that being the only producer in that territory
it is entitled to do that, but I point out that unless it takes advantage
of the full amount of that all-rail freight advantage it is not playing
fair with the basing-point system. With that freight advantage of
$19.60 on those products out to Colorado, if it charges only $19,50,
ten cents less than the full freight advantage, it is going to have the
low price out there and other shippers can't get in and sell in the face
of that ten-cent discount.
CONCEJMTRATION OF ECONOMIC POWER 14325
On the Pacific Coast some products are produced which are priced
on an eastern base plus water freight out there to Los Angeles and
San Francisco and other Pacific ports. On one or two products, and
not on one or two others — but on one or two products the base price
out there as testified to by the Pacific Coast Fabricators' Association
Secretary is the equivalent of those eastern prices, such as Birmingham
plus, or Sparrows Point plus. On one or two products, as I started
to say, it is rounded off so as to be a little bit higher than the eastern
prices plus freight out there, and yet those products, or some of those
products, are produced right on the Pacific Coast. The same point
appliesy You may say that there is a shortage of production out there
and they are entitled to charge what it would cost to bring the product
from the East, but as I said before unless they take advantage of it
to the last cent they are imdercutting what the basing point system
calls for.
There are some important aspects of this phantom freight on other
industries. It was that phantom freight element that caused the
outcry of the western rolled steel consumers against tha Pittsburgh
plus system, because located at Chicago or in territories in the Middle
West, although the goods were produced right there the price was
made by adding the freight from Pittsburgh and it was called phantom
freight. The result of it was that fabricators and remanufacturers
in the Pittsburgh district who could buy at Pittsburgl^ without any
plus came out there into the Middle West territory around Chicago
and competed with those middle western fabricators and remanufac-
turers who had to pay that Pittsburgh plus phantom freight and the
western people simply couldn't compete with them.
The same thing was true on the Pacific coast according to the
testimony of the Secretary of the Pacific Coast Fabricators Association,
He testified that even now the fabricators out there when they come
toward the East are stopped at a very short distance by the competi-
tion of the eastern fabricators who can buy in the East at the eastern
prices and have the advantage against them while the western fabri-
cators can't come East. The amount of their disadvantage in terms
of dollars and cents, even at the present time, is greater than it was '
in the case of the Pittsburgh plus system in the Middle West.
Not only does that phantom freight have an effect upon existing
fabricators and reinanufacturers in their ability to compete, but an
important point is that the amount of the phantom freight may be so
great as to preclude the development and growth of new industries in
such localities. With the advantage that the eastern fabricators and
remanufacturers located at or near eastern basing points have in
owning their goods, in buying their goods at the base prices without
freight, it is simply impossible to compete with them and new indus-
tries don't spring up as they would normally in such territories.
Mr. HiNRicHs. Do you mean by that new industries using steel as
a raw material?
Mr. Wooden. Oh yes, surely, that is what I mean.
Another factor in that connection is the factor of waste. There are
many remanufacturing industries, fabricating industries, that buy
their steel as raw material and in making their finished product they
just necessarily have to waste a large percentage of it. It may be a
waste of 30 or 40 percent in the manufacture, and they can only sell
that waste product as scrap.
14326 CONCENTRATION OF ECONOMIC POWER
Now, that tends to increase the effect of the phantom freight far
beyond what the superficial amount seems to be, because of that waste
practice. They pay phantom freight on that unavoidable waste. >
Well, I should like to say that the freight absorption likewise is just
the natural, automatic reflection of the identical delivered price, and
that both of them together, freight, absorption and phantom freight,
reflect the range of the mill nets which the mills receive under the
basing point system. I should like to point out, as I do in the pre-
pared statement, that the Corporation throughout its pamphlets and
in its testimony of its ofiicials here, recognized that these mill net
yields are the actual prices obtained; that the base price is not the
real price and that the delivered price is not the real price, but that the
real price is what the mill net yield returns to the seller. And it
admits expressly in the pamphlets that this mill net yield is a system-
atic pattern of variation that is the reflection of the identical delivered
price under the basing point system.
It might be thought that it is not in keeping to discuss the econ-
omic aspects of the basing point system in this statement, but the
Corporation brought into these pamphlets defending the basing point
system a great many economic theories, drawing upon the conclusions
and facts set up by their expert economists such as Dr. Yntema and
others, which were put in as separate exhibits. They claim, for
instance, that identical delivered prices result from perfect competition
in a free market, and they cite the classical economic concept of a free
market to sustain that position. At the same time they contend that
perfect competition is an abstraction and exists nowhere, and yet they
seek to take advantage of that theory of perfect competition and its
effect upon uniformity of price by saying, "That's what we have in the
steel industry." To do that they postulate the market as being at
destination, and of course under the basing point system they won't
permit it to be anywhere else. The fact of the matter is, the im-
portant issue is whether in requiring sales to be made only at destina-
tion they do not thereby close all the markets at the mill and even
close the market entirely in the sense that economists use the word
market.
The Corporation in its pamphlet makes its argument that there is
such a contrast between the physical conditions of the steel industry
and the concepts of the economists of perfect competition that the
rules regarding competition should not be applied, citing in that
connection such matters as the limited number of producers and the
limited number, relatively, of large buyers of steel. My only com-
ment in that connection would be that the fewer the number of pro-
ducers the greater care ought to be exercised in seeing that a competi-
tive condition among them is maintained, rather than relaxing any.,
rules because of that small number of producers.
The Corporation makes claims that the demand for steel is inelastic
and that the price has no relation to demand. I would say in that
connection that if it be trtie that price and demand for steel are unre-
lated, it simply means that one-half of the law of supply and demand
has thereby been repealed. If there is no relation between demand
and price, and that half of the law of supply and demand has been re-
pealed, then it indicates the existence of some form of artificial control.
Yet the Corporation expressly says and goes to great length to prove ^
through its economists and studies of prices and costs and everything
cx)Ncentration op economic power 14327
of that, sort, that it is not feasible to reduce the price of steel because
to do so would not increase the demand. The record is against them
on that, and I think the Government economists disposed of that
issue very nicely in the last week.
The Corporation also makes quite an argument to the effect that
prices and profits are reasonable in the industry. There is a section
of this statement which is devoted to that contention. Since my
. time is so limited, I will not stop to analyze that contention of the
Corporation, but I would like to make this particular point, that a
great deal depends on whether you consider the prices and profits
off the industry as a whole, as a collective entity, or whether you take
the profits of particular members of the industry. If you take them
collectively, you thereby forget that it is supposed to be a competitive
industry. If you take them separately you will find that some ojf
the more eflacient concerns have been able, even through the depres-
sion, to make satisfactory profits.
The whole question of prices and profits can't be determined, as a
matter of fact, imless you adhere to the principle that only competi-
tion can determine what price is fair and reasonable. If you depart
from that standard somebody has to determine it, and then it simply
becomes a question of 'determination by interested members of the
industry through the use of such a thing as the basing-point system.
The Corporation also defends some of the uneconomic results of
the system, such as excess capacity. It takes various positions re-
garding excess capacity. It argues in the first place that it doesn't
exist; in the second place that if it does exist there is no way of meas-
uring it; third, that there is no feasible way of eliminating it; and
fourth, that it has certain economic advantages which justify it.
You will find all those positions taken in its pamphlet. I put in here
today a chart showing the relation between production and capacity
of the industry for a number of years past ("Exhibit No. 2233"),
and which contradicts these statements of the Corporation to the
effect that the capacity of the industry was not more than suflficient
to supply the needs of the country during periods of high demand,
such as 1929, 1937, and the present time. As a matter of fact, by
decades you can carry the industry back to 1901, when the Steel
Corporation was formed, and if you take it by decades you will find
that from 1901 to 1910 the percentage of production to capacity was
68.26 percent; 1910 to 1920, 77.65 percent; 1920 to 1930, 70.54 per-
cent; 1930 to 1939, 44.55 percent. So instead of there being no
excess capacity, it has existed in the industry ever since the Steel
Corporation was formed.
There is nothing novel about the thought of excess capacity of the
industry. The magazine "Steel" had an editorial in July 1938, which
I cite in this statement, concerning excess capacity and discussing
the relation of it to capitalization. It pointed out that for the period
between 1926 and 1937 the production was only 60 percent of the
capacity, and that the entire capacity earned during that period, 3.49
percent on the capital invested in the entire capacity, after absorbing
depreciation and overhead on the idle 40 percent; and they suggested
that steel, instead of being a $4,281,000,000 mdustry actually would
be capitalized at considerably less if much excess capacity whose
future usefulness is problematical were scrapped.
14328 CONCENTRATION OF ECONOMIC POWER
The Corporation also defends the existing location of mills. It
was brought out here yesterday that- the pamphlet shows — and I
quoted the page, quoted the language — that the location of mills
cannot be attributed to any pricing system. Then they switch around
and they go over to the point that if you bother the system or disturb
it in any way it just puts all these plants out of business. It says
that it would be an exception if any mill could satisfactorily survive
under a change in the system to an f. o. b, mill system.
The Corporation goes into the argument that the overhead and
capital costs justify the basing point system, and I put in here today
a statement which showed how much variation there was between
the capital costs of the different companies ("Exhibit 2236")-
Nowhere, however, does the Corporation do a better job at what
they sometimes refer to as economic sophistry than in the argument
that if you substitute another system, a mill price system, for the
basing price system, you will disrupt and dislocate industry and
cause economic disaster. They take about, I think, 12 pages and
present maps with aji elaborate showing as to how mills would be
restricted to a very limited territory and simply could not do business
under any mill system. But in doing that they employ a technique
which they elsewhere say in the pamphlet is simply impossible.
They say it can't be done, you can't measure what would happen —
and then they go ahead and try to measure it. Even in trying to
measure it, though, they make a lot of assumptions which are gratui-
tous and unfounded. They assume so many things about it that
there is no ground for assuming.
In the last place I would like to mention tnat in making its argu-
ment in these pamphlets, the Corporation has misstated the position
of the Federal Trade Commission regarding alternatives to the basing
point system. They contend — and devote a large part of their
pamphlet to the argument based upon the contention — that the
Federal Trade Commission proposes to impose by law or mandate
a mill system of pricing that would prevent any seller making any
different price to one customer than to another.
The Commission has not taken that position, and there is no evi-
dence to support the claim that it has. As a matter of fact, if it had
taken that position it would have taken the position that it was above
the law, because the law itself specifies the conditions under which
different prices may be made to different customers.
Acting Chairman O'Connell. You are speaking of the Robinson-
Patman Act?
Mr. Wooden. And its predecessor, the Clayton Act.
Acting Chairman O'Connell. Of course, the Commission might
propose to change those laws.
Mr. Wooden. Yes; but the Corporation says what the Commission
has done, and it has done no such thing. What it might do in the
future, I can't say.
Acting Chairman O'Connell. But I am merely pointing out that
the Federal Trade Commission might propose legislation which would
be inconsistent with some provisions of any existing statute such as
the Robinson-Patman or the Clayton Act.
Mr. Wooden. Surely. I wouldn't attempt to say what the Com-
mission would do in the future, but I direct attention to the fpct that
the Corporation has misstated what it has done and said in the past.
CONCENTRATION OF ECONOMIC POWER 14329
In the last analysis, the question is whether this system should be
allowed to continue. The Corporation itself agrees that price com-
petition is necessary in an industry operating in a capitalistic system.
So, if the conclusion be that this is not a competitive system and that
price competition is suppressed by the system, then the Corporation
would have to follow the logic of its own position and say, "You have
got to get rid of it or else the capitalistic system itself is menaced."
In closing, I would merely like to say that it seems to me the
peculiar province of this committee is to consider whether legislation
outlawing the basing-point system should' not be recommended. As
the situation is now, with the outcome of any basing-point case depend-
ing upon the interpretation of the law and the facts under theories of
conspiracy and concerted action which, I think, are necessary to make
the law applicable, it requires an enormous expenditure of time and
effort and labor in establishing that condition in an adversary proceed-
ing for each particular industry and what the facts are in that industry
regarding the basing-point system. I would say that no more vitally
needed legislation within the scope of this committee can be suggested
than that of directly prohibiting tli^ basing-point system by congres-
sional mandate. The constitutional power of Congress to regulate
interstate commerce could find no more appropriate exercise, assum-
ing that our long-established public policy of preserving competition
and free enterprise is to be something more than an abstraction.
Thank you.
Acting Chairman O'Connell. Do you wish to ofler this document
for the record?
Mr. Wooden. Yes.
Acting Chairman O'Connell. It may be admitted.
(The document referred to was marked "Exhibit No. 2242" and is
included iii the appendix on p. 14548.)
Acting Chairman O'Connell. Thankyou very much, Mr. Wooden.
If there is nothing more to come before the committee we will stand in
recess subject to the call of the chairman.
(Whereupon, at 4:25 p. m., the committee adjourned subject to the
call of the chairman.)
14330 CONCENTUATION OF ECONOMIC POWER
The following letter is included at this point in connection with Mr.
Ballinger's statement on p. 14317, supra. (See footnote reference 2
on that page.)
Federal Trade Commission,
Washington, December 11, 1940.
Mr. William Heflin,
Temporary National Economic Committee,
The Capitol, Washington, D. C.
Dear Mb. Heflin: Enclosed herewith is a memorandum to be inserted in
the record in connection with my statement relative to identical bids on govern-
ment business, during the Commission's steel hearings on January 30, 1940.
Sincerely yours,
Willis J. Ballinger,
Executive Assistant to the Commission, T. N. E. C. Inquiry.
WJB:FG
End.
The percentages in this and the following paragraphs were materially changed,
the percentages above stated being found to be in error. The fact appears to be
that during the particular limited period of time involved, there waj, according
to the data submitted by the Corporation, no notable uniformity in bids to the
Government such as characterizes the system when it is adhered to. As shown by
the Department of Justice in their "Exhibit No. 1349," ' part of the period cov-
ered by Corporation's a:.'ta was one of "price confusion," "exceptional weaknesses
in the prices of many steel products", and marked by "many companies" begin-
ning the "quotation of base prices, especially for flat rolled products like strip,
sheet, or plates at their own mills'."
The situation during more typical periods is shown in bids to the Navy Depart-
ment during 1935 and 1936. (See "Exhibits Nos. 2240, 2241",2 and testimony
of A. B. Custer of the Navy Department.) In one case there were 43 bids, iden-
tical to the oenn}^ in the amount of $45,683.48, and in another there were 31 bids,
identical tc the penny, in the amount of $20,727.20. The whole matter of the
significance of the percentage errors referred to is covered by the letter of Mr.
Irving S. Olds, Chairman of the Board of the Corporation, tc Chairman O' Ma-
honey, dated October 4, 1940, and the letter of Walter B. Wooden in comment
thereon dated November 29, 1940, both of which are in the record.^ In any event,
it should be obvious that the merits and demerits of any system cannot be deter-
mined by the extent of temporary departures from it.
The argument advanced in the paragraphs covered by this memorandum is
that the high percentage of identical bids on Government orders from the steel
industry is a refutation of the contention of the representatives of the Steel Cor-
poration before the Temporary National Economic Committee that the "basing
point system is a "shadowy thing," which is practically disregarded in the deter-
mination of steel prices. The staff of the Commission feels that this argument is
not invalidated, because the United States Steel Corporation submitted data to
the Committee whichapplied to a very limited period, and a period during which
the basing point system in the steel industry was temporarily abandoned because
of price-cutting. The staff of the Commission is of the opinion that there is ample
evidence in a number of previous studies conducted both by the Federal Trade
Commission and other governmental agencies, such as the National Recovery
Administration, to show convincingly that observance of the basing point system
in the steel industry is the general rule rather than the exception, with the result
that a very high percentage of bids on Government purchases have been identical
to the penny.
' Included in Hearings, Part 18, appendix, p. 10391.
» Pp. 14547 and 14548, supra.
s Supra, pp. 14691 and 14693, respectively.
APPENDIX
Exhibit 2189
Address reply to
"The Attorney General"
and refer to
initials and number
60-138-M
Re Form A
Department of Justice,
Washington, D. C, January 19, 1939.
Gentlemen: As part of the investigation of the iron and steel industry for the
Temporary National Economic Committee, the Department of Justice and the
Federal Trade Commission have prepared a questionnaire on the distribution of
certain selected steel products. You will find enclosed (a) instructions for the
compilation of the data requested; (b) copies of the form (Form A) on which
spaces are provided for the recording of the figures reported; and (c) a form of
affidavit and verification.
Form A and the instructions accompanying Form A have been designed in
conformity with reported company methods of recording tonnage shipment data
from manufacturing plant to destination. It is contemplated that the data re-
quested will be a matter of record with your company or that they may be readily
derived from existing records without resort to original invoices. Inquiries with
respect to any part of the questionnaire or any problem raised by it should be
addressed to this, Department, with the file reference as indicated.
There is also enclosed an affidavit to be executed by that oflScer of the reporting
company ultimately responsible for the preparation of the questionnaire. Execu-
tion of Form A will not be deemed complete unless the verified afl^davit is properly
made and returned.
It will assist the Committee if each reporting company as soon as possible will
advise the Department of the ai»proximate date when final reports on Form A
for the periods selected can be submitted.
Very truly yours,
Thurman Arnold,
Thurman Arnold
Assistant Attorney General.
Form a 60-138-M
Data Reqihred for the Temi-orary National Economic Committee on the
Distribution of Selected Carbon Steel Products
instructions
1. AU tonnage data required are indicated on the accompanying sheets, labeled
Form A. Spaces are provided at the head of each sheet for the insertion ,of the
following information: (a) the names of the company; (b) the name and location
of each works or group of works from which shipments are reported; and (c) the
year during which shipments reported were made.
2. Separate sheets should be used for each works and for each of the three
calendar years (1936, 1937 and 1938) for which data are required. For example,
if the company operated two separate works during each of the three calendar
years, its final report will be made on six sheets ; if only one works, on three. Addi-
tional copies of Form A will be supplied on request.
(a) If the company operates more than one works and if it is impracticable
to derive these data from its records for each works separately, give the name
124491— 41— pt. 27 14 14331
14332 CONCENTRATION OF ECONOMIC POWER
and location of each works for which these data are aggregated and indicate
tlie distance between works and the ways in which integrated operations are
effected.
(b) Under no circumstances must the data combine the operations of
works if different basing-point areas.
3. In reporting tonnage shipped, indicate for each product whether the weights
are gross or net tons.
4. All data requested are for carbon steel. Special products such as alloy steels
and high carbon wire are excluded.
5. Your company is understood to record tonnage shipments of steel products
from works to destination by States and by counties on punch cards for machine
tabulation. You are requested, therefore, to report tonnage shipments for the
products listed on Form A both by States and by certain important sub-division
of States and metropolitan consuming areas, listed in the first column of Form A
under "By other consuming districts" and defined in the schedule of consuming
districts enclosed.
6. In addition to the information requested on Form A, please give, on a separate
sheet, the name and, if available, the most important destination-plant location
of each of the company's four largest customers for each of the selected products
for which shipment data are required.
7. There is enclosed an affidavit to be executed by that officer of the reporting
company ultimately responsible for the preparation of this questionnaire. Exe-
cution of Form A will not be deemed complete unless the verified affidavit is
properly made and returned.
CONCENTRATION OF ECONOMIC POWER
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CX)NCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
14335
14336 C50NCENTRATI0N OF ECONOMIC POWER
Exhibit No. 2190
Address reply to
"The Attorney General"
and refer to
initials and number
60-138-M
Department op Justice,
Washington, D. C, December 2S, 1938.
Re Form B
Gentlemen: As part of the investigation of the iron and steel industry for the
Temporary National Economic Committee, the Department of Justice and the
Federal Trade Commission have prepared a questionnaire on the distribution and
pricing of certain selected steel products. You will find enclosed (a) instructions
for the compilation of the data requested; (b) copies of the form (Form B) on
which spaces are provided for the recording of the figures reported; (c) a list of
the works and the products selected for report; (d) a detailed definicion of the con-
suming districts listed on Form B; and (e) a form of affidavit and verification. It
is contemplated that these reports be filled out from records currently prepared
by companies during the month of February, 1939. The forms are selt-explan-
atory.
These data are requested at this time only for the month of February, 1939.
At a later date, when seasonal pressure upon clerical personnel of reporting com-
panies has lifted, similar information will be required for a single month in each
of the years 1937 and 1938. The reports call for records of shipments only of
selected products from certain specified works, of each company. In the case of
each reporting company the works and products included are listed on the enclosed
sheet. Inquiries with respect to any part of the questionnaire should be addressed
to this Department, with the file reference as indicated.
There is also enclosed an affidavit to be executed by that officer of the reporting
company ultimately responsible for the preparation of the questionnaire. Execu-
tion of Form B will not be deemed complete unless the verified affidavit is properly
made and returned.
It will assist the Committee if each reporting company as soon as possible will
advise the Department of the approximate date when reports for the month of
February, 1939 can be submitted.
Very truly yours,
(Signed) Thurman Arnold,
Assistant Attorney General.
Form B 60-1 38-M
Data Required for the Temporary National Economic Committee on the
Distribution and Pricing of Selected Steel Products
instructions
1. AU data required are indicated on the accompanjfing sheets, labeled Form B.
Spaces are provided at the head of each sheet for the- insertion of the following
information: (a) the name of the company; (b) the name and location of each
works or group of works, listed on the enclosed sheet, from which shipments are
reported; (c) the name of each product, listed on the enclosed sheet, shipped from
such works during the period covered; (d) the month and year during which ship-
ments reported were made (i. e., for purposes of this questionnaire, February,
1939); (e) the basing point on which delivered price was computed.
2. Separate sheets should be used for each works, each product, and each basing
point on which delivered price was computed. For example, if the company
operates two separate works, produces and ships from eacK of those works three
of the selected products, and prices each of those products on three basing points,
its final report will be made on eighteen separate sheets of Form B. With one
works, nine sheets would be required; with one works and one product, three
sheets. Additional copies of Form B will be supplied on request.
(a) If it is impracticable to provide the information requested separately
for each of the works indicated, give the name and location of each of the
works for which these data are aggregated, and indicate the distance between
works and the ways in which integrated operations are effected.
(b) Under no circumstances must the dita combine the operations of works
in different basing-point areas.
CONCENTRATION OF ECONOMIC POWER 14337
3. Data are requested for the period February 1-28, inclusive, 1939.
4. In the case of products which are quoted Gulf Ports or Pacific Coast Ports
without price differentials among ports, Gulf Ports or Pacific Coast Ports will be
considered a single basing point in each case respectively.
5. Special attention is called to the detailed definition (in terms of counties) of
the consuming districts listed on Form P.
6. The data requested in this questionnaire are for carbon steel only. Special
products such as alloy steels and high-carbon wire are omitted.
7. There is also enclosed an affidavit to be executed by that officer of the
reporting company ultimately responsible for the preparation of the questionnaire.
Execution of Form B will not be deemed complete unless the verified affidavit is
properly made and returned.
Address reply to
"The Attorney General"
and refer to
initials and number
60-138-M
DEPARTMENT OF JuSTICE,
Washington, D. C, January 27, 1939.
Re Form B.
Gentlemen: You are referred to the questionnaire (i. e., Form B) which was
sent to you by this Department under date of December 23, 1938. Several
questions of interpretation have been raised by representatives of the industry
and, to insure uniformity in reporting, you are requested to consider the follow-
ing determinations an integral part of the instructions which accon^panied Form
B.
1. Column (4) which is now headed "Freight charges added to base prices to
arrive at invoiced value per column (3)" should be interpreted to mean "Freight
charges from nearest basing point, freightwise, to point of delivery" in all in-
stances in which the delivered price is not computed directly from a base price
plus freight.
2. In the case of shipments to third parties, including fabrication-in-transit
shipments, consuming district means district of ultimate destination.
3. All direct shipments, including shipments for the account of affiliated com-
panies and shipments for the account of jobbers or other distributors, are to be
tabulated by consuming districts. Such shipments are not to be included under
"Other shipments."
4. In the case of "Exports", it will be sufficient to report total tonnage snipped
and the aggregate value at the mill of such shipments leaving columns ("3) to
(6) inclusive blank.
5. In the case of "F. O. B. mill sales", columns (4) and (5) should be blanked
out, since no freight is involved.
6. In the case of "Shipments to plants or warehouses of the same or afiSliated
companies", please observe the following:
(a) Shipments to warehouses (i. e., for resale) of the same or aflSliated
companies may be reported in tonnage only, columns (3) to (6) inclusive
being left blank.
(b) Shipments to fabricating plants of the same or affiliated companies,
however, should be reported in all six columns. A fabricating plant means
a plant engaged in the further processing of steel into such products as
ships, all forms of structures, fence, posts, and other wire products, oipe
and tubes, etc.
If shipments to warehouses are reported in tonnage only, they shoula be re-
ported separately and not aggregated with shipments to fabricating plants.
7. "Shipments to jobbers' warehouses" means shipments which are outright
sales but which are made for resale, whether the buyer be classified as a jobber,
retailer, or distributor. For these shipments, column (4) may be blanked out
but the data in the other columns (2) to (6) inclusive are required.
8. Companies requested to report data on Form B for "Plain wire, drawn"
will please observe the following definition of this product: Plain wire, drawn,
means wire which is sold in the bright state only, excluding all wire receiving
special treatment after drawing.
Very truly yours,
(Signed) Thurman Arnold,
Assistant Attorney General.
14338
CONCENTRATION OF ECONOMIC POWER
Products Selected for Form B Analysis:
1. Sheet and Tin Plate Bars
2. Wire Rods
3. Plates
4. Heavy Structural Shapes
5. Hot Rolled Sheets
6. Hot Rolled Strip
7. Cold Rolled Sheets
8. Cold Rolled Strip
9. Tin Plate (95 lb. base boxes)
10. Plain Drawn Wire
Temporary National Economic Committee
Form B
Distribution and pricing of selected steel products
Company.... p^^.^]
'Month
[Year
Name and location of works Basing point on which delivered
Product price was computed
Domestic shipments to consuming
districts '
(1)
Tonnage
shipped,
net or
gross tons
(state
which)
(2)
Total
invoiced
delivered
value
^3)
Freight charges
^ded to base
prices to arrive
at invoiced
value per
column (3)
(4)
Actual freight
paid or allowed
on shipments
from mill to
destination
(5)
Total extras
included in
Invoice de-
livered value
per col-
umn (S)
(6)
District
Maine _ _.
Tons
Amount in
dollars
Amount in
dollars
Amount in
dollars
Amount in
dollars
New Hampshire
Vermont
Rhode Island
Connecticut (except Fairfield
Eastern and Central New York,..
Buffalo
Philadelphia
Pittsburgh.-.
North Ohio River.
Detroit ... .. -...
Michigan — all other
Iowa
St. Louis
Kansas City
North Dakota
South Dakota-
Nebraska
Kansas
Delaware .
Baltimore..
Maryland— all other except 2 coun-
ties
South Carolina
' Distribution of selected steel product's by consuming districts is requested for all shipments direct to
consumers excluding exports, f. o. h. mill sales, shipments to other plants or warehouses of the same or
affiliated companies, and shipments to jobbers' warehouses. Consuming districts are defined in schedule
enclosed with this form.
CONCENTRATION OF ECONOMIC POWER 14339
Distribution and pricing of selected steel products — Continued
Domestic shipments to consuming
districts '
(1)
Tonnage
shipped,
net or
gross tons
1 (state
which)
(2)
Total
invoiced
delivered
value
(3)
Freight charges
added to base
prices to arrive
at 'nvoiced
value per
column (S)
(4)
Actual freight
paid or allowed
on shipments
from mill to
destination
(5)
Total extras
included in
invoice de-
livered value
per col-
umn (S)
(6)
District
Tons
Amount in
dollars
Amount in
dollars
Amount in
dollars
Amount in
dollars
Florida
Texas
Utah
California — southern
California— northern
Other shipments: '
Exports
F. 0. b. mill sales'
Shipments to plants or ware-
houses of same or affiliated
Shipments to jobbers' ware-
> These items need not be repeated on reports for each basing point. It is understood that they are not
to be included in the distribution of shipments by consuming districts within the United States. "
' "F. o. b. mill sale" means a sale priced at the mill and delivered to the customer at the mill without
freight allowance.
* "Affiliated company" means any company described as a parent, subsidiary, or affiliated company in
the reporting company's annual reports or in any registration statement filed by it with the Securities and
Exchange Commission.
Exhibit No. 2191
Companies Reporting, Fo«m A
1. By states and consuming districts:
Colorado Fuel and Iron Corporation
Keystone Steel and Wire Company
Youngstown Sheet and Tube Company
Bethlehem Steel Company
American Rolling Mill Company
Granite City Steel Company
Jones and Laughlin Steel Corporation
Carnegie-Illinois Steel Corporation
National Tube Company
American Steel and Wire Company
Tennessee Coal Iron and Railroad Company
Columbia Steel Company
2. By states only:
Andrews Steel Company
Wheeling Steel Corporation
Continental Steel Corporation
Allegheny-Ludlum Steel Corporation
14340 CONCENTRATION OF ECONOMIC POWER
Pittsburgh Steel Company
Weirton Steel Company
Republic Steel Corporation
Sharon Steel Corporation
Great Lakes Steel Corporation
Follansbee Bros. Company
Worth Steel Company
Cohoes Rolling Mill Company
Detroit Steel Corporation
McKeesport Tin Plate Corporation
Empire Sheet and Tin Plate Company
Lukens Steel Company
3. By sales districts only:
Otis Steel Company
Mid-States Steel and Wire Company
Superior Steel Corporation
Greer Steel Company
Acme Steel Company
The Eastern Rolling Mill Company
J. A. Roebling's Sons Company
Alan Wood Steel Company
Inland Steel Company
McLouth Steel Corporation
Phoenix Iron Company
Companies Reporting, Form B
Acme Steel Company
Alan Wood Steel Company
Allegheny-Ludlum Steel Corporation
American Chain & Cable Company, Inc.
American Rolling Mill Company
American Steel & Wire Company
Andrews Steel Company
Apollo Steel Company
Atlantic Steel Company
.\tlantic Wire Company
Bethlehem Steel Company
Carnegie-Illinois Steel Corporation
Central Iron & Steel Company
Cold Metal Prodes Company
Colorado Fuel & Iron Corporation
Continental Steel Corporation
W. H. Davey Steel Company
Detroit Steel Corporation
Empire Sheet & Tin Plate Company
Follansbee Bros. Company
Greer Steel Company
Granite City Steel Company
Great Lakes Steel Corporation
Inland Steel Company
Jones & Laughlin Steel Corporation
Keystone Steel & Wire Company
Laclede Steel Company
Lukens Steel Company
McKeesport Tin Plate Corporation
McLouth Steel Corporation
Mid-States Steel & Wire Company
Niles RolUng Mill Company
Northwestern Steel & Wire Company
Otis Steel Company
Phoenix Iron Company
Pittsburgh Steel Company
Reeves Steel & Manufacturing Company
Republic Steel Corporation
J. A. Roeblings Sons Company
Seneca Wire and Manufacturing Company
Sharon Steel Corporetion
CONCENTRATION OF ECONOMIC POWER 14341
Sheffield Steel Corporation
Stanley Works, The
Superior Steel Corporation
Tenn. Coal Iron & R. R. Company
Thomas Steel Company
Washburn Wire Company
Washington Tin Plate Company
Weirton Steel Company
Wheeling Steel Corporation
Wickwire Bros., The
Wickwire-Spencer Steel Company
Wilson Steel & Wire Company
Worth Steel Company
Youngstown Sheet & Tube Company
Exhibit No. 2192
Form A or B 60-138-M
Affidavit
State of \„„ .
County of T*"
On this day of , 1939, personally appeared before
me ,to me known and known to me to be the
of the gZ^Sy?" -d who by me be-
ing duly sworn deposed and acknowledged that he is of the said
corporation ^j^^^^ ^-^q accompanying form sheets issued under the authority of
the Temporary National Economic Committee, each of which is designated
"Form A," were executed under his authority and by his direction, that to the
best of his knowledge and belief the statements and figures contained therein, and
each of them, are true and accurate and that they were prepared from the records
of the said pomnanv " regularly made and kept by it in good faith in the conduct
of its affaiis. and for its own use.
[seal]
Notary Public.
verification
State of \ .
County oj J "
, being duly sworn, deposes and says that he is
an officer, to wit th6 of the Company°°
and that he is authorized to execute and has this day executed the foregoing
affidavit and that the averments contained therein, and each of them, are in all
respects true.
Corporation! Company .
Signed and sworn to before me this day of , 1939.
[seal]
Notary Public.
Exhibit No. 2193
Form A or B. Consuming Districts of the United States
A. Consuming districts coincident with State boundaries: Maine, New Hamp-
shire, Vermont, Massachusetts, Rhode Island, Minnesota, Iowa, North Dakota,
South Dakota, Nebraska, Delaware, District of Columbia, Virginia, West Vir-
ginia, North Carolina, South Carolina, Georgia, Florida, Kentucky, Tennessee,
Mississippi, Arkansas, Louisiana, Oklahoma, Texas, Montana, Idaho, Wyoming,?
Colorado, New Mexico, Arizona, Utah, Nevada, Washington, Oregon.
14342 CONCENTRATION OF ECONOMIC POWER
B. Other consuming districts (Counties included in each district are listed
below) :
Connecticut: all counties except Fairfield County.
Metropolitan New York:
New York State: Bronx, Kings, Nassau, New York, Queens,
Richmond, Rockland, Suffolk, Westchester.
New Jersey: Bergen, Essex, Hudson, Middlesex, Monmouth,
Morris, Passaic, Somerset, Union.
Connecticut: Fairfield.
Eastern and central New York:
New York State: Orange, Putnam, Sullivan, Ulster, Dutchess,
Columbia, Renssalaer, Broome, Washmgton, Saratoga, Warren,
Essex, Clinton, Cortland, Onondaga, Tompkins, Cayuga, Tioga,
Chemung, Schuyler, Yates, Seneca, Albany, Schnectady, Scho-
harie, Delaware, Otsego, Madison, Chenango, Green, Franklin,
Hamilton, Fulton, Montgomery, Oswego, Ontario, Wayne,
Steuben, Herkimer, St. Lawrence, Oneida, Lewis, Jefferson.
Buffalo:
New York State: Niagara, Erie, Catteraugus, Chautauqua,
Genesee, Monroe, Orleans, Livingston, Wyoming, Allegany.
Pennsylvania: Erie.
Philadelphia:
Pennsylvania: Bucks, Philadelphia, Montgomery, Chester, Dela-
ware.
New Jersey: Mercer, Hunterdon, Burlington, Camden, Atlantic,
Gloucester, Salem, Cumberland, Cape May, Ocean.
Eastern Pennsylvania:
Pennsylvania: Northampton, Monroe, Pike, Wayne, Susque-
hanna, Lackawanna, Wyoming, Luzerne, Carbon, Columbia,
Perry, Dauphin, Northumberland, Snyder, Montour, Union,
Lycoming, Sullivan, Bradford, Tioga, Schuylkill, Lehigh, Berks,
Lebanon, Lancaster, York, Adams, Potter, Cumberland,
Clinton, Center, Mifflin, Juniata, Huntington, Fulton, Franklin,
New Jersey: Sussex, Warren.
Pittsburgh:
Pennsylvania: McKean, Elk, Cameron, Clearfield, Jefferson,
Clarion, Bxitler, Armstrong, Bedford, Blair, Venango, Indiana,
Cambria, Beaver, Allegheny, Westmoreland, Somerset, Wash-
ington, Green, Fayette, Forest, Warren.
Maryland: Allegany, Garrett.
West Virginia: Preston, Monongalia, Marion, Wetzel.
Cleveland:
Ohio: Lorain, Cuyahoga, Lake, Erie, Geauga, Ashtabula, Portage,
Summit, Medina, Huron.
Youngstown:
Ohio: Trumbull, Mahoning, Columbiana.
Pennsylvania: Crawford, Mercer, Lawrence.
North Ohio River:
Ohio: Jefferson, Belmont, Monroe, Washington, Noble, Morgan.
West Virginia: Hancock, Brooke, Ohio, Marshall, Tyler, Pleasants,
Wood.
Canton-Massillon-Mansfield:
Ohio: Guernsey, Muskingum, Stark, Carroll, Wayne, Ashland,
Richland, Harrison, Tuscarawas, Coshocton, Holmes.
South Ohio River:
Ohio: Meigs, Gallia, Lawrence, Athens.
West Virginia: Jackson, Mason, Cabell.
Ohio: All counties in Ohio other than those listed under Cleveland,
Youngstown, North Ohio River, Canton-Massillon-Mansfield, and
South Ohio River districts.
Indiana: All counties except Lake County.
Chicago:
Illinois: Cook, Du Page, Lake, Kane, Will.
Wisconsin: Kenosha, Racine, Milwaukee.
Indiana: Lake.
Illinois: All counties except Madison and St. Clair Counties and those
included under Chicago district.
CONCENTRATION OF ECONOMIC POWER 14343
Detroit:
Michigan: Saint Clair, Macomb, Oakland, Livingston, Lapeer,
Ingham, Jackson, Washtenaw, Wayne, Genesee, Hillsdale,
Lenawee, Monroe, Shiawassee.
Michigan: All counties except those listed under Detroit district.
Wisconsin: All counties except Kenosha, Racine, and Milwaukee Coun-
ties.
St. Louis:
Missouri: St. Louis, St. Louis City> St. Charles.
Illinois: St. Clair, Madison.
Kansas City:
Missouri: Jackson.
Kansas: Wyandotte.
Missouri: All counties except St. Louis, St. Louis City, St. Charles,
and Jackson Counties.
Kansas: All counties except Wyandotte County.
Baltimore:
Maryland: Calvert, Anne Arundel, Howard, Carroll, Baltimore,
Baltimore City, Harford, Cecile, Kent, Queen Anne, Caroline,
Talbot, Dorchester, Wicomico, Somerset, Worcester.
Maryland: All counties except Allegany and Garrett Counties and
those listed under Baltimore district.
Birmingham:
Alabama: Jefferson, Etowah, Bibb, Calhoun, St. Clair, Shelby,
Tuscaloosa, Blount, Walker.
Alabama: All counties except those listed under Birmingham district.
California, southern:
California: Inyo, San Luis Obispo, Orange, Santa Barbara, Kern,
San Bernardino, Ventura, Los Angeles, Riverside, San Diego,
Imperial.
California, northern: All counties in California except those listed
under California, southern district.
Exhibit No. 2194
Supplement to Form B Tables
Caution. — For Convenience of the Press Only. Not to be Released Until
Introduced in the Record.
This table is presented to indicate the broad outlines of the formal pricing
structure for each product analyzed and to indicate how that pricing pattern
was altered by the changes in June, 1938.
In general, the elimination of most inter-basing-point price differentials, the
reduction of others and the establishment of new basing points may be expected
to increase the amount of freight absorption and reduce the amount of so-called
phantom freight in the distribution of products thus affected as contrasted with
what these items would have been prior to June, 1938.
This table is presented to indicate the extent to which the present basing-point
system corresponds with the distribution of capacity.
This table indicates the distribution by producing areas and by degree of
company intergration of the total capacity for each product analyzed, together
with the corresponding capacities of plants for which distribution of shipments
was reported on Form B. It shows the representativeness of the sample taken.
tables 4 AND 4a
On the assumption -hat shipments will tend to conform to capacity overtime,
this table indicates the extent to which relative shipments, by producing areas
in February, 1939, may be considered characteristic. The "norm", probably
14344 CONCENTRATION OF ECONOMIC POWER
never attained in a dynamic situation, would be indicated by identical percentages
of capacity and of shipments for each producing area. It ia not implied that such
a norm would be ideal in any economic sense!
TABLES 6 AND 6A
In addition to the more detailed information requested for shipments during
February, 1939 on Form B, tonnage distribution of selected products in each of
the three years 1936-38 were requested from companies which maintained usable
records of such shipments. These tables indicate the relative coverage of the
sample of companies reporting (a) by defined districts and (b) by States in terms
of~1938 capacity.
TABLES 6 AND 7
The purpose of these tables is to indicate the extent to which the geographic
distribution of the product analyzed (i. e., the Form B distribution) in February,
1939 may be considered typical of its usual distribution. The sample of companies
and plants reporting on Form A by states differs- from that reporting on Form A
by districts and both differ from that reporting on Form B. It should also be
noted that by reason of the definition of consuming districts, the regions defined
by States in Table 6 are not completely identical with those same regions defined
by consuming districts (Form A and Form B). Greater stability in geographic
distribution might be expected were it possible to remove these sources of vari-
ation.
The range of variation is indicated in Table 7. The difference between the
maximum percentage of total shipments received by a given consuming ai'aft
(state or district) in any one of the four periods (1936, 1937, 1938, and February,
1939) and the minimum percentage received in any such period constitutes the
range of distribution for the purposes of this table.
Because of ' mited staff, it has not been possible to make all the computations
necessary for a, complete analysis of Form B in each of the 64 consuming districts
defined therein. For some purposes, therefore, it has been necessary to sample
consuming districts for detailed analysis. This was done on the basis of their
importance as measured by tonnage received.
This table shows the percentage of total shipments accounted for by this
selection of consuming districts on the following bases: (a) all shipments reported,
(b) all shipments reported by plants in producing areas, (c) shipments made by
plants in producing areas priced on the various basing points reported by them,
(d) all shipments priced on each basing point irrespective of location 'of source.
This, table indicates the extent to which the shipments received in each of the
most important consuming areas were derived from those producing areas which
could best serve them as measured by average freight absorption. In areas in
which the lowest delivered price was computed from a basing-point at which the
quoted lirice was at a differential above other basing points, freight absorption
has been indicated in two ways; (a) unadjusted (that is, the difference between
"freight added" and freight allowed), and (b) adjusted (that is, the unadjusted
figure minus the diflFerential) . If the quoted base price be considered the true
market price of a steel product and the criterion of a fair price for steel for both
buyer and seller, it is obvious that so-called "freight absorption" or "phantom
freight" (i. e., nagative freight absorption) are concepts of nominal importance
only. Where an inter-basing-point price diflFerential exists, the unadjusted freight
absorption is nominal whatever one's attitude toward the significance of the base
price.
Since each plant reported aggregates only for shipments priced on a given basing
point into a given consuming district, it is not possible to show what proportion
of such shipments involved an equality between freight added and freight paid,
what proportion a freight absorption, and what proportion a phantom freight.
The net figure, even for a given reporting plant, is an average.
This table indicates roughly the extent to which the basing-point formula of
pricing was observed on shipments made by each producing area into selected
CONCENTRATION OF ECONOMIC POWER 14345
consuming areas during the month of February, 1939. As such it is a measure
of price competition during that period. In interpreting this table, Iiowever,
several imponderables which may account for the results without questioning
the dominance of the formula should be borne in mind: (1) Although February is
a middle-of-the-quarter month and there were no announced price changes during
the period, some shipments may have been made under long-term contracts at
other than current prices; (2) some companies rounded off the tonnage of ship-
ments made to given districts thereby distorting per ton computations where
total tonnage shipped was small; (3) errors made in reporting the extras included
in the delivered value would throw the computed base price out of line (as, of
course, would an error in reporting freight added or delivered value). On the
other hand, it should be remembered that these figures are averages and therefore
conceal much wider variations in the reports of individual companies.
Since each plant reported its total shipments priced on a given basing point
into a given consuming district, together with aggregates for that tonnage of
delivered value, extras, etc., it is not possible to show what percentage of the
total shipments into a given area were priced in accordance with the formula.
TABLE 11
This table presents the same comparison as that made in Table 10 but on a
more general basis. It averages all shipments irrespective of source in accordance
with the basing point from which delivered price was computed. It is, of course,
subject to the same limitations as Table 10.
Sales priced on the basing point nearest the location of the mill provide a rough
approximation to one concept of the economic market of that mill or group of
mills. This conclusion is qualified by the following limitations. (1) It does not
apply to mills located away from a basing point although so long as mills are
relatively close to a basing point, it may be used as a rough approximation. (See
Table 2 above.) (2) It does not strictly define the market for a mill with access
to transportation facilities which are cheaper than the all-rail or arbitrary rates
employed in computing destination prices. (3) It does not allocate areas which
are governed by non-producing basing points or by basing points at which price
differentials are maintained over other bases.
With these reservations in mind, Table 12 may be considered a rough indication
of the extent to which mills in each producing area sold in their home markets.
Average mill nets and average freight absorption (on both an adjusted and an
unadjusted basis) are likewise contrasted for sales on the nearest base and sales
on ail other basing points.
TABLE 13
This table indicates the extent to which plants in a given area supplied the
•requirements of customers within that same area together with the extent to
which those customer requirements could have been supplied by such plants,
total shipments remaining unchanged. This table has only limited significance.
The more important reservations are the following: (1) Because of the location
of plants within any given consuming area, its best market (in terms of distance,
freight or mill net) will often be partially in another consuming area in preference
to some portions of its own area. Only an adjustment of areas to suit each plant
could eliminate this ambiguity. (2) Although a product may be properly classi-
fied in a given category, some plants produce special sizes, sections or qualities
which are not in direct competition with those of other mills. The natural market
for these products is in no sense defined by the districts established in Form B.
(3) By reason of peculiarities in the freight-rate structure and the possibilities
of cheaper than all-rail transportation, a plant sometimes finds its most advan-
tageous market, in terms of mill net under a delivered price system, at a distance
from the mill.
It is not implied that the economic market of a producing area is defined by
the consuming area with which it is made to coincide in this table.
TABLES 14 AND 14A
Using the average freight absorption per ton on saleh\priced on the nearest
basing point as a criterion of market areas governed by a given producing area,
this table represents the allocation of market areas that would result and the
relative participation of each producing area in those market areas. Table 14
14346 CONCENTRATION OF ECONOMIC POWER
is constructed on unadjusted freight absorption, Table 14a on freight absorption
adjusted to take into account inter-basing-point price differentials. Aggregate
shipments received from all sources by these" "governed" areas are indicated in
the notes.
The criterion applied in this table is admittedly arbitrary and suffers from
defects already noted in connection with Tables 13 and 9. Since average freight
absorption on sales priced on the nearest basing point constitutes the minimum
freight absorption for the purpose of defining the market area of each producing
area, many consuming districts are eliminated entirely from the category of
markets for existing producing areas. Most notable is the exclusion of important
consuming areas from the markets of the mills located within those areas respec-
tively. In each instance, average freight absorption within these home areas
was greater than the average for all sales priced on the nearest basing point.
On the other hand there is duplication of certain consuming districts in the
market areas of certain producing areas. This phenomenon results from the
following circumstances. (1) Consuming districts are in some instances quite
large as measured in freight rates from any given outside point to destinations
within that area. (2) Reported shipments to each area are averages of each
plant's total shipments to that area priced on a given basing point. (3) Special
sizes, sections or qualities produced by a single mill may be priced only on the
basing point nearest to that mill irrespective of destination. Thus shipments
may be made from Pittsburgh or Bethlehem into Chicago or Birmingham without
any freight absorption.
TABLE 15
This table is similar to Table 14 except that the criterion of market area for
each producing area is the average mill net per ton received on all shipments
priced on the nearest basing point. Aside from defects peculiar to the concept
of freight absorption, it is subject to the same reservations as those noted for the
former table; notably, duplication of consuming districts in the market areas of
some producing areas; and elimination of important cortsuming areas as marketing
areas for plants located in these districts respectively.
TABLES 16 AND 16A
As a measure of one concept of the economic market areas of given producing
areas, this table is less subject to ambiguities than those already described. The
criterion here applied is the lowest actual freight allowed on shipments from any
producing area into a given consuming area. In this sense it is an approximation
to a market delineation in terms of actual freight rates from each producing area.
It fails to achieve this ideal to the extent that the boundaries of consuming dis-
tricts do not coincide with the lowest freight rates from any given producing
area. Parts of a consuming district, therefore, may be served more economically
from a given producing area although the greater portion of that district is more
economically supplied from a second producing area even though at an average
freight allowance higher than that reported on actual shipments from the former
producing area. Nevertheless, in this table, the entire consuming district would
have .to be allocated to the first area. This criterion has been followed strictly
although flagrant instances of probably erroneous allocations have been noted.
The actual allocation of consuming districts on this basis is shown in Table 16a.
Percentages indicate the participation of each producing area in the total
business of its economic market so defined, the extent to which each producing
area concentrated its business within that market, and the extent to which it
could have done so, other things equal. The latter percentage assumes that the
shipments actually received within the "governed" consuming district were of a
type and specification which the producing area was capable of rolling and in a
position to roll economically to consumer's requirements with regard to delivery
dates.
TABLE 17
This ti We lists all instances in which shipments into consuming districts were
reported i is priced on a basing point which could not have governed any portion
of that diVitrict on the basis of relative freight rates available to the Department
of Justice. There are several possible explanations of these exceptional instances:
1. Errors in reporting might arise in several ways:
(a) Although the data shown may be accurate for the shipments involved,
they may have been erroneously reported under the wrong basing point.
CONCENTRATION OF ECONOMIC POWER
14347
(b) Actual shipments may have been made out of mill warehouses and freight
items computed from that source although the basing point indicated was that
governing the original shipment to warehouse.
(c) For products subject to fabrication-in-transit, shipment may have been
classified by ultimate destination although all other data were reported as if it
were a shipment to fabricator's shop.
(d) Delivered value may have been accepted as the going price and, without
checking the freight rate fromi the governing base, freight from the basing point
nearest the mill may have been reported as freight added to arrive at delivered
price.
2. Without error in reporting, the shipment may have represented special
specifications manufactured only by a given mill and priced by that mill on its
own nearest basing point, irrespective of destination. Were this the explanation,
the delivered value would be lil<ely to exceed that on shipments from the govern-
ing base while freight absorption would be small or absent. Since such special
■products are not immune from price competition, however, this would not neces-
sarily be true for all such shipments.
This table lists all instances in which the average computed base price less
extras exceeded the quoted base price at the governing basing point. Since any
premiums included in the delivered value should have been reported as extras,
this result would be expected only in case (1) extras actually included in the
delivered value, were not all reported, (2) tonnages shipped were small and were
erroneously reported in rounded figures, or (3) errors were made in reporting the
freight added or the delivered value.
Exhibit No. 2195
Form B Summary — February 1939
Tons shipped '
Delivered value per ton
Tons priced on ba.sing
points without pub-
lished price differen-
tial._ __
Calculated base price on
sales on basing points
without differentials. .
Mill net less extras per
ton
Kxtras per ton
Extras as percent of de-
livered value
Freight absorption per
ton (unadjusted)
Freight absorption per
ton (adjusted)'
Freight absorption as
percent of delivered
value (unadjusted)
Freight absorption as
percent of delivered
value (adjasted)'
Freight paid or allowed
per ton
Freight added per ton..
Sheet
and
Tin
Plate
Bars"
8,198
$30. 36
8,198
$29.38
$29.06
$0.05
0.2%
$0.32
$0.32
1.1%
1.1%
$1.25
$.93
Wire
Rodsi
27, 141
$44. 96
21,276
$39. 37
$38. 48
$2.56
5.7%
$1.82
$1. 31
4.0%
2.9%
$3.92
$2.10
Plates
96, 443
$49.25
85, 897
$41. 30
$39. 58
$4.02
8.2%
^2.57
$1.54
5.2%
3.1%
$5.64
$3.07
Heavv
Struc-
tural
Shapes
79, 921
$47. 57
73, 672
$40. 32
$39. 26
$1.89
4.0%
$1.83
$1.12
3.8%
2.4%
$6.43
$4.59
Hot
RoHed
Sheets
190,910
.$51.68
148,410
$38. 78
$37. 82
$9.70
18. 8%
$1.69
$1.21
3.3%
2.3%
$4.16
$2.47
Hot
Rolled
Strip
67, 896
$48. 58
$39. 2i
$38 55
.$6.04
12.4%
$1.34
1.9%
$3.98
$2.65
Cold
Rolled
Sheets
82, 919
$62. 42
50, 766
$58. 97
$57. 47
$0. 45
0.7%
$2.59
$1.80
4.2%
2.9%
$4. .SO
$1.91
Cold
Rolled
Strip
17,728
$93, 64
9,301
$60. 18
$60. 44
$27. 79
29. 7%
$1.34
$0.20
1.4%
0.3%
$5.42
$4.08
Tin
Plate
(95#
box)
Plain
Wire
•Drawn
29,036
$102.46
28,552
$100. 36
$101.37
<-$4. 02
-3.9%
-$1.06
-$1.09
-1.0%
-1.1%
$.5. 11
.$6. 17
17, 166
$57. 98
(')
I $50. 54
$49. 08
$3.96
6.8%
$1.47
(')
2.5%
(})
$4.95
$3, 48
' Sheet and Tin Plate Bars and Wire Rods are shown in gross tons; all others are in net tons.
' Adjustments for basing point price differentials were not made for this product. Prices are not quoted
in the Iron Age for Pacific Ports, Duluth and Detroit. (146 tons were priced on Duluth, 86 tons on Pacific
Ports and i to** on Detroit.)
» Adjusted for basing point price differentials over Pittsburgh price.
' Negative extras on tin plate are in part accounted for by the fact that only 95 Id. base boxes were re-
ported. Such sales carry a deduction from the standard 100 lb. base box, as tin plate extras are quoted
by the base box and not by a unit of weight.
Source: Compiled from the Temporary National Economic Committee questionnaire Form B, February
124491-41— pt. 27-
-15
14348
CONCENTRATION OP ECONOMIC POWER
Exhibit No. 2196
Published Base Prices, February 1939
[Prices per net ton except Sheet Bars and Wire Rods]
Product
Basing point
Sheet
Bars
(Per
gross
ton)
Wire
Rods'
(Per
gross
ton)
Plates
Heavy
Struc-
tural
Shapes
Hot
Rolled
Sheets
Hot
Rolled
Strips
Cold
Rolled
Sheets
Cold
Rolled
Strip
Tin
Plates
Plain
Drawn
Wire*
Pittsburgh, Pennsylvania. --
Chicago, Illinois
34.00
34.00
43.00
43.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
""42.00
42.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
64.00
64.00
64.00
64.00
64.00
59.00
61.00
"59.' 66
59.00
100.00
100.00
100.00
52.00
52.00
Cleveland, Ohio
34.00
34.00
43.00
"43." 56
52.00
52.00
Buffalo, New York
34.00
34.00
64.00
Snarrows Point, Maryland
42.00
Middletown, Ohio
43.00
64.00
42.00
42.00
42.00
45.00
63.00
34.00
San Francisco, California -
52.00
Granite City, Illinois
45.00
66.00
102.00
Gulf Ports
49.00
52.00
49.00
54.00
Pacific Ports
53.00
45.00
"'45.' 65
76.00
66.00
Detroit, Michigan' -
61.00
' Rods over 9/32 In. or 47/64 in., inclusive, $5.00 a ton over base.
' A ^delivered price (not a basing point).
' Sold in base boxes (100 lb. base box used as the standard).
< Bright Wire to the manufacturing trade in carload lots.
Source: The Iron Age.
Exhibit No. 2197
Table 1. — Heavy Structural Shapes: Basing Points and Basing Point Prices,
May 19S8 and February 1939
[Prices per net ton]
May 1938
February 1939
Basing point
Base price
Differential
over Pitts-
burgh
Base price
Differential
over Pitts-
burgh
Pittsburgh
$45. 00
46.00
47.00
47.00
48.00
53.00
56.00
49.00
$0.00
1.00
2.00
2.00
3.00
8.00
11.00
4.00
$42.00
42.00
42.00
42.00
42.00
49.00
54.00
(»)
$0.00
Chicago-Gary i. _..
0.00
Buffalo-
COO
Bethlehem ...
0.00
Birmingham . .
0.00
Gulf Ports
7.00
Pacific Ports
12.00
Cleveland
' Gary not listed as a basing point in May 1938 issues of the Iron Age.
' Not listed as a basing point by February 1939 issues of the Iron Age.
Source: The Iron Age (all issues in the months listed).
CONCENTRATION OF ECONOMIC POWER
14349
Table 2. — Heavy Strvctural Shapes: Distribution of Capacity by Distance from the
Nearest Basing Point
Distance from Nearest Basing Point (air miles)'
Capacity (1,000
gross tons) 2
Percent of Total
Capacity
Total United States
0-25 —
26-50
Sl-100
Over 100
3, 667. 4
100.0
' Includes all basing points listed ia the Iron Age after the change in basing points in June 1938.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938 and the Iron
Age. (The directory did not list Carnegie-Illinois Steel Corporation capacity separately by product for each
plant. Thus an estimate was required for capacity at Pencoyd, Pennsylvania. This capacity was esti-
.mated at 140,000 gross tons.)
' Includes 68,700 gross tons on the Pacific Coast.
Table 3. — Heavy Structural Shapes: Distribution of Total Capacity in the United
States and Form B Sampled Capacity by Producing Areas
Producing area '
Total United States
Integrated*
Semi-integrated
Non-integrated
Eastern Pennsylvania and Philadelphia.
Pittsburgh
Chicago
Buflalo.
North Ohio River
St. Louis
Birmingham
Colorado,.
Areas not in the sample:
YoungstowD
California (northern and southern)...
Washington -.
Total U. S. Capacity »
(1,000 gross
tons)
3667.4
3517. 4
150.0
» 1, 090. 0
1,018.7
927.6
215.0
113.0
110.0
-91.0
20.0
13.5
46.7
22.0
Percent of
total
95.9
4.1
29.7
27.8
25.3
5.8
3.1
3.0
2.5
0.5
0.4
1.3
0.6
Estimated Capacity
Sampled
(1,000 gross
tons)
2782. 0
150.
950.0
550. 0
783.0
215.0
113.0
no. 0
91.0
20.0
Percent of
total capac-
ity sampled
79.9
79.1
100.0
87.2
63.8
84.4
100.0
100.0
100.0
100.0
100.0
' Producing areas conform to Form B consuming areas.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938
' Of the capacity sarqpled 94.9 percent represented integrated companies and 5.1 percent semi-integrated
companies.
* Degree of integration here used is company integration (not plant).
• Includes 140,000 gross tons estimated capacity at Pencoyd, Pennsylvania, (not listed separately in
the directory)
« Estimated capacity at Munhall, Pennsylvania, (not listed separately in the Directory)
Table 4. — Heavy Structural Shapes: Estimated Sampled Capacity by Producing
Area and Shipments by Producing Area
Capacity Sampled '
February 1939 Shipments '
Producing area »
Tonnage
(1 ,000 gross
tons)
Percent of
sampled
capacity
Tonnage
(Net tons)
Percent of
total
shipments
Total
2, 932. n
100.0
79, 921
100.0
Eastern Pennsylvania and Philadelphia. !
Chicago .
950.0
783.0
650.0
215.0
113.0
110.0
91.0
32.4
26.7
22.2
7.3
3.8
3.8
SI
22,957
20,355
45, 437
10,260
2,550
1,151
4,240
2,971
28.3
25.5
Pittsburgh
19.3
Bufialo.. .
12.8
North Ohio River
3.2
St. Louis .
1.4
Birmingham
5.3
Colorado
20 0 n. 7
3.7
' Producing areas conform to Form B consuming areas.
' Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938.
• Compiled from the Temporary National Economic Committee qdcstionnairc Form B, Feb. 1939.
♦ Estimated capacity at Munhall, Pa. (not listed separately in the Directory).
14350
CONCENTRATION OF ECONOMIC POWER
Table 5. — Heavy Structural Shapes: Distribution of Total Capacity and Form A
Sampled Capacity by Producing Area (District Sample) 1938
Producing Area '
Total United States
Eastern Pennsylvania and Philadelphia
Pittsburgh
Chicago - —
Buffalo -
North Ohio River - --
St. Louis...
Birmingham
California'
Washington -..
Colorado --
Youngstown ---.
Total U. S.
Capacity '
Tonnage
(1,000 a. T.)
3, 667. 4
* 1,090.0
1,018.7
927.5
215.0
113.0
110.0
91.0
46.7
22.0
20.0
13.5
Capacity Sampled
Tonnage
(1,000 a. T.)
2, 969. 4
800.0
1,018.7
742.5
215.0
91.0
46.7
22.0
20.0
•13.5
Percent
Sampled by
Producing
Area
81.0
73.4
100.0
80.1
100.0
100.0
100.0
100.0
100.0
100.0
' Producing areas conform to Form B Consuming Areas.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938.
' Includes Northern and Southern California.
< Includes 140,000 Q. T. estimated capacity at Pencoyd, Pennsylvania.
' Company sampled but no shipments were reported for this product.
Table 5A. — Heavy Structural Shapes: Distribution of Total Capacity and Form A
Sampled Capacity by States (State Sample) 19SS
Total U. S.
Capacity
(1,000 gross
tons) '
Capacity Sampled
state
(1,000 gross
tons)
Percent Sam-
pied by state
Total United States
3, 667. 4
3, 082. 4
84.0
Pennsylvania ... ....
2, 018. 7
628.0
299.5
215.0
113.0
110.0
91.0
46.7
22.0
20.0
13.5
1, 818. 7
613.0
129.5
215.0
> 113. 0
86.2
97.6
43.2
100.0
West Virginia
100.0
Alabama . .
91.0
46.7
22.0
20.0
13.5
100.0
California - . . . . ... ..-..
100.0
Washington
100.0
Colorado
100.0
Ohio '...
100.0
' Iron and Steel Works Directory of the United States and Canada, 1938r
• Report is not included in calculations for tables 6 & 7.
' Company was sampled but no shipments were reported for this product.
CONCENTRATION OF ECONOMIC POWER
14351
Table 6.-
-Heavy Structural Shapes: Relative Stability of Tonnage Distribution
by Consuming Region, 1936, 1937, 1938 and February 1939
Regiop
Form A distribution by states
Form A distribution by con-
suming district
Form B
distribu-
tion
1936
1937
1938
1936
1937
1938
Feb. 1939
All regions (net tons)
1,661,615
1, 853, 461
956, 214
1,727,984
1, 941, 706
984, 428
79, 921
Percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
North Eastern'
35.7
34.2
6.0
6.2
10.7
7.2
35.3
35.3
6.3
6.3
11.4
6.4
37.4
27.0
5.9
10.1
13.3
6.3
34,0
36.7
6.3
5.9
10.3
6.8
32.5
38.9
5.6
6.1
10.9
6.0
34.9
30.0
6.3
9.9
12.8
6.1
35.0
North Central '
30.8
West Centrals...
8.5
South Eastern * _
7.4
South & Southwestern '..
Mountain & Western '...
12.9
6.4
' Includes following states and consuming districts: Maine, N. H., Vt., Mass., R. I., Conn., N. Y., N. J.,
Pa., Metropolitan N. Y., Eastern & Central N. Y., Buffalo, Phila., Eastern Pa., Pittsburgh.
' Includes following states and consuming districts: Ohio, Ind., III., Mich., Wis., Minn., Cleve., Youngs-
town, N. Ohio River, Cant. -Mans., S. Ohio River, Ohio — other, Chicago, Ill.-other, Detroit, Mich, other.
' Includes following states and consuming districts: Iowa, Mo., N. Dak., S. Dak., Nebr., Kans., St. Louis,
Kans. City, Mo.-other.
< Includes following states and consuming districts: Md., D. C, Va., W. Va., N. C, S. C, Ga., Fla.,
Baltimore, Md. -other, Delaware.
» Includes following states and consuming districts: Ky., Tenn., Ala., Miss., Ark., La., Okla., Tex.,
Birmingham, Ala.-other.
•Includes following states and consuming districts: Mont., Idaho, Wyo., Col., N. Mex., Ariz., Utah,
Nev., Wash., Ore., California, Northern California, Southern California.
Note: Each region is defined by the areas listed, eliminating duplications,
and consuming districts have been italicized.
The most important states
Table 7. — Heavy Structural Shapes: Range of Variation of Tonnage Distribution
in Consuming States and Consuming Districts, 1936, 1937, 1938 and February
1939
[Range of distribution of percentages by areas]
Range
Form A: 1936-1938 inclusive
Forms A &' B:
1936-1938 Inclu-
sive and Feb-
ruary 1939
By 49 states: '
Number of
states
By 64 districts:
Number of
districts
By 64 districts:
Number of
districts
Over 5.0
2
6
9
10
36
2.1-5.0 .
2
5
6
36
6
2
5
51
1.1-2.0 _
0.6-1.0
0.5 or under.
Total
49
64
64
' Includes the District of Columbia.
Source: Compiled from Temporary National Economic Committee Forms A and B.
14352 CONCENTRATION OF ECONOMIC POWER
Table 8.— Heavy Structural Shapes: Selected Consuming Areas for Detailed
Analysis, February 1939
Producing Area '
Basing Point 2
All Con-
suming
Areas (net
tons re-
ceived)
Selected
Consum-
ing Areas
(net tons
received ')
Percent
of all
Consum-
ing Areas
Receipts
All basing points
All basing points.
Pittsburgh.
Chicago-Gary.
Birmingham
Buffalo..
Gulf Ports
All basing points
Chicago-Gary
Birmingham
All basing points
Pittsburgh
79,921
52, 467
65.6
20,355
12, 683
62.2
472
18, 157
83
207
1,173
439
12, 209
15
207
979
93.0
67.2
18.1
100.0
83.5
1,151
823
71.5
1,083
68
801
22
74.0
32.4
Pittsburgh
15, 437
9.832
63.7
5,499
2,524
51
959
4,738
414
3,531
2,270
9
889
2,730
403
64.2
Chicago-Gary
Birmingham
Buffalo- <
89.9
17.3
92.7
Bethlehem
57.6
Gulf Ports
97.3
All basing points...
Pfittsburgh.. .
Buffalo . . - . — -
10, 260
6,555
63.0
2,693
4,764
^,084
171
282
1,195
3,084
1,852
142
282
44.4
Chicago-Gary
Buffalo .
64.7
88.9
Bethlehem . .
83.0
Gulf Ports
100.0
All basing points
Pittsburgh.
Eastern Pennsylvania and Philadelphia
22,957
17, 081
74.4
675
400
299
449
20,244
427
212
194
1
349
15, 765
427
31.4
Chicago-Gary
Birmingham
Buffalo.
48.5
0.3
77.7
Bethlehem
77.9
Gulf Ports
100.0
All basing points...
Chicago-Gary.
Birmingham
Gulf Ports.
4,240
1,515
35.7
96
3,337
424
35
1,056
424
36.5
31.6
100.0
All basing points
Birmingham
Gulf Ports
Colorado
2,971
1,175
39.5
199
976
199
976
100.0
100.0
All basing points
Pittsburgh. -..
North Ohio River
2,550
1,770
69.4
2,072
93
211
125
1,405
56
199
110
67.8
Chicago-Gary
Buffalo.
60.2
94.3
Bethlehem
88.0
Pittsburgh
All producing areas
11,411
6,782
59.4
Chicago-Gary..
Birmingham
Buffalo
Bethlehem... _.
Gulf Ports...
28, 753
4,213
3,910
25, 385
3,696
2,553
18,649
1,302
3,496
18, 747
3,491
0
64.9
30.9
89.4
73.9
94.5
Pacific Points
0.0
' Producing areas conform to Form B consuming areas.
' Lists only those basing points reported as governing the selected consuming areas.
' Consuming areas receiving 2% or more of total shipments. Areas selected were: Metropolitan New
York, Buffalo, Philadelphia, Eastern Pennsylvania, Pittsburgh, Ohio— other, Indiana — other, Chicago,
Illinois — other, Detroit, Iowa, St. Louis, Birmingham, Texas.
Source: Compiled from Temporary National Economic Committee questionnaire Form B for February
1939.
CONCENTRATION OF ECONOMIC POWER
14353
0£
a<!
a
ft
^ t u f-,
J3 ft * H
CO CO kO CO *
>t--eoooQOQa)»
t^toobt~t-SS!oco->»>«Oi
eoe6ccMc4oc^»o»r5o>Oi-HOoic4
e^oa
' 0>t>»C^'d*COt^COWCOOO»OffO'^'^
-H CO C5 i-H -H* 00 »0 CO CDC^t^COOiOS
OS00"^"<**CO(NC^CO«O'^<^00COCOCD
^©r^oiTP^c^r^ocsocoococp
W5COQO»OC»3--Hr-CO'-'CO»OC^COt^t^
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fe ass a
I fl CO . ■" .
00 -^ OS CO Q r^ CJ
COC^^l^NOOCOCO
ffO'-'O'tfOCDCO
WCO00CO-<J COt^05r^OOO"3t^cDCO
iOQOJ»n^*Ol^t>^COo6l--^»OIN'oO
00 CO r^ 00 lO ^ ■* CO 05 CO r-. c* CD — '
OO-^J-COCOOOC^C^OC^C^C^-^t^C^C^J
O'-'>OiOt^rt<t^c0t^00OC0^(M(M
t^ 0-* O-^ C^ lOCO tooot^ -^ O *-'
00 ^'" CO CO C^" ^U3^ 1-H ^
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2-S
ftft
■3 "2
03 "
a^
.a -a
JSJ3
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'S'S
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> >
a a , _
P-iPiHsija , , ,
O o o o
a o o o 3
o o -: o -g °f -g 'g
S^£S-°-'3cae3«M(a9'd'?9
S 3 ce cs.tioxixixi aj3 ^.h-^
Freight
absorp-
tion on
all ship-
ments to
area
COCOCO»0(NCO-^— 'irt— <»oasc<)(Nr^
COTf-<l^co»0»0-^^COtOMC^^-*0>
cmS
CO -I
o-H<=o-io-HMod-<odo>2J.
"-^
Total
net tons
shipped
to con-
suming
area
r^c^oor-^r^^cocccor-fC^icoooQO
C^00Si)"C^>00JC0t-.f-^O(N«0C
C-)COCO^00COi?lcOCO(NC<t^cCt^t~
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0 ^ TjJ"-^jr-^ci"co 00 ^ ciof^^ CO CO
S3g
«5
.Q-O
C3 CO
"3 "3
2,
|S.2;2g§£«KjaS|
5p4WPH050wQ5comh^
a a
O <B
cj-O
j3 a
o o
BS
^■§:: -9
2S| b
bis s
J2tj CO 0
«J3 — .^ ft
^.£f2 » W3
£3 -ij> CI to CO
St?S3J3
pm
owe
th
otj
ya
otal sh
gthel
ere less
ted is r
rned b
^1 ^ § >
sSg°a
£-c££^
2co « CO b
S£."jMa
ntor
hat a
in th
umin
is in
o~a § a
ftgiSa,^
fJ'^S-o
receivin
oducing
made b
Id serve
er select
en b ,„ = J3
§ 0.^ o"S
£Ma'S°
trgiMi
.as.S'SaS
a>^.2='&
o.d 0.2 05 CO
- " " a" .M ■
14354
CONCENTRATION OF ECONOMIC POWER
Table 10. — Heavy Structural Shqpes: Comparison of Computed Base Prices with
Published Base Price in Selected Areas, February 1939
Reported bas-
ing points
Pub-
lished
base
price '
Computed base prices on shipments from producing areas •
Selected Consum-
ing Areas '
Eastern
Penn-
sylva-
nia and
Phila-
delphia
Chi-
cago
Pitts-
burgh
Buf-
falo
Bir-
ming-
ham
Colo-
rado
North
Ohio
River
St.
Louis
Metropolitan New
York.
Bethlehem
Chicago-Gary.
Pittsburgh
Pittsburgh
Buffalo.
Bethlehem
Bethlehem
Bethlehem..^.
Buffalo
Pittsburgh
Gulf Ports
Chicago-Gary.
Birmingham..
Bethlehem
Chicago-Gary.
Pittsburgh
Pittsburgh
Chicago-Gary.
Chicago-Gary.
Buflalo
Chicago-Gary.
Pittsburgh
Chicago-Gary.
Pittsburgh
Buffalo
Bethlehem
Chicago-Gary.
Birmingham. -
Pittsburgh
Chicago-Gary.
42.0
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
49.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
40.30
43.45
•43. 50
42.02
39.86
41.53
42.09
40.73
40.89
40.22
43.25
39.08
40.19
42.07
46.20
42.18
41.25
41. 30
39.84
•37. 50
""'48.03'
41.40
Philadelphia..
Eastern Pennsyl-
40.82
41.92
40.62
41.35
40.48
48.'94'
41.40
41.73
44.16
48.98
Texas
49.26
46.70
•40. 50
45.26
43.88
42.11
40.85
38.41
•42. 75
43.43
41.14
•50. 50
40.20
40.17
41.45
42.56
43.08
43.15
41.09
42 72
39.63
36.08
40.69 I 41.97
40.89 41.06
33. 95 36. 05
41.54
41.72
40.27
40.80
41.04
40.63
37.82
39.96
39. SO
46.62"
39.80
40.35
40.68
42.91
42.57
41.29
41.82
Iowa
38.94
41.71
37.66
39.00
Rnffnln
41.32
42.21
41.05
40.30
Illinois, all other
40.64
42.04
42.31
42.30
Birmingham.
•65.00
38.13
35.04
40.20
33.38
I Consuming areas receiving 2 percent or more of the total shipment''.
' As listed by all February 1939 issues of the Iron Age.
' Producing areas conform to Form B Consuming Areas, February 1939.
•Represents shipments of less than 5 net tons.
Source: Compiled from Temporary National Ecconomic Committee Form B Questionnaire, February
1939.
Table 11.-
-Heavy Structural Shapes: Published Base Prices and Calculated Form,
B Base Prices By Basing Points, February 1939
Basing. Point
I'ublished
base
price'
Calculated
ba.se
price'
Basing Point
Published
base
price'
Calculated
base
price'
Pittsburgh
Per net ton
$42.00
42.00
42.00
42.00
Per net ton
$39. 50
40.09
40.92
40.78
Birmingham
Per net '■m
$42. 00
49,00
^••.00
Per net ton
$40.47
Chicago-Gary...
Gulf Ports
47.30
Buffalo..
Pacific Pi^'ts
54.38
Bethlehem
' Source: AU February '939 issues of the Iron Age.
' Computed from Temporary National Economic ComUiiitee Form B questionnaire, February 1939.
CONCENTRATION OF ECONOMIC POWER
14355
05
!i)
CO
(i:-
Et3 g i 2
o
«J t^ - to 6«~
a oii <u 5 e
o 0-° n
q5 tH M
nil
"rtffl.S-g
a 9 S-a
OX] <a 2 (
»0 CO
lOOO
CD -H COCO t^i
Sb-C^C^'-'OiCOOOC
"OeDOlCOCCoOCJC
ONOOCOiOCC^COOC
w ^ CO
J W)^
H S U — « «"*:»
*-S*j.jQ 03 J2 o
a) o » a a
5 3" He
'I' 2
n g
■a'o
«.5H
«o
pC0C0C0CS»CJi0O»OC0^M'i-t.--
oo^ocoMcoc*co^c^ocic^
S S 3 ;2
0C5 00 00 1^
CO eo CO CO
OS rf
Ol 00 ^H
C^ 00 »o
oo 00 r-- Ci CO o
CO CO CO CO CO ^
OO 00 Oi
t^ <-( .~4
00 Oi C^J
•-• Ol ^
CO CO lO
O 00 «o
S S K
53 S ^ 2 ■*
a o
E? &
PQ O Oh CQ pq O O
O 2
■o
e
!i<
o
. c.
S£
e
o
a
!«',S
O 3
aa
o -a .-ri a .i: o ^
|il Ci &H CQ ffl o S
14356
CONCENTRATION OF ECONOMIC POWER
Table 13.
-Heavy Structural Shapes: Shipments Received Compared to Shipments
Made by Producing Areas, February 1939
Producing area '
All producing areas
Pittsburgh, North Ohio River, Youngs-
town.
Chicago
St. Louis
Eastern Pennsylvania, Philadelphia, Met-
ropolitan New York
Birmingham, Alabama — other
Buffalo.
Colorado
Total ship-
ments made
by plants
in produc-
ing area
17,987
20, 355
1,157
23,337
3,860
10,260
2.971
Shipments received in producing areas
Total re-
ceived in
producing
areas
39, 335
8,333
1,702
18, 702
2,247
1,682
578
Received
from plants
in identical
area
29, 497
5,038
5,660
434
15, 714
1,345
1,014
292
Percent re-
ceived from
plants in
identical
Ilea
75.0
75.5
67.9
25.5
84.0
59.9
60.3
50.6
Total re-
ceived in
area as per-
cent of total
shipments
from the
area
49.2
37.1
40.9
147.9
80.1
58.2
1 Producing areas conform to Form B consuming artas. When major consuming areas are contiguous to
producing areas they also have been included as indicated in the stub.
Source: CompUed from Temporary National Economic Committee questionnaire Form B for February
1939.
Table 14:.— Heavy Structural Shapes: Analysis of the Market Areas of Grouped
Plants as Measured by the Freight Absorption on Shipments Priced on the Nearest
Basing Point February 1939
Nearest
basing
point
Total ship-
ments
Shipments
priced on
nearest bas-
Shipments to all areas in which
freight absorption is:
ing point
Equal to or
less than
standard '
Greater than
standard '
Producing areas '
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
per
net
ton
Net
tons
Per-
cent
of
total
ship-
ments
Freight
absorp-
tion
per
net
ton
Eastern Penn-
sylvania, Phil-
adelphia.
Chicago
Bethlehem
Chicago-Gary
Pittsburgh...
Buffalo
Birmingham _
Chicago- Oary
Chicago-Qary-
22,957
20, 355
17,987
10,260
4,240
2.971
1,151
0.70
1.06
3.22
3.25
3.05
2.41
-2.31
20,244
18, 157
7,571
2,084
3,337
1,636
1,083
-0.01
0.19
0.40
0.01
.91
-2.48
-2.37
5,718
8,472
2,873
1,014
1,543
523
446
2-0.33
3 0.01
<0. 11
J-0.04
«0. 20
'-10.74
8-4.38
17,239
11,883
15, 114
9,246
2,697
2,448
705
75.1
58.4
84.0
90.1
63.6
82.4
61.3
1.05
1.82
Pittsburgh,
Youngstown,
North Ohio
River.
Buffalo
3.81
3.61
Birmingham
Colorado
4.67
5.22
St. Louis,
-0.10
Total .
79,921
1.83
54,112
0.05
20,589
-0.43
59,332
74.2
2.63
' Standard freight absorption for each producing area is the freight absorption on sales on the nearest
basing point.
> Comprises shipments to: Philadlephia, Delaware, Baltimore, District of Columbia, Virginia, (aggregate
tons received in areas listed — 7,185)
3 Comprises shipments to: South Ohio River, Illinois-other, Detroit, Michigan-other, Wisconsin, Iowa,
St. Louis, Kansas City, North Dakota, South Dakota, Nebraska, Kansas, Kentucky, Birmingham,
Alabama-other, Oklahoma, Montana, Idaho, Colorado, Utah, Nevada, (aggregate tons received in areas
listed— 17,080)
< Comprises shipments to: Cleveland, North Ohio River, Canton-Mansfield, Ohio-other, West Virginia,
Kentucky, Birmingham, Youngstown, Detroit, (aggregate tons received in areas listed — 10,419)
' Comprises shipments to: Buffalo only, (aggregate tons received in area listed — 1,682)
« Comprises shipments to: Kentucky, Tennessee, Birmingham, (aggregate tons received in areas listed—
2,987)
' Comprises shipments to: Montana, Wyoming, Colorado, New Mexico, Utah, (aggregate tons received
in areas hsted— 913)
' Comprises shipments to: St. Louis, Missouri-other, (aggregate tons received in areas listed — 2,210)
» Producing areas indicated are the same as Form B consuming areas.
Source: Compiled from the Temporary National Economic Committee questionnaire Form B for Feb-
ruary 1939.
CHDNCENTRATION OF ECONOMIC POWER
14357
Table 14 A. — Heavy Structural Shapes: Analysis of the Market Areas of Grouped
Plants as Measured by the Freight Absorption on Shipments Priced on the Nearest
Basing Point {Adjusted for Basing Point Price Differentials) February 1989
Nearest
basing
point
Total ship- .
ments
Shipments
priced on
nearest bas-
Shipments to all areas in which
freight absorption is:
ing point
Equal to or
less than
standard i
Greater than
standard •
Producing areas »
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
Net
tons
Per-
cent
of
total
ship-
ments
Freight
absorp-
tion
Eastern Penn-
sylvania, Phil-
adelphia.
Chicago
P ittsburgh,
Youngstown,
N. Ohio River.
Buffalo
Bethlehem
Chicago-Gary
Pittsburgh....
Buffalo
Birmingham..
Chieago-Qary
Chicago-Gary-
22, 957
20, 355
17, 987
10,260
4,240
2,971
1,151
79, 921
0.33
0.63
2.22
2.90
1.43
-0.54
-2.31
1.12
20,244
18, 157
7,571
2,084
3,337
1,636
1,083
54,112
-0.01
0.19
0.40
0.01
.91
-2.48
-2.37
0.05
5,925
9,061
2,873
1,014
1,543
638
446
J-.32
3 0.01
<0. 11
s-0. 04
8 0.20
7-10.21
8 -4.38
17, 032
11,294
15, 114
9,246
2,697
2,333
705
74.2
55.5
84.0
90.1
63.6
78.5
.56
.96
2.62
3 22
Birmingham
Colorado
2.13
■> 11
St. Louis..-
61.31 -0.10
All producing
21,500' —0.4.')
58, 421i 73. l! 1 71
areas.
> standard freight absorption for each producing area is the freight absorption on sales on the nearest
basing point.
J Comprises shipments to:— Philadelphia, Delaware, Baltimore, D. C, Virginia, Southern California,
(aggregate tons received in areas listed — 8201)
3 Comprises shipments to:— South Ohio River, Illinois, other, Detroit, Michigan, other, Wisconsin,
Iowa, St. Louis, Kansas City, North Daliota, South Dakota, Nebraska, Kansas, Kentucky, Birmingham,
Alabama, other, Oklahoma, Montana, Idaho, Colorado, Utah, Nevada, Washington, Mississippi, (aggre-
gate tons received in areas listed — 18,103)
< Comprises shipments to: — Cleveland, North Ohio Rivej, Canton-Mansfield, Ohio, other. West Vir-
ginia, Kentucky, Birmingham, Youngstown, Detroit, (aggregate tons received in areas listed— 10,419)
• Comprises shipments to:— Buffalo only, (aggregate tons received in areas listed— 1,682)
« Comprises shipments to: — Kentucky, Tennessee, Birmingham, (aggregate tons received in areas listed —
2,987)
' Comprises shipments to: — Montana, Wyoming, Colorado, New Mexico, Utah, (aggregate tons received
in areas listed— 913)
' Comprises shipments to: — St. Louis, Missouri, other, Arizona, (aggregate tons received in areas listed —
2,345)
» Producing areas indicated are the same as Form B consuming areas.
Source: Compiled from the Temporary National Economic Committee questionnaire Form B for Feb-
ruary 1939.
14358
CONCENTRATION OF ECONOMIC POWER
Table 15. — Heavy Structural Shapes: Analysis of the Market Areas of Grouped
Plants as Measured by the Mill Net on Shipments Priced on the nearest Basing
Point* February 1939
Nearest
basing
point
Total
shipments
Shipments
priced
on nearest
Shipments to all areas In which
mill net is:
Net
tons
MUl
net
per
ton
basing
point
Less than
standard i
Equal to or
greater than
Producing area •
Net
tons
Mill
net
per
ton
standard '
Net
tons
Per-
cent
of
total
ship-
ments
MiU
net
per
ton
Net
tons
MiU
net
per
ton
Eastern Pennsylvania,
Philadelphia.
Bethlehem —
Chicago-Gary
Pittsburgh,...
Buffalo
Birmingham .
Chicago-Gary
Chicago-Gary
22,967
20, 355
17,987
10,260
4,240
2,971
1,151
$40.36
39.62
38.17
37.92
39.48
38. 85
40.25
20,244
J 8, 157
7,571
2,08^
3,337
1,636
1,083
$40. 60
39.75
39.07
40.95
39.49
41.08
40.31
14,687
11,566
13,450
9,246
1,785
2,333
669
64.0
56.8
74.8
90.1
42.1
78.5
58.1
$39. 74
38.91
37.29
37.57
38.32
36.09
37.99
»8,270
3 8, 789
M,537
« 1, 014
« 2, 455
'638
8 482
$41. 45
40.55
Pittsburgh, Youngs-
town, North Ohio
River.
Buffalo
40.75
4L09
40.33
Colorado
48.94
St Louis --
43.38
Total
79, 921
39.26
64,112
40.05
53, 736
67.2
38.35
26,185
41.13
1 standard mill net for each producing area is the mill net received on sales on nearest basing point.
' Comprises shipments to: Maine, New Hampshire, Massachusetts, Connecticut, Eastern & Central
New York, Philadelphia, Missouri-other, Delaware, Baltimore, Maryland-other, District of Columbia,
Virginia, North Carolina, Southern California, (aggregate tons received in areas named, 12,826)
3 Comprises shipments to: North Ohio River, South Ohio River, Ohio-other, Indiana-other, Illinois-
other, Michigan-other, Minnesota, St. Louis, Kansas City, Missouri-other, North Dakota, South Dakota,
Nebraska, Kansas, Georgia, Florida, Kentucky, Tennessee, Alabama-other, Arkansas, Montana, Idaho,
Colorado, Arizona, Utah, Nevada, Washington, Northern California, (aggregate tons received in areas
listed, 20,798)
< Comprises shipments to: New Hampshire, Massachusetts, Eastern & Central New York, Cleveland,
North Ohio River, Canton-Mansfieljl, etc.. South Ohio River, Ohio, Baltimore, Maryland-other. District
of Columbia, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Kentucky, Tennessee,
Alabama-other, OklaJioma, Colorado, (aggregate tons received in areas listed — 19,402)
» Comprises shipments to: Buffalo, (aggregate tons received in area — 1,682)
' Comprises shipments to: Missouri-other, North Carolina, South Carolina, Georgia, Florida, Kentucky,
Tennessee, Birmingham, Alavama-other, Arkansas, Louisiana, Oregon, Northern CaJifornia. (aggregate
tons received in area— 9,380)
' Comprises shipments to; Montana. Colorado, Wyoming, Arizona, New Mexico, Utah, (aggregate tons
received in areas listed — 1,049)
* Comprises shipments to: Indiana, Illtnois, other, Kansas City, Nebraska, Kansas, Arkansas, Texas,
(aggregate tons received in areas listed — 11,029)
' Producing areas listed are the same as Form B consuming areas.
•Mill net as used here is mill net less extras.
Source: Compiled from the Temporarv National Economic Committee questionnaire Form B for Feb-
ruary 1939.
CONCENTRATION OF ECONOMIC POWER
14359
TS
OS
g*
OS
s
Si
fc.
^
«
gfe.
- ^
Si
if
0,0
CO
CQ
,921
00.0
,921
00.0
,078
67.7
57.7
00.0
_
01
OS •-! Oi ,-t «0 »-*
o
E-i
t~ t~ •*
a
^•T co>nt^ o — o
O . CJ . CO
g
-- oco « g g
S
r-l t- -H <0
^
CO
o
rth- 00U500 lO 00 M
t^ . c< .to . .
a!
»« <N-t~ g gS 5!
U)
(N rt
_o
"o
O
O CO M O »C t^ ,-1 o>
b£>
■* . ITS .O . .
■5 a
el
eM«ooi>oo> NM -H
1
^- ^"„' « » g
<;
m
be
a
'S
3
o
t3
"3
.r-l . . lO rt O
2
W
O N r-1
Pm
3
n
€.2
t^ lO <00><D OJ Oi 00
KS^
00 . rt .c» . .
*?5 t2°l S ?S S
30 *>
J3 t»
^ ^ ""^
|:^iS
E«3
O
"-S °?5". S S §
S
S S 2
,a
O
JjOO JJWgJ to CO 00
OiookOcooo -^'td »o
l^«A-|
.C» - -co - t~ 00 —i
East
Penn
van
Phi
delpl
?3 S 2
i i-s
■'■§"
a i§" i
i is
! 1 >>
o am
«3«
total shi
ine 1)...
ming are
it) (Line
1 ifrt
o m o
E
a o 3
: to
by 1
nsu
rcer
1 1 (»
Six
2 Q OJ 1
• 1 o
£«•.>-'■
1 . U)
i is
; ;£
, r 03
0SC8 3
bc~ 5
" > 0) 0) 1
lis
g CO t» to ;
: 1 bn
o> d) 0 a 1
• 1 a
> p t^'S '
i is
1 . 3
8£S
" o ,9
to go
) (Li
es in
rodu
^ w
iii
s C33
0 » *
.Ha 2°- ;
.. 0 3 ho
> £ 0
areas
(perc
all so
emini
1 < 3
n
5si
ucmg
areas
from
B gov
ed
total shipmcn
iived from all
ea, (net tons),
total shipmen
producing are
lents by prod
uch governed
lents by prod
ch producing
ents received
ments by thi
nel)
et tons shipp
Percent of
lipments rec<
producing ari
Percent of
lipments by
atio of shipm
received by s
by line 2) ..
atio of shipm
ments by sui
atio of shipm
to total ship
divided by li
Z ai oitf tf Ph 1
.
-H ei
CC**!**
•d 0 1
o a
5m
S^ p
a^ 8
fQ.9S "3
5a«
;>.
•0 a ^
0
aS ">
^8g
y
H
a
•T3Ja a
.a 2=3
2
— OS ffl
§62 ..
- - S? ra
14360
CONCENTRATION OF ECONOMIC POWER
«2^
2"o
^
^
a °
•OS — -
ri^M
OQ 2 ® I
Sl'^isSz^
ea 2
.S-2
rS-soo,
^ 2a.&nO os-M
■2^B.2g^T^H S§
'E-iOPn-<JiJgralZO<lW
•S 3
Oi2
wis
r, <S fe !a . « O.S
•'S i a «S 0!''
.■SJ3 0^0^
o5
o o
M S 2 '='^ Si- •§
O 03
0 i
3 s
;^o
2 ^•:;^ cs-g owK
2— m a "s'S ii 3 S 5 I
I/>
a> <u
^s
e^
oJ en
o«
<fl « a
b£ be 05
Ma
.2 0
as
Ill
^sg
la 0 0
S'Sti
Sft£
"•0 9
■n.4
-a _ a
0 0 h
:S0
^^^?f
0S
OU
■• 1
II
o<;ph
CONCENTRATION OF ECONOMIC POWER
14361
OQ, 03 O
coo
b— « 2
> C3 OT —
©•" o" S
og-JE
S g-Sa
> a CO-
o— OS '
fc^ a boo
O d £ bum
■So o O.S S
SCO ■^ r* ^^ O CO »-<
t^ CO 00 CJ C^ CO M
OS 06 00 00 ^' 01 Q O
O^ CO ^ ^
8Et
,-.' o O C) co' •-* ^* -^'
SCOOC
88§
00 1-1
•-iOi-iC^OOOOt-'W
-^'^j'.-iNOcoeo'*
N ^' Ci f- Oi Ci r-i i-H
eoQO CO-***
00 O 1001 CO
"^ 00 r-' c4 CO
■^ ** CC *C Tt*
»CCD^O0<-''a'I^O0
OOWt*i-<COOOOO
QCcccor^^Ot^i^
I-" CO "* ^ e5 CS
3 "S O fa b fa t*
co»-«
CJoi
OC3
OS ^
l::^ :S
o o c> oi
Sooo
Sooco
OiO
too 10
■*-.J<«0'*
ON
00
3 lis "it^ r-» ^^^fcj 5T3
CC «D CO r* C5 '^
tn 611 e OS tX g 03
O 3^, O
P-(PkWaiAHP5cQ
S; o o o o "^ M
3 6C be 61) bC.g oj H
•TT OT rt CC C8 *-- '^ ',—
f-t r-» 0 <c CO <o
oa cooo *eco
^^ o> o t^ o' i^'
CO ■* o t^ O PS
t^ooeo^o t^
06 CO f-< 1^ ^ CO
8Jh
OOs'
oQNt>-Neor^
weoc^Ncoos
»c CO t^ "^ oi 06
OS<OOSW5C^ICO»0.-iCS»000
CO -|H^ lOC^ooQcoN-^m
.-.-ffl g.tija a-tiS » 3
tig O bfo bf
Cn, 6/)C bcO
Es: " B " S
PQO OBom
0 IS ;53S
6*0 SJo o 6
.HCL,.SCL| bibf
.ts 3.55 sic £i
fQOWOOO
— ^ , . aj 03
C3S ; ;£.S
S° : :.iS
3 ■a s fe •- 3
'S 2
M H
S ^
^2
■is
<»
C3 -
£1 .
*3 is D«
> Q.CS
dsBo
te .cc
►- cr,--
bcJiSr'
CO 03
.SPh O
a 02
I.S2
.a a I
■2.2 a
w bcCl.
o. a
o =
.s«sa
■I'Sa-S
■^s 3 ®
.: « o h
° & 0*^11
03 O C.*^ t^
j; _bD CO O a
■"" ce _
CO cj -u .S
^ j5 c3 M ;^
14362
CONCENTRATION OF ECONOMIC POWER
wS
S2
^2
Wn
4, p
hS,
S2
Wft
2;s
C I
'5|
1-* W^«
OOOOO
CJOOO
8100.-I V
lO O -H rt' o
u
?5S?
01.2
fl p
SS-n gS §S S5 ffS S_§ g.a go B-^ g^ 0^5
B a.ti o oja-rj S 0,0^ «•£ 5 SiSjCjST:^ 2 go
> 2
2 o
2 £ro-
Px
£
" ^s
a
^ 4) "
1 "■«
1:^
c " c
.S
oj -o-is
<a
^ Am
p.
■" .r- 3
^ •a--'
2 -da
3
near
ghta
?e, (a
0
the
frei
Q A
a
nsto
eless
9Iro
0
0
S 3§
3
S ^^
i
fractlo
ivercd
ebruar
8
'- »M^
93
a
a •o-o
=5 ..2'S
a— 0^
03
a&>s
>>
for by
from
is the
e thos
1
'g'2"oS
H
a
3'o£-i
§2 «Pk
•0
<B 0 ca »
ay be
isals
ted B
dBas
Qi
ssm
ding
Icula
lishe
u
«
Exce
roun
"Ca
Pub
3
0
• a"-
CONCENTRATION OF ECONOMIC POWER
Part 2
Table 1. — Plates: Basing Points and Basing Point Prices
[Prices per net ton]
14363
May 1938
February 1939
Basing Point
Base price
Differential
over Pitts-
biu-gh
Base price
Differential
over Pitts-
burgh
Pittsburgh .-.-.... . .
$46.00
46.00
48.00
49.00
47.00
47.00
(')
(')
63.00
66.00
$42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
49.00
62.00
Chlcago-Qary ---
$1.00
3.00
4.00
2.00
2.00
$0.00
Birmingham
0.00
Cleveland .. ..
0.00
Coatesville
0.00
Sparrows Point- • .-
0.00
Claymont
0.00
Yonnf^town
0.00
Onlf Ports
8.00
11.00
7.00
Pacific Ports
10.00
' Not listed as a basing point in May 1938.
Source: Iron Age (all issues for months listed).
Table 2.— Plates:
Distribution of Capacity by Distance from the Nearest Baling
Point
Distance from nearest basing point (Air miles) >
Capacity (1.000
gross tons)'
Percent
of total
capacity
Total United States.. -
5,604.8
100.0
0-26.-
• 4,224.06
100.0
1,070.0
110. 76
76.7
26-50-.
1.8
51-100- -. - ' -
19.6
Over 100 I
2.0
' Includes all basing points listed in the Iron Age, after the change in basing points in June 1938.
' Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938 and tjbe
Iron Age.
» Includes 14,500 gross tons on the Pacific Coast.
124491 — 41— pt. 27-
IG
14364 CONCENTRATION OF ECONOMIC POWER
[Adding machine tabulation]
S88.0
10.00
12.86
4.2(1
6.25
3. 5U
14.00
22.00
I.'-). .%
4.00
. 10
15.50
10.50
20.00
18.00
26.50
.60
16.55
2.50
5.36
10.00
5.40
.13
13.00
10.50
.30
l.fiO
12.50
14.40
7.50
16.50
2.80
29.40
29.00
.20
St 00
10.80
4358. 5
[Italic Indicates pencil notations. Asterisk indicates red figures.]
CONCENTRATION OF ECONOMIC POWER
14365
Table 3.
-Plates: Distribution of Total Capacity in the United States and Form B
Sampled Capacity by Producing Areas
Producing Area i
Total U. S. Capacity «
1,000 O. T.
Percent
of total
Estimated Capacity
Sampled
1,000 0. T.
Percent
of total
capacity
sampled
Total United States
Integrated *
Semi-integrated
Non-integrated
Pittsburgh.
Eastern Pennsylvania, Philadelphia, Delaware
Chicago
Detroit
Baltimore
Youngstown
Birmingham
Cleveland
North Ohio River
St. Louis
Areas outside the sample:
Colorado
Kansas City
Buffalo
Washington...
Tennessee
5, 504. 8
100.0
' 4, 693. 3
(4, 453. 5)
(1, 028. 4)
(22. 9)
(80.9)
(18.7)
(0.4)
(3, 755. 3)
(938. 0)
(84.3)
(91.2)
626. 45
035.0
995.3
500.0
440.0
311.0
251.8
120.0
100.0
60.0
8.0
11.5
30.35
14.5
0.9
(•)
29.5
18.8
18.1
9.1
8.0
5.7
4.6
2.2
1.8
1.1
0.1
0.2
0.5
0.3
1, 524. 5
1,008.0
617.0
500.0
440.0
72.0
251.8
120.0
100.0
60.0
93.7
97.4
62.0
100.0
100.0
23.2
100.0
100.0
100.0
100.0
' Producing areas conform to Form B Consuming Areas.
' Compiled from the Iron and Steel Works Directory of the United States and Canada 1938.
' Of the capacity sampled 80.0 percent represented integrated companies, 20.0 percent semi-integrated
companies. ^
* Degree of integration here used is company integration (not plant).
•Less than 0.05 percent.
Table 4. — Plates: Estimated Sampled Capacity ty Producing Areas and Distribution
of Shipments by Producing Areas
Producing Area '
Sampled Capacity «
1,000 gross
tons
Percent of
sampled
capacity
February 1939 ship-
ments'
Net tons
Percent of
total ship- ,
ments
Total U. S.
Pittsburgh. ._
Eastern Pennsylvania, Philadelphia & Delaware
Chicago ^
Detroit _
Baltimore
Birmingham
Cleveland
North Ohio River
Youngstown
St. Louis
4, 693. 3
100.0
96,443
100.0
1,524.5
1, 008. 0
617.0
500.0
440.0
251.8
120.0
100.0
72.0
60.0
32.5
21.5
13.1
10.7
9.4
5.3
2.6
2.1
1.5
1.3
24, 381
27,885
15,088
941
10, 821
12,836
967
482
1,783
1,259
25.3
28.9
15.6
1.0
11.2
13.3
1.0
.5
1.9
1.3
' Producing areas conform to Form B consuming areas.
» Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938.
' Compiled from the Temporary National Economic Committee Questionnaire Form B, February 1939.
14366
CONCENTRATION OF ECONOMIC POWER
Table 5. — Plates: Distribution of Total Capacity and Form A Sampled Capacity
by Producing Area {District Sample), 1938
Producing Area •
Total United States.
Pittsbureh —
Eastern Pennsylvania, Philadelphia, Delaware.
Chicago ,
Detroit - -
Baltimore.- i.--
Youngstown.,.'
Birmingham
Cleveland
North Ohio River ; - -
St. Louis.
Buffalo .-..:
Washington.- - — -
Kansas City ,
Colorado
Tennessee
Total V. 8.
Capacity
Tonnage
(1,000 gross
tons)'
6,604.8
626.45
036.00
995.3
600.0
440.0
311.0
251.8
120.0
100.0
60. e
30.36
14.5
11.5
8.0
0.9
Capacity Sampled
Tonnage
(1,000
gross
tons)
3, 216. 1
Percent
sampled
by pro-
ducing
area
58.4
1, 524. 6
93.7
705.3
70.9
440.0
261.0
171.8
100.0
83.9
68.2
60.0
- 30.0
14.5
100.0
98.8
100.0
8.0
100.0
' Producing areas conform to Form B consuming areas.
« Compiled from the Iron and Steel Works Directory of the United States and Canada. 1938.
Table 5A. — Plates: Distribution of Total Capacity and Form A Sampled Capacity
by States (State Sample), 1938
Total U. S.
Capacity
Tonnage
(1,000 gross
tons)'
Capacity Sampled
State
Tonnage
(1,000
gross
tons)
Percent
sampled
by state
Total United States
6,504.8
4,248.7
77.2
2, 608. 46
688.3
500.0
467.0
440.0
356.0
251.8
228.0
100.0
30.36
14.6
11.5
8.0
0.9
1,676.1
338.3
800. a
427.0
440.0
236.0
251.8
228.0
» 100.0
30.0
14.5
66.8
67.6
100.0
Illinois - ... -.
91.4
100.0
'Ohio
100. 0
Delaware .
100.0
West Virginia
100.0
98.8
100.0
8.0
100. e
1
' Source: The Iron and Steel Works Directory of the United States and Canada, 1938.
t Company was sampled but no shipments were reported for this product.
CONCENTRATION OF ECONOMIC POWER
14367
Table 6. — Plates: Relative Stability of Tonnage Distribution by Consuming Region
19S6, 19S7, 19S8 and February 1939
Region
Form A Distribution by States
Form A Distribution by Con-
consuming District
FormB
Distri-
bution
1936
1937
1938
1936
1937
1938
Feb. 1939
Ail regions (net tons)
1,691,356
2,154,866
834,200
1,447,092
1,839,877
779, 571
96,443
Percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
North Esstern '
42.7
31.1
3.0
4.8
42.6
31.8
3.8
6.1
9.7
7.1
36.8
27.7
4.2
8.4
14.8
8.1
30.1
40.3
3.8
4.9
10.6
10.3
29.4
41.6
4.9
6.3
11.2
7.6
29.6
34.8
4.3
8.6
14.7
8.1
35.1
29.7
2.8
9.2
13.6
9.7
North Central «
West Central *
South Eastern < . .
Southern & South Western '.
Mountain and Western •
9.2
9.2
« Includes following states and consuming districts: Maine, N. H., Vt., Mass., R. I., Conn N Y N J
Pa., Metropolitan N. Y., Eastern & Central N. Y., Buflfalo, Phila., Eastern Pa., Pittsburgh. '
• Includes following states and consuminK districts: Ohio, Ind., III., Mich., Wis., Minn., Cleveland
Youngstown, North Ohio River, Canton-Mansfield, South Ohio River, Ohio-other, Chicago, 111 -other'
Detroit, Michigan-other. '
> Includes following states and CQnoUming districts: Iowa, Mo., N. Dak., S. Dak., Nebr., Kans St Louis
Kans. City, Mo.-other.
< Includes following states and consuming districts: Delaware, Md., D. C, Va., W. Va., N. C , S 0
Oa., Fla., Baltimore, Md.-other. ' ' ''
' Includes following states and consuming districts: Ky., Tenn., Ala., Mi.ss., Ark., La., Okla., Tex
Birmingham, Ala.-other. ''
• Includes following states and consuming districts: Mont., Idaho, Wyo., Colo., N. Mex. Ariz., Utah,
Nev., Wash., Ore., California, So. California, No. California.
Note: Each region is defined by the areas listed, eliminating duplications. The most important states
and consuming districts have been italicized.
Table 7. — Plates: Range of Variation of Tonnage Distribution in Consuming States
and Consuming Districts, 1936, 1937, 1938 and February 1939 {Range of dis-
tribution of percentages by areas)
Range
Form A: 1936-1938 inclusive
Form A & B:
1936-1938 inclu-
sive and Feb. 1939
By 49 states:
Number of
states '
By 64 dis-
tricts: Num-
ber of districts
By 64 districts:
Number of dis-
tricts
Over 5.0 L
1
4
6
6
32
1
5
6
13
40
3
7
8
13
33
2.1-5.0
1.1-2.0 1.
.6-1.0. -■-
0.5 or under
Total. .
49
64
64
' Includes the District of Columbia.
14S68 CONCENTRATION OF ECONOMIC POWER
Table 8. — Plates: Selected Consuming Areas for Detailed Analysis, February 1939
Producing area '
Basing point »
Vll consum-
ing areas
(net tons
received)
Selected
consuming
areas (net
tons re-
ceived »)
Per cent of
all consum-
ing areas
receipts
All producing areas
All basing points
96,443 ■
76, 447
79.3
Chicago -
All basing points
15. 088
10 634
70.6
Pittsburgh
387
13,909
• 146
300
204
74
68
240
9,818
80
213
204
' 68
21
62.0
Chicago-Gary
" 70.6
Birmingham
54.8
71.0
Coatesville . -
100.0
Gulf Ports
78.3
Pacific Ports
30.8
All basing points --- -
. 1.259
1,062
175
22
572
419
13]
%22
45.4
39.5
74.3
Gulf Ports
100.0
All basing points--
Detroit -
941
941
100.0
Sparrows Point . -
2g
73
6
834
28
73
6
834
100.0
100.0
Buffalo*--- ---
Cleveland -..
100.0
100.0
All basing ■ wintS-
967
743
76.8
Chicag )-Gary . .
89
702
12
162
89
480
12
162
100.0
Cleve); nd . .
68.3
100.0
Coates ?ille..- -
100.0
All basing . joints.
Youngstown
1,783
1,409
79.0
Pittsburgh
205
80
522
67
422
298
4
12
156
13
203
74
442
51
201
253
4
12
1.56-
13
99.0
Sparro\vs Point
Chicago-Gary
92.5
84.7
'76.1
Cleveland
Youngstown
47.6
84.8
Middle own *..
100.0
Coatesville
100.0
Claymont
Gulf Ports
100.0
100.0
All basing points -
24,381
20, 701
84.9
Pittsburgh
Sparrows Point
Chicago-Gary
8,349
760
3,784
1,101
2,848
2,818
973
1,888
46
1.814
7,232
6fi0
3,183
833
1.993
2,672
872
1.615
46
1,595
86.6
86.8
84.0
Birmingham
Cleveland . .
75.6
69.9
Youngstown .
94.8
Coatesville -
Claymont
Gulf Ports
89.6
85.5
100.0
Pacific Ports
87.9
All basing points
Eastern Pennsylvania, Philadelphia,
27, 885
22,382
80.2
Delaware.
Pittsburgh
509
3,813
1,603
1,190
1,813
1,414
4,446
10,.263
1,045
1,789
•322
2.552
689
77
1,024
1,402
4,250
9,400
1,044
1,632
63.2
Sparrows Point
Chicago-Gary
66.9
43.0
Birmingham
6.5
Cleveland
56.5
Youngstipwn
99.1
CoatesviUi!
95.6
91.6
Gulf Pori:,
99.9
Pacific P..i-ts.-.
91.2
' Producing ari as conform to Form B Pon<!U..iing arci. i.
> Includes onlv oasing points govc^rr.'.ng sele« led consi ming areas.
' Con.sumingai i as receiving two pel coiit ortnoreof toi .1 shipments. Area-; selected -vere: Mass., Metrop.
N. Y.. Bu«., Phila., Ka. Pa., Pgh., Yst., Ohi)— other -Ind., Chi., IB. o^her, DecroH, Va., Ky., Birm.,
Tex.So. Cal., N. Cnl. /
, < Shown in the icports but not listed us a ba ing poin by tbe Iron Agr.
CONCENTRATION OF ECONOMIC POWER
14369
Table 8. — Plates:
Selected Consulting Areas for Detailed Analysis, February
19S9 — Continued
Producing area
Basing point
All consum-
ing areas
(net tons
received)
Selected
consuming
areas (net
tons re-
ceived)
Per cent of
all consum-
ing areaf"
receipt;
All basing points.
10, 821
9,176
84.8
Pittsburgh
43
2,2S4
292
271
130
1,292
3. 975
16fi
2,342
43
2,140
140
198
128
1,292
3.188
166
1,881
100 0
Sparrows Point--. ..
Chicago-Gary.
93.7
47.9
'^'flveland . .
73 1
.ngstown.. -
98.5
atesville . ■
100 0
Claymont
80 2
Gulf Ports
100 0
Pacific Ports
80.3
All basing pijints
BirmiDgham
12,836
8,964
69.8
Sparrows Point _ -
Chicago-Gary
288
371
7,973
18
612
466
627
2,481
26
135
4,970
18
280
466
627
2,442
9.0
36.4
62.3
Cleveland
100.0
Coatesville
46.8
Claymont -
100. 0
Gulf Ports
100.0
Pacific Ports
98.4
All basing points . ...
North Ohio River
482
456
94.0
Pittsburgh
55
214
69
46
25
28
55
50
214
59
26
25
28
55
90.9
Chicago- Gary.
100.0
Birmingham -
100 0
Cleveland.-
54.3
Youngstown
100.0
100.0
Detroit* .-.
100.0
Pittsburgh
9,550
7,253
21,919
10, 737
6
7,254
4,697
4
7.70!
16,776
55
1,993
8,498
8,090
5,480
15.202
6,201
6
4,986
4,492
4
7,072
!4, 853
56
84.7
75.6
Chicago-Gary
69.4
57.8
Buffalo*
100.0
Cleveland
68.7
Youngstown - . .
95.6
Middletown *.
100.0
Coatesville . .
91.8
Claymont . . .
88.5
Detroit *
100 n
Gulf Ports ....
1,976 99.1
Pacific Ports .
7, 671 88. 4
* Shown in the reports but not listed as a basing point by the Iron Age.
Source: Compiled from the Temporary National Economic Committee, Form B questionnaire, Febru-
arjr 1939.
14370
CONCENTRATION OF ECONOMIC POWER
cc
8
as
a a
P
III:
f^ 082 I
ri gos; rH ri >Q CO a> Q oo >o o
-- ci'^ e4 « N oi » ■* <N •-; .-i
Em ® "
2S.
?ao
t^-s
CO Ob CO CO >-i CO CO CO C4 CD a> O)
»^ OQ fc ^ '^ oo ^ "^o
»o ^ O ^ »o 1-1 55 »o
^ c^co ^ *-«c
CO <-4^«
-ooo ^ "^r:;
OO 00 ^ CD 0% A 0% O) CO
^■*00 ^-^t^ t* IOC
COC^CO CO cocs
^ js, •-< CO N CO a& C0 1-^ o M »o r^ ci'tftH -^ r*co
o <o o CO "-t o 00 «-t »-i io ^ as CO ^<b-^ -^ coc5
i-4 0-*'*«C^"3»0'^OOOC«
c^ *^ -^ 5; 00 id CO 00 -^ -^ 0(5 o o c5 1^ oJ-^t-^ t^ ^t>.
CD CD CO 00 fH CO CD t^ CO O C^ C^ »0 CO ^-^ CO
CS CD »H >OC<l
o a
T}(^ .CU ■gi'O
EpSE
Q Q
3 3
p>
Ph Ph
■Ph
^ ^ oojBjaij-
, , , , o o ja M M^^ 6 m ■ ■
6f Mbts aaa_g a s « a g s
523 15 g §.§sS a ^-a^ S-& a ^3 s s
^a^assa
•3 S Q m » «
o ao S "to
&S
J:;SS
lOOC^J 1-iCOO
1-iCOOOOt- t^
,-4 CO 10 00 C4 00
l«-iO ^ OOS
w^ tO^
00 »0 O .-* O W5 1-1 CO 01 (N CO CO «
'^ CJ^iCOCO-^CDClOC^OOO
-^ t^cfc^odcoc^'Mco'cococO'-r
■* »o c
lOC^*-.
coco
0*0
?3
a,oSoHQwi>-fQEieH2 >W
3 a gg
•2 "2 ."§ S
o o 00
s 9 es
« a>
.a .a
o o
la
35
is
"OS a
osc> a) 60
a bcja o
S'S-W pL,
° - a « S
lis I ^
ga-S
a o.a
;5o "
;i|.95|| §
al-ia-oi!*. B
•a T,, M fl " M a
■s oia P P5 o
O .M 1^ Ui V m O
O ja^ O m . M
P ""S*^ m ® o
•^asS pa ^
illaai 1
a<um<n'-g o
??l°
OQ
CONCEINTRATION OF ECONOMIC POWER
14371
05
oq
goiS
si
•sG
(^£
^«
■< ■^ '^ CO ^ '*
wg
.CO fi
-•^ »oeoooo«
003;
coo
00s
-'nr^Q
00
00 to
ooo
t^3«OS»H »C)
s <»
ggoogogggggggogggggggggggggggggg
III
Sco><
O (n k. «>
_ •• •! •
14372
CONCENTRATION OF ECONOMIC POWER
<
a
3
1
1
4)
a
ft
3
03
a
o
£
a
a
PQ
1
3
ft
s
o
o
5.2 S
S
' oooo
^
rO
1
g
CO
1
>
o
S
§
■^
58
5S
o
.3
a
CO
to-*
o
g2
cia6
^
g8?S
5
£
o
a
pq
^
O
8
^
Tf Tj«
be
a|
5
8
cU
o
'3
o
S?
— O>00
M-4o
■«<■<»'■*
$39.60
41.46
44.80
42.67
40.6a
44.75
41.77
41.90
41.96
35T)<00
COOOl
Oh-'-J
tOCB -HOO
CO I^ COO
•^ ■* TJH -TJ*
Eastern
Pennsyl-
vania,
Phila-
delphia,
Delaware
?5g
COO
46.23
•23.00
43.54
41.76
60.77
59.00
J5S?S
85!
1 c»t^o
. uiiooo
»0 ■'T CO
Published
base
price
$42. 00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
42.00
Reported basing points
J3
S
B
0^
9
o
O
a
a
>
3
>
q
6
b/
!£
o
O
>
o
c
3
o
>
o
t
X
O
E
n
>
i
3
o
c
o
a
O
X
bl
1
o
a
3
o
a
>
c
o
a
«
o
'o
Pl.
o
ft
m
1
o
a
>
o
O
c
o
a
>>
a
5
X
X
1
>
5
s
s
a
3
.2 J
> o
1^
CO
<!
be
a
a
3
S
o
O
n
'o
f
M
3
1
1
_2
3
1
o
t
□
c
d "3
03 S
5 S
in ft
i a
•5 ^
i2 a
3 s
CONCENTRATION OF ECONOMIC POWER
14373
Table' 11. — Plates: Published Base Prices and Calculated Form B Base Prices
By Basing Points, February 1939
Basing Point
Published
Base Price
(Per net
ton) '
Calculated
Base Price
(Per net
ton) »
Basing Point
Published
Base Price
(Per net
ton) '
Calculated
Base Price
(Per net
ton) a
Pittsburgh..
$42.00
42.00
42.00
42.00
42.00
$39. 25
41.02
38.94
43,03
41.78
Coatesvillc
Sparrows Point
Youngstown
Gulf Ports..
$42. 00
42.00
42.00
49. C!)
52.00
$42. 41
Chicago Gary
41.78
42.79
45.78
Pacific Ports
49.92
I As listed in all February 1939 issues of the IronAge.
» Computed from Temporary National Economic Committee Form B Questionnaire, February 1939.
Table 12. — Plates: Total Sales by Grouped Mills in Each Producing Area on
Nearest Basing Point and on All Other Basing Points, February 1939
Nearest basing point
Net tons sold
Producing area '
On all
basing
points
On
nearest
basing
point
On
other
than
nearest
basing
point
Per-
cent
sold on
nearest
basing
point
Per-
cent
sold on
other
than
nearest
basing
point
All producing areas
&6,44a
27, 885
24,863
15,088
12,836
10, 821
1,783
1,259
967
941
60,175
14, 709
8,404
13,909
7,973
2,284
298
1,062
702
834
46,268
13, 176
16, 459
1,179
4,863
8,537
1,485
197
265
107
52.0
62.7
33.8
92.2
62.1
21.1
16.7
84.4
72.6
88.6
48.0
Eastern Pennsylvania, Philadel-
phia, Delaware
Pittsburgh, North Ohio River..
Coatesville-Claymont. . .
Pittsburgh
47.3
66.2
Chicago
Chicago-Gary..'.
Birmingham.. J. _.
7.8
Birminghnni
37.9
Baltimore
78.9
Youngstown...
Yniingstown
83.3
St. Louis
15.6
Cleveland
Cleveland
Cleveland...
27.4
Detroit .. . .
11.4
Producing area '
Nearest basing point
Mill net less extras
per net ton
' "On
sales
on all
basing
points
On
sales
on
nearest
basing
point
On
sales
on
other
than
nearest
basing
point
Freight absorption
per net ton
On
sales
on all
basing
points'
On
sales
on
nearest
basing
point
On
sales
on
other
than
nearest
basing
point '
All producing areas
Eastern Pennsylvania, Phila-
delphia, Delaware.
Pittsburgh, North Ohio
River.
Chicago
Birmingham.
Baltimore
Youngstown.
St. Louis
Cleveland
Detroit
Coatesville-Claymont.
Pittsburgh
Chicago-Gary
Birmingham...
Sparrows Point
Youngstown
Chicago-Gary
Cleveland
Cleveland
39.58
41.75
37.92
39.12
38.08
39.91
38.40
37.80
40.60
47.27
40.56
43.41
38.24
39.20
39.20
43.08
38.83
37.16
41.98
46.08
38.53
39.91
37.76
38.15
36.24
39.07
38.32
41.24
36.68
56.59
2.57
(1.54)
2.46
(L56)
,3.23
(2.49)
0.48
(0.40)
3.91
(1.64)
3.39
(1. 12)
3.52
(3.45)
1.26
(1. 14)
0.62
(0. 62)
-3.61
(-3.61)
e.26
0.28
.0.68
0.19
ae4
-0.42
0.09
L29
.04
-3.81
5.08
(2. 94)
4.89
(2. 98)
4.59
3.46
3.95
(2. 93)
9.42
(3.42)
4.41
(1. 53)
4.22
(4. 13)
1.12
(0. 34)
2.15
(2. 16)
-2.06
(-2.06)
' Producing areas conform to Form B consuming areas.
' Figures in parentheses are adjusted by correcting for price diflerentials of $7.00 per ton on sales on Gulf
Port basing points and $10.00 on sales on Pacific Port basing points.
Sonce: Compiled from Temporary National Economic Committee Questionnaire Form B, February 19S0
14374
CONCENTRATION OF ECONOMIC POWER
Table 13. — Plates: Shipments Rece ^ Compared to Shipments Made by Producing
Areas, February 19S9
Producing Area i
Toial
Shipments
Made By
Plants in
Producing
Area
Shipments received in producing areas
Total Re-
celTed in
Producing
Area
Received
from Plants
in Identi
cal Area
Percent Re
ceived from
Plants in
Identical
Area
Total re-
ceived in
area as a
Percent of
Total Ship-
ments from
the area
All producing areas
Eastern Area '
Pittsburgh, North Ohio River, Youngs-
town
Chicago
Birmingham
St. Louis - -
Cleveland
Detroit
96,443
38,706
26,646
16,088
12, 836
1,259
967
941
46,808
19, 379
10, 369
8,320
3,262
1,105
1,752
2,621
35, 496
16, 316
9,073
6,276
3,262
474
192
903
76.8
84.2
87.6
63.4
100.0
42.9
11.0'
34.5
48. t
60.1
38.9
66.1
26.4
87.8
181.2
278.6
> Producing areas conform to Form B, consuming areas except: "Eastern" which here includes East-
em Pennsylvania, Philadelphia, Delaware, Baltimore, Maryland-other, and Metropolitan New York.
Source: Compiled from the Temporary National Economic Committee Questionnaire Form B, Febru-
ary 1939.
CONCENTRATION OF ECONOMIC POWER
14375
§.1-1 M
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p a
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14376
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CONCENTRATION OF ECONOMIC POWER
3S
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co<N«DC5":Jt:-oO'^
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CONCENTRATION OF ECONOMIC POWER
14377
2^
q
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14378
"^o
13 O
•?
CONCENTRATION OF ECONOMIC POWER
ja-a
w5 +^ rj o P
£2;
to tcf'^of
111 °S S.5*KgS
; Its
> ' a
=39
1^
Q, O S « O £> » 4> «
o«)pTia>gmMC^
"Sep
CONCENTRATION OF ECONOMIC POWER
14379
% 3
o
S|
So
"o I;
P30
§a:
<»■?, e « » o "SvS
c2B.Sso2s
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o » c J
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•bosS
•C B O r
T 03 O »■
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g.9o
1 Mir
iH&a
124491— 41— pt. 27-
•oog
£610 i
a s
-17
14380
CONCENTRATION OF ECONOMIC POWER
as
a
o
O
s^ ;2
lOO
Sg^ :
't^oo 1
'0>
gsg ;
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i-HC»5t«-OOOOS
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to to
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38
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CONCENTltATION OF ECONOMIC POWER
^f I
oS ■"
OS s
XI S «=!.
«•" 00
a'^ ^
OS .2
^^ a
ll 1
'■§£ S
SS £
iSs o
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53 ft
Co
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O.S o
14381
14382
CONCENTRATION OF ECONOMIC POWER
"o
PL,
a
PQ
a
&
1
a
3
o
S
60-
o
d
a
2
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C3
CONCENTRATION OF ECONOMIC POWER
14383
14384
CONCENTRATION OF ECONOMIC POWER
03
CQ
c^
S°
?§
00 6n
S!^
H ,?.
a a
53 2
-§2 ^
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S
S^
§
CONCENTRATION OF ECONOMIC l"OWEIt 14385
Part 3
Table 1. — Hul Rolled Shect.f: Basing Points and Basing Point Prices, February 1939
{Prices per net ton]
Basing Toints
Pittsburgh
Chicago-Gary '.
Birmingham...
Buffalo..
Sparrows Point
Cleveland
Youngstown...
Mlddletown
Granite City. .
Pacific Ports...
Detroit*
May 1938
Base
price '
$48.00
50.00
51.00
(')
(»)
(»)
(')
52.00
59.00
52.00
Differential
over
Pittsburgh
2.00
3.00
4.00
11.00
4.00
February 1939
Base
price
$43.00
43.00
43.00
43.00
43.00
43.00
43.00
43.00
4.'5. 00
53.00
45.00
Differential
over
Pittsburgh
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.00
10.00
2.00
I 10 gage, hot rolled— 24 gage were $15 higher at all points except Pacific Ports where they were $17 higher.
J Not listed as a basing point by thp. Iron Age.
3 Chicago not listed as a basing point in May 1938 (Gary only).
* Not a basing point. Prices quoted are delivered prices.
Source: Iron Age, February 1939, all issues and May 1938 all issued prior to revision of extras and base
prices.
Table 2. — Hot Rolled Sheets: Distribution of Capacity by Distance from Nearest
Basing Point
Distance from nearest basing point (air Miles) '
Capacity
(1,000 gross
tons) 2
Percent of
total
capacity
Total United States .-
» 11, 167. 45
100.0
0-25 .. -.
« 6, 440. 85
2. 255. 8
1. 905. 9
664.9
57.7
26-50 -
20.2
51-100
17.1
Over 100
5.0
' Includes all basing points listed in the Iron Age after the change in basing points in June, 1938.
» Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938 and the
Iron Age.
' Includes capacity at Dravosburg, Pennsylvania as reported by the United States Steel Corporation in
addition to capacity listed by the Directory.
* Includes 82,300 gross tons on the Pacific Coast.
14386 CONCENTRATION OF ECONOMIC TOWER
Table 3. — Hot Rolled Sheets:^ Distribution of Total anc Sampled Capacity
Producisg area '
Total United States
Integrated «
Semi-integrated
Non-integ. , fd -----
Pittsburgh- - -
Chicago.. -.-
Cleveland -
Youngstown
Detroit -
North Ohio River
Canton, Masillon, Mansfield.
Buffalo .-
Mlddletown-Newport -. .--
Portsmouth-Ashland --
Baltimore --- -
Birmingham
Indiana, all other -
Eastern Pennsylvania, Philadelphia, Delaware
St. Louis
Areas Not in the Sample:
California (northern and southern).-
West Virginia, other
Kansas City.. — - ...
Eastern and Central New York
Total U. S. Capacity '
Capacity sampled
1,000 gross
tons
Percent of
total
1,000 gross
tons
Percent oi
total capac-
ity sampled
2 11,167.45
100.0
3 8, 806. 3
78.9
(9, 581. 10)
'* (85. 8)
(7i 846. 30)
(81.9)
(1, 089. 65)
(9.8)
689.00
(63. 2)
(496. 70)
(4.4)
(271.00)
(54.6)
1, 46.3. 55
13.1
1.407.60
96.2
1, 286. 40
11.5
1,093.90
85.0
1, 199. 20
1, 163. 86
10.7
1, 104. 00
92.1
10.4
826. 00
71.0
1, 067. 70
9.6
5.^3. 00
51.8
977. 00
8.8
788.00
80.7
718. 10
6.4
179. OB
24.8
703. 20
6.3
700. 00
99.5
658.00
5.9
658.00
100.0
630.00
4.7
446.00
84.2
498. 00
4.5
418.
83.9
319.80
2.9
319. 80
100.0
166. 00
1.5
70.00
42.2
141. 50
1.3
108.00
76.3
135. 00
1.2
135. 00
100.0
82.30
32.10
23.00
0.7
0.3
0,2
2.80
(")
' Producing areas conform to Form B consuming areas except Middletown-Newport and Portsmouth-
Ashland. These areas include only the capacity at these respective points.
> Compiled from the Iron and Steel WorKs Directory of the United States and Canada, 1938, plus the
capacity reported by the United States Steel Corporation at Dravosburg, Pennsylvania.
• Of the capacity sampled 89.2 percent represented integrated companies, 7.8 percent, semi-integrated
companies and 3.0 percent non-integrated companies.
* Degree of integration here used is company integration. (Not plant).
» Less than .05 percent.
Table 4. — Hot Rolled Sheets: Sampled Capacity by Producing Areas, and Ship-
ments by Producing Area
Producing areas i
Total United States.
Pittsburgh- -• -
Chicago - - -
Cleveland
Youngstown .-,
North Ohio River
Buffalo
Middletown-Newport -•
Detroit- --- --.
Portsmouth-Ashland
Baltimore.. .
Birmingham -
Canton-MassiUon-Mansfield .--
St. Louis. -
Eastern Pennsylvanla-Philadelphia-Delaware
Indiana-other.
Capacity Sampled *
1000 gross
tons
6.3
1407.6
1093. 9
1104.0
826.0
788.0
700.0
658.0
553.0
446.0
418.0
319.8
179.0
135.0
108.0
70.0
Percent-
100.0
16.0
12.4
12.5
9.4
9.0
7.9
7.5
6.3
5.1
4.8
3.6
2.0
1.5
1.2
0.8
February 1939 ship-
ments'
Tonnage
(Net tons)
190, 910
21,912
41, 401
20,811
14, 891
14, 836
8,246
8,566
2^,792
4,299
13, 878
6,752
1,009
2,677
1,277
563
Percent-
age
100.0
11.5
21.7
10.9
7.8
7.8
4.3
4.5
15.6
2.2
7.3
3.5
.."i
1.4
.7
.3
' Producing areas conform to Form B consuming areas except: Middletown-Newport and Portsmouth-
Ashland which include capacity in those cities only.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938, plus ca-
pacity at Dravosburg, Pennsylvania.
' Compiled from Temporary National Economic Committee Form B, February 1939.
CONCENTRATION OF ECONOMIC POWER
14387
Table 5.
-Hot Rolled Sheets: Distribution of Total Capacity and Form A Sampled
Capacity by Producing Area (District Sample)
Producing area '
Total United States
Pittsburgh - —
Chicago —
Cleveland ---
Youngstown
Detroit - -
North Ohio River
Canton, Massillon, Mansfield
Buffalo
Middletown-Newport -
Portsmouth-Ashland
Baltimore.-. - -_
Birmingham - -
Indiana-other
Eastern Pennsylvania, Philadelphia, and Claymont
St. Louis -.
California (northern and southern)
West Virginia, other -
Kansas City
Eastern and Central New York
Total II. S.
capacity
Tonnage '
nOOO gross
tons)
1,463.
1,286.
1,199.
1,163.
1, 067.
977.
718.
703.
658.
630.
498.
319.
166.
141.
135.
82.
32.
23.
2.
Capacity sampled
Tonnage
(1000 gross
tons)
5360.3
1108.4
863.9
915.8
700.0
478.0
446.0
418.0
193.8
135.0
82.3
Percent
sampled by
producing
area
48.0
75.7
67.2
78.7
"2.0
99.5
72.6
84.2
83.9
60.6
100.0
100.0
• Producing areas conform to Form B consuming areas except Middletown-Newport and Portsmouth
Ashland which include capacity at these points only.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938, plus ca-
pacity reported by the U. S. Steel Corporation at Dravosburg, Pa.
Table 5A.
-Hot Rolled Sheets: Distribution of Total Capacity and Form A Sampled
Capacity by States (State Sample) 1938
State
Total United States
Ohio.
Pennsylvania
Indiana
Michigan
New York
Kentucky
Maryland
West Virginia
Alabama
Illinois
California
Delaware
Missouri -
Total U. S.
capacity
tonnage '
(1000 gross
tons)
11,167.45
4, 144. 2
1,645.85
1, 309. 9
1,067.7
706.0
626.0
498.0
443. 2
319.8
277.5
82.3
24.0
23.0
Capacity sampled
Tonnage
(1000 gross
tons)
9, 185. 9
3, 579. 6
1, 373. 2
859.9
'717.0
700.0
446.0
418.0
'411.1
319.8
255.0
82.3
24.0
Percent
sampled by
State
82.3
86.4
83.4
65.6
ti7. 2
99.2
71.2
83.9
92.8
100.0
91.9
100.0
100.0
' Compiled from the Iron and Steel Works Director of the United States and Canada, 1938 plus capacity
reported by the U. S. Steel Corporation at Dravosburg, Pa.
' 553,000 gross tons of this capacity is not included in calculations for tables 6 and 7.
» 296,000 gross tons of this capacity is not included in calculations for tables 6 and 7.
14388
OOxNfCENTRATION (JF ECONOMIC POWER
Table 6. — Hot Rolled Sheets: Relative Stability of Tonnage Distribution by Con-
suming Region, 1936, 1937, 1938 and February 1939
A 11 regions (net tons)
Percent _
North Eastern'.-
North Central «
West Central »
South Eastern'..-
Southern and Southwestern «
Mountain & Western '
Form A distribution by
Form A distribution by
states
consuming districts
1936
1937
1938
1936
1937
1938
1, 242, 929
2, 323, 066
1, 322, .106
1, 010, 706
1, 952, 608
1, 073, 369
100.0
100.0
100.0
100.0
100.0
100.0
25.1
23.8
24.7
24.5
23.6
23.8
57.2
59.5
55.7
64.0
67.4
53.5
3.5
3.2
3.5
4.7
3.8
4,1
3.8
2.7
2.9
4.3
2.9
3.3
6.2
6.6
6.8
7.7
6.5
8.0
4.2
6.2
6.4
4.8
5.8
7.3
' Includes following states and consuming districts: Maine, New Hampshire, Vermont, Massachusetts,
Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, New York City, Eastern & Central
New York, Buflalo, Philadelphia, Eastern Pennsylvania, Pittsburgh.
' Includes following states and consuming districts: Ohio, Indiana, Illinois, Michigan, Wisconsin, Minne-
sota, Cleveland. Youngstown, North Ohio River, Canton-Mansfield, South Ohio River, Ohio-other,
Indiana-other, Chicago, Illinois-other, Detroit, Michigan-other.
'Includes following states and "consuming districts: Iowa, Missouri, North Dakota, South Dakota,
Nebraska, Kansas, St. Louis, Kansas City, Missouri-other.
< Includes following states and consuming districts: Maryland, District of Columbia, Virginia, West
Virginia, North Carolina, South Carolina, Georgia, Florida, Baltimore, Maryland-other.
' Includes following states and consuming districts: Kentucky, Tennessee, Alabama, Mississippi, Arkan-
sas, Louisiana, Oklahoma, Texas, Birmingham, Alabama-other.
» Includes following states and consuming districts: Montana, Idaho, Wyoming, Colorado, New Mexico,
Arizona, Utah, Washington, Oregon, Calijornia, Northern California, Southern Calijornia.
Note.— Each region is defined by the areas listed, eliminating duplications. The most important states
and consuming districts in each region have been underlined.
Table 7. — Hot Rolled Sheets: Range of Variation of Tonnage Distribution in
Consuming States and Consuming Districts, 1936, 1937, 1938 & February 1939
[Range of distribution of percentages by areas]
Form A: 1936-1938 inclusive
FormsA&B:1936—
1938 inclusive
Range
By 49 states:
Number
of states '
By 64 districts:
Number
of districts
and February
1939-By 64
districts: Number
of districts
Over 5.0
1
4
9
5
45
2
2.1-6.0
3
5
3
38
8
1.1-2.0
10
.6-1.0
5
39
Total
49
64
64
' Includes the District of Columbia.
Source: Compiled from the Temporary National Economic Committee questionnaire Forms A and B.
CONCKNTKATION OF ECONOMIC POWEJl
14389
Table 8. — Hot Rolled Sheets: Selected Consuming Areas for Detailed Analysis,
February 1989
Producing area '
All producing areas.
Chicago
St. Louis-
Detroit.
Cleveland-
Youngstown.
Pittsburgh.
Buffalo.
Philadelphia.
Baltimore
Basing point '
All basing points..
All basing points..
Pittsburgh
Sparrows Point...
Chicago-Oary
Birmingham
Buffalo
Cleveland
Middletown
Detroit*
All basing points..
Chicago-Oary
Birmingham
Granite City
All basing points..
Pittsburgh
Sparrows Point. . .
Cfhicago-Oary
Cleveland
Middletown
Detroit'
All basing ponits.
Pittsburgh
Sparrows Point...
Chicago-Gary
Buffalo
Cleveland
Youngstown
Middletown
Detroit'
All basing points.
Pittsburgh
Sparrows Point...
Chicago-Gary
Birmingham
Buffalo
Cleveland
Youngstown
Middletown
Claymont *.
All basins points.
Pittsburgh. -
Sparrows Point...
Chicago- Gary
Birmingham
Buffalo
Cleveland
Youngstown
Middletown
Detroit'
All bfising points.
Pittsburgh
Sparrows Point. .
Chicago-Gary
Buffalo
Cleveland
Middletown
All basing points.
Sparrows Point- .
Birmingham
All basing points-
Pittsburgh.
Sparrows Point-.
Chicago-Gary
Birmineham
Buffalo
All con-
suming
areas (net
tons)
190, 910
41, 401
402
321
27,580
212
351
1,689
2,372
6,854
2,677
1,631
194
852
29,792
14
2,100
5,774
1,178
1,060
19, 435
20,811
461
776
1,181
1,599
6,474
493
1,139
8,321
14, 891
3,104
1,109
2,564
345
760
2,239
3,412
954
11
21,912
7,820
2,018
1,077
2,647
1,470
2,326
3,219
572
689
8,246
86
1,262
1,070
2,021
3, 505
131
1,277
1,065
67
13, 878
51
11,293
165
2,104
194
Selected
consuming
areas (net
tons) 3
161, 035
36,729
379
151
25,269
96
26
1,689
2,265
6,854
1,205
1,119
75
11
27, 979
14
833
6,459
1,178
1,060
19, 435
18, 461
461
776
1,076
1
6,295
408
1,123
8,321
12, 757
3,035
826
2,441
13
16
2,183
3,379
864
11
16, 853
6,001
1,640
883
2,611
16
2,084
2,370
660
689
5,590
86
1,203
761
13
3,397
130
1,066
999
67
12, 099
44
10,629
124
2,091
21
Percent
' Producing areas conform to Form B consuming Areas except Middletown-Ncvvport and Ashland.
These areas include only the points listed.
' Lists only basing points governing selected consuming areas.
' Consuming areas taking 2% or more of total shipments. Areas selected were: Metropolitan New York,
Philadelphia, Eastern Pennsylvania, Pittsburgh, Cleveland, Youngstown, Ohio-other, Indiana, Chicago,
Illinois-other, Detroit, Michigan-other, Texas.
* Not listed as a basing point by the Iron Age.
» A delivered price.
14390
CONCEN'JHiATION OF ECONOMIC POWER
Table 8. — Hot Rolled Sheets: Selected Consuming Areas for Detailed Analysis,
February 1939 — Continued
Producing area
Birmingham.
M Iddletown-Ne wport .
Ashland.
Indiana— other.
Canton, Massillon, Mansfield.
North Ohio River.
All producing areas.
Basing point
All basing points
Pittsburgh
Sparrows Point..
Chicago-Gary
Birmingham
Middletown
All basing points
Pittsburgh
Sparrows Point..
Chicago-Gary
Birmingham
Cleveland
Youngstown
Middletown
All basing points
Pittsburgh
Sparrows Point..
Chicago- Gary
Buflalo
Cleveland
Middletown
All basing points
Sparrows Point..
Chicago-Gary
All basing points.
Pittsburgh
Sparrows Point. .
Chicago-Gary
Cleveland
Youngstown
Middletown
All basing points.
Pittsburgh
Sparrows Point. .
Chicago-Gary
Cleveland^
Youngstown
Middletown
Detroit =
Pittsburgh
Sparrows Point..
Chicago-Gary
Birmingham
Granite City
Buffalo
Cleveland--
Youngstown
Middletown
Claymont
Detroit'
Pacific Ports
Gulf Ports <
All con-
Selected
suming
consummg
Percent
areas (net
areas (net
tons)
tons)
6,752
2,714
40.2
2
2
100.0
122
6
4.9
28
28
100.0
6,114
2.673
43.7
5
5
100.0
8,566
7,543
88.1
471
471
100.0
822
709
86.3
1,973
1,762
89.3
265
200
75.5
1,662
1,500
90.8
47
47
100.0
3,058
2,584
93.3
4,299
3,569
83.0
6
' 6
100.0
522
388
64.7
969
874
90.2
308
12
3.9
1,096
1,096
100.0
1,245
1,243
99. S
563
453
80.5
2
2
100.0
509
451
88.6
1,009
932
92.4
87
80
91.9
12
7
58.3
28
27
96.4
803
741
92.3
3
3
100.0
74
74
100.0
14, 836
12, 264
82.7
2,676
2,604
97.3
3,119
2,071
66.4
2,282
1,278
56.0
1,276
1,086
85.1
796
606
76.1
1,861
1,861
100.0
2,758
2,758
100.0
15, 180
13, 183
86.8
24, 543
20,190
81.9
45, 831
41, 552
90.7
12, 670
7,826
61.8
3,576
11
0.3
7,600
104
1.4
22, 098
21, 249
96.2
7,980
6,813
85.4
12,497
12,039
96.3
11
11
100.0
38, 057
38, 057
100.0
857
0
0.0
10
0
0.0
Source: Compiled from the Temporary National Economic Committee questionnaire Form B, February,
1939.
CONCENTRATION OF ECONOMIC POWER
14391
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CONCENTRATION OF ECONOMIC POWER
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GONCENTKATION OF K(X)NOMlC POWER
14393
88
Si
II
ja.i5
a
•z
a
'a
o
5f c o
S o s a
a 5S2
o o S »
^•c i a s
•S > >> n r
s-9f^«a
2 S,a S.9-
'3 s "o .5 a
O O W l^ QJ
» C* CO ^ • I
14394
OONCKNTKA'IMON OF KCIONOMIC POWER
Table 11. — Hot Rolled Sheets: Published Base Prices and Calculated Base Prices
by Basing Points February 1939
Basing point
Published
base price
per net
ton '
-Calculated
base price
per net
ton 2
Basing point
Published
base price
per net
ton>
Calculated
base price
per net
ton 2
$43. 00
43.00
43.00
43.00
43.00
43.00
$38. 51
3S.71
37.20
.39. 38
38.81
38.38
Youngstown
$43.00
43.00
4S.00
45.00
53.00
$39.21
Chicago-Gary
Birmingham
Buffalo
Middlctown
40.97
Detroit'
41.80
Granite City
Pacific Ports
42.57
51.58
' Listed by all February 1939 issues of the Iron Ape.
' Compiled from Temporary National Economic Committee questionnaire Form B, February 19 i9.
3 Delivered price (not a basing point).
CONCENTRATION OF ECONOMIC POWER
14395
Ho— » S 2
S°
® S 2
0Xi a
« 5 rt §-S
c oi 5 o
w fc- *^ a
O ojs «
t^ »C C*J ** 0> O 1-H O Q Ol Q »0 CC-^i-H CO to
■^ o --H ec tnc^rp ^ 2b cc cS c^ c^h-o o eo
OOO C4 O'-^O O O O O i-I Oi-HCi rn c5
M M* CO <D ec t^
CI ^ OS -^ ?© 00
cocococccocococceo
eo 00 CD
a 2-S.S
O 03 5 o
o„ Men
a S S'o
a; *-* a> 2 I' O a
Q3 O <J fl C
5a » o fl
a« » 2 D.
a £.S o
OS Si
00 cs »o w
t^ rH OS Oi
CO c^ po
00 -^ <N
2 g S
« ^ cS
CS ^ Fl
OO 1-1 c^
"uO CO 00
2 g
M <0 «5
S g
tc « N 00 eo M
rt rt M
00 « r-, «
•1 M 00 to
l-H t^ ^
« >«1 V
M CO CO
« rt «o
S; 2 s
■I ■* «
-3 bii w
Oj2 O,
^ 00 M t-H f-i go U5
O ^ OS ^^ 05 r* CD
■» r~ t-. 00 00 oo 00
8 8 S 2 S
CT l-I rH
^ f^ fe
•^ -^ e<o
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2 W 1 1
S P5 « O
124401 — 41 — pt. 27-
■< D Pk Q
—18
W-SWWoap40M
S °
s
•3
S
a
u
be
.5
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i c ^ i
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8 £g
m
•a 9 o
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•9 §S «
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a" ^
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oJS2g .-.
St> CO « G
^^£° I
_ » n 3 OQ
14396
CONCENTllATION Ob' ECONOMIC 1'0W1<:R
Table 13. — Hot Rolled Sheets: Shipments Received Compared to Shipments Made by
Producing Areas, February 19S9
Froduciiig area '
All producing areas
Chicago, Indiana, othor, Illinois, other. _
JMUsburgh, North Ohio River
Youngstown, Cleveland, Canton-Massillon-Mans
field ~ .— -
Detroit _
Baltimore, Philadelphia, Eastern Pennsylvania
Metropolitan New York__
Kentucky, Ohio, other. _
Buffalo -.-
Birmingham, Alabama, other
St. Louis ...1
Total
shipments
made by
produc-
ing area
190, 910
41, 9G4
36, 7-18
3C,711
29,792
iCiss
12, 865
8,246
6,752
2,677
Shipments receivOT in producing area
Total re-
ceived in
produc-
ing area
1S5, 881
40, 114
6,044
23, 295
46, 153
22,921
9,844
3,287
1,038
3, 185
Received
from, iden-
tical area
81, 203
25, 738
4,441
12, 573
19, 435
11,774
4,378
1,109
992
763
Percent
received
from iden-
tical area
64.2
73.5
54.0
42 1
51.4
44.5
33.7
95.6
24.0
Total re-
ceived in
area as a
percent
of total
shipments
from the
area
81.7
95.6
16.4
63. .5
154.9
151.2
76.5
39.9
15.4
119.0
' Producing areas conform to Form B consuming areas. Major consuming areas contiguous to produciuir
areas which have been included are indicated in the stub.
Source: Compiled from Temporary National Economic Committee questionnaire Form B, February
1939.
CX)NCENTRAT10N OF ECONOMIC POWER
14397
■w
^
90
CO
05
C^
S»
-=5
e
CO
»
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fc.
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00
«i
s
&.
-a a,
s s
Gi
CO
=^3
w2
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■o'o
s..g
£J ft*'
■SSa°
O 03 I «2
tic J- fta
t<j2 O
bo u. ft p
"SSa o
■*^-N^oooco«to«e^«D•5•*
W*C»T)"O0>(10CDO'O«£>«O
g'h^OodQOCOOOOJt^-iidN
«oooSc5e-»t^oo^eoOoo»o
Si O O C-5 00 •-< >
t^^O>^^W50t^Ct3»-l
COM ^^
^ t-w CO O > O ^^ 00 05 d 1— * t* OS
OO'wfS i>BMOCO-<c»0>0
OOQOSO W>«OO^J«CM ^OOO
C5 50 00 00 O CD CO -^ t^ 0> "^ t^
aseot^io,^^r^co05'<fcorri-HC<»
CO icocDr-^(
)co CO -H :
C^rt<os»-<OOOiO»rscO^CO>0
»-*C0»0-^r-*0SC0C^C^C^OOC^
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COVW»OCD»OC»3CSO»Ot*Ot^
'i^t^oooooooowt-^coe
^CO OS O ^CO c4"Qd CD C^^rH
rp CO W C^ r-* ^ ^
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a ^'3
^i^ Q^ <D :z 'JSJ^ii l1 ^ <ii cj^
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m >co w-t-» M >>m
lll.lllg.l
5. 03 ^ a a &.<5 ftoo
ft d ® H
o cS o S'S
ft"2a«
fe^ a-S Ss
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►7 <P be W M
w ^ tfl O &0 Q
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t) «
oa.9a
aS.£
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go.s«
u ^-.9 g
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S3 S|§| I
as
so
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of ^
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■9 .sing
9-- "3 ^ -a
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oig>S X-SSgoyo ogog
a^aa flag's
i:^„SoW coSm Sm mot" a w a
T)Sga'"-°E: s5S^SSggS«-2
IsEfSs^ ■Rof&aB,'&-'S.SS.§
5 ® o Si's <s ff o .2 o-'= O O g O a; O £
Br^lStl"*^? 0 03 0
o »*i F«^ r^ T <H (^ fc^ > — »j^
14398
CONCENTRATION OF ECONOMIC POWER
»j ^ -. »j - --^ »! £ « O '
*n /c ' 'u "^/n fl ? « '5 *
D- 03 G. O D."^ O.*^ 0-*± ft-g
ggBSBTB-gESII
'-—CI
SoS oSoloSog/Og
■"cJie"5 >5! .>£ a- cs «
WmPS.s i^< <; S I, ^ ^-
CONCENTRATION OF ECONOMIC I^OWER
14399
^•^t^Wt^W^^-ttOOiiO^^C
M 00*
iM « -
& »»^
g 013!
cOoD't'
^ce o
a SI
O) .«
15-
2 ei§ :^I|22'
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o
09^"-"
3 rt 5 03 (/) Q
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..•a<iS.. Sg,^
■g a) 0*0 H^ o a
g > 3 ai SP3 o S
'^ J2 "D r . rO CT' r^ irT
go
Sra-o
1^-
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a
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'CS g'C «
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6*3 n S
. o-a o o dj
o a* .is
g.§2s§
•- « V ** «
Sola's
£ g i i'l
m a b: P
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iH w two t ^^
;-• la dJ O M
llllt
t; C o' 9 a*
3 -S S " S ~
5 9S t S 0
<g « 03 o ois
sSo"ja ®
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p ja . a S.'O
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) O S IJS^ 3
oS
ow
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s s
>» 'z.s 2 *< t* t* 0 S '-'
2; *S *5-i oj 03 o3 •'^ t>.r~)
9 ."r-S^O -m'^S
5
:3.£
0) Sax
~ P Sr25
T30
SO 9S«
p o o^ OS P gpT-"
O aj«-i a>3 ccoc^os
♦^ S5 o3"f-' o ^'"^-rm
o o_c O =3 - Pi? P ES
5 0£-,p^ :2-S°^
P « ,
P r/T O i-""o "9 "^ a3 03 ^
« a£ C o o « n '^ 03
M ^fT -2 - '-'oajp
ar.2 03 S-^
o p ".a .h o
^ .c
S Sa.2-9°'» p^-rtS
S__3a>'*'.2j20c3j3
. w o o J2 -— 7, P t? <fl
csmB .'STr^SoO-wPcr
M.s6^oE?.2^6-2^ggi
" "5„ S 03 os-a S„ 'O'S-r'*
o 'r 03 .
g" . 3_0 2.C
S-gSlpO
CL, Sw-p;= j;
_. .^ p c5 03 a
E:;;|oo.S
.."S i;P5 a o
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+j a) *^ _o CO
■2 ?S-2jp o-e
50.
fe 2 3.i
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§5|g
32 -a>
£•0 o'S
S.2^^
5Efo2
i.sgi
.Sc a ■
|g|„-||g|^J|
a-2Es^fi'2sf g«
oPoS- .ogoVoo
Om0 3.20-sO.SOS
.!:" op" cj>-j:«> <a
> ><-G- £i O O
3 '"'^M
14400
CONCEJSTltATlON OF ECONUMIO POWEll
OQ
oo go 00
-<
—
0
>.
"3
^-S "-S '^-SSS
■3
o
S "^ §""00 "^
s
H
1
Is
coco woo .^ot--eo
tu
100 ,-t rr iMrtOOTj:
£
.sS
. ^ cs
■So
'^
hH
_ s
>
t^T)< O-H «OC(NOO
a
5
o-i «-o5 mtdoim
>.
3
tC ^-"■'gj
,0
.T3
■O a>
CO
_ 2S
be
gie> r-o egc^M->)«
•2i
.2 a
t~eo icio Stogjjo
|a
<0 0 TT .-.
*o S
X^a
5
_ ?3
_o
tore ot- cooot^
'* . 00 . 0 . . .
ll
*«
C* Tj< Oi CO 50CC0>'«J'
>>bKi
a
. W — 00
oo «0 "
1-i
m
— -a 0
<
bo
Middle-
town,
Ashland,
Newport
12, 865
6.8
9,883
5.2
4,381
44.3
34.1
76.8
It
IS
"a
3
- -a^
u !r!
o
..-2
*ooa os«o -^.— 00*0
»C . 0 . W3 . . .
i-ir* 00M< iCiCMco
J. "* o
-1 g
£
:23 a
.r-H .-^OOCO
PUS'S
&I t:
^m
_ « > a
!^'S £
n n o CD
O-* lOCJ tOOOdOO
c^ . o> . 00 . . .
00« f>c» rtOMtO
and
ghti
Feb
523S
^.r-i -,^ -reroc
Cleve
Can
Mass
Mam
M (N ""*
1
n-Ashl
lal freii
rmB,
^
e«<o N^ o>>oooc^
"o
^.12 *g "f^SS
^
.S n u
o
S !g S -^
2* «
o
1
gt- to— g«(N-H
a£ 1
§* 1
TjN ^.-" -i> « r.
'-' S 2?
M be <7
xt
.^ re CI
»_H a,
O
■g g S
;burgh,
ungs-
iwn,
h Ohio
iver
61, 639
27.1
7,155
3.7
5,965
83.4
11.6
13.9
Bl a
so. a
Z^ S
Ph Z
ati cj
11 a
ill
l2
~ St i
:«><9
'0
mo „
:5"
;2
Form
areas!
ationa
i-f§
G
and to
uming
rary N
lg.a
, ea
ei « 0
a£*
•-^1
M > c
'1 0
ii
Is
<N
,ed correspi
those cons
ble 16A.
om Tempo
ship
duci
ns).
line
line
1 Producing areas list
' Governed areas are
or allowed. See Ta
Source: Compiled fn
'S " S,
ircent of all i
lents by pro(
ireas (net to
divided by
divided by
riividofi hv
nsship
rcent 0
net ton
ing arei
etto
Pe
otal
sumi
(net
Pe
hlpm
ine3
ine3
?; H M f^iJi-
2
a
e-j
«
«c
tc
CONCENTRATION OF ECONOMIC POWER
144U1
s
°» I
^«
v> ^
is
«i
is
-o ■"
^?^
■^1
I
u.
JS
|a
o
o
03
Sj="
M
~30
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fl<i-^ ■
a
1 •3'"
>.
1
■3 M ^ B MO
I-]
3 m 2 o K w ■"
O 5d C3 r3 CO CO C
m
• S !* OS^ « O' t-
Se.5«ow^;<
a
CO
J3
n
a
5
il|8||ll||
a Z.
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_o
•o • o
a
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cs -a t^
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:5<z
^
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& <«
«
^ i - « ^
S £
-J p i3 M ,2 '-"
ti
|5 g Is Sg o -
•a-x:
ilJiliiii
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a.
Ht-
a
2o
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o>-o
c
•ti
cS
c
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QS
^ *
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tx.2 o g as « - „
CO^C^Bm-*- „ —
o
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f^l«
■a ■^ ^n -2^ 2
■o hL-c
fcZ oQ Km ^0 22;
o
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c:aj
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t>,
Go
sa
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f^
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fa
a
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s-a
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3
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c
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S=5
a
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a
listc
proc
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gare
prod
erfro
o
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'5^
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o
c
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3 > .H •-
§•§£55-
o
«^ o g g
>,»
a
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5a§-
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ed to
next
rm B
ipped
eportc
(whic
o
c
^¥^^
>- C3
•i°2o
il
H
C
s-Ibo
JJ
*i 3
b
Etj:: C >.X'0
o
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E^y
ii £ cr O
'C
151!
S5
'£.
gffl.a^ojg t3
o a 3 2 o o ..
B-o £ a 3a t
OoJPhOOO c
. » « . ^ « CAj
14402
CONCENTRATION OF ECONOMIC POWER
a
i:S
f-H »o^ c*«co
r^ to^^ CO
ocsos<oo
^-ij^COCOU^
O 'OOQC; ' 'C^
00 ■LOOO • '00
00 issssj : is;
CO ' NCQ 'CO
COCO^ '•«**
i-ir*cooo^t^»ncocsi^oioooi"^»oc^»£2
■^000SOOib-O^00OM<W5O»000«O
c6c5cot^oi«-Joo»oost^cs<d^cp»o»-«Q
cococococo^cocococo*tcococOco^^
2S
ooo
"e5«
O tW .^ -00
^ Iwioo 1 It^
COiOOtOb-
OSOCOOO
»(Dxcor>-c^'^r^OMoocoo^»oo
CO ^ CO ^^^pQ^co^^^cOeO'^^
o&i
3."4i'
6.33"
0.00
2.36'
rS .Q ft
-Hr-lO-HN
--• O t^ t^ •<*• i
rt-Hrt^rt^NMrtOO'0-9'i-<ccm>-l
oSi
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l-9l<
co-^
h* lOCO^ CO
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cscooot^
lO ^ to io CO
o>coc^ocor-or^^u5Tj<CN»»0'^r^coo
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i-Io6eo^t^opc<»oot5t>^Tf5cpificotpcoeo
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O H t. S bom
^ •a 2 o 22 's
o o> cx> t^ ^ •-< lO
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aicoOcQPQOcn
a
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i^ OJ .il, *3 ,ii "2 3 0^ ^ ^ 4j 'S !2 5
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02
OQ
jM^ >
CONCENTRATION OF ECONOMIC POWER
14403
§5
s
CJ
00 ceo
§
to
ssg
>o
■o
5
o
1
i
0
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61
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fe
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CO dP->
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a
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fl £
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^.2 g S S as °
fl CV3.S55 g
a bfi^ "■§ ®S
•^- •5:— * csS-SjO
^^u.ZZPi^ P-2
• - -- -^ - 05; o
14404
C< )NOENTR5.TION OF E(J(^N()IVI1C POWh^ll
fiq
s -S
Kl
Ci?
Total
:-
,-
:
£
is
lo
II
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o
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II
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i
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1
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ill §
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o
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s
CO
"5
o
o
c
O '-'
ss
S -eS
=) T3 .
•^ P be
.£ '^<
-§ «g
s :§!
to ^ o
a '3 o
bJO T3
fell
fl-O 5 m
O 05 0)
^^PQ OS
a boos 01
9-. a'fflx:-^ '
o 3
i: O
CONCKNTllATION OF ECONOMIC POWER 14405
Part 4
Table 1 .—Hot Rolled Strip: Basing Points and Basing Point Prices
IPrices per net ton]
Basing point
Pittsburgh
Chicago-Gary '
Binningham...
Cleveland
Middletown--.
Youngstown...
Granite City...
Detroit'
May 1938
February 1939
Base price
Differential
over Pitts-
burgh
Base price
Differential
over Pitts-
burgh
$48.00
$43.00
43.00
43.00
43.00
43.00
43.00
45.00
50.00
51.00
2.00
3.00
6.66
0.00
0.00
m
0.00
(-')
0.00
52.00
4.00
4.00
52.00
2.00
' Gary was not listed as a basing point by the Iron Age during May 1938.
2 Not listed as a basing point by the Iron Age during the period covered.
' A delivered price (not a basing point).
Source: All May 1938 issues prior to the extra revisions and base price change and all February 1939 issues
of the Iron Age.
Table 2.— Hot Rolled Strip:
Distribution of Capacity by Distance from t
Basing Point, 19S8
Nearest
Distance from the nearest basing point (air miles) '
Capacity
(1,000 gross
tons)'
Percent of
total capacity
Total United States
4,286.3
100.0
1-25
'2,807.0
596.7
482.4
400.2
65.5
26-50
13.9
51-100 -
11.3
Over 100 . .
9.3
' Includes all ba.sing points listed in the Iron Age after the change in basing points, June 1938.
2 Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938 and the Iron
Age.
' Includes 2,800 gross tons on the Pacific Coast.
14406 CONCENTRATION OF ECONOMIC POWER
Table 3. — Hot Rolled Strip: Distribution of Total and Sampled Capacity
Producing area i
TotalU.S. Capacity'
1,000 gross
tons
Percent
of total
Capacity Sampled
1,000 gross
tons
Percent of
total capac-
ity sampled
Total United States - --- -
Integrated '
Semi-integrated -..
Non-integrated -.
Youngstown
Chicago -
Pittsburgh
Detroit
North Ohio River
Cleveland
Metropolitan New York, Rhode Island, Massachusetts
St. Louis - -
Georgia.- -
Areas outside the sample:
Canton, Massillon, Mansfield _
Indiana-other, Illinois-other
Eastern Pennsylvania, Philadelphia.-- -
Birmingham -
Colorado.- -.- -
Minnesota
Buffalo...
California (northern & southern)
Tennessee _
4,286.3
100.0
3, 674. 3
85.7
(2, 979. 3)
(659. 6)
(647. 4)
1, 275. 4
1, 032. 1
620.0
477.4
268.0
250.0
167.0
95.0
36.0
56.0
50.5
32.7
7.2
5.0
5.0
4.7
2.8
1.5
(69. 5)
(15. 4)
(!•■;. 1)
29.8
24.1
12.1
11.1
6.3
5.8
3.9
2.2
0.8
1.3
1.2
0.8
0.2
0.1
0.1
0.1
0.1
(«)
< (2, 492.8)
(556. 0)
(625. 5)
1, 275. 4
779.4
468.5
397.0
268.0
200.0
155.0
95.0.
36.0
(83. 7)
(84.3)
(96. 6)
100.0
75.5
90.1
83.2
100.0
80.0
92.8
100.0
100.0
• Producing areas conform to Form B consuming areas.
• Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938.
• Degree of company integration (not plant).
< Of the capacity sampled, 67.9 percent represented integrated companies, 15.1 percent, semi-integrated
companies, and 17.0 percent, non-integrated companies.
' Less than .05 percent.
Table 4. — Hot Rolled Strip: Distribution of Sampled Capacity by Producing
Areas and Shipments by Producing Areas
Producing Area '
Sampled Capacity '
1,000 gross
tons
Percent of
sampled
capacity
February 1939 ship-
ments'
Net tons
Percent of
total ship-
ments
Total United States
Youngstown..
Chicago
Pittsburgh
Detroit-
North Ohio River
Cleveland
Metropolitan New York, Rhode Island
St. Louis
Georgia
3, 674. 3
, 275. 4
779.4
468.5
397.0
268.0
200.0
156.0
96.0
36.0
34.7
21.2
12.8
10.8
7.3
6.4
4.2
2.6
1.0
67, 896
26,271
11,903
4.516
9,215
8,792
3,777
2,566
1,328
528
100.0
37.2
17.6
6.7
13.6
12.9
6.6
3.8
1.9
' Producing areas conform to Form B consuming areas.
« Source: The Iron and Steel Works Directory of the United States and Canada, 1938.
» Source: Temporary National Economic Committee Form B questionnaire, February 1939.
CONCENTRATION OF ECONOMIC POWER 14407
Table 5. — Hot Rolled Strip: Distribution of Total Capacity and Form A Sampled
Capacity by Producing Area {District Sample), 1938
Producing area '
Total United States
Youngstown
Chicago
Pittsburgh -
Detroit
North Ohio River -
Cleveland _
Metropolitan New York, Rhode Island, Massachusetts
St. Louis -
Indiana — other, Illinois — other
Canton, Massillon, Mansfield-
Georgia.-- - -
Eastern Pennsylvania, Philadelphia -
Birmingham — --
Colorado.-
Minnesota
Buffalo ---
California (northern and southern) --.
Tennessee-- —
Total United
States Ca-
pacity,
1,000 Gross
tons'
4,286.3
1, 276. 4
1, 032. 1
520.0
477.4
268.0
250.0
167.0
95.0
50.5
56.0
36.0
32.7
7.2
5.0
5.0
4.7
2.8
1.5
Capacity Sampled
1,000 gross
tons
1, 103. 5
569.0
351.4
118.0
75.0
60.0
12.0
7.2
5.0
5.0
0.9
Percent sam-
pled by pro-
ducing area
27.8
44.6
34.0
22.7
15.7
20.0
7.2
100.0
100.0
100.0
32.1
< Producing areas conform to Form B consuming areas.
> Compiled from the Iron and Steel Works Directory of the United States and Canada, 1938.
Table 5A. — Hot Rolled Strip: Distribution of Total Capacity and Form Sampled
Capacity by States {State Sample), 1938
Total United
States Ca-
pacity,
1,000 gross
tons '
Capacity sampled
State
1,000 gross
tons
Percent sam-
pled by
state
Total United States
4, 286. 3
2, 789. 9
65.1
Ohio V
1, 256. 0
863.1
634.7
535.2
477.4
268.0
120.0
36.0
35.0
16.0
12.0
7.7
7.2
5.0
5.0
4.7
2.8
L5
1,050.0
713.4
83.6
Pennsylvania -
82.7
Illinois . . -
351.4
'377.0
'268.0
65.7
Michigan -- -
79.0
West Virginia -
100.0
Massachusetts .. . .
12.0
100.0
Alabama . .. .......
7.2
5.0
6.0
100.0
Colorado -- -
100.0
Minnesota - -
100.0
New York .
California . . . ...
0.9
32.1
Tennessee . .. . ... .
' Source: The Iron and Steel Works Directory of the United States and Canada, 1938.
< 322,000 gross tons of this capacity not included in calculations for tables 6 and 7.
' Not included in calculations for tables 6 and 7.
14408
CONCIONTIIATION OF ECONOMIC POWER
Ta.bi,b B. — Hoi Rolled Strip: Relative Stability of Tonnage Distribution By Con-
sum.ing Region, 1936, 1937, 1938, and February 1939.
Regions
Form A : Distribution by
Form A: Distribution by
states
consuming districts
1936
1937
1938
1936
1937
1938
890, 032
1, 190,987
489, 204
818, 816
860,223
309,223
100.0
100. 0
100.0
100.0
100.0
100.0
20.7
20 5
26.1
15.0
16.8
24.5
72.2
74.0
64.8
78.0
76.3
63.4
1.4
1.3
1.8
1.1
L2
1.8
1.0
1.3
2.3
0.8
1.3
2.7
2.8
l.I
2.6
3.0
2.2
4.0
1.9
1-8
2.4
2.1
2.2
3.5
Form B:
Distribu-
tion Feb-
ruary 1939
All regions (net tons).
Percent - --
North Eastern '
North Central'
West Central »
South Eastern ♦
Southern and South Western '
Mountain and Western*
67, 896
100.0
20.6
75.7
1.4
0.7
L2
0.4
1 Includes the following states and consuming districts: Me., N. H., Vt., Mass., R. I., Conn., N. Y.,
N. J., Penna., Met. N. Y., Eastern and Central N. Y., Bufl., Phila., Ea. Pa., Pgh.
* Includes the following states and consuming districts: Ohio, Ind., 111., Mich., Wis., Minn., Cleve.,
Yst., N. Ohio R., Cant.-Mans., S. Ohio R., Ohio-other, Chi., Ill.-other, DetroU, Mich.,-other.
'Includes the following states and consuming districts: Iowa, Mo., N. Dak., S. Dak., Neb., Kans.,
St. Louis, Kansas City, Mo.-other. '
* Includes the following states and consuming districts; Md., D. C, Va., W. Va., N. Carolina, S. Caro-
lina, Georgia, Fla., Bait., Md.-other.
* Includes the following states and consuming districts: Kentucky, Tennessee, Alabama, Mississippi,
Arkansas, Louisiana, Oklahoma, Texas, Birmingham, Alabama-other.
6 Includes the following states and consuming districts: Montana, Idaho, Wyoming, Colorado, New
Mexico, Arizona, Utah, Nevada, Washington, Oregon, California, Southern California, Northern California.
Note: Each region is defined by the areas listed, eliminating duplications. The most important states
and consuming districts have been italicized.
Table 7. — Hot Rolled Strip: Range of Variation of .Tonnage Distribution in
Consuming States and Consuming Districts, 1936, 1937, 1938 & February 1939
[Range of distribution of percentages by areas]
Range
Forms A: 0936-1938
inclusive
Forms A & B dis-
tribution 193fr-1938
inclusive and Feb-
ruary 1939
By 49 states:
Number of
states ■*
By 64 dis-
tricts: Num-
ber of
districts
By 64 districts:
Number of distri6ts
Over 5.0
1
3
2
6
37
3
2
2
9
48
3
5
9
7
40
2.1-5.0
1.1-2.0
0.6-1.0
0.5-or under
Total
49
64
64
' Includes the District of Columbia.
Source: Compiled from Temporary National Economic Committee Forms A and B.
CONOENTUATION OF ECONOMIC POWER
14409
Table 8. — Hot Rolled Strip: Selected Consuming Areas for Detailed Analysis,
February 1939
TroduciTig area '
Basing point ^
All con-
suming
areas
(net
tons)
Selected
consum-
ing areas '
(Net
tons)
Percent
of all
consum-
ing areas
All producing areas
All basing points
67,896
60,364
88.9
Chicago -
All basing points
Pittsburgh
U,903
11, 480
96.4
3,480
6,751
54
1,422
104
3,395
6,514
49
1,419
103
97.6
Chicago-Qary
96.5
90.7
99.8
Detroit* ..
00.0
All basing points
Chicago-Qary
St. Louis - -
1,328
697
52.5
1,084
54
126
517
54
126
47.7
100.0
Detroit <
100.0
All basing points
Pittsburgh , _
Chicago-Qary
Detroit -
9,215
9,166
99.5
214
662
95
51
105
8,088
204
625
93
51
105
8,088
95.3
94.4
97.9
100.0
100.0
Detroit* -
100.0
All basing points
Pittsburgh ._.
Cleveland. —
3,777
3,615
95.7
54
39
2,936
10
213
525
3
8
2,888
5
213
'498
0.6
20.5
98.4
50.0
100.0
Detroit* .
94.9
All basing points
Pittsburgh
25, 271
22,346
88.4
5,161
4, 121
5,836
6,041
1,310
1,881
3,654
3,305
5,821
6,465
1,220
1,881
70.8
Chicago-Gary .
80.2
99.7
97.3
93.1
Detroit * . . ...
100.0
All basing points
Pittsburgh
4,516
3,598
79.7
1,994
602
1,031
648
241
1,604
485
789
479
241
80.4
80.6
Cleveland
76.5
73.9
100.0
All basing points
Chicago-Gary
528
57
10.8
4
152
2
55
50.0
Middletown
36.2
All basing points
Pittsburgh
2,566
1,780
69.4
2,393
10
'39
%
1,709
10
38
23
71.4
Buffalo 5 -
100.0
Cleveland -.
97.4
Youngstowa
24.0
' Producing areas conform to Form B consuming areas.
' Lists only basing points governing selected consuming areas.
s Consuming areas receiving 2 percent or more of total shipments. Areas selected were: Massachusetts,
Metropolitan New York, Buffalo, Pittsburgh, Cleveland, Youngstown, Canton-Mansfield, Ohio-other,
Indiana-other, Chicago, Illinois-other, Detroit.
* A delivered price (not a basing point).
» Not listed as a basing point by the Iron Age.
CONCENTRATION OF ECONOMIC POWER
v: Selected Consuming Ar
'ebruary 1939 — Continued
14410
Table 8. — Hot Rolled Strip: Selected Consuming Areas for Detailed Analysis,
Pel ~ "
Producing area
Basing point
All con-
suming
areas
(net
tons)
Selected
consum-
ing areas
(Net
tons)
Percent
of all
consum-
ing areas
North Ohio River .,
AH basing points.
Pittsburgh...
8,792
7,625
86.7
1,918
553
1,262
843
414
3,799
1,065
447
1,261
817
414
3,621
65.5
Chicago-Gary
Cleveland
80.8
99.9
Youngstown
96.9
Middletown . .
100.0
Detroit <
95.3
Pittsburgh
15, 298
14,523
13,844
11,253
8,289
3,911
10
3
703
62
11,634
14,317
11,903
10,939
7,840
3,721
10
0
0
0
76.0
Detroit <
98.0
Chicago-Gary.
Cleveland
86.0
97.2
Youngstown
94.6
Middletown ...
95.1
BuiTalo*
100.0
Granite City
0.0
Birmingham ... ..
0,0
Pacific Ports
0.0
< A delivered price (not a basing point).
> Not listed as a basing point by the Iron Age.
Source: Temporary National E conomic Committee Form B questioimaire February 1939.
CONCENTRATION OF ECONOMIC POWER
14411
Cl W Q>
s|a
C'O
^^f^
Q <^ 0}
^-
bj)*-> fV <S Q OS
« -a & a S £
13 9 d a a -.'O
w O o S S TO 5s
o at) a £*;5
«.-*i-«cO-O^OSNC
1^ f^i-« |-*C0'«J*'«J*CC)»O00COI^U5CO
■ - > to CD .-» -^ CO Ci CO
cDTt<CiCMQt^OOO>'-HOt-^<OOOl
cceotDooN >-"^t«- eoc^GOO
00Q0OS»«»OiO»OCDtOC^»O.-tM«C0
OOOOC^Clh-COcO<—CSC'-i-«J-00>
ooc^icot^c<icscoooc^t^"*cor^
00 00 lo CO i-TrH i-T
3S
O u.
, o tj)^ a-? o^ i-^ o
i Sf b^S — "oJ o W)-5 W) g* S bc
00 00
OCbOO'^Q000CDC4OCO0»^*-t
W IrHCSWN C4i-i I T-< ^w
»O»0OC^000l0SC^^O^00OCi
Qoogccoaoioocoo'^cooo'^
oooooOr-ieoeoccos^oco.-iooiO'^
(DeDr--^COCOfONC)C^»C^r-(i-i^
ss
^ Q. O c3 5 c:* G )
5f w?
1124491 — il— pt. 27-
-19
CIS o o
Pa**
m O O
s « °
c.£'a
<° a u
c g d
So*
14412
CONCENTRATION OF ECONOMIC POWER
^ '
Ph^
t^OiCOOO
825
S3
CJtCO
■*MO
aoOQ
tC'^O—'O
OC0O-«("S
ICO «0.-< CO
8S2
OOCNIC^ »o
'S55<
gs
ooo
toco
ooQoopopoooogoQoooooQpoopoooooooo
ooooooooooooooooooooooooooooooooo
3COCOfOCOfOCOCOCOCOCOCO»OfO«COCOCOCOCOCOCOCO»0
m oa o
—. a ^ ^
<^ O m
t, fl o
£•2 a
C^ o ^
<0 t>>03 ®
bOT3 '
as]
B
HO H
0<;p, 5
CONCENTRATION OF ECONOMIC POWER
14413
Table U. —Hot Rolled Strtp—CompaHson oj Published and Calculated Base
Pncesfor (hven Basing Points, February 19S9
Pittsburgh....
Chicago-Gary.
Birmingham..
Cleveland
Mlddletown.
Youngstown.
Detroit'
Basing point
Published
Calculated
base price '
base price >
(per net ton)
(per net ton)
$43.00
$39.50
43.00
37.64
43.00
37.47
43.00
40.97
43.00
41.85
43.00
38.02
45.00
42.18
I Source: All February 1930 issues of the Iron Age
' I'^^ti^'^Xl'X^^o^'^' ^">°<''°'° ^°°'°^"- ^»- B questionnaire. February 193».
14414
CONCENTRATION OF ECONOMIC POWER
05
5^
(23
05
O 03 oS Hj
=5 o3 S D.
oog.a
to a) g o
afl-ci ft
O
cig|o
o ■^ ft
9 BS
o « «
Oog
o
a 9 S 2
ci ci c4 -H c4 (N •>»• TO «■ ci (H •-< -H .-i id •^ •* TiJ
'X''
^
§
si' ; '
to
r
f
«3 t* OS .-H
CO CO CO
OT .-I CO ■* .-<
CO CO CO w
a S M °"<J
S O S C3^
S^ « 2 ft
. M
® ° '=^ a ii M
» o o S^ ft
* <D
a <s^ ft
02S
te
Oa ft
CD M CO
lO 00 U3 0» «H
00 P) « 1-1
to »-< CO 00 "O
cs r^ o o r-*
to CO ■-< .-I
t* to OQ
t>. to fH
«^ >0 CO
CO Cf -H
_o w
.2 .2 S
>HOPHOOfi(OeQ
< Jh y
K fi 5 S
•S 3
■•o S
o^ o
2 ® O
£s~ i
ll"! «
a™ § 9
U 2 ° 3
H <» -S.
ogft S'
E flo "^
O ftO >;
■nip 8
,&< 5
~ CO
CONCENTRATION OF ECONOMIC POWER
14415
Table 13. — Hot Rolled Strip; Shipments Received Compared to Shipments Made in
Producing Areas, February 19S9
Producing Areas '
All Areas
Youngstown
Chicago
Pittsburgh, North Ohio River,
Detroit
Cleveland
New England, New York '
St. Louis
Georgia..-
Total
shipments
made by
plants in
producing
areas
67, 896
25, 271
11,903
13, 308
9,215
3,777
2,566
1,328
528
Shipments received in producing areas
Total
received in
producing
area
52, 824
4,192
7,860
3,881
26, 885
2,340
> 6,966
657
43
Received
from plants
in identi-
cal area
22, 082
3,625
5,229
2,065
8,088
202
" 2. 457
409
7
Percent
received
from plants
in identi-
cal area
41.8
86.5
66.5
53.2
30.1
8.6
35.3
62.3
16.3
Total
receipts as
percent of
total ship-
ments
77.8
16.6
66.0
29.2
291.8
62.0
271.5
49.6
8.1
' Producing areas conform to Form B consuming areas except New England, New York (see note 2).
' Includes Maine, Massachusetts, Rhode Island, Connecticut, Metropolitan New York, and Eastern
and Central New York.
Source: Compiled from the Temporary National Economic Committee questionnaire form B, February
1939.
Table 14. — Hot Rolled Strip; Analysis of the Market Areas of Grouped Plants as
Measured by the Freight Absorption on Shipments Priced on the Nearest Basing
Point, February 1939
Nearest basing
point
Total ship-
ments
Shipments
priced on
nearest bas-
ing point
Shipments to all areas in which
freight absorption is:
Producing area •
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
per
ton
Equal to or
less than
standard ■
Greater than
standard '
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Per-
cent ol
total
ship-
ments
Freight
absorp-
tion
per
ton
Youngstown
Chicago
Youngstown. --
Chicago-Gary..
Pittsburgh
Cleveland, De-
troit. 11
Cleveland
Pittsburgh
Chicago-Gary..
Birmingham...
25,271
11,903
13, 308
9,215
3,777
2,566
1,328
528
1.55
1.33
3.33
.69
-.34
-5.80
.46
1.15
6,641
6,751
3,912
8,183
2,936
2,393
1,084
317
-.15
.21
.92
.40
-1.24
-6.13
-.63
• -.74
2 3,625
3 1, 704
* 2, 670
»3
(10)
«590
7 517
8 145
-.32
-.15
.32
-.33
""-7.04
-3.06
-3.10
21,646
10, 199
10,638
9,212
3,777
1,976
811
383
85.7
85.7
79.9
99.9
100.0
77.0
61.1
72.5
1.86
1.57
Pittsburgh, North
Ohio River.
Detroit
4.09
.69
Cleveland...
-.34
Metropolitan New
York, Rhode
Island.
-5.42
2.69
Georgia
2.7«
Total
67, 896
1. 34 32. 217
-.37
9,254
-0.73
58,642
86.4
1.66
'
' standard freight absorption for each producing area is the freight absorption of sales made on the near-
est basing point.
' Comprises shipments to Youngstown. (aggregate tons received in area 4192)
' Comprises shipments to Indiana— other, Illinois — other, Michigan— other, Wisconsin, Minnesota, St.
Louis, Kansas City, Arizona, Colorado, (aggregate tons received in area 5493)
< Comprises shipments to Massachusetts, Rliode Island, Metropolitan New York, Eastern and Cen-
tral New York, Buffalo, Philadelphia, Eastern Pennsylvania, Pittsburgh, North Ohio River, Baltimore,
Virginia, West Virginia, North Carolina, Southern California, (aggregate tons received in area 13,785)
* Comprises shipments to Michigan — other, (aggregate tons received in area 834)
« Comprises shipments to Rhode Island, Connecticut, (aggregate tons received in area 1635)
' Comprises shipments to St. Louis, Kansas City, Missouri, Nebraska, Arkansas, (aggregate tops re-
ceived in area 814)
' Comprises shipments to North Carolina, South Carolina, Georgia, Florida, (aggregate tons received
in area 197) <
' Producing areas indicated conform to Form B consuming areas.
'" There are no shipments lower than standard in this instance because shipments from given plant loca-
tions to given consuming areas have been aggregated irre^spective of basing point. The weight of sales on
foreign basing points raises the average.
" A delivered price'(not a basing point).
Source: Compiled from the Temporary National Economic Committee Form B questionnaire, February
1939.
14416
CONCENTRATION OF ECONOMIC POWER
Table 14A. — Hot Rolled Strip: Analysis of the Market Areas of Grouped Plants
as Measured by the Freight Absorption on Shipments Priced on the Neares
Basing Point {Adjusted for Basing Point Price Differentials), February 19S9
Nearest basing
point
Total ship-
ments
Shipments
priced on
nearest bas-
ing point
Shipments to all areas in which
freight absorption is:
Producing area •
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Freight
absorp-
tion
per
ton
Equal to or
less than
standard '
Greater than
standard '
Net
tons
Freight
absorp-
tion
per
ton
Net
tons
Per-
cent
of
total
ship-
ments
Freight
absorp-
tion
per
ton
Youngstown _
Chicago
Youngstown...
Chicago.
Pittsburgh
Cleveland-De-
troit.'!)
Cleveland
Pittsburgh
Chicago
Birmingham...
25,271
11,903
13, 308
9,216
3,777
2,566
1,328
528
1.38
1.31
2.76
-1.07
-0.62
-5.80
0.27
1.15
6,641
6,751
3,912
8,813
2,936
2,393
1.084
317
-.15
.21
.92
-1.58
, -1.24
-6.13
-.63
-.74
2 3,630
3 1,704
< 2,670
w
(»)
«590
'517
> 145
-.33
-.15
.32
""-7." 04
-3.06
-3.10
21, 641
10, 199
10,638
9,215
3,777
1,976
811
383
85.6
85.7
79.9
100.0
100.0
77.0
61.1
72.5
1.66
1.55
Pittsburgh, North
Ohio River.
Detriot
3.38
-1.07
Cleveland-
-0.62
Metropolitan New
York-Rhode Is-
land.
St. Louis
-5.42
2.38
Georgia
2.76
Total
67, 896
o.flo
32, 217
-0.37
9,256
-.73
58,640
86.4
1.16
' standard freight absorption for each producing area is the freight absorption on sales on the nearest
basing point.
» Consists of shipments to Youngstown, Washington. (Aggregate tons leceived in area — 4,197.)
3 Consists of shipments to Indiana-other, Illinois-other, Michigan-other, Wisconsin, Minnesota, St.
Louis, Kansas City, Arizona, Colorado (aggregate tons received in areas listed — 5,493).
• Consists of shipments to Massachusetts, Rhode Island, Metropolitan New York, Eastern and Central
New York, Buffalo, Philadelphia, Eastern Pennsylvania, Pittsburgh, North Ohio River, Baltimore,
Virginia, West Virginia, North Carolina, Southern California (aggregate tons received in areas listed —
13,785).
» There are no shipments lower than standard in this instance because shipments from given plant loca-
tions to given consuming areas have been aggregated irrespective of basing point. The weight of sales on
foreign basing points raises the average with the effect shown.
• Consists of shipments to Rhode Island, Connecticut (aggregate tons received in areas listed— 1,635).
" Consists of shipments to St. Louis, Kansas City, Missouri, Nebraska, Arkansas (aggregate tons re-
ceived in area— 814).
' Consists of shipments to North Carolina, South Carolina, Georgia, Florida (aggregate tons received in
area 197).
• All producing areas conform to Form B consuming areas.
1° A delivered price (not a basing point).
CONCENTRATION OF ECONOMIC POWER
14417
Table 15. — Hot Rolled Strip: Analysis of the Market Areas of Grouped Plants as
Measured by the Mill Net on Shipments Priced on the Nearest Basing Point
February 1939
Producing area <°
Nearest basing
point
Total ship-
ments
Net
tons
Mill
net
per
ton
Shipments
priced on
nearest
basing
point
Net
tons
Mill
net
per
ton
Shipments to all areas in which
mm net is:
Less than
standard >
Net
tons
Per-
cent
of
total
ship-
ments
Mill
net
per
ton
Net
tons
Mill
net
per
ton
Youngstown
Chicago
Pittsburgh, North Ohio
River.
Detroit
Youngstown...
Chicago-Gary..
Pittsburgh
Cleveland
Metropolitan New
York, Rhode Island.
St. Louis -.
Georgia
Cleveland-De-
troit."
Cleveland
Pittsburgh
Chicago-Gary..
Birmingham...
25,271
11, 903
13, 308
9,215
3,777
2,566
1,328
628
36.90
37.89
38.05
41.90
43.84
40.11
34.70
6,641
6,751
3,912
8,183
2,936
2,393
1,084
317
38.22
36.45
39.17
41.99
42.91
44.34
41.35
37.71
14, 831
5,285
9,657
9,167
3,727
714
840
451
58.7
44.4
72.6
98.7
27.8
63.3
85.4
35.37
35.31
37.06
41.88
42.13
37.30
32.87
2 10,440
' 6, 618
< 3, 651
5 50
7:,«52
8 488
977
39.07
39.95
40.65
43.76
44.51
14.96
45.42
Total.
38. 55 32, 217
44,672
37.70
23,224
40.18
' Standard mill net for each producing area is the mill net on sales on the nearest basing point.
> Comprises shipments to: Maine, Connecticut, Eastern and Central New York, Eastern Pennsylvania
Pittsburgh, Cleveland, Youngstown, North Ohio River, Canton-MassUlon-Mansfield, South Ohio River,
Ohio-other, Indiana-other, Iowa, Kansas City, Delaware, Baltimore, District of Columbia, Virginia,
West Virginia, North Carohna, South Carolina, Oklahoma, Washington, Southern California, Northern
California. (Aggregate tons received in area 20,126.)
3 Comprises shipments to: Massachusetts, Metropolitan New York, Eastern and Central New York,
Philadelphia, Eastern Pennsylvania, Pittsburgh, Cleveland, Youngstown, Ohio-other, Indiana-other,
Illinois-other, Detroit, Michigan-other, Wisconsin, Minnesota, St. Louis, Kansas City, Baltimore, Georgia,
Kentucky, Tennessee, Colorado, Arizona, Southern California, Northern California. (Aggregate tons
received 63,218.)
< Comprises shipments to: Massachusetts, Connecticut, Rhode Island, Metropolitan New York, East-
ern and Central New York, Buffalo, Philadelphia, Eastern Pennsylvania, Cleveland, Canton-MassUlon-
Mansfied, Baltimore, Virginia, West Virginia, Southern California, Indiana-other, St. Louis, Georgia.
(Aggregate tons received in area 17,738.)
' Comprises shipments to: Youngstown. (Aggregate tons received in area 4,192.)
» Comprises shipments to: Buffalo, Eastern Pennsylvania, Youngstown. (Aggregate tons received in
area 6,920.)
' Comprises shipments to: Connecticut, Metropolitan New York, Eastern Pennsylvania. (Aggregate
tons received in area 4,271.)
' Comprises shipments to: Indiana-other, Iowa, St. Louis, Kansas City, Nebraska, Kansas, Arkansas,
Louisiana. (Aggregate tons received in area 3,039.)
» Comprises shipments to: South Carohna and Georgia. (Aggregate tons received in area 120.)
'" A\\ producing areas indicated are in conformity with Form B Consuming areas.
" Quoted delivered price at Detroit.
Source: Compiled from the Temporary National Economic Committee questionnaire Form B for
February 1939.
14418
CONCENTRATION OF ECONOMIC POWER
Table 16. — Hot Rolled Strip: Market Areas for Plant Groups as Determined by
Actual Freight Paid or Allowed from Plant to Destination — Producing Areas ^
February 19S9
Pitts-
burgh,
Youngs-
town,
Chicago
North
Ohio
River
" 38, 579
11,903
56.8
17.5
'1,584
9,749
17.1
14.4
11,296
6,203
97.5
63.6
29.3
52.1
30.0
81.9
Detroit
Cleve-
land
Metro-
politan
New
York,
St.
Louis
Georgia
Rhode
Island
2,5Cfi
1,328
528
3.8
1.9
.8
7,995
902
628
11.8
1.3
.9
2,514
536
326
31.4
59.4
51.8
98.0
40.4
61.6
311.6
67.9
118.9
Total
1. Net tons shipped
Percent of total shipments
2. Shipments received from all
sources in consuming areas
governed by each producing
area » (nettons)
Percent of tot^l shipments
3. Shipments by producing areas
to go verE ed consuming areas '
(net tons)
4. Line 3 divided by line 2
6. Lire 3 divided by line 1
6. Line 2 divided by line 1
9,215
13.6
27,7!"'
40.
29.2
87.8
300.8
3,777
5.6
9,319
13.7
7.5
18.5
246.7
67, 896
100.0
67, 896
100.0
29,664
43.7
43.7
100.0
> Producing areas listed correspond to Form B consuming areas.
' Governed areas are those consuming areas into which the producing area has an actual freight advantage
over all other producing areas as measured by average freiglrt actually paid or allowed. See Table 16A.
Source: Computed from Temporary National Economic Committee Form B questionnaire, February
1039.
w.
CONCENTRATION OF ECONOMIC I'OWER
14419
1
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S OS 03
as
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14420
CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
14421
Table 18.-
-Hot Rolled Strip: Shipments Sold at a Calculated Base Price which
Exceeds the Published Base Price,^ February 1939
Basing Points
Consuming area
Pitts-
burgh
Chicago-
Gary
Cleve-
land
Middle-
town
Youngs-
town
Birming-
ham
Total
1
o
s
S o
1
a
M
1
a
1
o
a
1
a
il
HI
1
1
a
S O
l2
Maine
3
$•033
Rhode Island
•1
32
1
$•6.00
•1.19
27.00
7
$M4
Buffalo.
15
22.80
Youngstown
Canton, Massillon,
Mansfield
2
$•7.50
Ohio, other
11
23
•1.00
•.52
Indiana, other..
Kansas City...
53
1
$1.08
•17.00
Nebraska.
West Virginia
15
3
•.27
•1.67
South Carolina
Kentucliy
1
$•8.00
•.33
Arkansas
Oklahoma
4
6
1
•.75
12.50
•7.00
Colorado
Arizona
Southern California ..
6
^2
6.00
3.16
Northern California..
Total..
28
1.8%
13.75
59
4.3%
2.24
33
2.9%
1.97
68
9.7%
3.41
188
0.3%
$4.33
Percent of all ship-
ments...
•Excess may be accounted for by rounding of fractional tons to nearest whole number and has not been
included in the total. Variation of $0.05 or less in addition to such excess from rounding is also excluded
from table.
' Calculated Base Price is the invoiced delivered value less freight and less extras charged divided by the
number of tons sold.
Published Base Prices are those listed by February 1939 "Iron Age." (all issues).
Note: Pacific Ports are not listed as basing points in the Iron Age. A total of 62 tons of Hot Rolled Strip
was sold on Pacific Port basing points, 39 tons of which calculated to a base price $1.66 per ton higher than
$53.00 (the Pacific Port price published for Hot Rolled Sheets). .
Source: Compiled from Temporary National Economic Committee Form B questionnaire, February
1939.
Table 4A. — Heavy structural shape shipments February 1939 (net tons)
Producing area i
Domestic
shipments
to con-
suming
districts
(basing
point
sales) •
F.O.B.
mill
sales
Shipments
to plants
or ware-
houses of
the same
or affili-
ated com-
panies »
Ship-
ments to
jobbers
ware-
houses
Total
domestic
ship-
ments
Exports
Total
ship-
ments
Percent
of total
ship-
ments
Total..
79,921
3 702
49,346
5,030
137, 999
6,185
144, 184
100.0
Eastern Pennsylva-
nia, Philadelphia..
Chicago
22 957
20,355
15, 437
10,260
2,550
1,151
4,240
2,971
2,414
17, 727
7,386
17, 147
6,036
2,115
812
188
826
675
169
102
143
45, 213
28,553
33,603
17, 122
3,587
1,320
5,392
3209
1,710
141
3,762
496
76'
46,923
28,694
37,365
17,618
3,587
1,320
5,468
3,209
32.5
19.9
Pittsburgh .
831
25.9
Buffalo
12.2
North Ohio River...
362
2.6
St. Louis
0.9
Birmingham..
1,050
3.9
Colorado
95
2.2
' Producing areas conform to Form B consuming areas.
' These shipments are those from which the Form B analysis has been prpared, others are excluded.
• Includes shipments to fabricators of the same or affiliated companies.
Source: Com, :
193Q
3d from the Tempora
e1 Economic Committee questionnaire Form B, February
14422 CONCENTRATION OF ECONOMIC POWER
Table 4A. — Plate shipments February 1939 {net tons)
Producing area »
Domestic
shipments
to con-
suming
districts
(basing
point
sales) '
"F. O.B.
mill
sales
Shipments
to plants
or ware-
houses of
the same
or affili-
ated com-
panies '
Ship-
ments to
jobbers
ware-
houses
Total
domestic
ship-
ments
Exports
Total
ship-
ments
Percent
of total
ship-
ments
Total —
96, 443
869
28,670
3,466
129. 347
21,062
150, 409
100.0
Pittsburgh
24,381
27,885
15,088
941
10 821
12.836
967
482
1,783
1,259
493
251
7
16,898
278
4,058
1,254
532
344
27
1,024
224
14
1
1
44
43,026
28,946
19,497
968
17,390
14, 469
981
483
2,099
1,488
8,511
5,929
166
"5,' 978"
386
92'
51 637
34, 875
19, 663
968
23,368
14 855
981
483
2,191
1,488
34.2
Eastern Pennsylva-
nia, Philadelphia,
23.2
Chicago
13.1
0.6
6,546
1,409
15.5
Birmingham
9.9
.7
North Ohio River
.3
Youngstown
118
197
185
1.5
1.0
1 Producing areas conform to Form B consuming areas.
2 These shipments are those from which Form B analysis has been prepared, others have been excluded.
> Includes shipments to fabricators of the same or affiliated companies.
Source: Compiled from the Temporary National Economic Committee questionnaire. Form B, February
1939.
Table 4A. — Hot rolled sheet shipments, February 1939 {net tons)
Producing area i
Domestic
shipments
to con-
suming
districts
(basing
point
sales) »
F. O.B.
mill
sales
Shipments
to plants
or ware-
houses of
same
or affili-
ated com-
panies
Ship-
ments to
jobbers'
ware-
houses
Total
domestic
ship-
ments
Exports
Total
ship-
ments
Percent
of total
ship-
ments
Total._
190,910
1,153
15,227
4,094
211, 384
16, 383
227, 767
100.0
Pittsburgh .
21,912
41,401
20,811
14,891
14, 836
8,246
8,666
29, 792
4,299
13,878
6,752
1,009
2,677
1,277
563
89
490
2,141
999
591
6,763
211
80
67
1,060
372
27
108
1,198
322
250
17
123
334
22,558
44, 602
22, 182
15,913
22, 319
9,655
8,968
30,044
4,316
17,855
7,138
1,0H)
■2,804
1,438
582
3,899
820
77
58
625
834
1,911
141
301
3,267
1,737
2,713
26, 457
45, 422
22, 259
15,971
22,944
10,489
10,879
30, 185
4,617
21,122
8,875
1,010
2,804
4,151
582
11.6
Chicago
19.9
Cleveland
9.8
404
612
7.0
North Ohio River...
Buffalo
10 1
4.6
Middletown-
Newport
4.8
2
13.3
Ports mouth-
Ashland
2.0
Baltimore
3,854
62
9.3
Birmingham
3.9
Canton - Massillon
Mansfield .
1
0.4
St. Louis
27
ioo
116
1.2
Eastern Pennsylva-
nia, Philadelphia,
46
1.8
19
0.3
■ Producing areas conform to Form B consuming areas except Middletown-Newport and Portsmouth -
Ashland which include these cities only.
> These shipments are those from which the Form B analysis has been prepared, others have been excluded .
Source: Compiled from the Temporary National Edonomic Committee questionnaire, Form B, February
1939.
CONCENTRATION OF ECONOMIC POWER 14423
Table 4A. — Hot rolled strip shipments, February 1939 (net tons)
Producing area '
Domestic
shipments
to con-
suming
districts
(basing
point
sales) '
F.O. B.
mill
sales
Shipments
to plants
or ware-
liouses of
the same
or affili-
ated com-
panies
Ship-
ments to
jobbers'
ware-
houses
Total
domestic
ship-
ments
Exports
Total
ship-
ments
Percent
of total
ship-
ments
Total
67, 896
27
7,705
149
75, 777
1,671
77, 448
100.0
Youngstown
25, 271
11,903
4,516
9,215
8,792
3,777
2,566
1,328
528
3,101
303
28
15
73
4
28
28,445
12, 210
4,572
9,230
8,836
3,777
6,824
1,355
628
584
12
71
413
428
1
162
29, 029
12, 222
4,643
9,643
9,264
3,777
6,825
1,617
528
37.5
Chicago
15 8
Pittsburgh
6.0
Detroit
12.4
North Ohio River...
27
17
12.0
Cleveland
4.9
Metropolitan New
York Rhode Is-
land.
4,258
8.8
St. Louis
27
1.9
Georgia
7
' Producing areas conform to Form B consuming areas.
' These shipments are those from which the Form B analysis has been prepared, others have been excluded .
Source: Compiled from the Temporary National Economic Committee questionnaire,' Form B, February
1939.
Exhibit No. 2198
Summary of Analysis of Form B Distribution of Pc-lected Steel Products,
February 1939
In analyzing the attached table the following shotild be noted:
1. When prices are quoted such prices are in dollars per net ton.
2. Table references indicated refer to the 18 Form B analysis tables from which
this summary has been prepared. Where no table nuniber appears the table
number immediately preceding applies.
3. Figures in the body of the table which are in brackets have been adjusted
for basing point price differentials.
4. All minus figures regarding "freight absorption" indicate "phantom freight."
Summary of Analysis of Form B Distribution of Selected Steel Products, February
1939
A. BASING POINT STRUCTURE AND LOCATION OF CAPACITY (TABLES 1 AND 2)
Heavy Struc-
tural Shapes
Plates
Hot Rolled
Sheets
Hot Rolled
Strip
Table 1
- 1. Published base price per ton at Pitts-
burgh, February, 1939
2. Change in number of published
basing points in June, 1938:
Increases ,
Decreases
Number of Basing Points, Feb-
ruary, 1939
3. Range in differentials over Pitts-
burgh which were eliminated
June, 1938
-1. Range of base price declines
Table S
5. Percent of capacity 0-25 miles from
nearest basing point (after the
above changes)
6. Percent of capacity 0-50 miles from
nearest basing point
7. Percent of capacity over 100 miles
'■•in rr^rnst basing point
$42. 00
$42. 00
$43. 00
$43. 00
$1.00 to $3.00,
inclusive
$2.00 to .$6.00,
inclusive
85. 1%
96.1%
3.5%
$1.00 to $4.00,
inclusive
$3.00 to $7.00,
inclusive
76. 7%
78. 5%
2.0%
$2.00 to $3.00,
inclusive
$5.00 to $8.00,
inclusive
57. 7%
77. 9%
5.0%
$2.00 to $3.00,
inclusive
$5.00 to $8.00,
inclusive
65. 5%
79. 4%
9.3%
14424
CONCENTRATION OF ECONOMIC POWER
Summary of Analysis of Form B Distribution of Selected Steel Products, February
19S9 — Continued
B. REPRESENTATIVE CHARACTER OF THE SAMPLE (TABLES 3 TO 7, INCLUSIVE)
Heavy Struo
tural Shapes
Plates
Hot Rolled
Sheets
Hot Rolled
Strip
Table S
1. Percent of capacity sampled in Form
B ....
2. Percent of Integrated company ca-
pacity
Percent sampled in Form B which
represents integrated companies...
Table A
3. Producing areas from which per-
centage of total shipments differed
substantially from percent of total
capacity sampled:
Capacity ._
Shipments
Capacity...
Shipments.
Capacity...
Shipments.
Table 5
4. Percent of capacity sampled in
Form A by districts
5. Percent of capacity sampled in
Form A by states
: jble 6
Range of. pert sntage distribution of
shipments by con.suming regions
1936-38 incl. and February, 1939:
N.E
N. C ...
W. C -
S E
9\ and S\W^y "/"////.'.'.'.'/.'""'.
MT. and W
TabU7
7. Number of states in which the per-
centage distribution of shipments
varies less than 0.5 (Form A by
states) -
8. Number of districts in which the
percentage distribution of ship-
ments varies less than 0.5:
(Forin A by districts only)
(Form A by districts and Form
B combined)
79.9%
95. 9%
94.9%
Chicago
26.7%
19. 9%
Buffalo
7.3%
12. 2%
81. 0%
84.0%
4.9
11.9
3.2
4.2
3.0
1.8
85. 3%
80. 9%
80. 0%
10. 7%
0.6%
Baltimore
9.4%
15. 5%
Birmingham
5. 3%
58. 4%
77.2%
13.3
13.9
2.1
4.4
5.6
3.2
78.9%
85. 8%
89. 2%
Detroit
6.3%
13. 3%
Chicago
12. 4%
19. 9%
Baltimore
4.8%
&.3%
48. 0%
82. 3%
5.3
15.6
1.6
3.5
2.4
38
85. 7%
69.5%
67.9%
Pittsburgh
12. 8%
6.0%
No. Ohio R.
7.3%
12. 0%
Met. N. Y.-R. I.
4.2%
27. 8%
65. 1%
11.1
14.6
0.7
2.0
2.9
8.1
37
C. DETAILED ANALYSIS BY SELECTED CONSUMING AREAS (TABLES 8 TO 11 INCLU-
SIVE AND TABLE 13)
Tabus
1. Average of shipments taken by areas
receiving 2 percent or more of total
shipments...
65. 6%
14.
Birmingham
35.7%
Ea. Pa.-Phila.
74.4%
79. 3%
18.
St. Louis
45.4%
Detroit
100.0%
84.4%
13.
Birmingham
40. 2%
Detroit
93.9%
88.9%
2. Number of consuming areas receiv-
ing 2 percent or more of total ship-
ments - . . . ...
12.
3. Range of percentages of shipments to
selected areas among producing
areas
Georgia
10.8%
Detroit
99. 5%
' Variation in a large part e.tplained by the fact that the return of a major Detroit producer was not
included in Form A but was included in Form B.
CONCENTRATION OF ECONOMIC POWER
14425
Summary of Analysis of Form B Distribution of Selected Steel Products, February
iSSP— Continued
C. DETAILED ANALYSIS BY SELECTED CONSUMING AREAS (TABLES 8 TO 11 INCLU-
SIVE AND TABLE 12)— Continuefl
Heavy Struc-
tural Shapes
Plates
Hot Rolled
Sheets
Hot Rolled
Strip
Table 9
4. Percentage of shipments received in
selected consuming areas supplied
from producing areas showing low-
est freight absorption
5. Over-all average freight absorption
for shipments supplied to selected
consuming areas from "governing"
producing areas .-
6. Range of freight absorption for ship-
ments to consuming areas from
"governing" areas ($0.43)
7. Range of percentages of shipments
received in selected areas from
producing areas with lowest freight
absorption
8. Average freight absorption on total
shipments to selected consuming
areas from all sources
Table 10
9. Number of reported cases in which
computed base prices exceed the
published base price
10. Number of reported cases in which
computed base prices are equal
to or below published base prices
by less than $2.00
Same— $2.00 to $5.00 below
Same — more than $5.00 below
11. Consuming area having maximum
variation below base price
12. Consuming areas in which vari-
ation below the base price was
outstanding
Table 11
13. Basing points on which sales were
made in excess of published base
prices (excess)
14. Range of deviation among basing
pomts of sales made at a com-
puted base price below published
base price •_
Table IS
15. Rates of requirements of producing
areas to the shipments from those
areas, (over -all average)
16. Range of ratios of requirements of
producing areas to shipments
from those areas by areas
20. Proportion of requirements of areas
supplied by home plants
21. Range of proportions of require-
ments of areas supplied by home
plants, (plants in identical areas) -
(61. 6%)
61. 6%
($0. 06)
0.06
—$4.42
to
0.43
(0. 6 to 93. 7%)
0. 6 to 93. 7%
(1. 16)
$1.62-
21 out of i
46
14
7
Detroit
1.05 to 0.18
Pacific Ports
$0.38
Buffalo
-$1. 08
Pittsburgh
-$2.41
49. 2%
Buffalo
9.9%
St. Louis
147. 9%
75.0%
St. Louis
25.5%
Ea. Pa.-Phila.
—Met. N. Y.
84.0%
(50. 2%)
48.5
($0. 14)
0.24
to
($10.67) 10.41
(0. 7 to 100. 0%)
0. 7 to 100. 0%
(1.45)
$2.61
56 out of 155
72
22
5
Texas
1.33 to -0.21
Clay... $1.03
Coates. .41
Yst 79
Sparrows Pt.
-$0.22
Qulf Ports
-$3.22
48.5%
Birmingham
25. '.%
Detroit
278. 5%
75.8%
Cleveland
11.0%
Birmingham
100.0%
(33. 6%)
34. 8%
(-$0. 69)
0.04
— $2. 92
to
($0. 50) 0. 50
(0. 3 to 73. 9%)
0. 8 to 73. 9%
(1.13)
$1.60
33 out of 195
55
62
45
Cleveland
-$3.79to-15.98
(')
None
Pacific Ports
-$1.42
Birmingham
$-5.80
71. 7%
Birmingham
15.4%
Detroit
154.9%
52. 1%
St. Louis
24.0%
Birmingham
95. 6%
(40. 7%)
40. 7%
(—$0. 92)
—0.26
— $6. 59
to
). 60) 0. 60
. 0 to 86. 5%)
. 0 to 86. 5%
(0. 95)
$1.42
32 out of 100
30
24
14
Detroit
-$1.046to-0.85
(0
None
Middletown
-$1.15
Birmingham
-$5.53
77. 8%
Georgia
8.1%
DetroU
291. 8%
41.8%
Cleveland
8.6%
Youngttown
86.6%
• Birmingham, Detroit, Indiana, Pittsburgh, Texas.
• Youngstown, So. California, Illinois— other, Virginia, Texas.
' Philadelphia, Cleveland, Youngstown, Ohio— other, Chicago, Indiana— other, Detroit, Michigan-
other, Texas.
• Massachusetts, Buffalo, Pittsburgh, Chicago, Canton-Mass.-Mans., Detroit.
14426
CONCENTRATION OF ECONOMIC POWER
Summary of Ai^alysis of Form B Distribution of Selected Steel Products, February
/555— Continued
D. "GOVERNED" AREAS DEFINED BY SHIPMENTS PRICED ON THE NEAREST BASING
POINTS (TABLE 12)
I Heavy Stiuc-
tural Shapes
Plates
Hot Rolled
Sheets
Hot Rolled
Strip
1. Average peicpntage of shipments
priced on the nearest basing point..
2. Average advantage in mill net to
mills from pricing on nearest bas-
ing point
3. Average advantage in freight ab-
sorption to mills from pricing on
nearest basing point-.
4. Producing area receiving the least
advantage in mill net by piicing
on nearest basing point as com-
pared to pricing on all other basing
points -
5. Producing area receiving the great-
est advantage in mill net by pric-
ing on nearest basing point
6. Range of freight absorption between
producing areas on sales prices on
the nearest basing point
Range of percentages of sales priced
on the nearest basing point by pro-
ducing areas..
8. Range of mill nets on total sales by
producing areas
67. 7%
$2.17
$5.52 (3.33)
Birmingham
' $0. 04
Colorado
Colorado
$-2. 48
Birmingham
$0. 91
Buffalo
20.3%
St. Louis
94. 1%
52. 0%
$2.03
.82 (2.68)
Detroit
$-10.51
Clevdand
$5.40
Detroit
$-3.81
St. Louis
$1.29
Youn^stown
16. 7%
Chicago
92.2%
$2.44
$9.47
50.3%
$1.93
$2.45 (2.33)
Canton-Massil-
lon-Mansfield
$-1.84
Buffalo
Philadelp^iia
$-2.01 ($-:.ci)
Pittsburgh
$2.34 ($2.34)
Youngstown
22.9%
Birmingham
96. 5%
$6.90
52. 5%
$1. 57
$3.25 (3.37)
Chicago
$-3.34
Georgia
$7.53
Met. N. Y. -R. I.
$-b. 13 ($-6.13;
Pittsburgh
$0.92 ($0.92)
Younastoiim
26. 3%
Met. N. Y. -R. T.
93. 3%
$9.14
E. "GOVERNED" AREAS DEFINED BY SHIPMENTS TO AREAS IN WHICH FREIGHT
ABSORPTION IS EQUAL TO OR LESS THAN THE AVERAGE FOR SHIPMENTS PRICED
ON THE NEAREST BASING POINT (TABLE 14)
1. Average percentage of shipments by
producing areas to "governed"
market areas as defined by freight
absorption on sales priced on the
nearest basing point . .
$(26.9%) 25.8%
$(-0.45) -4.43
$(1.71) 2.63
Eastern Pa.
$(0.88) 1.38
Colorado
$(12.32) 15.96
Buffalo
(9.9%) 9.9%
Chicago
(44.6) 41.6
$(1.67) 2.26
$(27.3%) 25.4%
$(-0.04) -0.04
$(2.14) 3.46
Cleveland
$(1.24) 1.24
Detroit
$(6-85) 6.85
(Youngstovm)
Baltimore
(2.6%) 1.0%
Detroit
(96.0) 96.0
$(1.58) 2.61
$(34.3%) 34.6%
$(-0.52) 0.10
$(2.11) ?.53
(Chicago)
St. Lo%iis
$(0.92) 1.09
(Youngstown)
Buffalo
$(6.48) 3.54
Youngstown
(0.2%) 0.0%,
Detroit
(69.8) 69.8
$(1.73) 1.59
$(13. C%) 13.6%
2. Average frei-'ht absorption on sales
to "governed" areas
$(-0.73) -0.73
3. Average freight absorption on sales to
other than "governed" areas
4. Range of advantage in freight ab-
sorption from sales to "governed"
areas over other sales
$(1.16) 1.66
(Detroit)
Cleveland
$(-1.07) -0.34
5. Range of percentages of shipments
to "governed" market areas by
producing areas.
Georgia
$(5.86) 5. SO
(Detroit)
Cleveland
(0.0%) 0.0%
Georgia
(27.5) 27.5
$(1.63) 2.07
6. Advantage in freight absorption on
ii sales to "governed" areas over
freight absorption on all sales
CONCENTRATION OF ECONOMIC POWER 14427
Summary of Analysis of Form B Distribution of Selected Steel Products, February
19S9— Continued
F. "GOVERNED" AREAS DEFINED BY SHIPMENTS TO AREAS IN WHICH MILL NET IS
EQUAL TO OR GREATER THAN THE AVERAGE FOR ALL SHIPMENTS PRICED ON
THE NEAREST BASING POINT (TABLE 15).
1. Average percentage of shipments
from producing areas to "gov-
erned" cousuming areas as dfined
by mill nets on the nearest basing
point
2. Average mill net on sales to "gov-
erned" areas_
■3. Average advantage in mill nets on
sales to "governed" areas over
other areas.- _
4. Range of advantage in mill nets from
sales to "governed" areas over
other sales
5. Range of percentages of sales to
"governed" areas by "governing"
areas
6. Average advantage in mill net on
sales to "governed" areas over all
Heavy Struc-
tural Shapes
Plates
32.8%
$41.13
$2.78
Chicago
$1.64
Colorado
$12. 85
Buffalo
8.0%
Bhmingham
57.9%
$1.87
48.8%
$41.25
$3.26
Pittshvrgh
$2.76
Detroit
$13.01
Baliimore
19.8%
Detroit
96.0%
$1.67
Hot Rolled
Sheets
36.8%
$40.17
$3.66
Birmingham
$1.06
C. M. & M.
$7.40
Clereland
1.4%
Detroit
69.6%
$2.35
Hot Rolled
Strip
34.2%
$40.18
$2.48
Cleveland
$1.88
Georgia
$12.55
Detroit
0.5%
Mel.N.Y.&R.J
72.2%
$1.63
'GOVERNED" AREAS DEFINED BY SHIPMENTS AT LOWEST FREIGHT ALLOWED
FROM PRODUCING AREAS (TABLE 16)
1. Percent of total shipments by all
producing areas shipped to "gov-
erned" areas .'.
2. Range in ratias of sales by producing
areas into "governed" areas to
total receipts in "governed" areas..
3. Range in ratios of sales by producing
areas to total shipments by pro-
ducing area
Range in the ratio of total receipts of
"governed" areas to total ship-
ments by "governing" areas
5. Total "governed" area receipts that
were less than total shipments of
"governing" areas ("Governed"
receipts as percent of "governing"
area shipment by producing area) . .
57.7%
St. Louis
13.6%
Ea. Pa.-Phila.
Del.
74.6%
Buffalo
21. 1%
■ St. Louis
90.1%
Buffalo
22.9%
St. Louis
662. 6%
Buffalo
22.9%
Colorado
41.3%
Pgh.-N. O. R.
61. 8%
Chicago
93. 7%
66. 7%
St. Louis
1.8%
Birmingham
80.1%
St.Louia
3.5%
Detrmt
96.0%
Pgh.-Yst.-
N. 0. R.
60.9%
Cleveland
397. 3%
Pgh.-Yst.-
N. O. R.
60.9%
Birmingham
63.0%
43. 1%
Indiana-ether
3.0%
Pgh.-Yst.-
N. O. R.
83.4%
Pgh.'Yst.-
N. O. R.
11.6%
Phila.-Balt.
82.8%
Pgh.-Yst.-
N. 0. R.
13.9%
Indiana-other
1624. 3%
Pgh.-Yst.-
N. O. R.
13.9%
Mdl-Newpt.-
Ashland
76. 8%
Chicago
79.1%
Buffalo
84.7%
43.7%
Cleveland
7.5%
Pgh.-Yst.-
N. O. R.
97. 6%
Cleveland
18. 5%
Met.-N. Y.-R. I.
98.0%
Pgh.-Yst.-
N. O. R.
30.0%
Met. N. Y.-R. I.
311.6%
Pgh.-Yst.-
N. 0. R.
30.0%
St. Louis
67.9%
Chicago
81.9%
124491 — 41— pt. 27-
-20
14428
CONCENTRATION OF ECONOMIC POWER
Summary of Analysis of Form B Distribution of Selected Steel Products, February
1939— Continued
H. REPORTED SHIPMENTS NOT EXPLAJNABLE BY AVAILABLE DATA (TABLES 17-18)
Table 17
1. Ratio of reported shipments priced
on basing points whicii could not
govern according to published
freight rates to total shipments
analyzed
Table 18
2. Percentage of sales at a calculated
base price exceeding the published
base price
Percentage of shipments by all pro-
ducing areas to "governed" areas
defined as in:
Section D
Section E.._
Section F.
Section Q - ,..
Heavy Struc-
tural Shapes
2.4%
3.7%
67. 7%
(26. 9%)2,5. 8%
32. 8%
57.7%
Plates
1.6%
39. 8%
52. 0%
(27. 3%) 25. 4%
48. 8%
66. 7%
Hot Rolled
Sheets
6.2%
Less than 0.05%
50. 3%
(34. 3%) 34. 6%
35. 7%
43. 1%
Hot Rolled
Strip
5.6%
0.3%
^2. 5%
(13.6%) 13.6%
34.2%
43. 7%
Exhibit No. 2200
Carnegie-Illinois Steel Corporation
united states steel corporation subsidiary
General Offices: Carnegie Building
Pittsburgh, Pa.,
Clement V. McKaio
Vice President and General Manager of Sales
.T. Halset McKown
Assistant \'ice President and Assistant General Manager of Sales
Personal and Confidential
To all Managers of Sales:
May 21, 1936.
Price Announcement Program
Gentlemen: We will begin our price announcement program by announcing
prices on Bars and Small Shapes, later Strip, then Sheets, and our other com-
modities will be given consideration as promptly as possible. We hope to mail
to you an initial supply of the Price Announcement forms so that you will have
these Saturday, May 23rd, and we will then let you know the basis on which to
arrange the announcement on Hot Rolled Carbon Steel Bars and Small Shapes.
We are enclosing as an itom of advance information one of the early proofs of
this announcement which will have a slight change in the first paragraph, modify-
ing the last part of the sentence to read "for shipment during the calendar quarter
year ending September 30, 1936." This will then mean that we can complete
obligations that were incurred prior to this announcement date, or that we
can, where we are able to make shipments by June 30th, continue after the
announcement date to take business at the prices that were in efifect prior to
this announcement.
It is going to be necessary in making our price announcement to insert the
delivered price on the commodity involved. The simplest way to handle this
will be for each District Sales Office to insert on one of these blanks the price
delivered at the point at which their particular customer wishes to take delivery,
mailing this blank with that delivered price to that customer.
The delivered prices will be made in accordance with our usual custom, and
further details will be passed along to you as quickly as possible.
We are giving you this advance information, however, so that you can organize
your program for sending out this announcement.
Yours very truly,
J. H. McKowN,
Assistant Vice President and Assistayit General Manager of Sales.
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2201
14429
Caknegie-Illinois Steel Corporation
united states steel corporation subsidiary
General Offices: Carnegie Building
Pittsburgh, Pa.,
Clement V. McKaig
Vice President and General Manager of Sales
3. Halsey McKown
Assistant Vice President and Assistant General Manager of Sales
To All Managers of Sales:
Mat 23rd, 1936.
Price Announcement
Referring to our letter of May 21st, we are having sent to you today an initia
supply of the following price announcement forms:
Hot rolled carbon steel, with the commodity column left blank so that
the commodity or commodities you are announcing to an individual customer
can be inserted.
Hot rolled carbon steel, with Structural Shapes and Plates, printed
under "Commodity", on which the delivery point and price can be inserted, and
to which can be added, as required, other commodities.
Hot rolled carbon steel; two copies each of our form with the delivered
prices at Pittsburgh and Chicago on Structural Shapes and Plates.
It wiU, as stated in our letter of May 21st, be necessary for you to announce
prices to your individual customers, combining commodities where you find it is
appropriate. In figuring these prices the usual practice of adding the published
all-rail rate of freight, or using arbitrary rates as estabUshed, will be followed.
We will in the future, however, always quote delivered prices, and where you
in turn quote your customer a delivered price at another point, the freight rate
will be added after deducting from the delivered prices quoted herein, the delivery
charges of 2}^^ or 30 per 100 lbs., or 50(4 or 600 per gross ton, as the case may be.
We have today sent you a wire stating for business to be shipp>ed during the
Third Calendar Quarter year, ending September 30th, 1936, the prices on Re-
Rolling and Forging Billets, Blooms and Slabs, Sheet Bars, Structural Shapes and
Plates would be advanced $2.00 a ton, which will result in the following delivered
prices:
Pittsburgh
Youngstown
Chicago
Oary
Duluth
Re-Rolling Billets ....GT..
Forging Billets - ..OT..
Sheets Bars X}T..
Structural Shapes .100#-.
Plates 100#..
$30.50
37.60
30.50
1.925
1.925
$30.50
37.50
30.50
$30.60
37.60
30.60
1.98
1.98
$30.60
37.60
$3Z50
39.60
1.98
1.98
This will result in the following delivered prices at the points noted:
BUIets
Sheet
bars
Shapes
Plates
Re-RoUing
Forging
O.T.
$33.00
34.00
G.T.
$40.00
41.00
O.T.
lOOi
100*
Eastern Michigan Points . . .--■
Oulf Ports „
$2,326
2.475
$2,325
Pacific Coast Ports.
2.476
There will be no change in the price of Skelp and advices will be supplied you
later in> the day, or early next week, regarding other commodities.
In using this method of naming delivered prices in our announcements^ it is
obvious it would not be appropriate to include many of the factors previously
made a part of our quotations, but, nevertheless, all of our established practices
will be followed in arriving at such delivered prices.
14430
CONCENTRATION OF ECONOMIC POWER
If there are any questions whatever, we ask that you confer with us freely as
we do not wish to make a mistake in proceeding in this manner, owing to the
fact that when such price announcements are made to the trade we are obligated
under the Clayton Act to abide by these prices without any deviation.
Very truly yours,
J. H. McKowN,
Atsistant Vice President and Assistant General Manager of Sales.
Exhibit No. 2202
STEEL BUYERS OVERWHELMINGLY OPPOSED TO FTC PLAN OF
STEEL PRICING
[The Iron Age, April 20, 1939]
By C. E. Wright, Managing Editor, The Iron Age
Results of Iron Age Poll On Steel Basing Point System
Up to the time of going to press 304 votes had been received from steel buyers
on the ques+'on shown in an adjoining column. On Question No. 1, there were
268 "yes" /tes and 22 "no" votes. On Question No. 2 there were 37 "yes"
votes and 233 "no" votes.
The difference in the number of votes on the two questions is due to the fact
that some voted only on one question.
Geographically, the votes were recorded as follows:
Alabama..' 3
California 6
Colorado 1
Connecticut 12
Florida 2
Georgia 2
Illinois 17
Indiana 10
Iowa 4
Kansas. > 4
Kentucky 4
Maine 1
Maryland 2
Massachusetts 18
Michigan 31
Minnesota 3
Missouri 9
Nebraska 3
New Jersey 13
New York 25
North Carolina 1
Ohio 51
Oklahoma 2
Pennsylvania 43
Rhode Island 3
Texas 3
Vermont 1
Virginia 2
Washington 1
West Virginia 4
Wisconsin 15
Scattered 8
The results of this poll seem to poiht conclusively to widespread opposition
among steel buyers to any change in the steel basing point system which would
deprive steel sellers of the right to equalize freight rates, a method of selling which
a majority of buyers declare gives them the opportunity to buy from a number of
■different sources at no difiference in delivered cost.
If further returns are received, they will be tabulated in subsequent issues.
That the steel buyers of the country are overwhelmingly opposed to the Federal
Trade Commission's plan of steel pricing as proposed in its recent memorandum
to the Temporary National Economic Committee is indicated by a survey made
by The Iron Age, results of which are shown in the above box.
(The complete report of the Federal Trade Commission was published in
The Iron Age of March 16, page 49.)
In order to test the opinion of steel consumers and distributors on the Federal
Trade Commission's proposal, The Iron Age has taken a sampling poll by mail.
Two questions were asked:
1. Do you feel that your ability to buy steel from a number of different sources at no
difference in the delivered cost to you is an advantage in the economical operation of
your business?
2. Do you agree with the contention of the Federal Trade Commission that the
abolition of freight rate equalization on steel shipments would be a good thing for
the steel consuming industry?
These questions were sent to 1000 buyers of steel. The names were selected
at random from directories, but care was taken that all sections of the metal-
working industry covering a wide variety of products should be represented and
that the names should include large, medium and small companies. The geo-
graphical distribution was such as to include all states.
Opportunity was given to vote anonymously, but a great many voted without
concealment of their names," and some took the occasion to send in comments,
CONCENTRATION OF ECONOMIC POWER 14431
some of which criticised the Federal Trade Commission's plan severely as lacking
in "plain common sense," as "silly," and as likely to bring "disaster to some units."
The present system was described as "the most equitable" for all buyers. Some
sentiment was expressed by steel buyers that every mill should be a basing point
for the products it makes, but the opinion seems to be almost unanimous that the
abolition of freight rate equalization would deprive buyers of the opportunity
which now exists to buy from any one or more of a number of different sources of
supply without difference in cost.
Only in the structural steel fabricating industry is there a serious complaint
against the present system, and that complaint is not primarily a result of the
basing point system but arises partly from the fact that fabrication-in-transit
rates frequently operate disadvantageously for some localities.
COMMENTS OP STEEL USERS ON FTC PRICING PLAN
A Manufacturer of Machine Parts.
Our company is a very substantial consumer of cold drawn bar steel and
we are located away from any basing point. We have occasion to i:)urchase
steel from several different producers located in different sections of the country,
and there are several good reasons why we do so, viz., we find that one producer
may have one type or grade of product which is preferred for one reason or
another as compared with any other producer of this same product, whereas
another type or grade of another producer may be found advantageous for us
to use.
Our company manufactures a specialty line of machine parts to order on which
it is, of course, necessary for us to predetermine our exact delivered cost of raw
material. When it comes to placing our raw material orders, the matter of de-
livery from the steel mill may be vital'y imporcant to us; and this being the case,
we are, under the present practice of basing point sales, able to purchase our re-
quirements from any one of many sources on exactly the same delivered price
cost, thereby enabling ourselves to place our business where we can obtain the
best delivery, which oftentimes is vitally essential, and without having to pay
any increased price due to difference in freight rates from different mills. This
difference in freight costs might easily represent a loss ot $3.00 or more per ton
were it necessary for us to purchase from a distant mill in order to secure the
delivery required.
The adoption of f. o. b. mill practice of selling would, we believe, result in a
very chaotic condition both to the producer and consumer.
There are so many objectionable features to such a change in practice, which
would very seriously affect both producer and consumer, that we would consider
it ridiculous on the part of the Federal Trade Commission to give any very serious
consideration to such a change.
The f. o. b. practice would be very advantageous to large producers with pro-
ducing mills scattered around the country and it \ ould certainly inflict a terrible
hardship on the small independent producer. It is difficult to see just how the
small independent producer could survive if it became necessary to sell f. o. b.
mill without freight equalization, and we are very definitely interested in their
future inasmuch as we find them to be entirely satisfactory sources, especially so
from a service standpoint.
We would prefer not to write anonymously on this subject, but at the present
moment we have reasons for so doing. But we do desire to again emphasize the
point that we are a very substantial consumer of steel.
An Ohio Machinery Builder.
We are interested in this subject and have from time to time given the question
of pricing careful consideration. We think we can see many reasons for and
against the present system of pricing, but we are quite certain it would be a
mistake to make any more arbitrary changes affecting industrial operation at the
present time.
It seems to us that the deplorable condition of employment, finance, and
business in general is largely due to the fact that so many changes have been
made by the New Deal Government during the last few years. If we are ever to
get back to a normal and sound condition we will have to stop making changes
and place more reliance upon the play of natural influences.
A Missouri Manufacturer.
We have of course been familiar with the attempts which have been made
toward prohibiting the equalisfttion of freight rates on eteeli and, while we have
14432 CONCENTRATION OF ECONOMIC POWER
tried to see advantages which migjht result from a definite f. o. b. mill price basing
system, we cannot see any advantages that would arise out of such a system and
we believe the present method is best.
A New England Tool Manufacturer.
If the basing point system is abolished, it might mean disaster to some units.
A Western Pennsylvania Spring and Axle Manufacturer.
The mills in our district do not furnish all the products nor the prompt service
we need.
A Central New York Steel Jobber.
Would like to see the old Pittsburgh Plus restored.
Purchasing Agent of a Large New Jersey Manufacturer of Automobile Parts.
The present set-up to me is most equitable because if otherwise it would mean
that freight would be charged from actual point of shipment rather than from
centralized point which is going to considerably penalize the users. I can see no
advantages, whatsoever in making the change but rather to the contrary. And
when I say that, I am speaking of industry as a whole or users of steel. Con-
siderable of our wants are purchased in Ohio, therefore if basing point other than
now in existence would apply, you can readily calculate as to how we would be
penalized.
A New York State Manufacturer of Factory Equipment.
We feel the Federal Trade Commission plan on this is not at all practical; in
fact in our opinion it lacks plain common sense.
President of a Rhode Island Bolt and Nut Manufacturer.
We have been buyers of steel for a good many years and it would be nothing
short of a tragedy to return to the old system of f. o. b. mill. Being manufac-
turers of bolts and nuts, a good many of our products are also sold on the same
basing system as our sources oi supply of steel, and we have found that our
customers generally accept and believe in it. The present system of freight
charges tends to steady the market and in our line of business this is a very im-
portant factor.
A New Jersey Steel Jobber.
The change proposed by the Federal Trade Commission would make many
hundreds of basing points instead of a few as every destination would be a basing
point.
A West Virginia Manufacturer of Tools.
Let us all endeavor to keep the steel industry and all other industries as far
from Government control as possible. Look at the railroads and weep. Our
country has grown and become great, our steel industry has prospered under a
system of free enterprise and competition. Why change?
A Maine Steel Jobber.
We believe the old Pittsburgh basis was for the best interests of all, including
both dealers and consumers.
Purchasing Agent of a Rochester, N. Y., Manufacturer.
I do not agree with the Federal Trade Commission.
A St. Louis Sheet Metal Fabricator.
Most important is to have the Government stop agitatmg and let business
alone for awhile.
A Missouri Sheet Metal Manufacturer.
Why is it that the type of man on these committees know nothing of the steel
business or any other business — merely theorists, lawyers or college profcssors,-
and do not know our problems. Are we to continually place these political ex-
pediency examinations at the expense of business and the cost to the taxpayers
with no results in stimulating prices instead of political control goals.
A West Virginia Manufacturer.
The jnore I hear of the continual agitation of the Federal Trade Commission
for abandonment of the basing point figures in the steel business the more I am
convinced the whole issue-is a political skeleton in the closet to be brought out at
convenient intervals ahd wAved before the steel industry. If the basing point
CONCENTRATION OF ECONOMIC POWER 14433
system were to be totally abandoned, the very nature of the rolling mill business
would automatically keep the system in effect. I am inclined to believe that the
Federal Trade Commission knows this fact.
A Texas Steel Jobber.
Any business man ^hat needs the help of the Federal Trade Commission in the
conduct of his business will be out of business anyhow, so he does not need much
sympathy. It is my opinion that negotiations between producers and buyers
should be unrestricted by any Government agency. I recognize that it is neces-
sary to have certain legislation to protect the weak from the strong, but I do not
believe in regimentation of all industry by Government bodies who are only
politically minded and absolutely without experience or practical knowledge.
A Texas Machinery Manufacturer.
Proposal (of Federal Trade Commission) is ridiculous; as insane and impractical
as most Federal regulations for the past several years.
A Michigan Manufacturer.
The old Pittsburgh basing point was best for everyone. We have lost business
ever since the change was made.
A Philadelphia Steel Jobber.
They (the Federal Trade Commission) are all wet. It would cause ruinous
competition in selling our products.
An Omaha, Neb., Company.
We believe the best thing to do would be to make every mill a basing point on
every product they make (not limited to the few basing points they now have)
and then equalizing the freight rates. We do not object to the basing point
system with freight equalization, what we object to is that we must buy sheets
from a mill in Kansas City on a Chicago-Gary base, and the mill adds the differ-
ence in freight. Make every mill a basing point on every product they make,
then go ahead and allow the mills farther away to equalize the freight.
President of a Structural Fabricating Company.
I think the Federal Trade Commission can cure a lot of the present trouble so
far as the structural steel business is concerned if it would make it impossible for
the mills to compete with their own customers. I have reference to the fabricating
units of the two larger mills. It is just as reasonable that these mills make auto-
mobiles, tin cans, etc., etc., as it is for them to compete with independent fabri-
cators on barges, bridges and buildings. Structural steel is a ver}' small percentage
of their total tonnage, still they permit that particular part of their business to
upset the general market. There could be less objection if the mills' fabricating
units used all the elements of cost in their fabricated structural prices, but this
they do not do which I attribute to the animosity between these two companies.
A Wisconsin Structural Steel Fabricator.
The small consumer of steel is in a very much improved condition if he is able
to buy steel from a number of dififerent sources without freight disadvantages.
And that is true even though milling-in-transit in some instances would prac-
tically offset freight rate equalization.
The small consumer of structural steel, whenever his plant is located at some
distance from the mills and in territory somewhat restricted as to milling-in-
transit, will find his potential market tremendously curtailed, perhaps even to the
extent of making it unreasonable for him lo continue his business in that particular
locality.
Plants, large and small, located in favorable milling-in-transit territory on mul
towns, will have absolutely no restrictions or handicaps over anybody in' the
entire country, whereas the country in a great many instances will have handicaps.
To a very large extent equalization of freight rates on steel shipments will
segregate territories east and west, and north and south, depending upon plant
location and mill ranges, but unfortunately in this upheaval as to territory there
will also be many a casualty, 98 per cent of them small steel fabricators and
consumers.
.4 New York State Structural Steel Fabricator.
The largest tonnage we buy consists of wide flanged beams. Source of supply,
two places: Bethlehem at Buffalo, Carnegie at Pittsburgh. We object to having
only one source. . Wo must have both sources and the prices mMst be alike f. o. b.
liorhfs.hr.
14434 CONCENTRATION OF ECONOMIC POWER
If there is no way to accomplish that, the result in the steel industry will be
disastrous to labor and owners and customers.
I have read every word you have printed on the subject. The statement of
the commission "To fulfill this purpose, however, there must be no obligation to
maintain any announced price for any time whatsoever," sounds absolutely silly
to an experienced steel buyer or seller. In fact, a mill by taking technical advan-
tage of this can meet any competition anywhere. It really permits a mill to quote
a new price to every different inquiry and can quote a thousand different prices
every day, allowing the destination point of shipment to govern the price so as
to meet competition.
I am not satisfied, however, with present system. In connection with "fab-
rication-in-transit" system "the Buffalo fabricator can deliver steel in Rochester
and in our market just east of Rochester at a cost of $1.50 plus or minus per ton
less than ours. This for the plain steel including freight. To do this the Buffalo
fabricator must buy in Pittsburgh. It is an odd situation. We are asking for the
restoration of the system used prior to last June. The mills then quoted f. o. b.
final destination of job. We were then on equal basis. Of course the system
was abused. The mills themselves used it to chisel.
Exhibit No. 2203
[Copy]
American Iron and Steel Institute,
350 Fifth Avenue, New York, June S, 1935.
Important
Dear Sir: Your attention is earnestly directed to the enclosed copy of a
preamble and resolutions that were adopted at a meeting of the Board of Directors,
held today, for the purpose of considering the policy to be followed by members
of the Industry during the present period of uncertainty.
Yours very truly,
Walter S. Tower,
Executive Secretary.
Enclosure
Exhibit No. 2204
[Copy]
Copy of Draft of Preamble and Resolutions Adopted by the Board of
Directors of American Iron and Steel Institute at a Meeting Thereof,
Held June 3, 1935
Whereas the Chairman of the National Industrial Recovery Board has issued a
statement with regard to the decision of the United States Supreme Court in the
Schechter Poultry Corporation case in which he expressed the hope "that all
employers heretofore operating under approved codes and all their employes will
cooperate in maintaining those standards of fair competition in commercial and
labor relations which have been written into the codes with practically universal
sanction, and which represent a united effort to eliminate dishonest, fraudulent
trade practices and unfair competition in J^'erwo^king and underpaying labor.";
Resolved, That it is hereby declared to be the sentiment of the Board of Directors
of the American Iron and Steel Institute that the individual members of the Iron
and Steel Industry, acting voluntarily, during the present "uncertainty, maintain
the present rates of pay and maximum hours of labor and the standards of fair
competition which are set forth in the Steel Code, and that the members of the
Industry continue to protect the employes' rights of collective bargaining; and
Resolved, That the Executive Secretary of the Institute be, and he hereby is,
authorized and directed to send a copy of these resolutions to each member of the
Industry.
CONCENTRATION OF ECONOMIC POWER 14435
Exhibit No. 2205
[Copy]
Resolution Adopted by Members of Iron and Steel Industry Assembled
AT American Iron and Steel Institute, June 6, 1935
Resolved, That the members of the Iron and Steel Industry in General Meeting
assembled this sixth day of June, 1935, hereby unanimously ratify the resolution
of the Board of Directors of American Iron and Steel Institute, adopted June 3,
1935, and each of us hereby declares that the Company which he represents is in
favor of supporting the position taken by such resolution and that it is the inten-
tion of such Company, acting individually and voluntarily, in so far as it may do
so, during the present uncertainty to maintain the present rates of pay and
maximum hours of labor and the standards of fair competition which are described
in the Steel Code, and thai such Company will continue to protect the employees'
rights of collective bargaining.
Exhibit No. 2206
Commercial Resolution No. A4 '
As Amended June 14, 1934
Effective June 21, 1934
preamble and resolution duly adopted by the board of directors as
amended on JUNE 14, 1934, WITH RESPECT TO SWITCHING CHARGES TO BE ADDED
to BASE PRICES FOR PRODUCTS DELIVERED AT BASING POINTS
Whereas it is provided in Section 4 of Schedule E of the Code that when switch-
ing charges for the delivery of a product at a basing point are required to be added
in determining the delivered price of such product pursuant to the provisions of
said Section 4 the Board of Directors may by resolution fix such an arbitrary
switching charge or such arbitrary switching charges for the delivery of such
product as the Board shall deem proper with a view to preventing unequal com-
petitive conditions in respect of the sale of such product for delivery at such basing
point; and
Whereas a great diversity in the switching charges exists at the various basing
points and on that account it is practically impossible in most cases for members
of the Code to ascertain in advance of the sale of any product for delivery at any
basing point the correct published tariff switching charges chargeable thereon
pursuant to the provisions of said Section 4; and
Whereas the Board has been advised that the arbitrary rates prescribed in the
following resolution are fair averages of the actual switching rates now in effect
in the switching areas of the respective basing points at which such rates are to
be applied;
Resolved That the Board of Directors hereby fixes, for the purposes of the pro-
visions of Section 4 of Schedule E of the Code, arbitrary switching charges for the
delivery of any product at any basing point for such product named in Schedule
F of the Code, except pig iron sold for delivery in Jefferson County, Alabama,
from any furnace located in that County, as follows:
(a) for deliveries in carload lots (minimum thirty tons) at Chicago, Illinois,
and Gary, Indiana, and for deliveries in such carload lots from either of such
places to the other, sixty cents per net ton, or, if the published base price for such
product at such basing point is stated per gross ton, then sixty cents per gross ton;
(b) for deliveries in carload lots (minimum twenty-five tons) at all other basing
points named in Schedule F of the Code, fifty cents per net ton, or, if the pub-
lished base price for such product at such basing point is stated per gross ton, then,
fifty cents per gross ton; and
(c) for deliveries in less-than-carload lots at all basing points named in Schedule
F of the Code, and for deliveries in less-than-carload lots from either Chicago,
Illinois, or Gary, Indiana, to the other of such places, ten cents per hundred
pounds, but not in any case exceeding on any one shipment the charge per carload
at the carload rate hereinabove specified for the basing point in question.
' Notk: This Commercial Resolution supersedes Commercial Resolution No. 20 as amended December
14, 1933, and Commercial Resolution No. 52 adopted on March 15, 1934.
14436 CONCJi^NTllATiON OF ECONOMIC POWER
Exhibit No. 2207
Commercial Resolution No. A18 '
PREAMBLE AND RESOLUTION DULY ADOPTED BY THE BOARD OF DIRECTORS ON JUNE
14, 1934, AUTHORIZING REDUCTIONS IN THE DELIVERED PRICES FOR PRODUCTS DE-
LIVERED BY THE TRUCK PROVIDED BY THE PURCHASER
Whereas it is provided in Section 4 of Schedule E of the Code that in any case
in which a product shall be delivered by other than all-rail transportation the
member of the Code selling such product may allow to the purchaser a reduction
in the delivered price otherwise chargeable under the provisions of said Section at
such rate previously approved by the Board of Directors and filed with the Secre-
tary as the Board of Directors shall deem equitable and necessary, in order that
competitive opportunity to producers and consumers of products shall be main-
tained; and
Whereas on recommendations heretofore made to the Board of Directors it
approved rates of such reductions by members of the Code to purchasers of prod-
ucts delivered by truck provided directly or indirectly by such purchasers and for
their account which the Board deemed and now deems to be equitable and neces-
sary, in order that competitive opportunity to producers and consumers of prod-
ucts shall be maintained;
Resolved That in any case in which any purchaser shall require that any prod-
uct purchased by him from a member of the Code be delivered by truck and such
truck is provided, directly or indirectly, by such purchaser and for his account,
such member of the Code may allow a reduction in the delivered price for such
product otherwise chargeable under Section 4 of Schedule E of the Code and the
regulations prescribed by, and the resolutions adopted by, the Board of Directors
thereunder and then in effect (a) at a rate equal to 65% of the carload all-rail
published tariff freight rate on such product from the point at which transporta-
tion of such product by truck began to the place of delivery of such product by
truck to such purchaser (if such freight rate be published on a per car basis, the
rate per ton shall be determined by dividing such charge per car by 25), or (6), if
the transportation by such truck be at a basing point for such product, then at a
rate equal to 65% of the rate of the applicable arbitrary carload switching charges,
f any, at such basing point theretofore approved by the Board of Directors, or, if
such Board shall not have approved a rate of arbitrary carload switching charges
for such basing point, 65% of the rate per ton of the actual switching charges
(computed on the basis of the minimum carload quantity to which such charges
apply) applicable on the delivery of such product at such basing point under the
provisions of said Section 4, from the point at which transportation of such prod
uct by truck began to the place of delivery of such product by truck to such pur-
chaser; provided, however, that a sale of any product or products by a member of
the Code for such delivery by truck may be deemed to be a sale of a carload or
greater than carload quantity of such product or products only in case such sale
covers not less than a carload quantity of such product or products for delivery
at one time and the loading of such quantity thereof on the truck or trucks so
provided by such purchaser and for his account shall have been completed not later
than during tlie next working day after the day on which such loading of such
quantity of such product or products began.
' Note: This Commercial Resolution supersedes paragraph (e) of Part I of Commercial Resolutions No.
8, as amended Marcli ITi, 1934.
CONCENTRATION OP ECONOMIC POWER 14437
Exhibit No. 2208
Ieon and Steel iNDtrsTET
CODE OF FAIR COMPETITION
REGULATIONS NO. 4 ' AS AMENDED OCTOBER 11, 1934
Regulations under Section 4 of Schedule E of the Code of Fair Competition of
the iron and Steel Industry
Re Reductions in the Delivered Prices of Products Delivered in Whole or in Part
by Water Transportation and Reductions in the Delivered Prices of Products
Sold for Delivery in the South Atlantic, Gulf or Pacific Coast States and
Transportation Charges on Products Sold for Delivery at Places in the Canal
Zone or at Ports in Alaska
Effective October 18, 1984
Wherever hereinafter used, unless the context shall otherwise clearly indicate,
the terms which are defined in Article I of the Code of Fair Competition of the
Iron and Steel Industry, approved on August 19, 1933, by the President of the
United States of America, as amended on May 30, 1934, and in Section 1 of
Schedule E thereof shall have the respective meanings therein set forth.
It is provided in Section 4 of Schedule E of the Code that, in any case in which
a product shall be dehvered by other than all-rail transportation, the member of
the Code selling such product may allow to the purchaser a reduction in the de-
livered price otherwise chargeable under the provisions of such Section 4 at such
rate previously approved by the Board of Directors and filed with the Secretary
as the Board of Directors shall deem equitable and necessary, in order that com-
petitive opportunity to producers and consumers of products shall be maintained.
On recommendations heretofore made to the Board of Directors it approved
rates of such reductions in certain cases which it deemed and now deems to be
equitable and necessary, in order that competitive opportunity to producers and
consumers of products shall be maintained.
Such reductions might tend to create conditions of unfair competition between
producers that can and those that cannot take advantage thereof. Therefore,
the Board of Directors has determined that it is in the interest of the Iron and
Steel Industry and of other branches of industry and that it will not tend to
defeat the policy of Title I of the National Industrial Recovery Act to permit
members of the Code, in the cases and to the extent hereinafter in these Regula-
tions provided, to sell or contract for the sale of products produced by them,
respectively, at delivered prices which shall be less than the delivered prices other-
wise chargeable by such members, respectively, for such products under the pro-
visions of such Section 4.
It is provided in such Section 4 that, in the case of a product destined for de-
livery at a place in the Canal Zone or at a port in Alaska, the member of the
Code selling such product, in determining its delivered price therefor, shall add
to its pubhshed base price for such product effective at the time of and for the sale
thereof such charges in respect of transportation as shall have been previously
approved by the Board of Directors and filed with the Secretary.
Accordingly, the Board of Directors hereby prescribes the following regulations
with regard to (a) reductions in the delivered prices of products delivered in whole
or in part by water transportation, (b) reductions in the delivered prices of
products sold for delivery in the South Atlantic, Gulf or Pacific Coast states and
(c) the transportation charges on products sold for delivery at places in the Canal
Zone or at ports in Alaska:
1. In any case in which any purchaser shall require that any product purchased
by him from a member of the Code delivered by ocean or rail-and-ocean or
rail-ocean-and-rail transportation from the plant of such member to the place of
delivery of such product at a South Atlantic port or through a South Atlantic
port to a place of delivery in a South Atlantic state, such member ^f the Code
may allow a reduction in the delivered price for such product otherwise chargeable
under Section 4 of Schedule E of the Code that shall not be greater than the
'Note: These Regwlations No. 4 supersede Commercial Resolutions No 8 as amended March 15, 1934
Cexcept paragraph (e) of Part I of such Commercial Resolutions, which is superseded by a new Commercial
Resolution No. A18 adopted on June 14, 1934), Commercial Resolution No. 18 adopted on September 20,
1933, Commercial Resolution No. 37 adopted on December 14, 1933, Commercial Resolution No. 43 adopted
on January 11, 1934, and Commercial Resolution No. 56 adopted on April 12, 1934, all of which Commercial
Resolutions have been rescinded effective June 21, 1934.
14438 CONCENTRATION OF ECONOMIC POWER
amount, if any, by which (1) the lowest dehvered price that could then be charged
under the Code by such member for such product delivered by all-rail transpor-
tation to such place of delivery shall exceed (2) the lowest delivered price for such
product which could then be obtained by adding to the pubhshed base price
(plus any extras required to be added thereto or less any deductions permitted
to be made therefrom under Section 6 of such Schedule E) of such member for
such product effective at the time of and for the sale thereof at any basing point
the lowest published ocean or rail-and-ocean or rail-ocean-and-rail freight charges,
as the case may be, that would be applicable on the shipment of such product
from such basing point to such place of delivery.
2. In any case in which any purchaser shaU require that any product purchased
by him from a member of the Code be delivered by ocean or rail-and-ocean or rail-
ocean-and-rail transportation from the plant of such member to the place of de-
livery of such product at a Gulf port or through a Gulf port to a place of delivery in
a Gulf state, such member of the Code may, subject to the proviso hereinafter
in this paragraph 2 set forth, allow a reduction in the delivered price for such pro-
duct otherwise chargeable under Section 4 of Schedule E of the Code that shall not
be greater than the amount, if any, by which (1) the lowest delivered price that
could then be charged under the Code by such member for such product delivered
by all-rail transportation to such place of delivery shall exceed (2) the lowest
delivered price for such product which could then be obtained by adding to the
published base price (plus any extras required to be added thereto or less any
deductions permitted to be made therefrom under Section 6 of such Schedule E)
of such member for such product effective at the time of and for the sale thereof at
any basing point the lowest published ocean or rail-and-ocean or rail-ocean-and-
rail freight charges, as the case may be, that would be applicable on the shipment
of such product from such basing point to such place of delivery; provided, however,
that, if any Gulf port is named in Schedule F of the Code as a basing point for such
product, then (1), if such product be delivered as aforesaid at a Gulf port, except as
otherwise provided in Section 3 of Schedule E of the Code, the delivered price
which such, member may charge for such product as such place of delivery shall
not be less than the lowest published base price for such product effective at the
time of and for the sale thereof at any such basing point plus the switching charges
thereon at such basing point theretofore approved by the Board of Directors, and
(2), if such product be delivered as aforesaid through a Gulf port to a place of
delivery in a Gulf state, except as aforesaid, such delivered price shall not be less
than the lowest published base price for such product effective at the time of and
for the sale thereof at any such basing point plus the all-rail published tariff freight
charges that would be applicable on the shipment of such product from such
basing point to such place of delivery.
3. In any case in which any purchaser shall require that any product purchased
by him from a member of the Code be delivered by ocean or rail-and-ocean or
rail-ocean-and-rail transportation from the plant of such member to the place of
delivery of such product at a Pacific Coast port that is not a basing point for such
product or through a Pacific Coast port to a place of delivery in a Pacific Coast
state and a Pacific Coast port is named in Schedule F of the Code as a basing
point for such product, such member of the Code may allow a reduction in the
delivered price for such product otherwise chargeable under Section 4 of Section E
of the Code that shall not be greater than the amount, if any, by which (1) the
all-rail published tariff freight charges to such place of delivery from the basing
point for such product nearest in terms of all-rail published tariff ireight charges to
such place of delivery shall exceed (2) the lowest published ocean or rail-and-ocean
or rail-ocean-and-rail freight charges, as the case may be, that would be applicable
on the shipment of such product from such basing point to such place of delivery.
4. In any case in which any purchaser shall require that any product purchased
by him from a member of the Code be delivered by ocean or rail-and-ocean or
rail-ocean-and-rail transportation from the plant of such member to the place of
delivery of such product at a Pacific Coast port or through a Pacific Coast port to a
place of deliver}' in a Pacific Coast state and none of the Pacific Coast ports Is
named in Schedule F of the Code as a basing point for such product, such member
of the Code may allow a reduction in the delivered price for such product otherwise
chargeable under Section 4 of Schedule E of the Code that shall not be grealer
than the amount, if any, by which (1) the lowest delivered price that could then be
charged under the. Code by such member for such product delivered by all-rail
transportation to such place of delivery shall exceed (2) the lowest delivered price
for such product which could then be obtained by adding to the pubhshed base
price (plusi any extras required to be added thereto or less any deductions permitted
to be made therefrom under Section 6 of such Schedule E) of such moAiber for
CONCENTRATION OP ECONOMIC POWER 14439
such product effective at the time of and for the sale thereof at any basing point
the lowest published ocean or rail-and-ocean or rail-ocean-and-rail freight charges,
as the case may be, that would be applicable on the shipment of such product from
such basing point to such place of delivery.
5. In any case in which any purchaser shall require that any product purchased
by him from a member of the Code be dehvered from the plant of such member by
continuous water or rail-and-water or rail-water-and-rail transportation to the
place of delivery of such product at a South Atlantic, Gulf or Pacific Coast port, or
through any such port or through any port on that part of the Mississippi River
extending from Vicksburg to New Orleans, both inclusive, to the place of delivery
in any of the South Atlantic, Gulf or Pacific Coast states, such member of the Code
may allow a reduction in the delivered price for such product otherwise chargeable
under Section 4 of Schedule E of the Code which will make the delivered price for
such product at such place of delivery as low as that permitted by paragraph
1, 2, 3, or 4, as the case may be, of these Regulations.
6. In the case of a sale by any member of the Code of any product for delivery
in any of the South Atlantic, Gulf or Pacific Coast states from a plant of such mem-
ber located m any of such states, if an available water or rail-and-water or rail-
water-and-rail route and service from such plant to the place of delivery of such
fjroduct does not then exist, the member of the Code selling such product may
allow to the purchaser thereof a reduction in the delivered price therefor otherwise
. chargeable under the provisions of Section 4'of Schedule E of the Code in an amount
,which will result in a delivered price for such product sold or contracted to be sold
by such member for delivery at such place of delivery as low as that permitted by
paragraph 1, 2, 3, or 4, as the case may be, of these Regulations.
7. In any case in which any purchaser shall purchase from any member of
the Code pig iron in an amount of 400 gross tons or more^and shall require that
such pig iron be delivered by water or rail-and-water transportation in a lot or
lots of 400 gross tons or more f. o. b. barge alongside the dock of such purchaser
at any port on the Ohio River, the Monongahela River or the Allegheny River
between and including Wheeling, West Virginia, on the Ohio River, Monessen,
Pennsylvania, on the Monongahela River and Ford City, Pennsylvania, on the
Allegheny River, such member of the Code may allow a reduction in the delivered
price of such pig iron otherwise chargeable under Section 4 of Schedule E of the
Code in an amount which shall not exceed 60 cents per gross toQ of such pig
iron so delivered; provided, however, that, except as otherwise provided in Section
3 of Schedule E of the Code, the delivered price of such pig iron so delivered shall
not in any case be less than the published base price of such member of the Code
for such pig iron effective at the time of and for the sale thereof at the basing
point nearest in terms of all-rail freight charges to the place of delivery of such
pig iron plus 50 cents per gross ton of such pig iron.
8. In any case in which any purchaser shall purchase from any member of the
Code pig iron in an amount of 1,500 gross tons or more and shall require that
such pig iron be delivered by water or rail-and-water transportation in a lot or
lots of 1,500 gross tons or more f. o. b. barge or vessel alongside the dock of such
purchaser at Saginaw, Holland, Muskegon or South Haven, Michigan, such
member of the Code may allow a reduction in the delivered price of such pig
iron otherwise chargeable under Section 4 of Schedule E of the Code in an amount
which shall not exceed $1.30 per gross ton of such pig iron so delivered at Holland,
Michigan, or $1.35 per gross ton of such pig iron so delivered at Saginaw, Michi-
gan, or $1.50 per gross ton of such pig iron so delivered at Muskegon or South
Haven, Michigan; and, if such purchaser shall require that such pig iron be
delivered from the plant of such member of the Code at any of such places by
barge or vessel which shall be provided by such purchaser and for his account,
such member of the Code may allow a reduction in the delivered price of such
pig iron otherwise chargeable under Section 4 of Schedule E of the Code in an
amount (in addition to the amount of the reduction hereinbefore in this paragraph
S provided for) which shall not exceed 50 cents per gross ton of such pig iron so
delivered at Saginaw, Michigan, or $1.15 per gross ton ot such pig iron so de-
livered at Holland, Muskegon or South Haven, Michigan.
9. In any case in which any purchaser shall purchase from any member of the
Code pig iron in an amount of 400 gross tons or more and shall require that teuch
pig iron be delivered by water or rail-and-water transportation in a lot or lots of
400 gross tons or more f . o. b. barge or vessel alongside the dock of such purchaser
at Phillipsdale, R. 1., Branford, Conn., Bridgeport, Conn., Yonkers, N. Y,,
Brooklyn, N. Y., Elizabethport, N. J., Bayonne, N. J., Roebling, N. J., Burling-
ton, N. J., or Florence, N. J., such member of the Code may allow a reduction
in the delivered price of such pig iron otherwise chargeable under Section 4 of
14440 CONCENTRATION OF ECONOMIC POWER
Schedule E of the Code in an amount which shall no1; exceed 60 cents per gross
ton of such pig iron so delivered.
10. In the case of a sale by any menaber of the Code of any product for delivery
at any place m the Canal Zone, the transportation charges which such member
or the Code shall be required, pursuant to the provisions of Section 4 of Schedule
E of the Code, to use in determining the delivered price of such product at such
place shall be the lowest published ocean or rail-and-ocean or rail-ocean-and-raii
freight charges, as the case may be, that would be applicable on the shipment
of such product from the basing point on which the base price therefor is based
to such place.
11. In the case of a sale by any member of the Code of any product for de-
livery at any port in Alaska, if a Pacific Coast port is not named in Schedule F
of the Code as a basing point for such product, the Transportation charges which
such member of the Code shall be required, pursuant to the provisions of Section
4 of Schedule E of the Code, to use in determining the delivered price of such
product at such port in Alaska shall be the lowest published ocean or rail-and-
ocean freight charges, as the case may be, that would be applicable on the ship-
ment of such product from the basing point on which the base price therefor is
based to such port in Alaska; provided, however, that, if there shall not then be
any published ocean or rail-and-ocean freight charges, as the case may be, on
such product from such basing point to such port, then such member of the Code
may sell such product for delivery to such purchaser f. o. b. dock at any Pacific
Coast port to which there is a published ocean or rail-and-ocean freight charge,
as the case may be, on such product from such basing point and the shipment
of such product from such Pacific Coast port to such purchaser at such port in
Alaska shall be at his risk and expense.
12. In the case of a sale by any member of the Code of any product for de-
livery at any port in Alaska, if a Pacific Coast port is named in Schedule F of
the Code as a basing point for such product, the delivered price at such port in
Alaska which (except as otherwise provided in Section* 3 of Schedule E of the
Code) such m^ember of the Code shall quote and bill for such product shall be not
less than the s' m of (1) the lowest published base price (plus any extras required
to be added th reto or less any deductions permitted to be made therefrom under
Section 6 of Schedule E of the Code) of such member for such product effective
at the time of and for the sale thereof at any Pacific Coast port which is a basing
point for such product and (2) the lowest published ocean or rail-and-ocean freight
charges, as the case may be, that would be applicable on the shipment of such
product from such basing point to such port in Alaska; provided, however, that,
if such freight charges shall be unreasonably high, or if there shall not then be in
effect any published ocean or rail-and-ocean freight charges, as the case may be,
on such product from such basing point to such port in Alaska, then such member
of the Code may sell such product for delivery to such purchaser f. o. b. dock at
such basing point and the shipment of such product from such ba&ing i)oiiifc to
such purchaser at such port in Alaska shall be at his risk and expense.
13. For the purpose of determining under any provision of these Regulations
the lowest published ocean or rail-and-ocean or rail-ocean-and-rail freight charges,
as the case may be, that would be applicable on the shipment of any product
from any basing point for such product to any place of delivery such freight charges
shall be deemed to be the lowest published ocean or rail-and-ocean or rail-ocean-
and-rail freight charges, as the case may be, from such basing point to such place
of delivery applicable to the quantity of such product shipped at one time and in
effect at the time of the shipment thereof; provided, however, that, in the case of a
sale by a member of the Code at one time of any quantity of any product for use
in the construction of an identified structure, such freight charges shall be deemed
to be the lowest published ocean or rail-and-ocean or rail-ocean-and-rail freight
charges, as the case may be, from such basing point to the place of delivery thereof
applicable to such quantity of such product and in effect at the time of such sale;
and provided, further, that in case any member of the Code shall sell or contract
to sell a carload or more of various products for shipment in mixed carload lots,
whether the respective base prices for such products be based on the same or
diflferent basing points, such freight charges shall be deemed to be the lowest
published ocean or rail-and-ocean or rail-ocean-and-rail carload freight charges
per gross ton, per net ton or per hundred pounds, as the case may be, applicable
to the respective quantities of such products so sold from the basing point or
basing points on which the respective base prices of such products are based to
the place of delivery thereof.
CONCENTRATION OF ECONOMIC' POWER 14441
Except as otherwise provided in paragraph 3 of these Regulations, for the pur-
pose of determining the lowest delivered price for any product that shall be sold
by any member of the Code for delivery at any place of delivery pursuant to any
provision of these Regulations, if the tariff book entitled "Freight Tariff No. 1.
American Iron and Steel Institute" issued under date of November 15, 1933, or
any rp vision or amendment thereof, as at the time in effect, shall show ocean or
rail-and-ocean or rail-ocean-and-rail freight charges that would be applicable on
the shipment of such product to the place of delivery thereof from any basing
point or basing points therefor, such delivered price for such product at such place
of delivery shall be computed on the basis of the published base price of such
member for such product efifective at the time of and for the sale thereof at a
basing point therefor from which such ocean or rail-and-ocean or rail-ocean-and-
rail freight charges on such product to such place of delivery shall be shown in
such Freight Tariflf No. 1, or any such revision or amendment thereof, and of such
ocean or rail-and-ocean or rail-ocean-and-rail freight charges, as the case may
be. If the freight charges shown in such Freight Tariff No. 1, or any such revision
or amendment thereof, for the transportation of any product by ocean or rail-
and-ocean transportation from any basing point for such product to any port
shall include track delivery of such product within the switching limits of such
port, such freight charges shall also be deemed to be the lowest published freight
charges for such transportation of such product and delivery thereof f. o. b.
dock or f. o. b. cars dock at such port; provided, however, that, if such Freight
Tariff No. 1, or any such revision or amendment thereof, shall also show the
freight charges for such transportation of such product and delivery thereof
f. o. b. cars dock at such port, such freight charges shall be deemed to be the
lowest published freight charges for such transportation of such product and de-
livery thereof f. o. b. cars dock at such port or f. o. b. dock at such port. If such
Freight Tariff No. 1 shall show^ ocean or rail-and-ocean or rail-ocean-and-rail freight
charges that would be applicable on the shipment of any product to the place of
delivery thereof from the Pacific Coast port named in Schedule F of the Code as
a basing point for such product that is nearest in terms of all-rail published
tariff freight charges to such place of delivery, then, for the purpose of determin-
ing the amount of any reduction in the delivered price of such product permitted
under the provisions of paragraph 3 of these Regulations, such freight charges
shall be deemed to be the lowest published ocean or rail-and-ocean or rail-ocean-
and-rail freight charges, as the case may be, that would be applicable on the
shipment of such product from such basing point to such place of delivery.
14. For all purposes of these Regulations any place in the Pa ific Coast states
to which published tariff ocean transportation charges on any product from At-
lantic Coast ports shall apply and to which ocean or rail-and-ocean freight
charges on such product from any basing point for such product shall be shown in
said Freight Tariff No. 1 shall be deemed to be a Pacific Coast port.
15. In any case in which any purchaser shall purchase from any member of the
Code steel billets in an amount of 1,000 gross tons or more and shall require that
such billets be delivered by water or rail-and-water transportation in a lot or
lots of 1,000 gross tons or more f. o. b. barge or vessel alongside the dock of such
purchaser at South Portland, Maine, such member of the Code may allow a
reduction in the delivered price of such billets otherwise chargeable under Section
4 of Schedule E of the Code in an amount which shall not exceed $2.00 per gross
ton of such billets so delivered.
Prescribed by the Board of Directors on June 14, 1934, effective June 21, 1934.
14442
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14489
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14491
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14495
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14498
CONCENTRATION OF ECONOMIC POWER
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14499
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CONCENTRATION OP ECONOMIC POWER
14501
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CONCENTRATION OP ECONOMIC POWER
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14503
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14506 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2212
A price announcement for concrete reinforcing bars by the Carnegie-Illinois
Steel Corporation on June 4, 1936, stated:
"* * * In the case of products sold for fabrication for an identified struc-
ture * * * the place of delivery is the railroad freight station nearest to the
place at which such structure is to be assembled or erected."
2«0
There is no Exhibit No. 2213.
Exhibit No. 2214
[Copyl
August 17, 1935.
Mr. A. K. Andrews,
Footes Bay, Ontario, Canada.
Dear Mr. A. K.: It was not definitely decided until late last evening to put
into effect for fourth quarter a one price policy allowing the galvanized sheet price
to remain at $3.10 per 100 lb. for #24 gauge base f. o. b. Pittsburgh. A few of the
larger interests such as Weirton and Inland were in favor of reducing the price to
$3 base for #24 gauge f. o. b. Pittsburgh but this was finally defeated and it was
agreed to allow all prices to remain the same as now in effect.
The announcement of no further jobber allowance after October 1 will be
made by Continental on Tuesday of next week after which all mills can announce
likewise. We, of course, in the meantime will notify our people which no doubt
will be conducive of causing an influx of jobber business for shipment prior to
October 1st.
It is my intention to discuss this with Mr. Little this morning so that we will be
prepared to take care of the rush that we like others will no doubt have during the
month of September.
I discussed the automotive situation with Neil Flora last evening and he in-
formed me that while some little tonnage was placed several weeks ago, nothing
more has been done and that all the mills are holding firmly to their prices and are
expecting that additional tonnages will have to be placed soon.
I find that our tonnage booked up to last night (Friday) amounted to 2812 tons
and this morning's mail brought several additional cars so we are hoping at least
to have 3000 tons for this week.
Do hope that your stay in Canada will be pleasant and that you will be greatly
benefitted by your vacation.
Sincerely yours,
AAD:GRK
Exhibit No. 2215
Registry No. 1116-02
national recovery administration
Code of Fair Competition for the Iron and Steel Industry as Approved
ON August 19, 1933 by President Roosevelt
1. Deputy Administrator's letter of transmittal to Administrator
2. Executive Order
3. Text of Code
The American Iron and Steel Institute, which presented the Code July 15th,
reported that signers of the Code then represented 90% of the total pig-iron and
steel-ingot capacity in the United States and that it expected total signatories
representing 95% of such capacity.
Descriptive of the Industry
The Industry as defined in the Code includes all those producing in the United
States pig iron, iron or steel ingots, and rolled or drawn iron or steel products.
Purposely excluded from the scope of the Code are other operations and products
of iron and steel producers, such as mining of iron ore and coal, transportation,
CONCENTRATION OF ECONOMIC POWER
14507
production of cement and other byproducts, castings, and the bulk of forgings.
Included, however, are some iron and steel products, not properly or fully de-
scribed by the words "rolled or drawn", and which are processed after rolling or
drawing by the producing company, such as spikes, tieplates, wire fencing, nails
and staples, tin plate, and other coated products.
The following statistics are from the Census of Manufactures, 1929, and 1931
Mimeographed Reports:
Iron and steel industry (blast furnaces, steel works,
and rolling mills):
Wage earners
Total w ages
Wages per worker - .-
V^alue of product
Ratio of wages to value added by manufacture
percent.
All other manufacturing industries, wages per
worker
424, 900
$697, 000, 000
$1 640
$4, 162, OOO! 000
54.0
$1, 234
420, 800
$733, 000, 000
$1, 742
$4, 137, 000, 000
45.1
$1,293
278, 100
$358,000,000
$1 287
$1,714,000^000
57.4
SI, 102
It is significant that 1923 and not 1929 was the peak year for the Industry in
point of value of product, although the greatest production and wage payments
were in 1929. Since then the Industry has fully experienced the difficulties of the
depression, its operating rate of declining to 15% and lower during late 1932 and
early 1933. The low rate of operations coupled with low prices resulted in sub-
stantial operating losses for practically all companies. The Industry operated
over 50% capacity in July of this year, however.
Attention is directed to the fact that many members of the Code have been
operating under its wage provisions since the middle of July, both as to minimum
and higher rates.
It should also be remarked that this Industry has been a leader in the "share-
,the-work" movement since 1929.
Summary and Discussion of Code Provisions
collective bargaining
The mandatory clauses of subsection (a) of Section 7, Title I, N. I. R. A., are
stated without qualification. Section 2, Art. IV, of the original Code and its
companion Schedule relating to "Employee Representation Plans" were with-
drawn at the hearing, prior to which these had been subjected to much criticism.
employment HOURS AND WAGES
A full study of the hour and wage provisions of the Code is contained in the
Report of the Division of Economic Research and Planning, their summary of
which is given below:
The Industry employed 421,000 in 1929, 210*000 in 1932, and 272,000 at the
end of July 1933. The hours in the Code should allow of a production without
undue strain of about 3,580,000 tons per standard month, this being the half-way
recovery point from the May 1933 level of 1,916,000 per standard rdionth to the
average of 4,516,000 tons for 1929. This will require 62,000,000 man-hours per
month, or say, 65,000,000 to provide for seasonal peaks. This could be provided
by417,000 men on a 40-hour week.
Experience shows that, on the average, 10% of the nomirial working time is
lost through voluntary absences, breakdown, inability to schedule operations
perfectly, and lack of sufficient business for particular products to kefep the
departments for those products busy all the time; that is, ■yvith a maximum work
week of 40 hours the hours actually worked cannot average over 40 per week, 36
hours is the maximum effective work week, or 156 hours per month. 65,000, 000-h
156=417,000.
About 272,000 men were employed at the end of July and working, roughly,
43 hours a week. With a maximum 40-hour week and 36 hours effective, it is
estimated that this number would be increased to about 325,000.
Reemployment, in this Industry, with its subdivisions and specialization of
labor, can be much larger than would at first appear from the average hours
worked. This is because many men will be working considerably longer than the
average, and many considerably shorter. As those working longer are brought
124491—41 — pt. 27-
-25
14508 CONCENTRATION OF ECONOMIC POWER
down to the Code hours, additional men have to be taken on. But these groups
working shorter hours cannot in general double up and release men to the other
groups; there are limits to a "share-the-man" movement in the steel industry.
The 8-hour day and 40-hour week will create a great many jobs in cases like
the following:
(a) Mill working one 10-hour shift 6 days a week, total of 60 mill-hours per
week. The only practicable readjustment would be two 8-hour shifts working 4
or 5 days a week, giving a total of 64 or 80 mill-hours. The number of jobs
would be doubled.
(b) Mill working two 10-hour shifts 6 days a week, giving total of 120 mill-hours.
The practical readjustment would be three 8-hour shifts working 5 days a week,
giving a total of 120 mill-hours. The number of jobs would be increased 50%.
Wages are about half the value added by manufacture.
1929
Value of steel products $3,366,000, 000
Raw materials 1, 904, 000, 000
Value added, steel 1, 462, 000, 000
Value added, iron and steel 1, 623, 000, 000
Wages (including wages of blast-furnace workers) 733, 000, 000
Ratio to value added percent.. 45
Wage rates were much better than average manufacturing wage rates in the
period 1921-1930, but were barely up to the rates paid in those industries requiring
skilled labor. Steel wages 'dropped further than others in 1931 and 1932, and fell
definitely below skilled wage rates in other industries. Unskilled wage earners
(laborers) averaged about 41.40 an hour in 1929. The Code minimum rates
average about 39.5ji in the Pittsburgh and Great Lakes regions (average on
weighted basis), 35^ in the Eastern Region, and 26.5^ in the Southern. Com-
pared with 1929, these vary from a decrease of 16% in the East to an increase of
13% in the South. The Code minimum wages in the Pittsburgh, Great Lakes,
and Middle West Regions will be 10% below the 1929 rate. In relation to early
1933, the Code minima represent advances of from 22% (Pittsburgh) to anywhere
from 35% to 80% (the South).
The proposed minimum wages vary from 25<S per hour in the south to 40^ in
Pittsburgh. The necessity for the lower wage in the south lies in the longer
freight hauls to principal interior markets, and also in a high mining cost in terms
of labor. One man-hour in Alabama produces 0.533 ton of crude iron ore of
20.1% iron content, or 0.107 ton of iron, while one man-hour in Minnesota pro-
duces 1.132 tons of crude iron ore of 49.5% iron content, or 0.56 ton of iron.
(Figures for 1932; special study by Bureau of Mines.) One man-hour produces
0.413 ton of coal in Alabama, 0.598 in Pennsylvania, 0.810 in Illinois, and 0.731
in West Virginia. In addition, the Alabama coal has to be washed, which reduces
the net yield to 0.37 ton.
Another difiiculty facing the South is imports. The South normally ships a
large part of its output to the Atlantic, Gulf, and Pacific seaboard.
Both these difficulties are reflected in income account and balance sheets,
which reveal a definitely poorer financial status than the Northern companies.
One Southern company is in default on bond interest and sinking fund.
The decline in wage rates during the depression has been partially cushioned
by the concurrent decline in living costs. The 1929 average common labor rate
was 41.4(4 and the 1933 rate about 31fi (estimated on basis of common labor
entrance rates of July 1, 1932, which were 31.84 and U. S. Steel recent minimum
of 330). Living costs early in 1933 were below 70 in terms of 1929= 100, so that
the 310-rate represented in actual purchasing power over 440 an hour (31 -^.70 =
44), or more than in 1929.
The Code minima, which average about 390 an hour, represent about 520 an hour
in 1929 purchasing power, taking the cost of living as 75% of 1929, to allow for
increased costs.
While the hourly wages show up very well indeed on a real wage basis, the
weekly wages do not. Employees worked about 54 hours a week in 1929 and often
less than 26 in 1932 and early 1933. The unskilled average weekly wage was,
therefore, about $22.40 in 1929 ($0,414X54) and $8.05 in 1932 and early 1933
($0.31X26). (Unskilled workers may have worked longer hours than the average
and so have earned more than the above; the National Industrial Conference
Board reports unskilled average weekly earnings of $11.97 in the first four months
of 1933.)
CONCENTRATION OF ECONOMIC POWER
14509
1. 1929
2. Early 1933
3. Early 1933
4. July 1933.-
6. Code
6. Code
Hourly
0.414
.31
.31
.31
.39
.39
Hours
per week
Weekly
earnings
$22.40
8.05
11.97
12.40
14.05
15.60
Cost of
living
100
70
70
72
75
75
Real
wages
$22.40
11.50
17.10
17.20
18.70
20.80
Money
wages for
1929 pur-
chasing
power
$22.40
16.70
16.70
16.10
16.80
16.80
Note.— National Industrial Conference Board figure of $11.97 probably not comparable with others.
It will be seen that working for 310 an hour for 26 hours gives a weeklypurchas-
ing power of only $11.50 or but slightly more than half 1929. In July 1933 the
average work week was above 40 hours. Average weekly money wages were
about $12.40 (before the 15% wage increase on July 15) which represents $17.20 in
1929 purchasing power. The code rates for 36- and 40-hour weeks, respectively,
will give $14.05 and $15.60 in money wages and $18.70 and $20.80 in 1929 pur-
chasing power.
Child Labor
None of the members of the Code shall employ in or about its plants in the
Industry any person under 16 years of age.
Maximum Hours for all Employees
Not over 40 hours per week average in any 6 months' period.
Not over 48 hours, or more than 6 days, in any one week.
On and after November 1, 1933, if operating at 60% of capacity or more, not
over 8 hours per day.
(Exemptions — Executives, those in supervisory and technical work and their
staffs, and emergency work.)
The large number of different manufacturing processes, the dependence of each
process upon various percentages of highly skilled workmen such as boss rollers
and furnace men, and other craftsmen, ancf the physical hazards caused by
untrained men all contribute to the real obstacles in the way of interchangeability
of labor, reduction of working time, and absorption of unemployed workers in this
Industry. By systematic and consistent training methods, men will be provided
for the highly skilled jobs. ' This will require some time, however, and meanwhile
the provisions for averaging hours and for a 48 hour maximum week have been
provided to take care of seasonal and peak labor loads. While the foregoing
applies principally to the highly skilled workers, it is applicable in lesser degree to
the much larger class of semiskilled workers.
Minimum Rates of Pay for Common Labor are as Follows for the Wage
Districts Indicated
400 PER hour
Pittsburgh District
Youngstown Valley District
North Ohio River District
Cleveland District
Chicago District
Detroit-Toledo District
Colorado District
(The above including approximately 60 percent of the Industry.)
390 PER hour"
Utah District
Buffalo District
Johnstown District
Duluth District
San Francisco District
380 PER HOUR
Seattle District
370 PER HOUR
Canton-Massillon-Mansfield Dis-
trict
South Ohio River District
Indiana lUinois-St. Louis District
14510 CONCENTRATION OF ECONOMIC POWER
350 PER HOUR
Eastern District (comprising approxi- Kansas City District
mately north of the State ot Virginia Los Angeles District
and East of Altoona, Pennsylvania)
270 PER HOtTB
Birmingham District (Jefferson County, Alabama).
250 PER HOUR
Southern District (all southeastern and south-central United States, except
Jefferson County, Alabama)
(Exceptions: Apprentices and Learners.)
All employees receiving on July 14th pay at a rate per hour in excess of the
common-labor rates then in effect are to receive a rate of pay per hour which shall
be at least 15% above that of July 14th, but not above similar rates in the same
district paid by other members who have made the 15% increase.
Piecework to yield on the average not less than the minimum rate per hour for
common labor.
While it is apparent from the foregoing summary by the Division of Economic
Research and Planning that the Industry as a whole through its wage increases has
made a genuine contribution toward the objectives of National Industrial Re-
covery Act, nevertheless, it should be stated that the Bureau of Economic Research
and Planning does not necessarily give approval to the continuation of the wage
differentials in the Code for the various districts but desires to study this subject
further in the light of pertinent data not now available but which it will collect
and examine during the 90-day period of observation.
Exceptions from the hour and wage provisions will be subject to study and
recommendations by the Administrator and his representatives during the 90-day
observation period.
PRODUCTION AND PRICE PROVISIONS
The production and price provisions of the Code provide for a present limitation
on the construction of new furnace capacity and possible future production
control by the Directors, both subject to the approval of the President of the
United States; together with adherence to listed prices, subject to control by the
Director, with notice of decisions of the Directors to the President of the United
States. Prices are to be listed for a considerable number of basing points and
charged to include listed prices plus rail freight to the points of delivery.
While the members of the Industry and the Industry Advisor report that the
scheme of the Code involves no substantial change from present practices, a
number of protests have been made against alleged changes in basing points and
against the price provisions of the Code as a whole. Protests have also been
made against the control of deductions for transportation costs cheaper than all-
rail, against the control of quantity discounts, and against the operation of through
rail rates on products fabricated in transit. The protestants have not satisfac-
torily established their objections to the operation of the Code.
In view of the protests and the far-reaching effects of the provisions of the
Code, it seems wise to provide for a 90-day period of experimental observation of
the operation of the Code. This period will make it possible to insure that com-
petitive conditions continue to exist in the markets for steel, that competitors and
purchasers of steel receive adequate protection, and that the Industry has adequate
opportunities for reasonable stablization of its business. For this purpose, the
Code as amended expressly provides that the operation of its provisions shall be
subject to scrutiny by the Administrator of the Recovery Act, and one or two
representatives appointed by him. These representatives may advise the Direc-
tors about the desirability of modifying practices provided for in the Code; and
they may further recommend to the President the exercise of his reserved power
to cancel the Code.
It is to be observed that in partial compensation for increased labor costs, the ,
Steel Industry seems likely to derive substantial market advantages from the
price-stabilization provisions of the Code. While leaders in the Industry indicate
that they would gain no advantage by raising present prices, they evidently refer
to published official base prices. Members of the Industry have not, as is con-
ceded, been able to secure these prices uniformly under the competitive conditions
recently prevailing. On the other hand, it seems likely that these prices wiU be
CONCENTRATION OF ECONOMIC POWER 14511
firmer, and result in substantial increases in profits, under the influence of pro-
visions requiring publication of base prices and prohibiting concessions contained
in the Code. Further, the mere elimination of credit abuses should greatly help
the Industry. Stabilization of prices may have a favorable effect on employment
and business generally. On the other hand, the operation of the market influences
in question must be subjected to careful observation by the representatives of
the Administration.
Reports and Statistics
As amended, the Code provides for reports and statistics to be furnished the
Administrator on production, sales, conditions of employment, prices, and other
information necessarv for the purpose of the Code (Art. V, Sec. 1; Art. IX, Sec. 5;
Sched. E, Sec. 13; Sched. H, Sec. M).
Administration
The Code is to be administered by the Board of Directors of the American Iron
and Steel Institute. As finally submitted, recognizing that questions of public
interest are or ma.v be involved, provision is made for the Administrator and one
or two of his representatives to attend meetings of the Directors, secure informa-
tion, and make recommendations relating to the administration of the Code and
the effectuation of Title I, National Industrial Recovery Act (Art. VI, Sec. 7).
Findings
I have found that —
(a) The Code complies with the pertinent pro\isions of Title I, National
Industrial Recovery Act, including, without limitation, subsection (a) of Sec. 7,
and subsection (b) of Sec. 10 thereof.
(b) The American Iron and Steel Institute is truly representative of the
Industry and imposes no inequitable restrictions upon admissions to membership.
(c) The Code, as amended and finally submitted, imposes necessary conditions
for the protection of consumers, competitors, and employees, will not permit
monopolies or monopolistic practices, or eliminate or oppress small enterprises,
and will not operate to discriminate against them.
The Code has been approved by the Labor Advisory Board, the Industrial
Advisory Board, and the Consumers' Advisory Board.
I have, therefore, recommended approval of the Code, as amended and finally
submitted for a period of 90 days, as provided in Sec. 2 of Art. XII thereof.
Respectfully submitted.
K. M. Simpson, Deputy Administrator.
Executive Order Code of Fair Competition for the Iron and Steel
Industry
An application having been duly made, pursuant to and in full compliance with
the provisions of Title I of the National Industrial Recovery Act, approved
June 16, 1933, for my approval a Code of Fair Competition for the Iron and Steel
Industry, and hearings having been held thereon and the Administrator having
rendered his report together with his recommendations and finding with respect
thereto, and the Administrator having found that the said Code of Fair Compe-
tition complies in all respects with the pertinent provisions of Title I of said Act
and that the requirements of clauses (1) and (2) of subsection (a) of Section 3 of
the said Act have been met:
Now, therefore, I, Franklin D. Roosevelt, President of the United States,
pursuant to the authority vested in me by Title I of the National Industrial
Recovery Act, approved June 16, 1933, and otherwise, do adopt and approve the
report, recommendations, and findings of the Administrator and do order that the
said Code of Fair Competition be, and it is hereby, approved.
(Signed) FRANKLIN D. ROOSEVELT.
Approval Recommended.
(Signed) Hugh S. Johnson,
Administrator.
The White House,
August 19, 19SS. • "
14512 CONCENTRATION OF ECONOMIC POWER
Code of Fair Compbtitio^t of the Iron and Steel Industry
ARTICLE I definitions
Wherever used in this Code or in any schedule appertaining hereto the terms
hereinafter in this Article and in Schedule E annexed hereto defined shall, unless
the context shaU otherwise clearly indicate, have the respective meanings herein-
after in this Article and in such Schedule E set forth. The definition of any
such term in the singular shall apply to the use of such term in the plural and
vice versa.
Section 1. The term "the United States" means and includes all of the terri-
tory of the United States of America on the North American continent.
Sec. 2. The term "the President" means the President of the United States
of America.
Sec. 3. The term "products" means only pig iron, iron or steel ingots, and the
rolled or drawn iron or steel products which are generally named in Schedule F
to the Code as at the time in effect and standard Tee rails of more than 60 pounds
per yard, angle bars and rail joints, or any of such products.
Sec. 4. The term "the Industry" means and includes the business of producing
in the United States and selling products, or any of them.
Sec. 5. The term "member of the Industry" means and includes any person,
firm, association or corporation operating a plant or plants in the United States
for the production of products, or any of them.
Sec. 6. The term the Code" means and includes this Code and aU schedules
annexed hereto as originally approved by the President and all amendments
hereof and thereof made as hereinafter in Article XII provided.
Sec. 7. The term "member of the Code" means any member of the Industry
who shall have become a member of the Code as hereinafter in Section d of
Article III provided.
Sec. 8. The term "the Institute" means American Iron and Steel Institute, a
New York membership corporation.
Sec. 9. The term "the Board of Directors" means the Board of Directors (as
from time to time constituted) of the Institute.
Sec. 10. The term "the Secretary" means the secretary of the Institute at
the time in office.
Sec. 11. The term "the Treasurer" means the treasurer of the Institute at the
time in office.
Sec. 12. The term "unfair practice" means and includes any act described as
an unfair practice in Schedule H annexed hereto.
Sec. 13. Wherever used in the Code with reference to the Industry or any
member of the Industry or any member of the Code, unless the context shall
otherwise clearly indicate.
(a) The term "plant" means only a plant for the production of one or more
products in the Industry;
(b) The term "prices" includes only prices for products produced in the
fndustry;
(c) The term "wages" includes only wages for labor performed in the Industry;
(d) The term "labor" means only labor performed in the Industry;
(e) The term "hours of labor" or "hours of work" includes only hours of labor
or hours of work in the Industry ; and
(f) The term "employee" means only an employee in the Industry.
Sec. 14. The term "the National Industrial Recovery Act" means the Na-
tional Industrial Recovery Act as approved by the President June 16, 1933.
Sec. 15. The term "the effective date of the Code" means the date on which
the Code shall have been approved by the President pursuant to the National
Industrial Recovery Act.
Sec. 16. The term ythe Administrator" means the Administrator appointed
by the President undft the National Industrial Recovery Act and at the time in
office.
Sec. 17. The term "the .Administration" means the agency established pur-
suant to the provisions of Section 2 of the National Industrial Recovery Act.
ARTICLE II PURPOSE OF THE CODE
Section 1. The Code is adopted pursuant to Title I of the National Industrial
Recovery Act.
Sec. 2. The purpose of the Code is to effectuate the poUcy of Title I of the
Natiohal Industrial Recovery Act insofar as it is applicable to the Industry.
CONCENTRATION OF ECONOMIC POWER 14513
ARTICLE III — MEMBERSHIP IN THE CODE
Section 1. It is of the essence of the Code that all members of the Industry
which shall comply with the provisions of the Code shall be entitled to participate
in its benefits upon the terms and conditions set forth in the Code.
Sec. 2. Any member of the Industry is eligible for membership in the Code.
Sec. 3. Any member of the Industry desiring to become a member of the
Code may do so by signing and delivering to the Secretary a letter substantially
in the form set forth in Schedule A annexed hereto.
Sec. 4. The rules and regulations in respect of meetings of members of the
Code are set forth in Schedule B annexed hereto.
article IV' — HOURS OF LABOR, RATE3 OF PAT, AND OTHER CONDITIONS OF
EMPLOYMENT
Section 1. Pursuant to subsection (a) of Section 7 of the National Industrial
Recovery Act and so long as the Code shall be in effect, the Code shall be subject
to the following conditions:
(1) That employees shall have the right to organize and bargain collectively
through representatives of their own choosing, and shall be free from the inter-
ference, restraint, or coercion of employers of labor, or their agents, in the desig-
nation of such representatives or in self-organization or in other concerted
activities for the purpose of collective bargaining or other mutual aid or protection;
(2) That no employee and no one seeking employment shall be required as a
condition of employment to join any company union or to refrain from joining,
organizing, or assisting a labor organization of his own choosing; and
(3) That employers shall comply with the maximum hours of labor, minimum
rates of pay, and other conditions of employment, approved or prescribed by the
President.
Sec. 2. Since the beginning of the present depression and the consequent
reduction in the tutal number of hours of work available in the Industry, its
members have made every effort to distribute, and with a remarkable degree of
success have distributed, the hours of work available in their plants so as to give
employment to the maximum number of employees. It is the intention of the
Industry to continue that policy insofar as practicable, to the end that the policy
of Title I of the National Industrial Recovery Act may be effectuated, and that
work in the Industry shall insofar as practicable be distributed so as to provide
employment for the employees normally attached to the Industry. The basic
processes in the Industry are of a continuous character and they cannot be
changed in this respect without serious adverse effect upon production and em-
ployment. As demand for the products of the industry and, therefore, for labor
shall increase, hours of labor for employees in the Industry must necessarily
increase; but, except in the case of executives, those employed in supervisory
capacities and in technical work and their respective staffs and those employed
in emergency work, insofar as practicable and so long as employees qualified for
the work required shall be available In the respective localities where such work
shall be required and having due regard for the varying demands of the con-
suming and processing industries for the respective products, none of the mem-
bers of the Code shall cause or permit any employee to work at an average of
more than 40 hours per week in any six months' period or to work more than 48
hours or more than 6 days in any one week. On or after November 1, 1933, as
soon as the members of the Code shall be operating at 60% of capacity, they shall
adjust the operations of their plants so that, except as to executives, those em-
ployed in supervisory capacities and in technical work and their respective staffs
and those employed in emergency work, they will establish the 8-hour day for
all their employees. For the purposes of this Section 2 the first six months'
period for each employee in the employ of any member of the Code at the effec-
tive date thereof shall begin with that date, and the first six months period for
any employee thereafter employed by any member of the Code shall begin with
the date of employment of such employee by such member. After the date of
the employment by any member of the Code of any employee such member shall
not knowingly permit such emploj'ee who also shall have performed work for
one or more other employers to work for such member such number of hours as
would result in a violation of the Code had all such work been performed for
such member.
Sec. 3. None of the members of the Code shall employ in or about its plants
in the Industry any person under 16 years of age.
14514 CONCENTRATION OF ECONOMIC POWER
Sec. 4. Throughout the history of the Industry geographical wage differentials
have existed, due in the main to differences in living costs and general economic
conditions and the ability adequately to man the industries in the respective
localities. The establishments in the Industry in the different localities have
been developed under such differences in wages and, after a survey of the matters
bearing on such differences in the various sections of the United States, for the
purposes of this Article IV the wage distric];s described in Schedule C annexed
hereto have been established.
Sec. 5. Until changed by amendment of the Code as hereinafter in Article
XII provided, the minimum rates of pay per hour which shall be paid by mem-
bers of the Code for common labor (not including that of apprentices and learners)
in the Industry in the respective wage districts described in such Schedule C
shall be the rates set forth in Schedule D annexed hereto. None of the members
of the Code shall pay common laborers (not including apprentices and learners)
in its employ in the Industry in any such district any rate of pay less than the
rate specified for such district in such Schedule D, and any violation of this pro-
vision of the Code shall be deemed an unfair practice. Such rates of pay shall
not, however, be understood to be the maximum rates of pay for their respective
districts, but, until changed as aforesaid, none of the members of the Code shall
be required to pay its common -laborers in the Industry in any of such districts
a rate of pay higher than the rate specified for such district in such Schedule D,
except as such member shall have agreed to pay such higher rate in any agree-
ment heretofore or hereafter made by such member with its employees. Until
this provision shall have been changed by amendment as aforesaid, each member
of the Code will pay to each of its employees in the Industry who on July 14, 1933,
was receiving pay at a rate of pay per hour in excess of the rate of pay per hour
then being paid bv such member tor common labor a rate of pay per hour which
shall be at least 15% greater than that which such employee was then receiving;
provided, however, that the foregoing provision shall not be so construed as to
require any member of the Code to make any increase in the rate of pay per
hour to be paid by such member to any of its employees in any wage district
that will result in a rate of pay per hour which shall be higher than the rate of
Eay per hour paid to employees doing substantially the same class or kind of
ibor in 'the same wage district by any other member of the Code which shall
have increased its rates of pay per hour in accordance with such provision. In
the case of employees (not including apprentices and learners) performing work
for which they are paid per piece of work performed, the minimum rate of pay
which each member of tl 3 Code shall pay for such work shall be sufficient to
produce at the average rate of performance of such work at the time prevailing
at the plant of such member where such work is performed the minimum rate of
pay per hour provided in the Code for common labor at such plant.
ARTICLE V PRODUCTION AND NEW CAPACITY
Section 1. It is the consensus of opinion in the Industry that it is not necessary,
in order to effectuate the policy of Title I of the National Indup+rial Recovery Act,
to make any specific provision in the Code for controlling or regulating the volume
of production in the Industry or for allocating production or sales among its
members. It is believed that the elimination of unfair pVactices in the Industry
will automatically eliminate any overproduction therein and any alleged inequities
in the -distribution of production and sales among its members. Adequate
provision shall be made under the Code for the collection of statistics regarding
production and of orther'data from which it may be determined fr'^m time to time
whether overproduction in the Industry exists and whether in the circumstances
any restrictiofi of production is necessary in order to effectuate the policy of
Title I. The Board of Directors shall furnish to the Administrator summaries
or compilations of such statistics and other data in reasonable detail. Should it
at any time in the circumstances as they shall then exist appear to the Board of
Directors that the policy of such Title I will not be effectuated in the Industry
because of the fact that through the Code production therein is not controlled
and regulated, then the Board of Directors is hereby empowered, subject to the
approval of the President after such conference with or hearing of interested
persons as he may prescribe, to make, modify, or rescind such rules and regulations
for the purpose of controlling and regulating production in the Industry, including
the fixing of such liquidated damages for violations of such rules and regulations,
as such Board shall deem to be necessary or proper in order .to effectuate the policy
of such Title I. All such rules and regulations from time to time so made and
CONCENTRATION OF ECONOMIC POWER 14515
in efifect shall be binding upon each member of the Code to which notice thereof
shall have been given.
Sec. 2. It is also 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. The President may, however, suspend the operation of
the provisions of this section.
ARTICLE VI ADMINISTRATION OF THE CODE
Section 1. The administration of the Code shall be under the direction of the
Board of Directors. The Board of Directors shall have all the powers and duties
conferred upon it by the Code and generally all such other powers and duties as
shall be necessary or proper to enable it fully to administer the Code and to
effectuate its purpose.
Sec 2. The Secretary shall act as Secretary under the Code. Under the
direction of the Board of Directors, he shall keep all books (except books of ac-
count) and records under the Code and, except as such Board shall otherwise pro-
vide, shall collect, file, and collate all statistics and other information required
by the Board of Directors for the proper administration of the Code.
Sec. 3. The Treasurer shall act as Treasurer under the Code and, under the
direction of the Board of Directors, he shall have custody of, and have charge of
the disposition of, all funds collected under the Code; and he shall keep proper
books of account showing the collection and disposition thereof.
Sec. 4. The Board of Directors shall have power from time to time (a) to
appoint and remove, and to fix the compensation of, all such other officers and
employees and all such accountants, attorneys, and experts as the said Board
shall deem necessary or proper for the purpose of administering the Code and
(b) to fix the compensation of the Secretary and the Treasurer for their services
in acting under the Code.
Sec. 5. The expenses of administering the Code shall'be borne by the members
thereof. The Board of Directors may from time to time make such assessments
on account of such expenses against the members of the Code as it shall deem
proper, and such assessments shall be payable as such Board shall specify. The
part of such expenses which shall be assessed against each member of the Code
shvvU bear the same relation to the total thereof as the number of votes which,
pursuant to the provisions of the Code, such member might cast at a meeting of
the members thereof held at the time of any such assessment shall bear to the total
number of votes that might be cast thereat by all the then members of the Code.
Failure of any member of the Code to pay the amount of any assessment against .
such member for a period of thirty days after the date on which it became payable
shall constitute a violation of the Code.
Sec. 6. The Board of Directors may from time to time appoint such committees
as it shall deem necessary or proper in order to effectuate the purpose of the Code,
and it may delegate to any such committee generally or in particular instances such
of the powers and duties of the Board of Directors under the Code as such Board
shall deem necessary or proper in order to effectuate such purpose. Any member
of any such committee may be a member of the Board of Directors or an officer
or a director of a member of the Code or a person not having any official connection
with any member of the Code or with the Institute, as the Board of Directors
shall deem proper.
Sec. 7. The members of the Code recognize that questions of public interest
are or may be involved in its administration. Accordingly, representatives of the
Administration consisting of the Administrator and one or two other persons
appointed by him (who shall be persons not having or representing interests an-
tagonistic to the interests of members of the Industry) shall be given full oppor-
tunity at such time as shall be reasonably convenient to discuss with the Board of
Directors or any committees thereof any matters relating to the administration of
the Code and to attend meetings of the Board at which action on any such matters
shall be undertaken and to make recommendations as to methods or measures of
administering the Code. Due notice of all such meetings of the Board of Directors
shal be given to such representatives of the Administration. The records of the
Board of Directors relating in any way to the administratioil of the Code shall be
open to such representatives at all reasonable times. They shall be afforded by the
14516 CONCENTRATION OF ECONOMIC POWER
Board of Directors coniplete access at all times to all records, statistical material,
or other information furnished or readily available to the Board of Directors in
connection with, 6r for the purposes of, the administration of the Code. The
Board of Directors, acting directly or through one or more committees appointed
by it, shall give due consideration to all requests or recommendations made by
such representatives of the Administration and render every possible assistance to
such representatives in obtaining full information concerning the operation and
administration of the Cod^e, to the end that the President may be fully advised
regarding such operation and administration through reports that may be made
to him from time to time by such representatives, and to the end that the President
may be assured that the Code and the administration thereof do not promote or
permit monopolies or monopolistic practices, or eliminate or oppress small enter-
prises, or operate to discriminate against them and to provide adequate protection
of consumers, competitors, employees, and others concerned and that they are in
furtherance of the public interest and operate to effectuate the purposes of Title I
of the National Industrial Recovery Act.
ARTICLE VII — PRICES AND TERMS OF PAYMENT
None of the members of the Code shall make any sale of any product at a price
or on terms and conditions more favorable to the purchaser thereof than the price,
terms, or conditions established by such member in accordance with the provisions
of Schedule E annexed hereto and in effect at the time of such sale; nor, except as
otherwise provided in such Schedule E, shall any member of the Code make any
contract of sale of any product at a price or on terms and conditions more favorable
to the purchaser thereof than the price, termis, and conditions established as
aforesaid and in effect at the time of the making of such contract of sale.
ARTICLE VIII UNFAIR PRACTICES
For all purposes of the Code the acts described in Schedule H Annexed hereto
shall constitute unfair practices. Such unfair practices and all other practices
which shall be declared to be unfair practices by the Board of Directors as provided
in paragraph M of such schedule H or by any amendment to the Code adopted as
hereinafter in Article XII provided and at the time in effect, shall be deemed to be
unfair methods of competition in commerce within the meaning of the Federal
Trade Commission Act, as .amended, and the using or employing of any of them
shall be deemed to be a violation of the Code, and any member of the Industry
which shall directly or indirectly, through any officer, employee, agent, or repre-
sentative, knowingly use or employ any of such unfair practi'oes, shall be guilt}
of a violation of the Code.
ARTICLE IX REPORTS AND STATISTICS
Section 1. The Board of Directors shaU have power from time to time to
require each member of the Code tq, furnish to the Secretary for the use of the
Board of Directors such information concerning the production, shipments, sales,
and unfilled orders of such member and the hours of labor, rates of pay, and other
conditions of employment at the plant or plants of such member and such other
information as the Board of Directors shall deem necessary or proper in order to
effectuate the purpose of the Code and the policy of Title I of the National Indus-
trial Recovery Act. The Board of Directors may require that any such informa-
tion be furnished periodically at such times as it shall specify and may require that
any or all information furnished be sworn to or otherwise certified or authenticated
as it shall prescribe. Failure of any member of the Code promptly to furnish to
the Secretary information required by the Board of Directors and substantially in
the form prescribed by it, shall constitute a viojation of the Code. The Board of
Directors shall not require any information regarding trade secrets or the names of
the customers of any member of the Code.
Sec. 2. Any or all information furnished to the Secretary by any member of the
Code shall be subject to checking for the purpose of verification by an examination
of the books and accounts and records of such member by any accountant or
accountants or other person or persons designated by the Board of Directors, and
shall be so checked for such purpose if the Board of Directors shall require it.
The cost of such examination shall be treated as an expense of administering the
Code; provided, however, that; if upon such examination any such information
shall be shown to have been incorrect in any material respect, such cost shall be
paid by the member of the Code which furnished such information.
CONCENTRATION OF ECONOMIC POWER 14517
Sec. 3. The Board of Directors shall require the members of the Code from
time to time to furnish such information as shall be necessary for the proper
administration of the Code.
Sec. 4. To the extent that the Board of Directors may deem that any informa-
tion furnished to the Secretary in accordance with the provisions of the Code
is of a confidential character in the interest of the member of the Code which
shall have furnished it and that the publication thereof is not essential in order
to effectuate the policy of Title I of the National Industrial Recovery Act, such
information shall be treated by the Board of Directors and by the other members
of the Code, if any knowledge of it shall have come to them, as strictly confi-
dential; and no publication thereof to anyone or in any manner shall be made
other than in combination with similar information furnished by other members
of the Code, in which case the publication shall be made only in such manner
as will avoid tL^ disclosing separately of such confidential information.
Sec. 5. Summaries or compilations in reasonable detail of all information
which shall be furnished to the Secretary pursuant to the provisions of this
Article IX shall be made periodically and sent to the Administrator.
ARTICLE X' — PENALTIES AND DAMAGES
Section 1. Any violation of any provision of the Code by any member of the
Industry shall constitute a violation of the Code by such member.
Sec. 2. Recognizing that the violation by any member of the Code of any
provision of Article VII or of Schedule E of the Code will disrupt the normal
course of fair competition in the Industry and cause serious damage to other
members of the Code and that it will be impossible fairly to assess the amount
of such damage to any member of the Code, 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 an individual and not as treasurer
of the Institute, in trust, as and for liquidated damages the sum of $10 per ton
of any products sold by such member in violation of any such provision.
Sec. 3. Except in cases for which liquidated damages are fixed in the Code
and in cases which shall give rise to actions in tort in favor of one or more members
of the Code for damages suffered by it or them, the Board of Directors shall
have power from time to time to establish the amount of liquidated damages
payable by any member of the Code upon the commission by such member of
any act constituting an unfair practice under the Code and a list of the amounts
so fixed shall from time to time be filed with the Secretary. Upon the com-
mission by any member of the Code of any act constituting an unfair practice
under the Code and for which liquidated damages are not fixed in the Code or
which does not give rise to an action in tort in favor of one or more members of
the Code for damages suffered by it or them, such member shall become liable
to pay to the Treasurer as an individual and not as treasurer of the Institute,
in trust, liquidated damages in the amount at the time established by the Board
of Directors for such unfair practice and specified in ^,he list then on file with the
Secretary as aforesaid.
Sec. 4. All amounts so paid to or collected by the Treasurer under this Article
X or under Section 4 of Schedule E of the Code shall be held and disposed of by
him as part of the funds collected under the Code, and each member of the Code
not guilty of the unfair practice in respect of which any such amount shall have
been paid or collected shall be credited with its pro rata share of such amount on
account of any and all assessments (other than damages for violation of any
provision of the Code) due or to become due from such member under the Code,
or, in the case of any excess, as shall be determined by the Board of Directors,
such pro rata share to be computed on the same basis as the last previous assess-
ment made against such member on account of the expenses of administering the
Code as hereinbefore in Section 5 of Article VI provided. All rights of any
person who shall at any time be the Treasurer in respect of any amounts which
shall be payable to him because of the commission by any member of the Code
of any act constituting an unfair practice under the Code, whether payable
under the provisions of this Article X or under any other provision of the Code,
shall pass to and become vested in his successor in office upon the appointment
of such successor.
Sec. 5. Each member of the Code by becoming such member agrees with every
other member thereof that the Code constitutes a valid and binding contract by
and among all members of the Code, subject, however, to the provisions of Section
6 of Article XI, and that, in addition to all penalties and liabilities imposed by
statute, any violation of any provision of the Code by any member thereof shall
14518 CONCENTRATION OF ECONOMIC POWER
constitute a breach of such contract and shall subject the member guilty of such
violation to liability for liquidated damages pursuant to the provisions of the
Code. Each member of the Code by becoming such member thereby assigns,
transfers, and delivers to the Treasurer as an individual and not as treasurer of
the Institute, in trust, all rights and causes of action whatsoever which shall
thereafter accrue to such member under the Code for such liquidated damages by
reason of any violation of the Code by any other member thereof, and thereby
designates and appoints the Treasurer as such individual the true and lawful
attorney in fact of such member to demand, sue for, collect, and receipt for any
and all amounts which shall be owing to such member in respect of any such right
or cause of action, and to compromise, settle, satisfy, and discharge any such
right or cause of action, all in the name of such member or in the name of the
Treasurer individually, as he shall elect.
Sec. 6. Anything in the Code to the contrary notwithstanding, the Board of
Directors by the affirmative vote of two thirds of the whole Board may waive any
liability for liquidated damages imposed by or pursuant to any provision of the
Code for any violation of any provision thereof, if in its discretion it shall decide
that such violation was innocently made and that the collection of such damages
will not to any material extent tend to effectuate the policy of Title I of the
National Industrial Recovery Act.
ARTICLE XI GENERAL PROVISIONS
Section 1. Any notice, demand, or request required or permitted to be given
to or made upon any member of the Code shall be sufficiently given if mailed
postage prepaid addressed to such member at the address of such member on file
with the Secretary. A waiver in writing signed by any member of the Code of
any such notice, demand, or request and delivered to the Secretary shall be deemed
to be the equivalent of a notice, demand, or request duly given or made, whether
or not such waiver was signed and delivered before the time when such notice,
demand, or request was required or permitted to be given or made.
' Sec. 2. Nothing contained in the Code shall be deemed to constitute the mem-
bers of the Code partners for any purpose. None of the members of the Code
shall be liable in any manner to anyone for any act of any other member of the Code
or for any act of the Board of Directors, the Treasurer or the Secretary, or any
committee, officer, or employee appointed under the Code. None of the members
of the Board of Directors or of any committee appointed under the Code, nor the
Treasurer, nor the Secretary, nor any officer or employee appointed under the
Code, shall be liable to anyone for any action or omission to act under the Code,
except for his wilful misfeasance or nonfeasance. Nothing contained in the
Code shall be deemed to confer upon anyone other than a member of the Code any
right, claim, or demand whatsoever not expressly provided by statute against any
member of the Code or against any member of the Board of Directors or of any
committee appointed under the Code or against the Treasurer or the Secretary or
any officer or employee appointed under the Code.
Sec. 3. As soon as members of th« Industry which would, if then members of
the Code, have the right to cast at least 75% of all the votes that might be cast
at a meeting of the members of the Code, if all members of the Industry were
then members of the Code and present at such meeting, shall sign and deliver to
the Secretary letters substantially in the form set forth in Schedule A annexed
hereto, the Board of Directors shall submit the Code, to the President pursuant to
the provisions of Title I of the National Industrial Recovery Act and, upon the
approval of the Code by the President pursuant to the provisions of such Title I,
it shall constitute a binding contract by and among the members of the Code
and the provisions thereof shall be the standards of fair competition for the
Industry; subject, however, to amendment or termination as hereinafter in
Article XII provided, and subject also to the provisions of Section 6 of this
Article XI.
Sec. 4. To the extent required or made possible by or under the provision of
Title I of the National Industrial Recovery Act the provisions of the Code shall
apply to and be binding upon every member of the Industry whether or not such
member shall be a member of the Code. No member of the Industry which shall
not also be a member of the Code shall be entitled to vote at any meeting of
members of the Code or to any other right, power, or privilege provided in the
Code for the members thereof.
Sec. 5. The Board of Directors shall have power from time to time to interpret
and construe the provisions of the Code, including, but without any limitation
upon the foregoing, the power to determine what are products within the meaning
CONCBNTRATJION OF ECONOMIC POWER 14519
of that term as it is used in the Code. Any interpretation or construction placed
upon the Code by the Board of Directors shall be final and conclusive upon all
members of the Code.
Sec. 6. The members of the Code recognize that, pursuant to subsection (b)
of Section 10 of the National Industrial Recovery Act, the President may from
time to time cancel or modify any order, approval, license, rule, or regulation
issued under Title I of said Act.
ARTICLE XII AMENDMENTS — TERMINATION
Section 1. The Code may be amended at any time in the manner in this
Section 1 provided. The changing of any schedule hereto or the addition hereto
of any new schedule shall constitute an amendment of the Code. All amendments
shall be proposed by the Board of Directors by vote of the majority of the mem-
bers thereof at the time in office. Each amendment so proposed shall be sub-
mitted to a meeting of the members of the Code which shall be called for such
purpose upon notice given in accordance with the provisions of Sect'on 1 of
Schedule B and Section 1 of Article XI of the Code. If at such meeting members
of the Code having the right to cast at least 75% of all the votes that might be
cast at such meeting, if all the members of the Code were present thereat, shall
vote in favor of the adoption of such amendment, such amendment shall be sub-
mitted by the Board of Directors to the President for approval, if approval
thereof by him shall then be required by law. Every such amendment shall
take effect as a part of the Code upon the adoption thereof by the members of
the Code as above provided and the approval thereof by the President, if approval
thereof by him shall be required as aforesaid. .
Sec. 2. The Code shall continue in effect for a period of ninety (90) days after
the effective date thereof, in prder to afford to the President an opportunity to
determine upon the recommendations of the representatives of the Administra-
tion, for which provision has heretofore been made in Article VI, whether its
provisions will effectuate the purposes of Title I of the National Industrial Re-
covery Act, as further defined in said Article VI, subject, however, to amendment ,
at any time as hereinbefore provided, and also subject to the reserved power pf
the President to cancel or modify his approval thereof. The Code shall continue
in effect after the expiration of said period of ninety (90) days in the absence of
the exercise of such reserved power on the part of the President, or in the absence
of the exercise by members of the Code of the power which they hereby reserve
to terminate the Code at any time after the expiration of said period of ninety
(90) days by the same action by them as is above provided for the amendment
thereof. When so terminated all obligations and liabilities under the Code shall
cease, except those for unpaid assessments theretofore made in accordance with
the provisions of the Code and those for liquidated damages theretofore accrued
under any provision of the Code.
August 17, 1933.
schedule a form of letter of assent to the code
To the Secretary of American Iron and Steel Institute, Empire State Building, New
York, N. Y.
Dear Sir: The undersigned, desiring to become a member of the Code of
Fair Competition of the Iron and Steel Industry, a copy of which is annexed
hereto marked Annex A, hereby assents to/ all of the provisions of said Code
(hereinafter referred to as the Code), and, jffective as of the date on which the
Code shall have been approved by the Pre/ident of the United States of America
as therein provided, or as of the date on wl^ich this letter shall have been delivered,
if delivery thereof shall have been made subsequent to the date of which the Code
shall have been approved by said President as aforesaid, by the signing and
delivery of this letter becomes a member of the Code and effective as aforesaid
hereby agrees with every person, firm, association, and corporation who shall
then be or thereafter become a member of the Code that the Code shall constitute
a valid and binding contract between the undersigned and ail such other members.
Effective as aforesaid, pursuant to Section 5 of Article X of said Code, the
.undersigned (a) hereby assigns, transftrs and delivers to the Treasurer under the
Code, as an individual and not as treasurer of American Iron and Steel Institute,
in trust, all rights and causes of action whatsoever hereafter accruing to the
undersigned under the Code for liquidated damages by reason of any violation
thereof by anyone, and (b) hereby designates and appoints said Treasurer as
such individual the true and lawful attorney in fact of the undersigned, to de-
14520 CONCENTRATION OF ECpNOMIC POWER
mand, sue for, collect, and receipt for any and all amounts which shall be owing
to the undersigned in respect of any such right or cause of action, and to com-
promise, settle, satisfy, and discharge any such right or cause of action, all in
the name of the undersigned or in the name of said Treasurer, as said Treasurer
shall elect.
For all purposes of Section 1 of Article XI of the Code the address of the
undersigned, until it shall file with the Secretary of American Iron and Steel
Institute written notice of a change of such address, shall be as set forth at the
foot of this letter.
Very truly yours,
SCHEDULE B — THE EULES AND REGULATIONS IN RESPECT OF MEETINGS OF MEMBERS
OF THE CODE
Section 1. A meeting of members of the Code may be called and held at any
time by order of the Board of Directors, or by members of the Code having the
right to cast at least 50% of all the votes that might be cast at such meetings if
all the members of the Code were present thereat, on not less than three days'
notice to each of such memb^^s stating the time and place of such meeting and
the purposes thereof.
Sec. 2. At each meeting of ttie members of the Code each member thereof
shall have as many votes as shall equal the quotient obtained by dividing by
500,000 the aggregate amount in dollars of the invoiced value of the products
delivered by such member for consumption within the United States during the
preceding calendar year. Fractions in such quotient shall be disregarded; pro-
vided, however, that each member of the Code shall have at least one vote. All
questions as to the number of votes which each member of the Code shall be en-
titled to cast at any meeting of the members thereof shall be determined by the
Board ol Directors. Any person or firm who shall be a member of the Code may,
and any association or corporation which shall be a member of the Code shall,
vote at meetings of the members of the Code by proxy in writing duly executed
by such member and filed with the Secretary. Any such proxy may be for a
specified meeting or be a general proxy for any or all meetings that may be held
until such proxy shall have been revoked by an instrument in writing duly exe-
cuted by the member of the Code which gave such proxy and filed with the
Secretary.
Sec. 3. At each meeting of the members of the Code, members thereof having
the right to cast at least 75% of all the votes that might be cast at such meeting
if all the members of the Code were present thereat, shall constitute a quorum for
the transaction of business at such meeting.
Schedule C — Description op Wage Districts
1. Eastern District. — Comprises that part of the United States which is north
of the State of Virginia and east of a line drawn north and south through the
most easterly point of Altoona, Pennsylvania; that part of the State of Maryland
which is west of such line; and the Counties of Monongalia, Marion, and Harrison
in the State of West Virginia.
2. Johnstown District. — Comprises Cambria County and the City of Altoona
in the State of Pennsylvania.
3. Pittsburgh District. — Comprises the Counties of Westmoreland, Fayette,
Greene, Washington, Allegheny, Beaver, Butler, Armstrong, and Jefferson and
that part of the County of Clearfield which is west of a line drawn north and
south through the most easterly point of Altoona, all in the State of Pennsylvania.
4. Youngstown Valley District. — Comprises the Counties of Lawrence, Mercer,
and Venango in the State of Pennsylvania and the Counties of Trumbull, Ma-
honing, and Columbiana in the State of Ohio.
5. North Ohio River District. — Comprises the cities along the Ohio River north
of the City of Parkersburg, West Virginia, and the Counties of Belmont and
Jefferson in the State of Ohio, and the Counties of Marshall, Ohio, Brook, and
Hancock in the State of West Virginia.
6. Canton, Massillon, and Mansfield District. — Comprises the Counties of Stark
Tuscarawas, Summit, and Richland in the State of Ohio.
7. Cleveland District. — Comprises the Counties of Ashtabula, Lake, Cuyahoga
and Lorain in the State of Ohio.
8. Buffah District. — Comprises that part of the State of New York west of a
line drawn north and south through the most easterly point of Altoona, Penn-
svlvauia, and Erie County in that State.
CONCENTRATION OF ECONOMIC POWER 14521
9. Detroit-Toledo District. — Comprises the Counties of Seneca and Lucas in the
State of Ohio and the Counties of Monroe, Lenawee, Jackson, Wayne, Oakland,
Macomb, and Washtenaw in the State of Michigan.
10. South Ohio River District. — Comprises the State of Kentucky, the City of
Parkersburg, W. Va., tlie cities along the Ohio River south of said City, the
Counties of Guernsey, Muskingum, Jackson, and Butler in the State of Ohio and
the County of Wood in the State of West Virginia.
11. Indiana-Illinois-St. Louis District. — Comprises all the State of Indiana, ex-
cept the County of Lake; all the State of Illinois, except the Counties of Lake
and Du Page and the Chicago Switching District; the City of St. Louis and the
County of St. Louis in the State of Missouri; and the County of Rock in the State
of Wisconsin.
12. Chicago District. — Comprises the Chicago Switching District; the Counties
of Lake and Du Page in the State of Illinois; the County of Lake in the State of
Indiana; and the Counties of Kenosha, Racine, and Milwaukee in the State of
Wisconsin.
13. Southern District. — Comprises all that part of the United States south of
the States of Maryland, West Virginia, Kentucky, and Missouri, and the States
of Texas and Oklahoma, but does not include the County of Jefferson in the State
of Alabama.
14. Birmingham District. — Comprises the County of Jefferson in the State of
Alabama.
15. Kansas City District. — Comprises the County of Jackson in the State of
Missouri.
16. Duluth District. — Comprises the County of St. Louis in the State of
Minnesota.
17. Colorado District. — Comprises the State of Colorado.
18. Utah District. — Comprises the State of Utah.
19. Seattle District. — Comprises the County of King in the State of Washington
and the County of Multnomah in the State of Oregon.
20. San Francisco District. — Compriseg the Counties of San Mateo, Alameda,
Sacramento, and Contra Costa in the State of California.
21. Los Angeles District.- — Comprises the County of Los Angeles in the State
of California.
Schedule D — Minimum Rates of Pay for Common Labor
Per hour
1. Eastern District $0. 35
2. Johnstown District . 37
3. Pittsburgh District . 40
4. Youngstown Valley District . 40
5. North Ohio River District .40
6. Canton, Massillon, and Mansfield District .37
7. Cleveland District . 40
8. Buffalo District . 38
9. Detroit-Toledo District .40
10. South Ohio River District . 37
11. Indiana-Illinois-St. Louis District . 37
12. Chicago District .40
13. Southern District ' :. . 25
14. Birmingham District ■■- — .27
15. Kansas City District 1-- . 35
16. Duluth District . 37
17. Colorado District .40
18. Utah District ... .39
19. Seattle District . 38
20. San Francisco District . 37
21. Los Angeles District . 35
Schedule E — Concerning Prices and Terms of Payment
Section 1. Wherever used in the Code the terms hereinafter in this Section
1 defined shall, unless the context shall otherwise clearly indicate, have the
respective meanings hereinafter in this Section 1 set forth. The definition of
any such term in the singular shall apply to the use of such term in the plural
and vice versa.
(a) Until Schedule F of this Code shall hive been amended as in Article XII
of the Code provided, the term "basiag point" for any product means one of the
14522 CONCENTRATION OF ECONOMIC POWER
places listed in such Schedule- F as a basing point for such product. Thereafter
the term shall mean one of the places listed in such Schedule F as at the time in
effect as a basing point for such product
(b) The term "base price" of any product means the price for such product
f. o. b. a basing point, before any extras in respect of such product shall be added
or any discounts for early payment or deductions shall be allowed or made.
(3) The term "period of free credit" means the period of time between the
date of a shipment of a product to the purchaser of such product and the date
from and after which such purchaser shall be required to pay interest on the
purchase price of such product or any part thereof which shall not have been
paid prior to the expiration of such period.
(d) The term "date of invoice" means the date of the invoice of any product.
(e) The term "discount for early payment" means the amount of the deduction
allowed for the payment of an invoice of products before the expiration of the
period of free credit in respect thereof.
(f) The term "an affiliated group" means one or more corporations connected
through stock ownership with a common parent corporation, if (1) at least 75%
of the stock of each of such corporations (except stich common parent corporation)
is owned directly by one or more of the other corporations, and (2) such common
parent corporation owns directly at least 75% of the stock of at least one of the
other corporations. The term "an affiliated company of a member of the Code"
means (1) a corporation which is one of an affiliated group that also includes
such member of the Code, or (2), in case the member of the Code is a person,-
firm, or association, a corporation at least 75% of the stock of which is owned by
such member. For the purposes of this paragraph (f) the term "stock" does not
include nonvoting stock which is limited and preferred as to dividends.
Sec. 2. Each member of the Code shall, within ten days after the effective
date of the Code, file with the Secretary a list showing the base prices for all its
products, and from and after the expiration of such ten days such member shall
at all times maintain on file with the Secretary a list showing the base prices for
all its products and shall not make any change in such base prices except as
provided i' this Schedule E. Each such list shall state the date upon which it
shall becoi le effective, which date shall be not less than ten days after the date
of filing such list with the Secretary; provided, however, that the first list of base
prices filed by any member of the Code as above provided shall take effect on
the date of filing thereof, l^one of the base prices shown in any list filed by any
member of the Code as herein provided shall be changed except by the filing by
such member with the Secretary of a new list of its base prices, which shall be-
come effective on the effective date therein specified which shall not be less
than ten days after the date on which such new price list shall have been so filed.
In the case of pipe of sizes or kinds which are sold on a list and discount basis,
for the purposes of this Section 2 the list of base prices shall consist of a price list
and one or more basing discount lists, from which the base prices of such pipe
shall be determined; provided, however, that in the case of oil country tubular
goods there shall be filed in lieu of a list of base prices a price list and one or
more basing discount lists from which the delivered prices of such goods shall
be determined.
Sec. 3. Except as hereinafter otherwise provided in respect of standard Tee
rails of more than 60 pounds per yard, angle bars, and rail joints, the base price
for any product shown in any list of base prices filed by a member of the Code
in accordance with the provisions of the foregoing Section 2 shall be as follows:
(a) If such member shaU operate a plant for the production of such product
which is located at a basing point for such product, f. o. b. such basing point, or
(b) if such member shall operate a plant for the production of such product
which is not located at a basing point for such product, f. o. b. the basing point
for such product nearest in terms of all-rail freight rates to such plant, or (c) if
any Gulf or Pacific Coast port shall be listed as a basing point in Schedule F
of the Code as at the time in effect, f. o. b. cars dock such port. Except as other-
wise provided in this Schedule E, each member of the Code shall file with the
Secretary and maintain on file with him a list showing the base price for each
of its products for each basing point for such product at which a plant of such
member for the manufacture of such product shall be located and for each basing
point for such product which shall be nearest in terms of all-rail freight rates to
any plant of such member for the manufacture of such product not located at a
basing point for such product; and if any Gulf or Pacific Coast port shall be listed
in such Schedule F as a basing point for a product, such member may show in
such list its base price for such product at such basing point. All base prices
shown in the list so filed shall constitute the published base prices of such member
CONCENTRATION OF ECONOMIC POWER 14523
for the products and for the basing points shown in such list. Except as afore-
said, none of the members of the Code shall file any list of base prices showing any
price for any of its products other than the base price for such product f. o. b.
the basing point or basing points for such products as hereinbefore provided.
The published base price of each such member for any product (except standard
Tee rails of more than 60 pounds per yard, angle bars, and rail joints) for any
basing point for such product .other than that or those shown in the list of base
prices so filed by such member shall be deemed to be the lowest base price for
such product at such other basing point which shall be shown in the list of base
prices filed by any other member Of the Code and then in effect. All base prices
for standard Tee rails of more than 60 pounds per yard and all base prices for
angle bars and rail joints shall be f. o. b. mill of the producer thereof, or, in the
case of rails, angle bars, and rail joints carried by water from any Atlantic Coast
or Gulf port to any Gulf or Pacific Coast port, c. i. f. the port of destination.
Lists of prices filed with the Secretary pursuant to the foregoing Section 2 and
to this Section 3 shall be open to inspection at all reasonable times by anyone.
Sec. 4. Except as otherwise provided in this Schedule E of the Code, all prices
quoted and billed by any member of the Code for any product (except standard
Tee rails of more than 60 pounds per yard, angle bars and rail joints and oil
country tubular goods, which shall be quoted and billed as hereinafter provided)
sold by such member from and after ten days after the effective date of the
Code shall be deUvered prices, which (disregarding the extras, if any, required
by, and the deductions, if any, that may be made pursuant to, the provisions of
the Code) shall be not less than the sum of (a) the published base price of such
member for such product effective at the time of the sale thereof and (b) the all-
rail published tariff freight charges from the basing point on which such base
price is based to the place of delivery to the purchaser thereof or (1) if such
place of delivery shall be at such basing point, the published tariff switching
charges to such place of delivery from the plant of any member of the Code for
the production of such product at such basing point nearest in terms of such
switching charges to such place of delivery; or, (2) if such place of delivery shall
be at a Gulf or Pacific Coast port that is listed in Schedule F as a basing point, the
published tariff switching charges to such place of delivery from the dock for dis-
charging products nearest in terms of such switching charges to such place of
delivery; provided, however, that (a) in any case in which such product shall be
delivered by other than all-rail transportation", the member of the Code selling
such product may allow to the purchaser a reduction in the delivered price "other-
wise chargeable under this Section 4 at a rate which shall have been previously
approved by the Board of Directors and filed with the Secretary; and (b) in the
case of plates, shapes, or bars intended for fabrication for an identified structure,
for the purpose of establishing the delivered price thereof, the place of delivery
shall be deemed to be the freight station at or nearest to the place at which such
structure is to be erected, and not the shop of the fabricator; and (c) subject as
hereinafter in this Section 4 provided, if any list of prices filed with the Secretary
by any member of the Code pursuant to tliis Schedule E and at the time in effect
shall show a specified rate of deduction from the price of any product to be allowed
by such member on any sale of such product to any jobber for resale, such mem-
ber may, from and after the date on which such list shall have become effective,
allow to any jobber to whom such member shall sell such product for resale a
deduction from such price to such jobber for such product at a rate not greater
than the rate so shown in such list; and provided, further, that the Board of Direc-
tors by the affirmative vote of three fourths of the whole Board may permit any
member of the Code in special instances or members of the Code generally to sell
or contract for the sale of any product produced by such member or members at a
base price which shall be less than the then published base price of such member
or members for such product at the respective basing points therefor of such
members, if by such vote such Board shall determine that the making of such sale
or contract of sale at such less base price is in the interest of the Industry or of any
other branch of industry and will not tend to defeat the pohcy of Title I of the
National Industrial Recovery Act by making possible the using or employing of
an unfair practice. The Board of Directors shall prescribe such rules and regula-
tions as it shall deem proper by which the question of whether or not any pur-
chaser or prospective purchaser of any product for resale is a jobber shall be deter-
mined, ^nd in granting any permission as aforesaid, the Board of Directors shall
prescribe such rules and regulations in respect thereof as in its judgment shall be
necessary in order to insure to the members of the Code that action in accordance
with $,ny such permission shall not result in an unfair practice; and thereafter
such Board may by like vote rescind any pprmission so granted or modify, cancel,
124491— 41— Dt. 27 26
14524 CONCENTRATION OF EC50NOMIC POWER
or add to any rules and regulations so prescribed. The Secretary shall send to
each -member of the Code a copy of all such rules and regulations prescribed by
such Board with respect to the determination of the question of whether a pur-
chaser or prospective purchaser for resale is a jobber and he shall give notice in
writing of all action so taken by the Board of Directors to each member of the Code
which at the time shall be engaged in producing the kind of product in respect
of which any such permission was granted.
Before any member of the Code shall allow any such deduction to any jobber
or sell for resale to any purchaser who shall not be a jobber any product pursuant
to any permission so granted to such member, such member shall secure from
such jobber or such other purchaser an agreement substantially in a form thereto-
fore approved by the Board of Directors and filed with the Secretary whereby
such jobber or other purchaser shall agree with such member (a) that such jobber
or other purchaser will not, without the approval of the Board of Directors, sell
such product to any third party at a price which at the time of the sale thereof
shall be less than the price at which such member might at that time sell such
product to such third party, and (b) that, if such jobber or such other purchaser
shall violate any such agreement, he shall pay to the Treasurer as an individual
and not as treasurer of the Institute, in trust, as and for liquidated damages
the sum of $10 per ton of any product sold by such jobber or such other pur-
chaser in violation thereof. Except as aforesaid, all prices quoted and billed
by any member of the Code for standard Tee rails of more than 60 pounds per
yard, angle bars, and rail joints sold by it from and after ten days after the
effective date of the Code (disregarding extras and deductions as aforesaid)
shall be not less than the* published base price of such member for such rails,
angle bars, and rail joints effective at the time of the sale, thereof f.o.b. mill
of the producer, or, in the case of rails, angle bars, or rail joints carried by water
from any Atlantic Coast or Gulf port to any Gulf or Pacific Coast port, c.i.f
the port of destination. Except as aforesaid, all prices quoted and billed by
any member of the Code for oil country tubular goods sold by it from and after -
ten days after the effective date of the Code (disregarding extras and deductions
as aforesaid) shall be not less than the dehvered price for such goods determined
by deducting from the published list price of such member for such goods effec-
tive at the time of the sale thereof the published basing discounts applicable to
such goods effective at such time. In case at the effective date of the Code any
valid, firm contract to which a member of the Cole shall be a party shall exist
for a definite quantity of any product or for all or a substantial part of the require-
ments of the purchaser thereof (a) at a fixed price, or (b) at a price that can be
definitely determined in accordance with the provisions of such contract, or (c)
at the market price of such product at the date when a definite quantity thereof
shall be specified under such contract and such contract covered a sale of 20%
or more of the total quantity of such product produced and sold in the United
States in the calendar year 1932, it is recognized that such contract will tend to
establish the market price for such product during the remainder of its life and
that, if the other members of the Code which produce and sell such product
shall by the foregoing provisions of this Schedule E be prevented from selling
such product during the remainder of the life of such contract at as favorable a
price and on as favorable terms and conditions as those provided for in such
contract, then unfair competition as between the meinber of the Code which
shall be a party to such contract and the other members thereof and also as be-
tween the other party to such contract and its competitors may result. Accord-
ingly, anything herein to the contrary notwithstanding, during the remainder of
the life of such contract any member of the Code may sell such product at a price
and on terms and conditions as favorable as (but not more favorable than) the
price, terms, and conditions provided for in such contract.
Sec. 5. The Board of Directors shall have power on its own initiative, or on the
complaint of any member of the Code, to investigate any base price for any
product at any basing point shown in any list filed with the Secretary by any
member of the Code, and for the purpose of the investigation thereof to require
such member to furnish such information concerning the cost of manufacturing
such product as the Board of Directors shall deem necessary or proper for such
purpose. If the Board of Directors after such investigation shall determine
that such base price is an unfair base price for such product at such basing point,
having regard to the cost of manufacturing such product, and that the main-
tenance of such unfair base price may result in unfair competition in the Industry,
the Board of Directors may require the member of the Code that filed the list in
which such unfair base price is shown to file a new list showing a fair base price
for such product at such basing point, which fair base price shall become effective
CONCENTRATION OF ECONOMIC POWER 14525
immediately upon the filing of such list. If such member of the Code shall not
within ten days after notice to it of .eh determination by the Board of Directors
file a new list showing such fair base price foi such product at such basing point
the Board of Directors shall have power to fix a fair base price for such product
at such basing point, which fair base price, however, shall not be more than the
base price of any other member of the Code at that time effective for such product
at such basing point and in i:espect of which the Board of Directors shall not
theretofore have begun an investigation or a complaint shall not have been made
by any member of the Code. When the decision of such Board fixing such fair base
price shall have been filed with the Secretary and the Secretary shall have given •
notice thereof to such member, such fair base price shall be the base price of
such member for such product at such basing point, until it shall have been
changed as in the Code provided. A notice of all decisions of the Board of Direc-
tors under this Section 5, together with the reasons therefor, shall be filed with
the President.
Sec. 6. The Board of Directors by the affirmative vote of a majority of the
whole Board may establish maximum rates of discount and maximum periods of
free credit, other than those specified in Schedule G of the Code, which may be
allowed by any member of the Code with respect to the sale of any product or
Eroducts to jobbers for resale as permitted by the provisions of Section 4 of this
chedule E. The Secretary shall give notice in writing of any action taken by the
Board of Directors in accordance with the provisions of this Section 6 to each
member of the Code which at the time shall be engaged in producing the kind of
product in the sale of which any such other rates or periods shall have been estab-
lished by such action. Except as aforesaid and except as elsewhere in this Sched-
ule E of the code otherwise provided, the maximum rates of discount for early
paymeui/ and the maximum periods of free credit which may be allowed by any
member of the Code shall be the rates and periods specified in said Schedule G.
Except as aforesaid, all invoices for products sold by any member of the Code
after the effective date of the Code shall bear interest from and after the expiration
of the period of free credit at a rate which shall be not less than the then current
rate established by the Board of Directors and filed with the Secretary. Nothing
in the Code contained shall prevent any member of the Code from allowing
credit to any purchaser or allowing any purchaser to delay payment in respect of
any invoice for a longer period than the maximum period of free credit specified
in such Schedule G or such other maximum*period as shall be established in
accordance with the provisions of this Section 6; but, if any member of the" Code
shall allow credit to any purchaser or allow any purchaser to delay payment in
respect of any invoice for a period longer than such maximum period of free
credit, then such member shall charge and collect interest on the amount in
respect of which credit shall be so allowed or the payment of which shall have been
so delayed at a rate not less than the current rate established and filed as aforesaid.
Sec. 7. Except as in this Schedule E of the Code otherwise provided, any
extras added to, and any deductions made from, the base price for any product
sold by any member of the Code "in determining its quoted or billed price for such
product shall be uniform for all members of the Code. The rates of such extras
and of such deductions shall be those approved from time to time by the Board
of Directors as being in accordance with the trade practice customary in the
Industry at the efi'ective date of the Code and as meeting the requirements of the
Code. Lists showing such rates shall be filed with the Secretary and shall be open
to inspection at all reasonable times by anyone. In case any member of the Code
shall sell any product to which any such rate of extra or deduction shall apply,
except as aforesaid, such member shall add an extra at a rate which shall not be
less than the rate of extra applicable to such product theretofore approved by the
Board of Directors as aforesaid and at the time in effect and none of the members
of the Code shall make any deduction at a rate that shall be more favorable to
the purchaser of such product than the rate of deduction applicable to such
product theretofore approved by the Board of Directors a^ aforesaid and at the
time in effect; provided, however, that nothing in the Code contained shall be
so construed as to prevent any member of the Code from selling or contracting to
sell any product for use by the purchaser thereof in the manufacture of articles
for shipment in export trade within the meaning of the term "export trade" as
it is used in the Export Trade Act under an agreement by such member of the
Code with such purchaser that, when such articles shall have been shipped in
such export trade, such member of the Code shall make an allowance at a rate
approved by the Board of Directors and a statement of the approval of which
shall theretofore have been filed with the Secretary, which rate in the opinion of
such. Board shall be sufBcient to enable such member of the Code or such pur-
14526 CONCENTRATION OF ECONOMIC POWER
chaser to meet foreign competition in the sale and delivery of such product or
such Articles, as the case may be.
Sec. 8. — The practice of shipping products on consignment may result in
unfair competition and it is the intention of the Industry to eliminate, such
practice as soon as possible after the effective date of the Code. Accordingly,
except to the extent necessary to carry out arrangements existing on the effec-
tive date of the Code and which shall have been reported to the Board of Direc-
tors, from and after such date none of the members of the Code shall deliver
products, other than pipe, on consignment except to an affiliated company of
such member. All arrangements for the .delivery by any member of the Code
of products on consignment (other than consignments to an affiliated company
of such member and other than consignments of pipe) existing on the effective
date of the Code shall be terminated on or before June 30, 1934, and all stock
held on consignment on that date shall either be sold to the consignee or posses-
sion thereof shall be taken by the consignor. The Board of Directors shaU investi-
gate problems presented in the elimination of consigned stocks of pipe and
shall recommend ito the members of the Code which shall be parties to then
existing arrangements with respect to shipments of pipe on consignment (other
than consignments from a member of the Code to an affiliated company) such
action in respect thereof as such Board shall deem proper and designed to accom-
plish the termination of all such arrangements (other than as aforesaid) at as
early a date as possible.
Sec. 9. For all purposes of this Schedule E, a delivery of any product made
pursuant to a contract of. sale shall be regarded as a sale thereof made at the
time of the making of such contract. Except in the case of a product required
by a purchaser for a specified definite contract of such purchaser with a third
party at a fixed price, none of the members of the Code shall make any contract
of sale of any product by the terms of which the shipment of such product is
not required to be completed before the end of the calendar quarter year ending
not more than four months after the date of the making of such contract.
Sec. 10. Nothing in the Code contained, however, shall be so construed as
to prevent the performance by any member of the Code of a valid, firm contract
existing and to which it is a party at the effective date of the Code for a definite
quantity of any product or for all or a substantial part of the requirements of
the purchaser thereof (a) .at a fixed price, or (b) at a price that can be definitely
determined in accordance with the provisions of such contract, or (c) at the
market price for such product at the date when a definite quantity thereof shall
be speci^fied under such contract. If any member of the Code shall at the effec-
tive date thereof be a party to any contract for the sale of any product by such
member which by its terms is to continue after December 31, 1933, and by its
terms the price to be paid for such product by the other party to such contract
is related to the market price thereof at the date when a definite quantity thereof
may be specified under such contract and may be less than such market price,
then such member shall within thirty days after the effective date of the Code
'file a copy of such contract with the Secretary in order that the Board of Direc-
tors may consider it and take such action in respect thereof consistent with the
rights and obligations of the parties to such contract as such Board shaU deem
proper.
Sec. 11. a sale made by any member of the Code indirectly through any
aflBliated company of such member shall be deemed to be a sale made by such
member.
Sec. 12. Nothing in the Code contained shall be deemed to apply to or afifect
the sale of any product for direct shipment in export trade by any member of
the Code within the meaning of the term "export trade" as it is used in the
Export Trade Act or, unless and to the extent that the Board of Directors shall
other%'7ise determine, the sale of any product by any such member for direct
shipment to the Philippines, Hawaii, or Puerto Rico or other insular possessions
of the United States of America.
Sec. 13. If and to the extent requested by the Administrator, all decisions of,
permissions, and approvals given by and rules and regulations made by, the
Board of Directors pursuant to any provisions of this Schedule E shall be reported
to him.
CONCENTRATION OF ECONOMIC POWER
14527
SCHEDULE F LIST OF BASING POINTS
The places hereinafter in
respective products named.
Axles — Rolled or forged:
Pittsburgh, Pa.
Chicago, 111.
Birmingham, Ala.
Bale Ties:
Pittsburgh, Pa.
Cleveland, Ohio
Chicago, 111.
Birmingham, Ala.
Duluth, Minn.
Gulf Ports 1
Pacific Coast Ports ^
Bars — Alloy steel, hot rolled:
Pittsburgh, Pa.
Buffalo, N. Y.
Chicago, 111.
Canton, Ohio
Massillon, Ohio
Bethlehem, Pa.
Bars — Cold finished, carbon, and alloy:
Pittsburgh, Pa.
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Gary, Ind.
Bars — Concrete reinforcing:
Pittsburgh, Pa.
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Gary, Ind.
Birmingham, Ala.
Youngstown, Ohio
Gulf Ports
Pacific Coast Ports
Bars — Iron :
Pittsburgh, Pa.
Troy, N. Y.
Jersey City, N. J. •
Dover, N. J.
Philadelphia, Pa.
Columbia, Pa.
Lebanon, Pa.
Reading, Pa.
Danville, Pa.
Burnham, Pa.
Creighton, Pa.
Richmond, Va.
Louisville, Ky.
Terre Haute, Ind.
Bars — Merchant steel;
Pittsburgh, Pa.
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Gary, Ind.
Birmingham, Ala.
Gulf Ports
Pacific Coast Ports '
this Schedule F listed are the basing points for the
Bars — Tool steel:
Pittsburgh, Pa.
Syracuse, N. Y.
Bethlehem, Pa.
Girder rails:
Lorain, Ohio
Steelton, Pa.
Ingots, blooms, billets, and slabs —
' Alloy:
Pittsburgh, Pa.
Buffalo, N. Y.
Chicago, 111.
Canton, Ohio
Massillon, Ohio
Bethlehem, Pa.
Ingots, blooms, billets, and slabs —
Carbon:
Pittsburgh, Pa.
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Gary, Ind.
Birmingham, Ala.
Youngstown, Ohio
Light rails — 60 lbs. or less per yard:
Pittsburgh, Pa.
Chicago, 111.
Birmingham, Ala.
Mechanical tubing:
Pittsburgh, Pa.
Canton, Ohio
Shelby, Ohio
Detroit, Mich.
Milwaukee, Wis.
Pig iron — Foundry, malleable, open-
hearth, basic, and Bessemer:
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Birmingham, Ala.
Youngstown, Ohio
Neville Island, Pa.
Sharpsville, Pa.
Erie, Pa.
Bethlehem, Pa.
Swedeland, Pa.
Birdsboro, Pa.
Hamilton, Ohio.
Jackson, Ohio.
Toledo, Ohio.
Granite City, 111.
Detroit, Mich.
Duluth, Minn, (except open-hearth
basic)
Provo, Utah
Everett, Mass.
Sparrows Point, Md.
Pig iron — Low phosphorus:
B'rdsboro, Pa.
> Except as otherwise shown in this Schedule F, the Gulf Ports are Mobile, Ala., New Orleans, La., and
Orange, Port Arthur, Beaumont, Baytown, Galveston, and Houston, Tex. . ,. ., ,^^ noH«„H^
'The Pacific Coast ports are San Pedro (includes Vi^ilmington) and San Francisco (includes Oakland)
Calif.: Portland, Oreg.; and Seattle (includes Tacoma), Washington; and San Diego, Calif.; for i^iates ana
Strar . ural Shapes only.
14528
CONCENTRATION OF ECONOMIC POWER
Pig iron — Low phosphorus — Continued.
Steelton, Pa.
Standish, N. Y.
Johnson City, Tenn.
Pipe — Rigid electrical conduit:
Pittsburgh, Pa.
Evanston, 111.
Pipe — -Standard, line pipe, and oil
country tubular products:
Pittsburgh, Pa.
Gary, Ind.
Lorain, Ohio
Plates:
Pittsburgh, Pa.
Chicago, 111.
Gary, Ind.
Birmingham, Ala.
Coates-ville, Pa.
Sparrows Point, Md.
Gulf Ports
Pacific Coast Ports
Railroad tie plates:
Pittsburgh, Pa.
BuflFalo, N. Y.
Chicago, 111.
Birmingham, Ala.
St. Louis, Mo.
Kansas City, Mo.
Minnequa, Colo.
Weirton, W. Va.
Portsmouth, Ohio.
Steelton, Pa.
Pacific Coast Ports
Railroad track spikes:
Pittsburgh, Pa.
Buffalo. N. Y.
Cleveland, Ohio
Chicago, 111.
Birmingham, Ala.
Youngstown, Ohio
Portsmouth, Ohio
Weirton, W. Va.
St. Louis, Mo.
Kansas City, Mo.
Minnequa, Colo.
Philadelphia, Pa.
Lebanon, Pa.
Columbia, Pa.
Richmond, Va.
Jersey City, N. J.
Pacific Ceast Ports
Sheet bars:
Pittsburgh, Pa. "
Buffalo, N. Y.
Cleveland, Ohio
Chicago, 111.
Youngstown, Ohio
Canton, Ohio
Sparrows Point, Md.
Sheets:
Pittsburgh, Pa.
Gary, Ind.
Birmingham, Ala.
Pacific Coast Ports
Skelp:
Pittsburgh, Pa.
Buffalo, N. Y.
Chicago, 111.
Youngstown, Ohio
Coatesviile, Pa.
Sparrows Point, Md.
Steel sheet piling:
Pittsburgh, Pa.
Buffalo, N. Y.
Chicago, 111.
Gulf Ports
Pacific Coast Ports
Strip steel — Cold-rolled:
Pittsburgh, Pa.
Cleveland, Ohio
Worcester, Mass.
Strip steel — Hot-rolled-
Pittsburgh, Pa.
Chicago, III
Structural shf pes:
Pittsburgh, Pa.
Buffalo, N. Y.
Chicago, 111.
Birmingham, Ala. (standard shapes
only).
Bethlehem, Pa.
Gulf Ports
Pacific Coast Ports
Tin plate, tin mill black plate and terhe
plate:
Pittsburgh, Pa.
Gary, Ind.
Pacific Coast Ports
Tubes — Boiler:
Pittsburgh, Pa.
Tube rounds:
Pittsburgh, Pa.
Buffalo, N. Y.
Cleveland, Ohio
Chicago, lU.
Birmingham, Ala.
Wheels — Car, rolled steel:
Pittsburgh, Pa.
Chicago, lU.
Wire — Drawn, except as hereinafter
specified:
Pittsburgh, Pa.
Cleveland. Ohio
Chicago, 111.
Birmingham, Ala.
Anderson, Ind.
Duluth, Minn.
Worcester, Mass.
Gulf Ports
New Orleans, La.
Galveston, Tex.
Houston, Tex.
Pacific Coast Ports
Wire nails and staples, barbed wire,
and wire fencing:
Pittsburgh, Pa.
Cleveland, Ohio
CONCENTRATION OF ECONOMIC POWER 14529
Wire nails and staples, barbed wire,
and wire fencing — Continued.
Chicago, 111.
Birmingham, Ala.
Anderson, Ind.
Duluth, Minn.
Gulf Ports
Pacific Coast Ports
Wire rods:
Pittsburgh, Pa.
Cleveland, Ohio
Chicago, 111.
Birmmgham, Ala.
Wire — Spring:
Pittsburgh, Pa.
Cleveland, Ohio
Chicago, 111
Worcester, Mass.
Pacific Coast Ports
Wire — Telephone :
Pittsburgh, Pa.
Cleveland, Ohio
Waukegan, 111.
Munc:e, Ind.
Trenton, N. J.
Worcester, Mass.
Sparrows Point, Md.
SCHEDULE G MAXIMUM RATES OF DISCOUNT FOR EARLY PAYMENT AND MAXIMUM
PERIODS OF FREE CREDIT
Maximum Rates of Discount for Early Payment
In the case of products shipped from plants located east of the Mississippi
River to Pacific Coast Ports and which shall be invoiced from such plants — }i of
1 %, if the invoice of such products shall be paid within 25 days from the date of
such invoice; in all other cases — >^ of 1%, if the invoice of such products shall be
paid within 10 days from the date of such invoice; provided, however, in the
latter cases, that any member of the Code may allow such discount of >^ of 1%
for payment within 10 days on the basis of settlements three times in each month,
as follows:
(1) On invoices for products dated from the 1st to the 10th, inclusive, in any
month, such discount may be allowed on payment of such invoices on or before
the 20th of such month;
(2) On invoices for products dated from the 11th to the 20th, inclusive, in
any month, such discount may be allowed on payment of such invoices on or
before the 30th of each month; ahd
(3) On invoices for products dated from the 21st to the end of any month,
uch discount may be allowed on payment of such invoices on or before the 10th
ot the next following month.
Any discount allowed in accordance with the provisions of this Schedule G
shall apply only to the invoiced value of the products specified therein and not
to any part of the transportation charges on such products.
Maximum Periods of Free Credit
In the case of products shipped from plants located east of the Mississippi
River to Pacific Coast ports and which shall be invoiced from such plants — 45
days; in all other cases — 30 days.
SCHEDULE H LIST OF UNFAIR PRACTICES
For all purposes of the Code the following described acts shall constitute unfair
practices :
A. Making or promising to any purchaser or prospective purchaser of any prod-
uct, or to any officer, employee, agent or representative of any such purchaser or
prospective purchaser, any bribe, gratuity, gift or other payment or remunera
tion, directly or indirectly.
B. Procuring, otherwise than with the consent of any member of the Code,
any information concerning the business of such member which is properly re-
garded by it as a trade secret or confidential within its organization, other than
information i elating to a violation of ar y provision of the Code.
O. Imitating or simulating any design, style, mark, or brand used by any other
member of the Code.
D. Using or substituting any material superior in quality to that specified
by the purchaser of any product or using or substituting any material or any
method of manufacture not in accord with any applicable law, rule, or regulation
of any governmental authority.
14530 CONCENTRATION OF ECONOMIC POWER
E. Cancelling, in whole r in part, or permitting the cancellation in whole or
in part of any contract of Sc^ie of any product, except for a fair consideration, or
paying or allowing to any purchaser in connection with the sale of any product
any rebate, commission, credit, discount, adjustment, or similar concession other
than as is permitted by the Code and specified in the contract of sale.
F. Disseminating, publishing, or circulating any false or misleading informa-
tion relative to any product or price for any product of any member of the Code,
or the credit standing or ability of any member thereof to perform any work or
manufacture or produce any product, or to the conditions of employment among
the employees of any member thereof.
G. Inducing or attempting to induce by any means any party to a contract
with a member of the Code to violate such contract.
H. Aiding or abetting any person, firm, association, or corporation in any unfair
practice.
I. Making or giving to any purchaser of any product any guaranty or pro-
tection in any form against decline in the market price of such product.
J. Stating in the invoice of any product as the date thereof a date later than the
date of the. shipment of such product, or including in any invoice any product
shipped on a date earlier than the date of such invoice.
K. Making any sale or contract of sale of any product under any description
which does not fully describe such product in terms customarily used in the
Industry.
L. Rendering to any purchaser of any product in or in connection with the
sale of such product any service, unless fair compensation for such service shall
be paid by such purchaser.
M. Any violation of any other provision of the Code, whether or not therein
expressed to be such, or using or employing any practice not hereinabove in this
Schedule H descriloed which the Board of Directors by the affirmative vote of
three fourths of the whole Board shall have declared to be a practice that would
tend to defeat the policy of Title I of ihe National Industrial Recovery Act and,
therefore, an unfair practice, and of which determination by such Board the Secre-
tary shall have given notice to the members of the Code and to the President.
'Exhibit No. 2216" is on file with the committee.
Exhibit No. 2217
[Copy]
American Iron and Steel Institute
350 Fifth Avenue, New York
July 12, 1935.
LuKENS Steel Company,
Coatesville, Pennsylvania.
(Attention: Mr. J. Frederick Wiese, Asst. to Vice-President.)
Dear Sirs: I have received your letter of July 6, in which it is stated that you
sell Locomotive Fire Box and Boiler Steel to most of the railroads in the country,
and that from time to time the Institute has sent you figures representing divisions
and mileages incidelit to quoting to the railroads. It is stated ip ydur lette> that
the total number of railroads from which this information has been furnished is a
small portion of the railroads of the country which purchase your steel, and yeu
ask if it is not possible for us to furnish you the figures pertaining to the balance of
the railroads, stating that these figures must be available by this time as this
method of quoting must have been followed for a good many months.
The information sheets showing minimum divisions and short line mileages
which we have distributed to members of the industry have been furnished to us
by most of the railroads in the eastern part of the United States. We have,
however, been unable to obtain ipformation from carriers in the southern and wes-
tern parts of the United States and from many of^the so-called short line railroads.
We are advised that the southern lines have no stated divisional arrangements with
the northern lines, and it appears that divisions must be arranged as shipments
move or at stated intervals as the southern carriers usually specify that the infor-
mation as to minimum divisions is not guaranteed as to permanency.
CONCENTRATION OF ECONOMIC POWER 14531
The western lines' divisional arrangements with the eastern lines are so compli-
cated that most of the western carriers apparently prefer to advise information as
to minimum divisions and short line mileages as the occasion for their use arises.
One of the western railroads, the Southern Pacific, has indicated that the}' show
the information as to divisions, junction points and mileages on the inquiry which
their Purchasing Department sends out, and for this reason this particular line
feels it inadvisable to furnish the information to us for distribution to the various
members of the industry, and practicall)' all of the southern and western lines have
indicated their willingness to supply the information when it is requested.
This Department has received numerous requests from various shippers of steel
products for information as to foreign line divisions and short line mileages to en-
able such shippers to quote and bill proper delivered prices, and we have commun-
icated with such railroads either by telephone, telegraph or letter and in all cases
this information has been furnished to us; and we have transmitted such informa-
tion to the shipper who has requested us to obtain it. Therefore, I should like to
suggest that should your Company desire information as to minimum divisions
and short line mileages from any of the railroads in the United States, which
information has not been furnished to date and you will advise us stating the bas-
ing point or points from which you wish this information secured, it will be our
pleasure to endeavor to secure it for you and advise you promptly. Should you
desire us to secure same information from your shipping points, if you will state
the name of your shipping points, we will endeavor to secure this information also.
In the second paragraph of your letter, it is stated that it is most difficult to
figure the proper prices and freight allowances since the emergency rate became
effective. You refer in your letter to the Chicago and Eastern Illinois Railroad
destination — Dolton, 111., for which point the Chicago and Eastern Illinois
Railroad has indicated on the sheets furnished by such railroad that the foreign
lines received 100% of the through rate less a switching charge of 2 cents per 100
lbs., minimum 60,000 pounds per car, which accrues to the ChicTago and Eastern
Illinois Railroad, and you inquire as to whether this switching charge per 100
pounds has been increased by 10% in compliance with the decision of the Inter-
state Commerce Commission in Ex Parte 115.
The carriers themselves for a considerable length of time after April 18th, the
date the emergency charge became effective, were not agreed among themselves
regarding the proper method of dividing the freight rate and the emergency
charge. However, the various carriers have now agreed that where the through
rate is divided by a percentage with no terminal deduction, the emergency charge
will be divided by the same percentage as the freight rate is divided. In other
words, emerbency charge is added to the freight rate and the total through rate
thus obtained is divided by these percentages. However, in the case of deduc-
tions for terminal allowances, switching charges, bridge tolls, etc., which are
deducted from the through rate before the rate is prorated, the method which has
been adopted, is as follows:
The rate in effect before the emergency charge is applied is divided strictly in
accordance with the divisions furnished after making the proper deductions.
After ascertaining the total amount of the through rate accruing to foreign lines
In this manner, the through rate without the emergency charge added is divided
into the foreign line proportion as ascertained hereinabove, and a new percentage
is arrived at which the carriers indicate as a revenue prorate. This revenue
prorate is then applied to the emergency charge alone and the proportion of the
emergency charge determined in this manner is added to the foreign line propor-
tion indicated hereinabove, in order to determine the total amount accruing to
foreign lines.
As applied to a shipment of steel products from Pittsburgh, Pa. to Dolton, lU.
on the Chicago and Eastern Illinois Railroad, the foreign line division is ascertained
as follows:
The carload rate from Pittsburgh to Dolton before the emergency charge was
added, was 34^, the emergency charge being 2 cents, making the total rate 36
cents. Deducting the 2 cents per hundred pounds minimum 60,000 lbs. switching
charges of the Chicago and Eastern Illinois Railroad from the rate of 34 cents
leaves a balance accruing to foreign lines, of 32^. Dividing the foreign line pro-
portion of 32^i by the through rate of 34^ produces a revenue prorate of 94 %, and
94 % of the emergency charge of 2^ amounts to $.0188 which is added to the 32^
indicated hereinabove, making the total amount of charges accruing to foreign
lines, of $.3388, which under the disposition of fractions becomes $.339.
It will be noted that the division of emergency charge in this manner allows an
increase of approximately 7% to the 2 cents switching charge and not 10% as
referred to in your letter.
14532 CONCENTKATION OF ECONOMIC POWER
If the information given above does not set you straight in the matter, I would
be pleased to hear further from you.
Very truly yours,
B
ETB:HM
There is no Exhibit No. 2218
There is no Exhibit No. 2219
Exhibit No. 2220
[Copy]
LuKENS Steel Company,
Coatesville, Pa., July 6, 19S5.
Mr. R. K. Keas,
Sec. Traffic Comm., Amen can Iron and Steel Institute,
S50 hifth Avenue, New York, N. Y.
Dear Sir: As you know, we sell Locomotive Firebox and Boiler Steel to most
of the railroads in the country. From time to time the Institute has sent us figures
representing divisions and mileages incident to quoting the railroads under the
provisions of ^Ar-8. However, of the total railroads purchasmg Lukens' steel a
very few have submitted the necessary figures. Can't you possibly furnish us
with the figures pertaining to the balance of the railroads? Certainly, these figures
must be available by this time as the practice of quoting under the stipulations of
A-8 has been followed for a good many months.
It is most difficult to figure the proper prices and freight allowances now since
the emergency rate became effective. So many individual problems come up;
for instance, you have furnished us with figures relative to the Chicago & Eastern
Illinois Raili-oad. That tabulation of figures shows a 2)4 switching charge for
Dolton, 111. This means that the balance of the through rate from Coatesville to
Dolton was considered as prorate. Has the emergency charge increased this
switching charge by 10% or has that rate remained constant, thereby increasing
the prorate by 2fi?
Anything you can do for us in this connection will certainly be appreciated.
Very truly yours,
Lukens Steel Company.
(Sgd) J. Frederic Wiese,
Assistant to Vice President.
JFW/PDB
Exhibit No. 2221
[Copy]
American Iron and Steel Institute
350 Fifth Avenue, New York
October 15, 1935.
Mr. H. C. Devine,
Purchasing Agent, St. Louis-Southwestern Railway Lines,
Cotton Belt Building, St. Louis, Missouri.
Dear Sir: A member of the industry has furnished us the attached statement
showing through rates, carload and less carload, on boiler tubes from basing and
shipping points to consuming points on the St. L. S. W. Railway System and the
proportion accruing to foreign lines, together with the costs from the junction
with the foreign line to the destination based on your short-line mileage figuted
CONCENTRATION OF ECONOMIC POWER 14533
at five mills per ton per mile and has informed us that this statement waa furnished
by your office.
Your attention is directed to the figures shown in the column headed "Cost per
100 Lbs. at .005 per ton per mile from junction to destination." To the destina-
tion Pine Bluff, Arkansas, you show a short-line mileage of 398 miles as figuring
9.9^, whereas this should read 9.95^ which under our rule covering the disposition
of fractions becomes lOji. This will have the efi'ect of increasing the total freight
factor from the various shipping and basing points shown by one-tenth of a cent
as per figures shown on the attached statement in pencil.
We desire to furnish a copy of this statement to all members of the industry
producing boiler tubes, but before doing so would appreciate your advising us if
you agree the change referred to above is correct and also inform us if you have any
other corrections on this form since same was distributed as we desire very much to
have the information correct before distributing to members of the industry.
Very truly yours,
B
ETB:AC
Exhibit No. 2222
[Copy]
American Iron and Steel Institute
350 Fifth Avenue, New York
July 18, 1936.
Mr. J. W. RiMMER,
Vice President, Boston and Maine Railroad,
Boston, Massachusetts.
Dear Sir: This will acknowledge your letter of July 17, your File 8-23, wherein
you refer to your letters of April 13, 1934 and May 1 and 10, 1935 having reference
to divisions and mileages from certain basing points to points of delivery on the
Maine Central Railroad. It is noted that since these statements were prepared
a new routing arrangement has been entered into between Canadian National
and the Maine Central whereby all traffic is interchanged at either Danville
Junction or Yarmouth Junction, rather than at North Stratford; and for these
extra haulage by the Canadian National the Maine Central allows the Canadian
National 15 per cent of its North Stratford earnings less the arbitrary shown on the
statements furnished to us.
It is further noted the example as to how this division of the rates wiU work
and we are arranging to correct the sheets which we have furnished to the members
of the Industry to reflect the changes advised by you. There are certain points, *
however, that we would like to be definitely informed about. Take for illustra-
tion: Evanston, Illinois — On your sheet you show the minimum division to
junction of purchasing line — 73.9% — using the formula indicated in your letter
will produce a foreign line division of 79.315%. We have dropped the last two
fractions on this figure and are calling the percentage accruing to foreign lines
79.3%. Is this in accordance with your understanding of how the matter should
be handled?
From Canton, Ohio you show foreign line divisions 69%. Using the' formula
prescribed in your letter you arrive at a foreign line percentage of 73.65%. We
are showing this 73.7%. In other words, we are dropping all fractions less than
.5% and increasing all fractions from .5% to .9% to the next higher unit. We
would appreciate your advising us if this is in line with your understanding. The
same method of procedure is carried out in each instance where a fraction runs
more than two places.
Please let us have an early reply as we are withholding distribution of this
information to the members of the Industry pending your approval of this method
of handling disposition of fractions in' these percentages.
Very truly yours,
(Signed) B
ETB:HM
14534 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2223
[Copyl
American Iron and Steel Institute
350 Fifth Avenue, New York
September 9, 1935.
LocKHART Iron and Steel Co,
Pittsburgh, Pennsylvania.
(Attention: Mr. E. H. Paschold.)
Dear Sirs: I have received your letter of September 4, in which you refer to
the carload and less carload rates applying from Pittsburgh, Pa. to the New York
Central Railroad at Springfield, Mass., and inquire if the figures you have shown
in your letter are not the proper figures arrived at by the use of the minimum
divisions and short line mileages furnished by the New York Central System
Lines.
For your information I wish to advise that the figures shown in your letter are
not the correct figures in accordance with the method used by the carriers in
dividing the emergency charge. The various carriers have adopted a rule among
themselves that where there are minimum foreign line proportions or terminal
deductions to be made from the through rate before the rate is prorated, the
emergency charge is divided by the use of a revenue prorate which is arrived at
by dividing the through rate into the amount accruing to each line.
In the particular case to which you refer, where the carload and less than carload
rate without the emergency charge added from Pittsburgh, Pa. to Springfield,
Mass. is 38^ and 480 respectively, the proper division of both rates are arrived at
as follows: Since the amount accruing to foreign lines is 8% of the through rate
and this amount is less than 50 on both carload and less than carload rates, then
the minimum division becomes 50 per 100 pounds. The revenue prorate in each
case is arrived at by dividing the carload .and less carload rate into 50 per 100
pounds or the minimum division. In the case of carload shipments, 380 divided
into 50 produces a revenue prorate of 13% and since the emergency carload charge
is 20, 13% of 20 amounts to .00260 and adding this amount to the 50 minimum
charge makes a total foreign line proportion of .0526, which under the rule covering
the disposition of fractions becomes .0530. To this amount is added five mills
: (.005) per ton for 581 miles-for the short line mileage from Youngstown, Ohio to
Springfield, Mass., which amounts to .145250 and becomes under the rule covering
the disposition of fractions .1450, making the total freight factor applying on
carload shipments from Pittsburgh to Springfield the total of .0530 and .1450 or
.1980.
On less carload shipments the revenue prorate is determined by dividing the
less carload rate into 50 which produces a revenue prorate of 10%. Ten percent
of the less carload emergency charge of 4.80 amounts to .00480 and adding this
amount to the minimum foreign line division of 50 produces a total foreign line
division of .05480, which under the rule of the disposition of fractions becomes
.0550 and adding to this amount .01450, the charge for 581 miles, five mills (.005)
per ton produces a less carload freight factor of 200.
- I trust that I have made the method to be used in the above transaction per-
fectly clear to you, but if there is anything which is not entirely clear, I shall
appreciate it if you will write me further in connection with the matter.
Very truly yours,
ETB:HK
CONCENTRATION OF ECONOMIC POWER 14535
There is no Exhibit No. 2224
Exhibit No. 2225
[Copy]
LocKHART Iron and Steel Co.,
Pittsburgh, Pa., September 4th, 1935.
Mr, R. K. Keas,
Secretary, Traffic Committee, American Iron and SteeUnstituie,
350 Fifth Avenue, New York, N. Y.
Dear Sir: Will you kindly advise if we are correct in the division of the freight
cost, per Commercial Resolution A 8, on shipments of Iron and Steel bars to the
New York Central Railroad, consuming point Springfield, Mass.?
Carload from Pittsburgh, Pa.
. 38 pubhshed rate
. 02 emergency charge
. 40 8% foreign division, .032; minimum .05
Less Carload from Pittsburgh, Pa.
, 48 published rate
. 048 emergency charge
. 528 8% foreign division, .0428; minimum .05
line haul Youngstown to Springfield, Mass. 581 miles, at .145; or a total freight
cost of .195.
Thanking you for your courtesy extended, we are
Yours very truly,
LocKHART Iron & Steel Company.
(Sgd) E. H. Paschold.
EHP.P
Exhibit No. 2226
[Copy]
American Iron and Steel Institute
350 Fifth Avenue, New York
Bethlehem, Pa., January 29th, 1934.
Mr. S. E. Hackett,
Chairman, Commercial Committee,
American Iron and Steel Institute, Pittsburgh, Pa.
Dear Sir: The Traffic Committee recommends the passing of a resolution
making the use of Tariff No. 2 mandatory in the figuring of prices under the Code.
While every effort has been made to figure minimum rates, it is not humanly
possible to obtain accuracy in each and every instance, bearing in mind that the
half million rates published have been compiled by some hundred and fifty men.
As errors are discovered the incorrect rate will be changed, but until the change
appears in a supplement to the tariff it is. our opinion it should not be used for
sales purposes. Certain branches of the industry have for years followed such a
practice. We urge that, if possible, it be generally adopted. .
Very truly yours,
(Sgd) H. C. C,
Chairman, Traffic Committee.
Copy to:
Mr. R. K. Keas
Mr. W. S. Tower.
There is no Exhibit No. 2227,
14536 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2228
[Copy]
Reading Iron Company
General Executive and Sales Offices, 401 North Broad Street
PHILADELPHIA, PA.
Cable Address:
Readiron, Philadelphia, Pa.
Nov. 27, 1935.
Mr. E. T. Butler,
Secretary — Traffic Commidee, American Iron & Steel Institute,
350 Fifth Ave., New York, N, Y.
Dear Sir: Tariff No. 3 shows LCL rate, Coatesville, Pa. to Albermarle,
N. C. 68«i.
In Eastern Points — Carolina Tariff I. C. C. 646, the LCL rate from CoatesviUe
to Albemarle, N. C. is 57.5ji.
You doubtless will desire to have the lower rate published in lieu of the 68y5 rate.
Yours very truly,
(Sgd.) Arthur G. Garvet,
General Traffic Manager.
AGG:S
Exhibit No. 2229
[Copy]
(Letterhead of)
John M. Gross,
Vice President
H. C. Crawford,
Traffic Manager
W. H. Qantt,
Asst. Traffic T anager
Bethlehem Steel Company
(Incorporated)
bethlehem, pa.
December 2, 1935.
Desk R-13
Mr. E. T. Butler,
American Iron and Steel Institute^
#360 Fifth Avenue, New York, N. Y.
Dear Sir: In reply to your letter of November 29th, in connection with which
you sub-joined a letter from a subscriber, with reference to the proper rate on less
carload shipments from Coatesville, Pa., to Albermarle, N. C.
The less carload freight rate of 68 cents per 100 pounds, as shown in Institute
Freight Tariff No. 3, is in error. The correct basis is 57)4 cents. We are taking
the necessary to have this erroneous rate rectified in next supplement to tariff in
question".
Yours very truly,
(Sgd.) W. H. Gantt,
Assistant Traffic Manager.
Exhibit No. 2230
[Copy]
Chakles H. Longfield,
Oeneral Manager of Sales
~ The Youngstown SrifesT and Tube Company,
Youngstown, Ohio, April 11, 19SB.
Mr. H. C. Crawford,
Chairman, Traffic Committee,
c/o Bethlehem Steel Company, Bethlehem, Pa.
Dear Sir: On February 22 we replied to your letter of February 12 relating to
the disposition of fractions in the quoting of delivered prices. This proposal, as .
we understand it, is concerned only with delivered prices, but in view of the recent
development at Canton, Miss, we believe that there should be included in this
CONCENTRATION OF ECONOMIC POWER 14537
nroposal a ruling to the effect that where it is necessary to nanae a basing point
price for discount purposes, the same rule regarding fractions should apply. _
We are sure that your Pipe Department is familiar with the Canton, Miss, job,
to which we refer. There was involved on a P. W. A project approximately
$60 000 00 of pipe, on which all bidders named a uniform delivered price, decimals
being carried in two places, in accordance with usual practice.
It was necessary to name a basing point price for discount purposes, and two
concerns carried the basing point price to three places, one concern, however,
making a mistake in figuring the price, but the successful bidder, which was
Republic, has been awarded the business because carrying the basing point price
to three places resulted in their bid being 12 cents low. .
Unless you include a ruling on basing point pnce, as well as dehvered price,
this will no doubt happen again.
Yours very truly, ^^^ Youngstown Sheet and Tube Co.
(signed) C. H. Longfield,
CHL-M General Manager of Sales.
14538
CONCENTRATION OF ECONOMIC POWER
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CAPACITY
MILLIONS
OF
TONS
-
1
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^
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
TOTAL STEEL INGOT CAPACITY. UNITED STATES (Gross Tons)
./
/
60
CORPORATION. YEARS l90l-l938rT0TAL INGOT PRODUCTION.
UNITED STATES (Gross Tons) YEARS I90l-I938"'
(II IMITD STITO STHl UWMlTim IXHIIIT fm IKKTincniM '■«•.
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TOTAL CAPACITY
UNITED STATES
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Y
ORP.
0
1
1901
19a
1903
I9W
1905
I90€
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1921
1925
1926
1927
1928
1923
1930
193
1932
1933
1934
1935
I936|I937
1936
124491 — 40— pt. 27 (Pace p. 14539J
CONCP^NTRATION OF ECONOMIC POWER
Exhibit No. 2232
14539
Numerical Measurement of Awards for Rolling Mill Products and All Other Steel
Products
AWARDS FOR ROLLING MILL PRODUCTS
No. of
Bids
%
Number of awards to producers of Rolling Mill Products
614
100 00
At Tie-Bids...
138
16
73 15
At Unlike Bids
10 40
Number of awards to nonproducers
182
100 00
At Tie-Bids
16
166
8 79
At Unlike Bids
91. 21
Total, Awards for Rolling Mill Products
696
100 00
At Tie-Bids
154
642
22 13
At Unlike Bids
77 87
AWARDS FOR ALL OTHER STEEL PRODUCTS
Num ber of awards to producers of Rolling Mill Products...
At Tie-Bids.. _
At Unlike Bids
Number of awards to nonproducers
At Tie-Bids
At Unlike Bids
Total, Awards for all Other Steel Products
At Tie-Bids
At Unlike Bids
421
100.00
56
366
13.06
86.94
784
100.00
104
680
13.27
86.73
1205
100.00
169
1046
13.19
86.81
124491 — 41— pt. 27-
-27
14540 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2234
Total United States Capacity (Gross Tons) for the Production of Hot Rolled Sheet
and Hot Rolled Strip Steel, 1938;^ Individual and Total Capacities of the 16
Principal Producers of Sheet and Strip Steel for 1938; ' and Ratio of Production ^
to Total Capacity
Company
Acme Steel Co — -
Allegheny Ludlum Steel Corp
American Rolling Mill Co. (The)
Bethlehem Steel Co.
Empire Sheet & Tin Plate Co
Granite City Steel Co
Inland Steel Co ---
Jones & Laughlin Steel Corp
National Steel Corp. Sub. Cos _.
Otis Steel Co (The)
Republic Steel Corp
Sharon Steel Corpn.
Superior Steel Corpn
U. S. Steel Corpn. Sub. Cos
Wheeling Steel Corpn
Youngstown Sheet & Tube Co. (The).
Total, 16 Companies
Total U. S. Capacity (52 companies).
Production '.
Annual Capacities, Gross To;;s
Sheets
200,000
394-flOO
iisTwo
155,600
135,000
400,000
282,000
849,000
300,000
499, 000
, 621, 500
408,000
750,000
9, 112, 100
10, 663, 650
4, 507, 415
Strip
430,000
270,000
150,000
78,000
590,000
200,000
551,000
325,400
120,500
1, 035, 600
3, 750, 400
4,286,300
1, 317, 083
Total
430,000
470, 000
1, 394, 000
1,118,000
165,600
135, 000
560,000
360,000
1, 439, 000
500,000
2, 050, 000
325, 400
120, 500
2, 657, 000
408,000
750,000
12, 862, 600
14, 949, 960
5, 824, 498
Ratio of production to capacity of 16 principal producers 45.3%
Rfttlo of production to total U. S. Capacity 39%
' American Iron and Steel Works Directory of United States and Canada, 1938, published by American
Iron and Steel Institute.
' "As reported by companies comprising more than 95% of the capacity and production of the industry,"
Annual Statistical Report, American Iron and Steel Institute, 1938, page 43.
CONCENTRATION OF ECONOMIC POWER
14541
Exhibit No. 2235
TOTAL CAPACITY (IN GROSS TONS) UNITED STATES, FOR PRODUCTION OF HOT
ROLLED SHEET AND HOT ROLLED STRIP STEEL;' ANNUAL CAPACITY (IN GROSS
TONS) OF THE SIXTEEN PRINCIPAL PRODUCERS OF HOT ROLLED SHEETS AND
HOT ROLLED STRIP; i PRODUCTION, UNITED STATES, HOT ROLLED SHEETS AND
HOT ROLLED STRIP.»
(') As shown in Iron and Steel Works Directory of United States and Canada, 1938, published by Ameri-
can Iron and Steel Institute.
(«) "Production for steel (as reported by companies comprising more than 95% of the capacity and pro-
duction of the industry)," as shown in Annual Statistical Report, 1938, of American Iron and Steel Institute.
^^^C
TC
)TAL
U. S. CAPACITY
fV^B
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CAP/1
CITY
16 PR
INCIP
AL PR
OOUCE
RS
j^H
E
F
ROOU
CTior
i
1
0. 1 2 ■ 3 4 5 6 7 8 9 10 II 12 13 14 15
MILLIONS OF TONS
14542
CONCENTRATION OF ECONOMIC PO^ER
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CONCENTRATION OF ECONOMIC POWER
14543
nS oSt~ ODIOUS
6?
Sh « — 00 23 a i? !2 S
oB S 5 » « ■«> t- c» t~
c5— ■jiojJ-fl'oN-H'
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14544
CONCENTRATION OF ECONOMIC POWER
S^
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CONCENTRATION OF ECONOMIC POWER
14545
SSS'
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14546 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 2238
Statement of Relative Mill Costs of Finished Steel and the Sales Prices
Thereof at Various Producing Points
BEFORE THE FEDERAL TRADE COMMISSION. Federal Trade Com-
mission V. United States Steel Corporation, et al. DOCKET No. 760
commission's exhibit no. 6852
Witness: H, E. White.
Statement of relative mill cost of plates, shapes, bars and black sheets for the year 1920,
as furnished to the Federal Trade Commission under date of September 15, 1921,
and the sales price of those forms at various points, based upon the chronology of
Pittsburgh base price of the Carnegie Steel Company appearing herein under
Exhibit Numbers 6121 and 6122 and the chronology of Pittsburgh base price of
the American Sheet & Tin Plate Company appearing herein under Exhibit Number
6850 and- the then current car load freight rates from Pittsburgh to the various
points indicated. The column "Margin" is the difference between the mill costs
as given and the sales prices, arrived at in the manner described, which correspond
exactly to the prices charged, as shown by numerous documents in the record herein
Mill Cost
Sales Price
Gross
Ton
Net
Ton
Cwt.
Pitts-
burgh
Base
Price
Rate
from
Pitts-
burgh
Delivered
Price
Margin
Cwt
Net
Ton
PLATES
Pittsburgh
$48. 659
47. 907
57. 007
57.007
52.207
42. 835
52. 043
52. 043
50. 319
45. 683
49. 344
49. 344
58.445
85. 891
77. 894
$43. 40
42.80
50.90
50.90
46.60
38.20
46.50
46.50
45.00
40.80
44.00
44.00
52.20
76.70
69.50
$2.17
2.14
2.55
2.55
2.33
1.91
2.32
2.32
2.25
2.04
2.20
2.20
2.60
3.83
3.48
$2.65
2.65
2.65
2.65
2.45
2.45
2.45
2.45
2.35
2.35
2.35
2.35
2.35
4.35
4.35
$0.0
.38
.25
.765
0
.38
.25
.765
0
.38
.25
.765
.66
0
.38
$2.65
3.03
2.90
3.415
2.45
2.83
2.70
3.215
2.35
2.73
2.60
3.115
3.01
4.35
4.73
$53.00
60.60
58.00
68.30
49.00
56.60
54.00
64.30
47.00
54.60
52.00
62.30
60.20
87.00
94.60
$9.60
17.80
, 7.10
17.40
SHAPES
Pittsburgh
2.40
Chicago..
18.40
Birmingham ' _
7.50
Birmingham ' ...
17.80
BARS
Pittsburgh
2.00
13.80
Birmingham '
8.00
Birmingham '
18.30
Duluth
8.00
BLACK SHEETS
Pittsburgh
10.30
Chicago - .-
25.10
Note:
' Birmingham margin based on sales price of $5.00 per ton in excess of the Pittsburgh Base Price.
2 Birmingham margin and when sales price is based on full freight rate from Pittsburgh to Birmineham
in effect on 6/30/22.
Exhibit No. 2239
Before Ike Federal Trade Commissioa. Federal Trade ComiiiiBsion r«. United Sutes Steel Corporation, et «l. CommlMfam's Exhibit No. 6853. Docket No. 760. Witoeat.
H. E. White
Chart showing comparative margins between cost of producing steel and the selling prices thereof at Pittsburgh, Chicago. Birmingham, and
Duluth. respectively. The Pittsburgh columns show the spread between the cost of producing the several forms of steel and the selling price
thereof at Pittsburgh. The Chicago and Duluth columns show the spread at those points, respectively, under the Pittsburgh Plus system. The
solid Birmingham columns show the spread at Birmingham under the Birmingham diiferential, and the shaded portion of such columns show the
additional spread if steel at Birminghaih^'ere sold under the Pittsburgli Plus system
(NOTE.— This chart is based on (first) cost figures supplied by United States Steel Corporation for 1920 (Commission's Exhibit No. 6851);
(second) selling prices furnished by Carnegie Steel Company and American Sheet & Tin Plate Company, respectively, during same period;
and (Commission's Exhibits Nos. 6121 and 6122); (third) carioad freight rates from Pittsburgh to Chicago. Birmingham, and Duluth. respectively,
in effect during said period (see Commission's Exhibit No. 6852 for above referred to figures).)
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124491 — 40— pt. 27 (Face p. 14646)
CONCENTRATION OF ECONOMIC POWER 14547
Exhibit No. 2240
Invitation for bids issued by Navy Department, Bureau of Supplies and Accounts —
Schedule 6413 — Pipe, steel, welded — Opened November 19, 1935
Bid Prices
Lot 495
Appleby Bros. & Whitaker Co., 216 S. 2nd St., Harrisburg, Pa $45, 683. 48
John B. Astell & Co., Inc., 90 W. Broadway, New York City 45, 683. 48
H. Belfield Company, 435 N. Broad St., Phila., Pa 45, 683. 48
Ben Plumbing Supply Co., 556 Montgomery St. Jersey City, N. J.. 45, 683. 48
Bethlehem Steel Company, Bethlehem, Pa -. 45, 683. 48
A. M. Byers Company, Clark Bldg., Pittsburgh, Pa 45, 683. 48
AM Castle & Company, 1300 N Brank St., Chicago, 111 45, 683. 48
Central Metal & Supply Co., 609 E Lombard St., Balto., Md 45, 683. 48
Central Tube Company, 1800 1st Natl Bk Bldg., Pittsburgh, Pa_-_ 45, 683. 48
Clayton Mark & Company, 20 N Wacker Dr., Chicago, 111 45, 683. 48
Consolidated Supply Company, 139 S. W. Stark St., Portland, Ore.
Crane Company, 1225 Eye Northwest, Wash. D. C 45, 683. 48
Dallman Supply Company, 8th & R Streets, Sacramento, Calif 45, 683. 48
L. B. Foster Company, P. O. Box 1647, Pittsburgh, Pa 45, 683. 48
Industrial Div-Frick Reid Supply Corpn, 117 Sandusky St NS—
Pittsburgh •. 45, 683. 48
Fretz-Moon Tube Co., Inc., Butler, Pa 45, 683. 48
E. D. Giberson & Co., Inc., Bush Terminal, Brooklyn, N. Y 45, 683. 48
Greene-Wolf Co., Inc., 243— 40th St., Brooklyn, N. Y 45, 683. 48
Hajoca Corporation, P O Box 708, Rosslyn, Va 45, 683. 48
Jones & Laughlin Steel Corpn, 3rd & Ross Sts, Pittsburgh, Pa 45, 683. 48
J. J. Koepsell Company, Sheboygan, Wisconsin 45, 683. 48
Laclede Tube Company, 1317 Arcade Bldg., St. Louis, Mo 45, 683. 48
J. J. Larkin & Co., Inc., Woodside, Long Island, N. Y 45, 683. 48
John Maneely Company, Broad & Chestnut, Phila., Pa 45, 683. 48
McArdle & Cooney, Inc., 519 Arch St., Phila., Pa 45, 683. 48
John McKenzie & Co., Inc., 405 E. Centre St., Balto., Md 45, 683. 48
Miller Supply Company, 2100 S Sawyer Ave., Chicago, 111 45, 683. 48
Noland Company, Inc., Washington, D. C 45, 683. 48
P. E. O'Hair & Company, 945 Bryant St., San Francisco, Calif 45, 683. 48
C. J. Rainear & Co., Inc., 518 Arch St., Phila. Pa 45, 683. 48
Richmond Sanitary Co., 290 Division St., San Fran., Cal 45, 683. 48
Jos. T. Ryerson & Son, Inc., Lock Box U, Chicago, 111 45, 683. 48
E. Schwartz Plumbing Supply Co., 372 E. 143rd Street, New York
City 45,683.48
Thomas Somerville Company, Washington, D. C 45, 683. 48
South Chester Tube Company, Chester, Pa ..15, 683. 48 '
Southern Supply Co., Inc., 315 N. Calvert St., Balto., Md 45, 683. 48
Standard Plumbing Supply Co., 820 St. Ann's Ave., New York City. 45, 683. 48
R C Sum van Company, 265— 6th St., Cambridge, Mass 45, 683. 48
Virginia Machinery &Well Co., Inc., P. O. Box 1122, Richmond, Va. 45, 683. 48
Walworth-California Co., 235— 2nd St., San Fran., Calif 45, 683. 48
Wheeling Steel Corporation, Washington, D. C 45, 683. 48
M. O'Neil Supply Co., Inc., 1819 Flushing Ave., Brooklyn, N. Y_.. 45, 683. 48
Standard Supply Company, 140 Spear St., San Francisco 45, 683. 48
Tyne Company, 3228 Fillmore St. , Chicago, 111 45, 683. 48
Albert & Davidson Pipe Corpn, 5002— 2nd Ave., Brooklyn, N. Y.__ 43, 188. 46
W. A. Case & Sons Mfg. Co., McDonald Ave. & Ave. I, Brooklyn,
N. Y 44,271. 14
A & J Friedman Supply Co. Inc., 55 Central Ave., Passaic, N. J 44, 520. 22
Low Supply Company, 1715 Hyde Park Ave., Boston 44, 535. 89
Palmer Supply Company, 222 Westlake Ave. N.— Seattle 45, 682. 38
John Weeks & Sons Co., Watertown, New York 45, 029. 38
Wheatland Tube Company, Broad & Chestnut Sts., Phila., Pa 48, 683. 48
14548 CONCENTRATION OF ECONOMIC*. POWER
Exhibit No. 2241
Invitation for Bids Issued by Navy Department, Bureau of Supplies and Accounts —
Schedule 7 93 4 — Steel, cold rolled or cold drawn — Opened May 26, 1936
LOT 137
Bid Prices
American Steel & Wire Company, Washington, D. C $20, 727. 26
Avery and Saul Company, 297 Dorchester Ave., So. Boston, Mass.. 20, 727. 26
Bliss & Laughlin, Inc., P. O. Box 118, Buffalo, N. Y 20,727. 26
Brown- Wales Company, 493 C St., Boston, Mass 20, 727. 26
E. Corey & Company, 65 W. Commercial St., Portland, Me 20, 727. 26
A. M. Castle & Company, 1300 N. Branch St., Chicago, 111 20, 727. 26
Columbia Steel & Shafting Company, P. O. Box 1557, Pittsburgh, Pa, 20, 727. 26
Compressed Steel Shafting Company, 1587 Hyde Park Ave., Hyde
Park, Mass 20, 727. 26
Crucible Steel Co. of America, 405 Lexington Ave., New York City.- 20, 727. 26
Denman and Davis, 930— 38th St., N. Bergen, N. J 20, 727. 26
Edgecomb Steel Company, D St. below Erie Ave., Phila., Pa 20, 727. 26
Egleston Bros. &. Co., Inc., 539 Borden Ave., Long Is. Citv, N. Y_- 20, 727. 26
Faitonte Iron & Steel Co., 182 Frelinghuysen Ave., Newark, N. J_. 20, 727. 26
Fitzsimons Companj'', 1623 Wilson Ave., Youngstown, Ohio 20, 727. 26
Arthur C. Harvey Company, 60 Everett St., Boston, Mass 20, 727. 26
HiU-Chase & Co., Inc., Richmond & Ontario Sts., Phila., Pa 20, 727. 26
Jones & Laughhn Steel Corpn., Pittsburgh, Pa 20, 727. 26
Keystone Drawn Steel Company, Spring City, Pa 20, 727. 26
Lowell Iron & Steel Company, Tanner St., Lowell, Mass 20, 727. 26
Moltrup Steel Products Company, Beaver Falls, Pa^. 20, 727. 26
Morris Wheeler' & Company, Inc., Fox St. & Roberts Ave., Phila.,
Pa 20, 727. 26
Jos. T. Ryerson & Sons Inc., Lock Box U, Chicago, 111 20, 727. 26
Scully Steel Products Company, Chicago, III 20, 727. 26
Smith Bros. Hardware Company, 580 N. 4th St., Columbus, 0-__.- 20, 727. 26
Stahleker Steel Corporation, 6666 Binney St., Cambridge, Mass 20, 727. 26
Syracuse Supply Company, Syracuse, New Yoork 20, 727. 26
Union Drawn Steel Company, Massillon, Ohio 20, 727. 26
Western Automatic Mach. -Screw Co., Lake & Foster Aves., Elyria,
Ohio - 20, 727. 26
Wetherell Brothers Company, 251 Albany St., Cambridge, Mass... 20, 727. 26
Wyckofif Drawn Steel Company, P. O. Box 1256, Pittsburgh, Pa... 20, 727. 26
La Salle Steel Company, Palmr.live BIdg. , Chicago. Ill 20, 727. 26
Exhibit No. 2242
An Analysis of the Basing Point System of Delivered Prices as Presented
BY United States Steel Corporation in "Exhibits Nos. 1410 and 1418"
By
Walter B. Wooden, Assistant Chief Counsel, and Hugh E. White, Examiner,
Federal Trade Commission
TABLE OF CONTENTS
Introductory.
The Basic Issue is Whether the j?<isiDg Point System of Identical Delivered Prices is Competitive or Mo-
nopolistic.
The Objections to the Basing Point System are Grounded upon Tangible Legal Evidence of Collusive Price
Control and not upon Abstract Criteria:
(a) Continuation of Specific Agreements Formulated During N. R. A. Code Period.
(b) Recent Collaboration Among Competitors on Base Prices.
(c) Recent Collaboration Among Competitors on "Extras."
(d1 Recent Collaboration on Uniform Delivery Charges.
(e) Relation Between Price Leadership and Collaboration Among Competitors.
(f) Degree of Observance of Basing Point System
The Basing Point System was not a Natural Evolution Inhering in the Peculiar Economic Nature of the
Industry, but was Devised by Competitors as a Means of Eliminating Price Competition.
The Collection of "Phantom Freight" Charges is Inherent in the Basing Point System of Delivered Prices
and the Amounts Collected are Proportioned to the System's Objective of Maintaining Identical De-
livered Prices.
CONCENTRATION OF ECONOMIC POWER 14549
The So-Called "Absorption" of Freight Charges is Inherent in the Basing Point System and the Amounts
Absorbed are Proportioned to the System's Objective of Maintaining Identical Delivered Prices.
The Corporation Recognizes the Systematically Varying Mill Net Returns Represented by "Phantom
Freight" and "Freight Absorption" are Differences in Price and Consequently Discriminations in Price.
The Steel Industry's Use of the Basing Point System Conforms to the Economic Specifications of Monopoly
and is Not Consistent with the Economic Concepts of a Competitive Economy:
(a) The Corporation's Claim that Identical Delivered Prices Result from the Perfect Competition of
a Free Market.
(b) The Corporation's Distortion of Economic Theory as to the Nature and Location of Free Markets.
(c) The Corporation's Admission that Price Discrimination is not Consonant with Perfect Competition.
(d) The Corporation's Contrast Between Physical Conditions in the Steel Industry and Concepts of
Perfect Competition.
(e) The Corporation's Claim that the Price of and Demand for Steel are Unrelated.
(f) The Corporation's Claim that Prices and Profits are Reasonable.
The Corporation Defends Certain Uneconomic Results of the Basing Point System on the Principle of
Vested Interests:
(a) The Corporation's Defense of Excess Capacity.
(b) The Corporation's Defense of Existing Mill Locations.
(c) The Corporation's Use of Overhead and Capital Costs to .Tustify the Basing Point System.
(d) The Corporation's Claim that Substitution of f. o. b. Mill Pricing for the Basing Point System
Would Dislocate Industry and Create Monopolistic Conditions.
The Corporation has Misstated the Attitude of the Federal Trade Commission Regarding Alternatives to
the Basing Point System.
The Steel Industry should be Prevented from Continuing to Restrain Price Competition Through Use of
the Basing Point System or Through any Equivalent Method.
INTRODUCTION
The statement which is submitted herewith is in reply to two printed pamphlets
oflFered by the United States Steel Corporation and in which appear its defense of
the basing point system used in the steel industry. One is entitled "The Basing
Point Method of Quoting Delivered Prices in the Steel Industry" (Exhibit 1418
for identification). The other is entitled "Some Factors in the Pricing of Steel"
and contains a section on the basing point system. (Exhibit 1410 for identifica-
tion.) Other pamphlets offered by the Corporation and which cqntain statistical
data regarding prices, consumption, costs, and profits, are not encompassed by
this statement. The two pamphlets are presented as the statements of the
Corporation and their individual authors are not identified.
These two pamphlets raise only a few fundamental issues of fact. They like-
wise raise comparatively few fundamental issues growing out of the Corporation's
theoretical treatment of its factual material. The fundamental factual issues
may be grouped under two heads:
1. Whether the objections to the basing point system in the iron and steel
industry are founded upon "abstract criteria" as alleged by the Corporation, or
upon tangible legal evidence of collusive restraints upon competition.
2. Whether, and what, collusive methods of restraint upon competition are
involved in the industry's use of the basing point system.
The fundamental theoretical issues may be grouped under three heads, as
follows :
1. Whether the industry's use of the basing point system is consistent with the
economic concepts of a competitive economy or conform to those of monopoly.
2. Whether the industry's use of the basing point system is at variance with
public policy as declared in the antitrust laws. "
3. Whether the industry's continued use of the basing point system should be
permitted in the public interest.
In this last connection, a collateral but important factual issue to which certain
misstatements of the Corporation compel attention concerns the nature of the
Federal Trade Commission's position regarding the basing point system in the
iron and steel industry and regarding the possible alternatives to that system.
Such issues cut deeply into the fields of law, of economics and of political
science. The quite numerous incidental issues of fact and theory which are
involved will not be ignored but they should not divert attention from the funda-
mental issues as above formulated and to which they are all subordinate.
At the outset, a statement of the Corporation will be quoted which may be taken
as a common ground of approach. In the pamphlet entitled "Some Factors in
the Pricing of Steel'-', it is stated by the Corporation:
"Price competition is necessary in any industry operating in a capitalistic
system. Is the steel industry competitive? Efforts at such determination
can easily lead into the realms of economic sophistry. Criticism and defense
of competition in the industry should not be based on abstract criteria which
fail to take into account the fundamentr 1 phenomena involved; it should be
based on tangible evidence". (Exhibit 1410, page 27).
After disposing of the issue whether "tangible evidence" exists for objections
to the basing point system as distinguished from "abstract criteria", an analysis
14550 CONCENTRATION OF ECONOMIC POWER-
of the economic defenses of the system as presented by the Corporation will be
undertaken. In the course of that analysis it may be possible to determine
whether the system's defenders have successfully avoided the admittedij. easy
descent into the "realms of economic sophistry".
.The Corporation recognizes throughout its argument the necessity of clinging
to the contention that the system does not involve or facilitate monopolistic
practices, however essential either to the public or private interest it may believe
such practices are. Once that basic factual contention is discredited or destroyed
the system must then be defended in the field of untenr ble theory. Considering
the purposes, effects and methods involved, in the systtm, as shown in the Pitts-
burgh Plus case and in published reports of the Federal Trade Commission during
the N. R. A. and since, it might well be thought that the factual exposition has
already been ample. If debate as to the competitive or monopolistic status of the
system can be prolonged indefinitely, tl>- system will doubtless be continued as
long as those who employ it and defend it find profit in it. It ■"' to be hoped that
the last word on the factual side of the matter can be said before the Temporary
National Economic Committee and that the only question remaining will be one
of governmental policy.
Before any intelligent appraisal of the basing point syster.. can be made it is
necessary to bear in mind certain of its essential features. It is a formula method
of pricing, which when appropriately implemented and observed, automatically
produces identical delivered prices for all sellers at any given destination. Its
success depends first of all upon a common requirement by each seller that pur-
chases be made only at delivered prices and a common refusal to quote or sell
f. o. b. mill. Each delivered price is calculated from some gover- ling basing point
and has no necessary relation to the actual shipping point. The actual cost of
transportation may be greater or less than the amount used to calculate the
delivered price. Non-basing point mills are enabled to and must, if the system
is to function, take advantage of their location by adding the full amount of their
freight advantage, sometimes called "phantom freight", to the basing point price.
Basing point mills are enabled to realize their full base price and sometimes
"phantom freight" in territory where their respective basing points control the
delivered prices. (Ex. 1418, p. 65) Other mills, whether basing point or non-
basing point mills, that quote in each such territory, must, if the system is to
function, recognize and adopt the governing base price and the delivered prices
calculated thereon. Just as identical delivered prices automatically resiult from
the system, so wide variations in the prices reahzed by each mill from its various
customers are the automatic result. Eaiih result is the necessary complement of
the other.
All the above factual features of the sy(tem are expressly admitted by the
Corportition in its pamphlet, though in diffei'^nt words and with difi'erent empha-
sis. There are important methods of implementing the system M'hich will be
discussed later and which also cast a significant light upon the system's com-
petitive or non-computitive status.
THE BASIC ISSUE IS WHETHER THE BASING POINT SYSTEM OF IDENTICAL DELIVERED
PRICES IS COMPETITIVE OR MONOPOLISTIC
The irreconcilable nature of the issue is made clear by the Corporation's posi-
tion. The foreword of its pamphlet entitled, "The Basmg Point Method of
Quoting Delivered Prices in the Steel Industry" (Ex. 1418, for identification)
states that one purpose of the pamphlet is:
"To establish that this pricing method is the natural result of basic economic
conditions in the steel industry and does not result in the absence of price com-
petition. The delivered prices of steel products at any consuming point are
determined by competition and not by an inflexible application of the basing
point method."
Again the Corporation states:
"Since delivered prices are the principal concern of the buyers, competition
between steel producers natursdly takes the form of meeting the others' delivered
prices." (Ex. 1418, p. 41)
Such contentions are made again and again in specific terms and are implicit
throughout the argument. Repeatedly it is urged that objections to the system
are wholly abstract and theoretical in nature and are without foundation in
tangible evidence. Indeed, it is never admitted that there is anything systematic
about the basing point syetem and the word method is systematif^ally substituted
for the word system. By contrast, whenever reference is mad' to a mill base
method of pricing, the word system is systematically applied. However, Mr.
CONCENTRATION OF ECONOMIC POWER 14551
Eugene Grace, President of the Bethelehem Steel Corporation, in his testimony
before the Temporary National Economic Committee thought "system"was a
good word for describing the pricing methods of the steel industry, and testified
that the basing pojpt system was the one used for quoting steel prices. (Ver-
batim Report T. N. E. C. Hearings November 9, 1939, p. 287.)
At this point it is well to understand the concept of competition which permeates
the Corporation's position. In essence it is that unless all sellers make an exactly
equal offer in terms of price to a given buyer they are not competitive. For
example, it i§ stated:
"Identical delivered price quotations would occur under any free competitive
system to the extent that competitors' bids could be estimated, since buyers
refuse to pay more to one producer than to another for a staple product." (Ex.
1418, p. 5.)
This is equivalent to saying that no competitors under any free competitive
system would quote at less than they estimated their competitors were going to
quote. In similar vein, the Corporation quoted from a report by N. R. A. to the
effect that if a competitor With lower freight costs gives his customer any benefit
"he is giving a lower price than competition forces him to give. In other words,
he is following some sort of a non-competitive principle, rather than a competitive
one." (Ex. 1418, p. 62.) This is equivalent to saying that a competitor who
makes a lower delivered price than his rival is acting non-competitively and when
he gives him the same delivered price he is acting competitively.
The above contentions of the Corporation should be considered in the light of
the testimony of Mr. Robert Gregg, Vice-President of the Corporation before the
Senate Committee on Interstate Commerce in March, 1936. He testified that
the basing point system had been the general merchandising plan in the industry
and that:
"If that plan were universally followed there would be no competition insofar
as 6ne element of competition is concerned, namely, price." (Hearings on S.
4055, p. 207.)
• If,- as Mr. Gregg, testified, there would be no price competition if the system
were universally followed, then deviations from the system represent price com-
petition. Yet, under the quotations from N. R. A. deviations would embody some
non-competitive principle. If one accepts the quotations, and Mr. Gregg's
statement also, then the basing point system and departures from it are both
non-competitive. On the other hand, the Corporation disputes Mr. Gregg by
claiming that the system expresses price competition and treats the deviations
from the system which have occasionally occurred throughout its history as
sufficient in character and extent to justify the system itself.
The Corporation quoted from a report of N. R. A. as follows:
"The outstanding characteristic of the basing point systein is the fact that it
puts rival producers on a footing of price equality with each other in all the
consuming points over a wide area * * *." (Ex. 1418, p. 37)
The Corporation also quoted from the N. R. A. report to the effect that the
basing point system facilitates the use of the open price system of price quoting
and that:
"Tljis system is openly defended as a means of putting competition on a basis
which will yield higher prices than would result Without it." (Exhibit 1418,
p. 30)
The Corporation further quotes from the N. R. A. report tQthe effect that while
an open price system could be used with any kind of a price structure "it has its
fullest effect if each producer knows the delivered prices he has to meet at each
purchasing point." (Ex. 1418, p. 30)
A pricing method which is systematically followed by competitors for the pur-
pose and with the effect of getting higher prices is plainly at variance' with the
common experience that competition does not tend to produce higher prices.
THE OEJECTIONS TO THE BASING POINT SYSTEM ARE GROUNDED UPON TANGIBLE
LEGAL EVIDENCE OF COLLUSIVE PRICE CONTROL AND NOT UPON ABSTRACT
CRITERIA
• A striking feature of the Corporation's defense of the basing point system is
its almost complete reliance upon abstract criteria and abstruse theory plus some
irrelevant facts. At the same time, it charges that objections to the system are
wholly grounded in such criteria and theory. It ignores the tangible evidence
which has been cited over the years to sustain the main objection, which- is that
the system suppresses price competition and is monopolistic.
14552 CONCENTRATION OF ECONOMIC POWER
A review of such evidence should make it clear that from the time the system
became the complete framework of the industry's price structure down to the
present it has been a device invented for the purpose of producing identical
delivered prices and perfectly adapted to that result. Notwithstanding occasional
deviations and changes in the number of basing points used as well as in base
price differentials, the system has not changed in essence; The American Iron
& Steel Institute publicly declared in March, 1935 that the basing point method
of quoting prices then in use was "in principle the same method under which the
modern steel industry has operated for more than forty years." "Basing Points
and Competition in Steel", March 13, 1935, p. 5.) In reviewing the evidence,
however, the period which began in 1933 with the N. R. A. Code of the Iron &
Steel Industry and has continued to the present, is obviously the most important.
Preceding periods are important as a matter of historical continuity of purpose,
methods and effects. For that reason, the evidence lying within the present
period will be first reviewed.
(a) Continuation of Specific Agreements Formulated During N. R. A. Code Period.
The Code of the Iron & Steel Industry, as adopted in 1933, specifically incor-
porated the basing point system among its provisions and specified the basing
points themselves. It also incorporated numerous and detailed provisions de-
signed to make the system thorpughly effective. The Code itself declared that
"each member of the Code by becoming such member agrees with every other
member thereof that the Code constitutes a valid and binding contract by and
among all members of the Code". The Board of Directors of the American Ifon
& Steel Institute was the Code Authority which was intrusted with and exercised
the functions of enforcing, administering, mterpreting and applying "the stand-
ards of fair competition" incorporated in the Code. Among the activities of the
Code Authority was the promulgation of numerous so-called commercial resolu-
tions which embodied rules and regulations designed to inaplement the Code's
objective of creatmg perfect identity of delivered prices. Members of the Code
who did not comply with the provisions of the Code and the rules and regulations
established uider it, were fined at the rate of $10 per ton for each violation, as
the Code itse .' provided. In the Federal Trade Commission's report to the Senate
of March, H J4, and its report to the President in November, 1934, documentary
evidence from the files of the Institute and of the steel producers was quoted and
analyzed in great detail establishing the above facts. Among other things, that
evidence demonstrated that the Code constituted an agreement among steel
producers whereby producers freely collaborated with each other as to the base
prices they were to use; that the Code compelled adherence to such prices; that
concessions and additions to the base prices were permitted only to the extent
prescribed by the Institute's Board of Directors; and that all rail freight from the
applicable basing point must be used in calculating delivered prices, except as
otherwise provided for by the Board of Directors.
On June 3, 1935, almost immediately after the invalidation of N. R. A. Codes
by the Supreme Court, the Board of Directors of the Institute adopted a resolu-
tion declaring the intention of each member to maintain "the standards of fair
competition which are described in the Steel Code". (F. T. C. Report to the
President on Steel Sheet Piling, June 10, 1936, p. 3.) On June 6, 1935, the reso-
lution w^s ratified by steel producers representing over 90% of the producing
capacity. On June 17, 1935, the Executive Secretary of the Institute wrote its
president, Mr. Eugene Grace, urging that the Institute go as far as possible within
the law to develop a plan for stabilizing the industry and maintaining conditions
of fair and open competition. The Secretary said that he was "convinced that
the 'wage floor' alone, especially in view of its present voluntary basis, will not
prove adequate for very long to support a structure of fair commercial practices,
and that external pressure from buyers of steel and the corrugating effect of
rurnors, suspensions, or actual overt acts from within present a constant menace
which seems certain sooner or later to topple the structure." The Secretary went
on to say:
"I do not believe that the much discussed 'competitive system' is really operat-
ing as it should, when a minority can in effect rule an industry by its wage policy
or its commercial practices. I do not believe, for example, that Bethlehem should
be regarded as 'free to compete' in the true sense of that term, when the acts or
policies of some other steel company might force Bethlehem into meeting a situa-
tion with practices which it knows to be unsound"
The Secretary thereupon urged that —
"We must devise some plan of action in the form of an agreement which will
permit wise management in the industry to prevent, so far as possible, practices
CONCENTRATION OF ECONOMIC POWER 14553
which lead to inroads on wages X)f labor, destruction of profits, and impairment
of capital."
Mr. Grace, in acknowledging the above letter on June 20, wrote that he would
try to discuss orally the "big and important subject" in the near future and "of
course I shall not attempt to make-answer in writing." On January 4, 1936,
Walter S. Tower, executive secretary of the Institute, wrote to Mr. Grace, Presi-
dent of Bethlehem Steel Corporation and President of the Institute, as follows:
"Since the meeting here a fortnight ago, I have been giving a gcod deal of
thought to the subject tTien discussed, in an effort to figure out some constructive
course of action which might be considered at the meeting scheduled for January 14.
"It now seems necessary to admit that any such sort of procedure as that which
has been foUoM^ed since the meeting of representatives of the steel industry on
June 6, 1935, cannot be relied on to create or to maintaia the conditions required
for a satisfactory commercial poUcy in the industry.
"It also seems necessary to recognize that the experiences of the last six months
prove the need for some definite kind of procedure under which the details of
commercial policies and practices of the principal members of the steel industry
will be matters of record. I realize, of course, that it does not necessarily follow
that there would be no further difficulties with which the industry would have to
struggle, if such policies and practices were fully and freely matters of common
knowledge to both producers and purchasers of steel products generally. But it
does seem to me that the only way, if there is any way, to create satisfactory con-
ditions, and to conffne the commercial problems within the limits where they may
not prove disastrous to the industry, is to be found through the medium of some
complete record of what are the commercial policies and practices of the leading
companies in the industry.
"Recognizing the fact that the commercial provisions of the Code are now a
closed book, there appear to be only two ways in which, without too serious legal
liabilities, there can be any general or open record in respect to these vital matters.
The first of these ways is to follow the recommendation which you made some
months ago concerning'the publication by important members of the industry of
fermal lists of prices for their respective products, together with statements of the
extras applicable and terms and conditions of sale. I still think that adopting
your suggestion would help more than anything else which now seems permissible,
to correct the difficulties of which the entire industry is fully aw.are. It also
seems to me quite possible that if a group of several of the prominent companies
decided to follow such a policy, none bf the other prominent producers could* long
afford not to fall in line, if for no other reason than the implications arising ?rom
the failure of any prominent company so to declare itself publicly iii respect to
prices and commeiscial practices.
"The other way of establishing a general or open record would be through
reporting to some central agency, like the Institute, the facts in regard ^to closed
transactions in which any new concession had been granted to a purchaser in
respect either to price of a product or the terms and conditions under which it
had been sold."
That a plan for such a system of tacit agreement tcf abide by announced prices
Was being discussed in the industry is made evident by a letter to E. T. Wc'r,
National Steel Corporation, written on January 16, 1936, by Charles R. Hook,
president o£ the American !l^olling Mill Company:
"As I remarked when I came into the meeting of our little group last Tuesday,
I had not known whetiier I was going to be there as I had taken Mrs. Hook to the
Johns-Hopkins Hospital the week before, and while I was waiting at the hospital
I wrote out a note to E. G., had it typed, and intended to send it in case I could
not be at the meeting.
"I took the letter, along with me and laid it on the desk, if you remember. I
am enclosing herewith' a copy for your information."
The enclosure reads in part as follows:
"* * * It seems to me useless to attempt to cure the general ills of the
steel industry until We make up our minds that we will courageously and definitely
resist the pressure of the automotive or any other large consuming industry to
break down a price structure that will permit of a reasonable return on our
invested capital.
"A decision to make such a stand can only come, of course, if as and when the
major steel companies make up their minds that their price schedules are an open
book, that aU purchasers are to be treated alike and that undercover methods of
all kinds are outlawed completely. If any industry or any company is to be
given a price better than the carload price, it must be known by all and it must
be a defensible practice that can be shown to be in the public interest."
14554 CONCENTRATION OF ECONOMIC POWER
The trade magazine "Steel", in giving a resume of developments in the industry
about this time said:
"March 1936. After sharp competition as an effort at stabih'zation, steel
makers announced all prices quoted would be 'open', and uniformly applied,
agreeing to publish price changes whenever made. This continued up until the
recession set in." (Steel, July 18, 1938, p. 24.)
The "Iron Age" in summarizing the developments of the year 1936 referred to
price concessions in the early part of the year and then described the initiation
of a method of open price announcement which it characterized as "the most
successful price stabilizing movement the steel industry has experienced, other
than the Steel Code." It stated that the movement was initiated by T. M.
Girdler, President of Republic Steel Corporation at the time of making its
announcement of prices for the second quarter. The Iron Age also states that
other steel companies followed the Republic's example and announced openly
their selling prices with the result that the last three quarters of 1936 were
"remarkably free from price cutting, either open or secret, the general understand-
ing between steel companies and their customers being that any change in
published prices would be similarlv announced." (Iron Age, January 7, 1937,
pp. 65-66).
In May, 1936, the Carnegie Illinois Steel Corporation informed i-ts various sales
manageis that it would "begin our price announcement progrem" by announcing
prices on certain commodities. It sent its various managers an initial supply of
price announcement forms quoting prices at various basing points. The sales
managers were also informed that the usual practice of adding published all-rail
freight or using arbitrary rates as established would be followed, and that only
delivered prices would be quoted. It said that after making such announcement
of prices it was obligated by the Clayton Act to abide by the announced prices
without any deviation. (Letters to sales managers dated May 21 and May 23,
1936). The price announcfements then made by the Carnegie Illinois Steel
Corporation were to the effect that "until further announcement, the following
price will apply on sales of the product or products described below, for delivery
and consumption in the United States, for shipments during the calendar quarter
ending September 30, 1936."
The foregoing facts should be considered in connection with the opinion of the
Supreme Court in the Sugar Institute case, where it held that there should be no
lequirement of adherence to prices and terms announced.
While the above developments were taking place in the industry during 1936,
there is evidence that prices were the subject of discussion at meetings of the
American Iron and Steel Institute.
The executive secretary of the American Iron and Steel Institute wrote to Nor-
borne Berkeley of the Bethlehem Steel Corporation on April 22, 1936:
"In line with our conversation last week, I jotted down some random, notes
concerning some aspects of prices which might be worth while discussing at the
institute meeting on May 28 * * * I hand them on to you for what they
may be worth."
Eugene Grace, president of the Bethlehem Steel Corporation and of the Institute
wrote to the executive secretary on the following day:
"I have your letter of April 22, enclosing notes on prices. I have an idea Joe
expects to see you this week. I had a talk with him in line with our discussion,
and shall of course let l;iim see the notes."
When the Federal Trade Commission, at the request of the President, investi-
gated identical bids on steel sheet piling received by the Federal Government some
months after the N. R. A. Codes were invalidated, it found that such bidding
resulted from a continued application of the basing point system supplemented
by cooperative activities of competitive bidders similar to those which had
characterized their activities during N. R. A.
■During N. R. A. the Steel Code lodged in the board of directors of the American
Iron and Steel Institute the authority to prescribe rules and regulations for
implementing and carrying into effect the provisions of the Code. Under that
authority the Board of Directors adopted and promulgated many rules and regula-
tions to govern pricing methods in the industry and which it entitled Commercial
Resolutions and Regulations. Many of these regulations directly and sub-
stantially affected such matters as the method of calculating base prices and
discounts therefrom, the methods of calculating delivery charges and the exact
amounts to be added to base prices in order to determine delivered prices. The
Federal Trade Commission described many of these rules and regulations in its
report to the Senate of March 1934 and in its report to the President of November
1934.
CONCENTRATION OF ECONOMIC POWER 14555
As already stated, the Code declared itself to be an agreement among the
members and violators were penalized at the rate of $10 per ton. When the
Institute's Board of Directors voted in June 1935 to continue the provisions of the
Code regarding standards of fair competition these commercial regulations were
also continued in effect. In a recent letter to the Executive Secretary of the
Temporary National Economic Committee, the Corporation states that it is
aware of no amendment or ipodification of these resolutions since June 1935.
(Letter Dec. 18, 1939 — U. S. Steel Corporation to Mr. Jas. R. Brackett). The
Corporation pamphlet (Exhibit 1418) describes two of the more important of
these Commercial Resolutions as being representative of the current general
practice of the industry.
One of these practices involves the addition of arbitrary switching charges for
delivery in the switching limits of basing point cities, the Corporation stating
that "Tne practice has generally been followed since the Code." (Ex. 1418, p. 64,
Footnote)
The Corporation states further that —
"Under the Code the practice was developed of adding to the base price a so-
called 'switching arbitrary' of 2%^ a hundredweight (3f5 a hundredweight in
Chicago and Gary switching limits) for delivery within the switching limits."
(Ex. 1418, p. 64, Footnote)
These figures correspond exactly to the figures provided for in Commercial
Resolution No. 20 which was described by the Federal Trade Commission in its
report to the Senate (See pp. 23, 24). Resolution No. 20 recited that because of
the "great diversity" in switching charges at various basing points it was "prac-
tically impossible in most cases" to ascertain in advance of shipment the correct
charge and that it was deemed advisable "to use arbitrary, in lieu of tne actual,
switching charges in such cases." After setting forth the arbitrary charges
described by the Corporation as still in effect, the Resolution gave members per-
mission to deduct from their base price an amount equal to the difference between
the actual and the arbitrary switching rates in cases where the actual rates exceeded
the arbitrary rates. This was provided for to insure "uniform practice." Inci-
dentally, the Corporation admits in this connection that where the arbitrary
switching rates exceed the actual the mills to that extent realize "phantom freight."
The Corporation also states:
"A practice generally exists in the Steel Industry of including in the delivered
price to a buyer, who accepts delivery by sending his own truck to the mill, the
rail freight from applicable basing point to destination, and allowing him a" credit
equal to 65% of the rail freight from mill to destination. This might be construed
to mean that the buyer always pays one-third of the rail freight used in calculating
the delivered price for the privilege of taking delivery by his own truck. This is
true, however, only when the miU is at the basing point freightwise nearest to the
buyer's destination." (Ex. 1418, p. 71.)
The above described practice originated in Commercial Resolution No. 8 E
adopted by the Institute's Board of Directors during the Code period as described
by the Federal Trade Commission in its report to the Senate in March 1934 (pp.
32-35). The Commission also described and quoted the written protests of con-
cerns within and without the industry, as to the damaging and destructive effects
of this rule upon their business. Buyers as large as the Buick Motor Co. protested
the rule as preventing it "from getting the full benefits of competitive transporta-
tion, imposing higher costs and tends to control the method of shipment." Other
objections were by smaller concerns which described the rule as imposing "a
terrific penalty", as giving advantages to large plants with spur tracks, as penaliz-
ing "firms having an investment in their own transporting equipment", and a^
severely damaging to trucking companies. This is illuminative of the question
whether the objections to the basing point system are founded on "abstract
criteria" or on "tangible evidence". i
In view of the admission that there have been no amendments or modifications
of the Commercial Resolutions since June 1935, the price fixing nature of some
of them is pertinent. On pig iron delivered at certain specified points on the
Ohio River and tributaries, on the Great Lakes and North Atlantic seaboard,
the Institute's board of directors authorized certain maximum deductions from
the delivered prices calculated on an al! ail basis from the applicable basing
point to destination (Resolution No. 43). The board also fixed by resolution a
maximum deduction of 38 cents per ton from the base price which could be made
on Southern Foundry pig iron of a certain quality (Resolution No. 10). This^
dej^uciton was allowable on pig iron shipped outside the Birmingham and Southern
wage districts. The "Iron Age" for January 13, 1938 carries a note to the effect
that delivered prices on Southern pig iron for shipment to Northern points are
124491— 41— pt. 27 28
14556 CON>CENTRATION OF ECONOMIC POWER
38 cents a ton below delivered prices from nearest Northern basing point on iron
with-'a certain chemical content. By another resolution the board fixed the maxi-
mum deductions from the base price on specified products which were permitted
when sold for delivery in a specified portion of Michigan (Resolution No. 13).
Other resolutions or regulations adopted by the Board fixed the maximum deduc-
tion that might be made from base prices on hot rolled strip steel (Resolution
No. 40), the maximum discounts for early payment of invoices (Resolutions 1, 2,
3, 4, 9, 25, 30, 31 and 32), the amount of discounts to various classes of buyers
and to jobbers, and the prices to be charged by jobbers on resale (Regulation
Nos. 1, 2, 3), and the qualifications under which a concern could be recognized
as a jobber (Regulation Nos. 1, 3).
The continuation of the agreements embodied in the resolutions relating to
terms and conditions of sale is shown by the following:
On August 7, 1935, the executive secretary of The American Iron and Steel
Institute wrote to J. M. McComb, vice-president of the Crucible Steel Company
of America:
<(* * * j^ Yisis been my understanding that the action taken by members
of the industry at their meeting on June 6 committed each of the companies
there represented to a policy of maintaining the terms and conditions of sale
which were in effect under the Steel Code. As far as information has come to
us since that meeting, it appears that members of the industry generally are
following a uniform policy in respect to such matters. For that reason there has
not been any discussion of action by the Board along the line suggested in your
letter." '
Further correspondence between the executive secretary and Mr. McComb
shows that an investigation was being made as to the extent to which members
of the industry were conforming to the requirement of charging interest on past
due accounts.
Under the Code there was also a requirement that in case of products sold for
fabrication in construction of an identified structure, the place of delivery should
be considered to be the railroad freight station at or nearest the place where the
structure was to be erected. In its report to the Senate in March, 1934, the
Federal Trade Commission pointed out the damage done by that requirement to
independent fabricators in their competition with fabricators controlled by inte-
grated steel producers. CR. pp. 24-26.) Price announcements put out by
various steel producers, including subsidiaries of the Corporation, as late as the
summer of 1936 showed that this rule regarding sales for identified structures
was still, being adhered to.
The nature of all the above rules and regulations was pointed out by the Com-
mission in its-report to the Senate. (Jleport pp. 10, 22, 36, 37, 38, 39). All of
them are directed to serving the primary objective of the basing point system as
defined by Judge Gary, that "it was deemed necessary for the orderly conduct
of the business to have one basing price * * * go that every user of steel
all over the country bought and used his steel on a certain basis, knowing in
•advance that every one else who bought steel had to pay exactly as he did, with
the addition of the increased freight depending upon where he wanted to use the
steel." (F. T. C. Decisions Vol. VIII, p. 33.)
(6) Recent Collaboration Among Competitors on Base Prices.
While the N. R. A. Code was jn effect, abundant documentary evidence was
available in the form of letters, memoranda and minutes which showed that
competitors within the industry interchanged information and opinions with a
view to adopting and announcing base prices that would be satisfactory to the
various organized groups whose members manufactured like products. The
Code, however, did not specifically provide for any such cooperative activity among
competitors but was patently constructed upon the assumption and expectation
that base prices at the respective basing points and for the respective products
would be identical for all producers, as in fact they were.
In view of the acknowledged price leadership of the Corporation, collaboration
among competitors on base prices is not indispensable to the operation of the
basing point system but seems to have existed nevertheless. Such collaboration
contiibutes to successful price leadership by promoting better feeling and insuring
a greater degree of voluntary support for the prices named.
The full story of competitive collaboration in the determination of base prices
since N. R. A. is impossible to develop, protected as it is by reticent memories
and the natural paucity of documentary records. Occasionally, however, the
veil is lifted, as in the following extract from a letter written by the general sales
CONCENTRATION OF ECONOMIC POWER 14557
manager of the Newport Rolling Mill Company of Newport, Kentucky, to the
President of that Company under date of August 17, 1935. He said in part:
"It was not definitely decided until late last evening to put into effect for fourth
quarter a one price policy allowing the galvanized sheet price to remain at $3.10
per 100 lb. for No. 24 gauge base f. o. b. Pittsburgh. A few of the larger interests
such as Weirton and Inland were in favor cf reducing the price to $3.00 base for
No. 24 gauge f. o. b. Pittsburgh but this was finally defeated and it wps agreed
to allow all prices to remain- tlie same as now in effect.
"The announcement of no further jobber allowance a.fter October 1st will be
made by Continental on Tuesday of next week, after which all mills can announce
likewise. We, of course, in the meantime will notify our people, which will no
doubt be conducive of causing an influex of jobber .business for shipment prior to
October 1st. * * * i discussed the automotive situation with Neil Flora
last evening and he informed me that while some little tonnage was placed sr -eral
weeks ago, nothing more has been done and that all the mills are holding firmly
to their prices and are expecting that additional tonnages wiU have to be placed
soon."
From the above it is clear that the galvanized sheet producers decided by
majority vote not to reduce basp prices for the succeeding quarter, although such
reduction was favored by two of the large independent producers. It is also
apparent that at the same time it was decided to make only one price on galvanized
sheets, to eliminate special prices to jobbers, and to follow the lead of the Conti-
nental Company in announcing the withdrawal of jobber allowances.
Mr. Eugene Grace, President of the Bethlehem Steel Corporation, the second
largest producer in the industry, testified before the Temporary National Economic
Committee in November 1939 that he "would feel free to tell any of my tin plate
competitors at any time if I thought the price of tin plate was too low, and try to
encourage them in some way or other to get a price for it; of course I would.
I would be foolish if I didn't. "(Verbatim Record, T. N. E. C. Hearings, November
9, 193S, p. 291). Mr. Grace further testified that if he happened to meet Mr.
Fairless, President of the Corporation, "and we were approaching the tin plate
season, it would be a perfectly natural thing for me to say, 'Well, Mr. Fairless,
I would like to see tin plate raised somewhat for this next year's business' or
'Conditions have changed in such a way that the present price would be entirely
satisfactory'. I wouldn't hestitate to talk about it at all with him." ("Verbatim
Record, T. N. E. C. Hearings, November 9, 1839, p. 291).
Mr. Fairless also testified before the Committee that he did not "want to be
in the position of attempting to leave the impression that no manufacturer of
tin plate ever asks me or discusses with me what the price of tin plate is," but
specifically denied that he had ever had a group meeting with Other manufacturers
of tin plate to set the price (Ibid, November 8, 1939, p. 256). Mr. Fairless also
testified (Ibid, Nov. 7, p. 221) that steel producers discussed prices when they
met and that "usually we are bewailing the fact thpt they are too low".
The above testimony is to be weighed in the light of their denial that there
was any conference of steel corupanj' officials to determine the price of tin plate
for 1938 and that Mr. Grace of the Bethlehem Company had made any promise
at such a conference to maintain prices. The statement denied appeared in a
letter from the Vice-President of the American Can Company to its President
under the date of March 24, 1938. The writer of the letter, however, testified
before the Committee that he was unable to give the source of his information
(Ibid, November 7, 1939, p. 255, and Ex. 1407). That company is the largest
buyer of tin plate for can making and the price negotiated between it and the
Corporation has long been recognized as the base price to be accepted by other
tin plate producers.
Another and more recent instance of collaboration among competitive producers
regarding base prices occurred with regard to tubular goods in the Sumper of
1938. As shown by testimony and exhibits before the Temporary National
Economic Committee, the Corporation on July 1, 1938 discontinued the manu-
facture of lap welded pipe for oil pipe lines and established a new and lower priced
grade of seamless pipe. In view of the recognized superiority of seamless pipe,
the differential between it and lap welded pipe was considered insufficient by
manufacturers of the latter, especially those who had to buy the semi-finished
steel for manufacture into pipe. The reason for the Corporation's move was that
competing manufacturers of lap welded pipe had been cutting prices and had
increa,sed their relative shares of the total business to the disadvantage of' the
Corporation. The Vice-President in Charge of Sales of the National Tube
Company testified that "Other lap weld was being manufactured with superior
14558 (jongentration of ecx)nomic power
physical properties to ours and selling at a price below ours." (Ibid, Nov. 14,
1939,' p. 368)
The Wheeling Steel Corporation and the South Chester Tube Company were
the only manufacturers which were then making lap welded pipe exclusively.
On August 1st the Wheeling Corporation tentatively adopted a new price list
on lap welded pipe which the South Chester Tube Company complained of as
being too low. The Pittsburgh sales representative of the South Chester Com-
pany wrote the headquarters of his Company on August 12th that he had discussed
these tentative prices with Wheeling Steel Corporation officials and had "re-
monstrated quite vigorously about the reductions in orices on the items other
than the tonnage group." He went on to say that:
"Most of the other mills are after us, in an effort to get our cooperation in
insisting that Wheeling bring the prices on the items other than the tonnage group
up to the previously announced 2}^%."
He then described a telephone conversation with a representative of the Wheel-
ing Corporation and stated that from it he "learned that they had already been
with Goble and that Wheeling is now going to revise their previously announced
prices." Mr. Goble was Vice-President of the National Tube Company, a sub-
sidiary of the Corporation. In the same letter the Pittsburgh representative
stated that Mr. Goble was endeavoring to obtain an interview with an official
of the Wheeling Corporation "and demand that they revise their prices". (Ex-
hibit 1433, p. 349).
On August 15th the Pittsburgh sales representative of the South Chester
Company wrote his general sales manager that no one had received the Wheeling
Corporation's new price Ifst but that rumors were current that such a list had
been issued with greatly reduced prices. According to testimony of both the
Sooth Chester and Wheeling company officials, the price confusion which existed
during August was removed and stabilized in the latter part of August and dur-
ing the first half of September (Verbatim Record, T. N. E. C. Hearings. Nov. 14,
1939, p. 361). On August 24th the Wheeling Corporation issued a new price
list which "reduced the prices to the consumer on the tonnage items or the im-
portant items and increased the non-tonnage items or the less important items".
(Ibid, p. 351)
Sometime in September the National Tube Company authorized the accept-
ance of orders for its seamless B casing at the price of lap weld. This permission
was given during a period of about six days (Ibid, p. 370). On September 29th
the Pittsburgh sales representative of the South Chester Company wrote his
general ^ales manager as follows:
"The matter outlined below is in strict confidence and has been received by
the writer, since return of the gentleman from New York, whom we mentioned
by telephone.
"Naturally, to gain the end which the other mills wanted, that is: Not to have
the National Tube Company quote prices, on Seamless material which would
meet Lapweld competition, it was very necessary for these other mills to give
nip something in return. Through the same and another source, we have today
checked a second meeting of- manufacturers other than the National Tube Com-
pany to be held in a few days. As it stands at the moment, the thing resolves
itself as follows:
"The National Tube Company will leave as they are at the moment the prices
for Grade 'B' Seamless, which have already been announced. The National
Tube Company and all other seamless mills will discontinue the manufacture
of new Grade 'C and bring the physicals of new Grade 'B' considerably higher.
This with the new Grade 'D' will bring the status back to where it was prior to
July 1st, when the whole mess was started.
"Youngstown, Spang Chalfant, Jones & Laughlin and Republic Steel will
discontinue the manufacture of Lapweld Pipe in Oil Country sizes lO^i" 0. D.
and under.
"Wheeling Steel, who has already been contacted today, advised that with
the present spread between Grade 'B' and Lapweld, they were slowly being forced
out of business and would only ask that they be allowed to dispose of present
stocks of Lapweld on hand.
"Bethlehem, who was contacted today, stated they had not made any Lapweld
Oil Country material since July 1st. This I doubt, but they have also signified
their intentions to discontinue the manufacture of this product.
"In so far as the South Chester Tube Company is concerned, as has been stated
this afternoon, neither the National Tube nor a meeting of the other mills feel
they should take the responsibility of determining or suggesting any policy for
us to follow, as they would not want to be confronted at Washington, since we
CONCENTRATION OF ECONOMIC POWER 14559
make no other product in the way of pipe, and not even any other products manu-
factured of steel.
"We are handing this to Mr. Sweet, and we need not advise that this informa-
tion is of the most confidential nature.
"Prior to the meetkig of the mills, other than the National Tube, we are going
over this matter with our source of confidential information. This meeting will
be held probably Mondaj' or Tuesday of next week, and within an hour after it
adjourns, we hope to have exactly what transpired." (Exhibit 1437, p. 383)
The above quoted contemporaneous documentary record is to be weighed with
the testimony of the author that he could not identify any of his sources of in-
formation and the testimony of representatives of the Wheeling Corporation and
the National Tube Company that they did not participate in conferences with
competitors. (Verbatim Record, T. N. E. C. Hearings, Nov. 14, 1939, p. 364)
The South Chester Company representative, however, testified that he did not
"believe that they were formal meetings to discuss these particular problems,
but certainly evjryone contacted each other to find out what their position should
be and what attitude they should take in so far as the production of this type
of material should be." (Ibid, p. 363) He further testified that he had talked
to representatives of the Youngstown Sheet and Tube Company and of Jones
& Laughlin Company (Ibid, p. 365). He further testified that perhaps the
action of the National Tube Company in reducing prices on seamless pipe during
September to the level of lap weld prices "might stop the action or the supposed
or presumed actions of other manufacturers in disposing of "existing stocks of
lap weld material at ruinous prices," and that as a result of such action "the lap
weld stocks in the hands of other operators probably lie dormant." (Ibid, p.
366) On October 1st an official of the Wheeling Steel Corporation wrote that
from developments that past day^or two the situation had cleared up and "We
understand that it will not be possible to secure 'B' Seamless at the same price
as Lapweld material." (Exhibit 1438, p. 367)
The foregoing evidence of collaboration among members of the industry in the
collusive determination of base prices is tangible and legally competent evidence.
It is impossible to classify or characterize it as "abstract criteria"
(c) Recent Collaboration Among Competitors on "Extras".
An important phase of steel prices is the application of so-called "extras" con-
sisting of additions to or deductions from the base price of a base product to cover
'Terences in quantity, quality, chemical content, size, shape, finish, packing and
'ar factors. Extras are so closely related to base prices that when applied
to the base price they may be logically considered as forming a base for the extra
product; for, after such application the calculation of delivered prices proceeds
just as in the case of base products and base prices exclusive of extras. The
Federal Trade Commission's reports on the Steel Code to the Senate and to the
President in 1934 and again in 1936 demonstrated how the price of extras was
controlled under the Code and subsequently. The collaboration of competitors
to fix the price of extras was carried on quite openly. The reports showed how
important extras are as a factor in prices — sometimes exceeding the base price
itself — and how price increases can be made in the guise of extras without requir-
ing any change in the base price. Certain quantity and size extras were increased
by 395 percent on the average when the N. R. A. Code was adopted. Important
increases in quality extras were also made. (E. T. C. Report to the Senate, pp.
12-15, 54, 56). Increases in extras ranging from 100 to 500 percent on high
tensile steel for the Navy were adopted by vote of the Institute's Board of Direc-
tors and made effective September 1, 1934 (F. T. C. Report to the President,
pp. 8-9) Fines at the rate of $10.00 per ton were assessed under the Code for
failure to charge the agreed extras. (Printed hearings before Senate Committee
on Interstate Commerce in re S. 4055, pp. 235, 237, 239, 242, 245, 246, 247).
On June 10, 1936, the vice-president of the A. M. Byers Company wrote to the
manager of tube and pipe sales of the Allegheny Steel Company as follows:
"You are undoubtedly bound by the IJniform Extras and Deductions of the
Iron and Steel Industry for your product in the same way as we are for ours.
You will find on referring to Section 60, top of Page 2, that if couplings are required
for cut length specifications, an extra charge will be made.
"We have checked and find that it is uniform practice among steel pipe manu-
facturers to charge extra for the couplings in exactly the same manner as we
charged you."
Testimony before the Temporary National Economic Committee establishes
that the amount of "extras" to be added or deducted from the base price has con-
tinued to be the subject of collaboration and agreement among members of the
14560 CONCENTRATION OF ECONOMIC POWER
industry. Mr. Fairless, Presiden,t of the Corporation, testified that extras were
based on costs, "not only our costs but a cross section of the costs of the industry";
that the Corporation made it its business to find out the costs of competitors,
stating, "We talk over extras with our competitors". He further testified that
consultations with competitors as to extras had been going on at least for twenty-
five years; that cutting the price of extras "is a very small percentage of the method
in which prices are reduced", and that the numerous changes in extras made in
May 1938 were the outcome of an exhaustive study made by representatives of
the Corporation and other members of the industry. (Verbatim Record, T. N. E.
C. Hearings, Nov. 7, 1939, pp. 219, 220).
Mr. A. C. Adams, a Vice-President of the Corporation, testified tha't he par-
ticipated in consultations " with representatives of competitors regarding the
changes in extras made in May 1938; that because of overlapping of certain prod-
uct classifications and varying extras within each classification there had been
"a state of confusion from a pricing standpoint", and that it was impossible to
do more than relate the extras to cost, since they could not be predicated exactly
on costs because costs were constantly changing (Ibid, November 7, 1939, p. 222).
Mr. Fairless testified that the industry had/technical committees in the American
Iron and Steel Institute which analyzed the costs of extras (Ibid, November 7,
p. 219).
The new extras were identical as announced by various companies, and six
companies announced them on the same date, namely, May 18th (Ibid, Novem-
ber 7, p. 228). In a circular letter to sales managers of the Carnegie-Illinois Steel
Corporation, dated May 26, 1938, Mr. Adams described the new extras and stated
that the net increase of $1.00 per ton on certain items of cold rolled sheets would
undoubtedly result in numerous complaints, that on another width of sheets there
was an increase of $3.00 per ton, and that the buyers of flat rolled products in
certain widths would receive "an increase in most gauges, and therefore you will
undoubtedly receive some complaints ^from this trade, but you can assure any
buyer that the adjustment in the average price for all sales is slightly downward"
(Ibid, November 7, p. 230; Ex. 1396).
The above facts challenge the contention of the Corporation in Exhibit 1418
that the objections to the pricing methods of the industry are wholly theoretical,
are not based on tangible evidence and rest upon abstract criteria.
(d) Recent Collabofahon on Unifvrm Delivery Charges.
An important ingredient in any delivered price system is that portion of the
delivered price wl^ich is .fadded to the base price as transportation charges. The
basing point system in the steel industry has always included the all rail freight
as the standard of such transportation charges. From time to time, particularly
under the N. R. A. code, and subsequently, there have been variations or quali-
fications of the all rail freight basis, but such exceptions have been just as well
understood as the all rail standard itself. Under the N. R. A. code, which was
declared by the code itself to constitute an agreement among its members, it was
required that delivery charges be calculated from specified common basing points
and that the delivered pri6es must be calculated by adding to the applicable
basing point quotation "the all rail published tariff rate charges" to "the place of
delivery". In the case of certain products intended for fabrication of an identi-
fied structure, place of delivery was defined as "the freight station at or nearest"
such structure and "not the shop of the fabricator". If other than all rail trans-
portation is used, any reduction in the delivered price resulting therefrom must
be "at a rate which shall have been previously approved by the board of directors
and filed with the secretary". (N. R. A. Code Schedule E, Sections_3 and 4)
Pursuant to the above requirements of the code, the board of directors author-
ized a number of departures from the all rail delivery charge and prescribed the
"rate" at which or extent to which such departures might be made. A special
committee of traffic managers was set up to aid in the calculation and compilation
of the freight rates to be used. (F. T. C. Report to Senate March, 1934, pp. 20,
21). The board of directors approved and adopted what was known as "Freight
Tariff No. 1, American Iron & Steel Institute". This compilation embodied
delivery charges to various destinations from the basing point or points which
would "customarily" be used for a particular destination. By a commercial
resolution the board of directors resolved that "Freight Tariff No. i * * *
shaU be deemed" to be the lowest published water and water-rail transportation
charges and that the charges therein listed must be added to the applicable base
price to obtain the correct delivered price. This compilation aho provided for
switching charges at dock destination. The resolutions specifically recognized
that the water and water-rail rates included in the publication were not necessarily
CONCENTRATION OF ECONOMIC POWER 14561
the lowest rate, that it was "frequently difficult or impossible" to ascertain the
lowest rate and that in some cases the use of published steamship rates "might
result in unfair competitive conditions". For those reasons the board declared
that the rates approved by it should be "deemed" to be the lowest published rate.
(Commercial Resolutions 8 and 18.) During the N. R. A. code period, producers
were fined at the rate of $10 per ton for making sales which were at variance
with the delivery charges which the board of directors had established.
When the board of directors of the institute voted in June, 1935, to continue
the provisions of the code with regard to the standards of fair competition, this
apparently carried with it the continued compilation and promulgation of the
freight rates which were supposed to be used by members of the industry in cal-
culating their delivered prices from the applicalJle basing points. In liearings
before the Senate Committee on Interstate Commerce, the executive secretary
of the institute testified in March, 1936, that the institute had continued to pub-
lish freight tariffs after the expiration of the N. R. A. code, and in that connection
said that during the code period "when every member of the code was required
to conform to certain provisions of his contractual relationships, it was a con-
venience for him to know what he was supposed to do". (Printed record of
hearings on S. 4055, page 266.)
The Federal Trade Commission's report to the President on steel sheet piling,
in June, 1936, described the nature and extent of the collaboration existing among
the members of the industry in preventing any deviation from identical delivered
prices through the medium of identical freight charges. To such an extent was
this carried that a complaint was entertained by the institute's traffic committee
involving a P. W. A. project requiring about $60,000 worth of pipe. The bidders
named a uniform delivered price to the extent of carrying out decimals to two
places as usual but one bidder was "awarded the business because carrying the
basing point price to three places resulted in their bid being 120 low". (F. T. C.
Report to President on Steel Sheet Piling, p. 24, App. H.) An extensive campaign
was carried on to prevent buyers from diverting shipments consigned to them at
the delivered price calculated under the basing point formula, from the destina-
tion where such price was correct to a destination where such price was below the
correct delivered price. The aid of the railroads was enlisted to prevent buyers
so diverting their purchases, although a number of the railroads objected on the
ground that the consignee was the owner of the goods and had the legal right to
divert them.
Pursuant to the general purpose of preventing the slightest divergence in the
delivered prices of the various producers, members of the industry collaborated
in the adoption of rules to eliminate the excessive fractions resulting from the
emergency charges prescribed by the Interstate Commerce Commission to dispose
of fractions of a mill and fractions of a cent for the purpose of computing identical
delivered prices, to equalize land grant freight rates so that uniform reductions
in delivered prices might be made on sales to the United States government, and
to standardize freight rates and drayage charges used in connection with sales and
deliveries to various government navy yards. In addition to the foregoing, the
institute has compiled and promulgated compilations of all rail, rail-water-rail
and rail-water freight rates to facilitate the calculation of identical delivered
prices. (F. T. C. Report to President on steel sheet piling, June 10, 1936, pp.
24-27.)
The importance of a standard compilation ot freight rates from the standpoint
of promoting identical delivered prices is ^hown in the following statement in a
letter written by the Chairman of the Traffic Committee of the Institute to the
Chairman of the Commercial Committee under date of January 29, 1934:
"While every effort has been made to figure minimum rates, it is not humanly
possible to attain accuracy in each and every instance, bearing in mind that the
half million rates published have been compiled by some 150 men. As errors are
discovered the incorrect rate will be changed, but until the change appears in
the supplement to the tariff it is our opinion it should not be used for sales purposes.
Certain branches of the industry have for years followed such a practice. (F. T.
C. Report to President on Steel Sheet Piling, App. C-5.)
A continuation of this understanding subsequent to the N. R. A. Code period
is shown by the following exchange of correspondence:
On November 9, 1935, O. W. Bryte, of the Traffic Department of the Newport
Rolling Mill Company, wrote to E. T. Butler of the American Iron and Steel
Institute calling attention to the cancellation of certain freight rates and saying:
"As we have not been furnished with supplement carrying similar cancellations
against your Freight Tariff No. 2, will you please inform the writer if we shall be
guided by the corrections as heretofore mentioned or if we shall adhere strictly
to your Freight Tariff No. 2."
14562 CONCENTRATION OF ECONOMIC POWER
On November 13, Mr. Butler r,eplied:
"In the meantime, in connection with the question raised in the second para-
graph of your letter it is my understanding that until such time as the rates in
Freight Tariff No. 2 are changed, the rates to be used are those carried in Freight
Tariff No. 2."
The above described practices with regard to freight rates is a tacit recognition
of what the Federal Trade Commission found as a fact from evidence in the Pitts-
burgh plus case to the effect that freight tariffs are complicated, that oftentimes
there are two or more different freight rates between two points given in different
tariffs and that different traffic experts might not arrive at the same results.
(Findings of Fact, Docket 760, Paragraph 14 (n)).
As pointed out by the Federal Trade Commission in its reports to the Senate
in March, 1934 and to the President in November, 1934, the industry has main-
tained the all rail basis of freight in calculating delivered prices in the face of
protests from numerous business interests and numerous organizations of business
interests which were being deprived of their potential natural advantages repre-
sented in their ability to use cheaper forms of transportation than all rail. N. R. A.
filed with the institute a partial list of protests against the suppressed condition
of inland waterway transportation under the code. That list included seventy- ■
two names, of which twenty-eight were industrial concerns, eight were vi^ater
transportation agencies, four were associations devoted to improvement of rivers
and canals, four were local Chambers of Commerce, twelve were United States
Senators and fourteen were members of the House of Representatives. At a
meeting of members of the industry, these protests were rejected and tne all-rail
basis of freight calculation was reaffirmed by" an overwhelming vote. (F. T. C.
report to the President, November, 1934, page 23).
Shortly after this meeting, the deputy administrator in charge of the code
summarized the situation in part as follows:
"Up until the Code Authority meel^ing yesterday, it was the belief of Messrs.
Richberg, Simpson and myself that the' Industry was making conscientious efforts
to solve this problem. * * *
"After the meeting Mr. Simpson and I, in discussing the matter, reached the
conclusion that the Code Authority recently has not shown the proper attitude or
activity toward formulating a definite method for adjusting this inland waterway
transportation problem, and the further conclusion that some action on thepart
of this Administration may be necessary to accomplish this purpose. * *' *"
When the institute's board of directors proposed to permit mills shipping by
water to make deductions in delivered prices without at the same time permitting
inland mills from meeting such deductions, resolutions were adopted by certain
groups of competitive producers, stating their opposition as follows:
"If water shipments can be sold at lower prices than rail shipments, it creates a
hardship on inland mills by excluding them from business in which they have
always participated; it creates a hardship on inland consumers by placing them
in an unfair position as to the cost of their products; it creates a hardship on
inland communities by establishing preferential prices under which it is more
desirable for communities to be located on waterways; all of which is contrary
to the spirit and letter of the code of fair competition for the industry." (F. T. C.
Report to Senate, March, 1934, p. 28).
The Federal Trade Commission commented upon the above position by saying
in its report to the Senate:
"The position above taken is that by imposing equal hardships on communities
located on waterways, the hardships of the inland communities are thereby
removed. It also comprehends the theory that sectional advantages conferred
upon buyers by nature should be nullified in order to insure identical delivered
prices for the benefit of the sellers." (Ibid, p. 28). ,
The position of the industry with reference to competition from plants havmg
the advantage of water transportation is further shown by correspondence be-
tween Mr. R. P. Lamont, President of the Institute when the N. R. A. Code was
adopted, ane the South Chester Tube Company of Chester, Pennsylvania. The
latter company had a plant located on tide water and sought assurance from the
directors that the advantages of its location would not be destroyed or impaired.
Mr. Lamont replied that the Board of Directors realized that members of the
industry with advantages of any kind desired to preserve them and that those with
disadvantages desired to have them eliminated. Referring to the geographical
advantage of the South Chester Tube Company, he said:
"To leave such advantages with you would result in continuing unfair compe-
titon in your favor as against your competitors who, for some reason or other, may
CONCENTRATION OF ECONOMIC POWER 14563
not be as advantageously located in respect to transportation as are you." (Ibid,
p. 49).
In view of the above facts the question again presents itself as to whether the
objections to the basing point system are based upon "abstract criteria" as
contended by the Corporation or upon "tangible evidence."
(e) Relation Between Price Leadership and Collaboration Among Competitors.
How readily leadership of the Corporation on prices may supplement the trend
toward collaboration among competitors is demonstrated by evidence presented
before the Temporary National Economic Committee. It was there established
that for many years it has been customary for competitors of the Corporation
engaged in selling tin plate to can manufacturers to contract with their respective
customers in terms of whatever base price the Corporation might negotiate and
announce in its contract with the American Can Company. An American Can
Company official testified that Carnegie-Illinois Steel Corporation, and its pre-
decessor, American Sheet and Tin Plate Company, were the only companies that
published a base price on tin plate (Verbatim Record T. N. E. C. Hearings,
November 8, 1939, p. 256). He also testified that other sellers of tin plate "have
not made a lower price than Carnegie-Illinois have made to us", but had agreed
to take the price fixed by Carnegie-Illinois, which is "the officially named or
published price". Mr. Fairless, President of the Corporation controlling Carnegie-
Illinois and its predecessor, testified that it was a correct assumotion that com-
petitors "are content to take whatever price Carnegie-Illinois "posts" (Ibid,
November 8, p. 257).
Mr. Grace of the Bethlehem Corporation, the second largest producer, could
not recall any occasions when his company had taken the initiative in reducing
prices, but said that "generally we haven't" and that as far back as he could
remember "in the main we would normally await the schedules as published by
the Steel Corporation" (Ibid, November 9, p. 281). He could recall no instances
where the Bethlehem Corporation failed to follow the Corporation in advancing
prices and in the adoption of standard extras (Ibid, November 9, p. 281).
In hearings before the Senate Committee on Interstate Commerce in April
1936, W. A. Irvin, then President of the Corporation, testified thaf his companies
"generally make the prices, unless some of the other members of the industry
think that that price may be too high, and they make the price", that com-
petitors "generally" followed the Corporation's price, and that the exceptional
deviators were looked upon as "price cutters". (Hearings on S. 4055, p. 595).
The sales manager of Jones & Laughlin stated to representatives of the Federal
Trade Commission in 1936 that he felt compelled to follow the prices of the Cor-
poration and that to sell below the prices of competitors would bring about a
ruinous competitive condition. The Vice-President in Charge of Sales for the
Carnegie-Illinois company stated that it never takes the initiative in reducing
prices, is anxious to obtain the highest possible price, and that it is a fallacy to.
attempt to increase business by reducing prices. Commenting on this in its
report to the President on June 10, 1936, the Federal Trade Commission said:
"Under such a philosophy all that is necessary is to set up some system for
informing aU competftors what is the highest mill base any one of them desires
and mill base quotations automatically become identical. Lower costs of pro-
duction and cheaper costs of transportation must not be allowed to bring a price
below that of competitors for fear of a ruinous competitive condition. Such a
view is wholly frustrative of price competition." (p. 6)
The above evidence is merely confirmatory of the Commission's findings of
fact in the Pittsburgh Plus case in 1924 to the effect that the Corporation's
"prices are generally followed by their competitors." (F. T. C. Decisions Vol.
VIII, p. 32, Paragraph 12i). The Commission also found from evidence in that
case that the Corporation had collaborated extensively with its competitors in
preparing, adopting and circulating compilations of uniform extras and differ-
entials, freight rates, tolerances and weights, for the purpose and with the effect
of establishing and maintaining identical delivered prices. Between 1907 and
1911 the Corporation was the leader in promoting the so-called Gary dinners at
which agreements and understandings with its competitors were reached as to
base prices on various products. Prior to 1907 the Corporation was a leader in
pools and zone price-fixing arrangements, and other devices for eliminating price
competition between it and its competitors (See opinion of Judge Buffington in
U. S. vs. U. S. Steel Corporation, 223 Fed. 55).
14564 CONCENTRATION OF ECONOMIC POWER
(/) Degree of Observance of Basing Point System.
Without an investigation of sales records directed specifically to the above
subject, there is no way of providing an answer that is dependable. The general
opinions of parties interested in defending the basing point system are almost
certain to exaggerate the number, proportion and degree of departures from the
system. Competitors are likely to have an honest but exaggerated idea of the
departures made by their rivals and may unduly minimize their own. Yet de-
partures undoubtedly occur, sometimes unintentionally and sometimes de-
liberately.
The logic of treating deviation from and disregard of the system, however, as
an argument for the system itself is patently defective. Yet the Corporation
adopts it. Thus it is stated that the basing point system enables "the buyers to
induce price concessions by trading one producer's prices against another's"
(Ex. 1418, p. 38). This statement was made shortly after the Corporation
quoted from the N. R. A. Report to this effect:
"The outstanding characteristic of the basing point system is the fact that it
puts rival producers on a footing of price equality with each other and all the
consuming points over a wide area * * *" (Ex. 1418, p. 37).
The system which is designed to prevent buyers getting any lower delivered
prices from one producer than from another is credited with giving buyers the
opportunity of inducing price concessions by trading one identical delivered price
against another.
In another place the Corporation argues that the basing point system tends to
prevent prices from ri^ng more than it tends to prevent them from decreasing
"since unpublished price reductions are possible, whereas unpublished price
increases, of course, never occur" (Ex. 1418, page 46). Unpublished price reduc-
tions are also possible where prices are made f. o. b. mill or in fact under any con-
ceivable pricing system. They are not so peculiar to the basing point system that
the system can take credit for the downward pull upon price levels of unpublished
price reductions. The Corporation also states that the basing point system has no
more of a stabilizing influence than does any open price system, saying that "the
same stabilizing influence would result from any open price system" (Ibid, p. 46).
Obviously an open price system based wholly upon f. o. b. mill prices could not
result in making delivered prices identical,-Mill net prices, of course, might be the
mathematical derivative of an identical delivered price. Although as shown above
the Corporation claims that any open price system would produce "the same
stabilizing influence", it also quotes from the N. R. A. Report to the efi"ect that
while an open price system could be used with any kind of a price structure "it
has its fullest efl'ect if each producer knows the delivered prices he has to meet at
each purchasing point" (Ex. 1418, p. 30). The corporation also argues that with-
out knowing what prices would have been in the absence of the basing point sysem
there is no way of determining the efl'ect of the system upon prices (Ex. 1418, p.
45). The Corporation nevertheless quotes N. R. A. to the efl'ect that the system
puts competition "on a basis which will yield higher prices than would result
without it" (Ex. 1418, p. 30).
In considering the degree of adherence to or deviation from the basing point
system of identical delivered prices, the testimony of prominent representatives
of the industry is pertinent. Mr. Eugene Grace, president of Bethlehem Steel
testified before the Temporary National Economic Committee that he believed
in the fundamental law of competition and that concessions from base prices were
"wholesome". Yet he agreed that such concessions were inconsistent with the
ideal of the posted price system and said he did not want to see the base price
structure destroyed. (Verbatim Record, T. N. E. C, hearings, November 9, 1939,
p. 283.) Mr. Grace further testified that during the unsettled price conditions of
early 1938, published base prices were not being adhered to in sales to capital
goods producers but that they were getting base prices on the smaller type of
orders and on consumers' goods like the canning industry where the demand was
holding up. He admitted that even some large buyers were probably paying the
full base price, that the government ordinarily continued to be quoted the full
base prices and to pay them, and that it was Bethlehem's policy to get published
base prices if it could (Ibid, pp. 277, 278, 279). Mr. Fairless, president of the
Corporation, also testified that some buyers paid the base price plus standard
extras at the same time that others were getting reductions ( bid, Nov. 7, p. 209).
Mr. Fairless als.o testified that at no time in 7 years had twe Birmingham area
been able to secure its full published prices "except in rare instance^" (Ibid. p.
213). The 7 years referred to would have included the N. R. A. Code period,
and if Mr. Fairless's testimony was correct, it is equivalent to a statement that
CONCENTRATION OF ECONOMIC POWER 14565
there was a wholesale violation and disregard of code requirements which would
have subjected the violators to a fine at the rate of $10 per ton.
Mr. W. A. Irvin, formerly president of the Corporation, testified before the
Senate Committee on Interstate Commerce in April, 1936, that:
"The customers who are able to get concessions are those having larger orders
to place and ones who utilize steel in their own production." (Hearings on S.
4055, p. 607.)
A recent report of the Produrement Division to the Temporary National Eco-
nomic Committee contains illuminating information as to the extent of identical
bidding on steel products. It was presented as part of a survey of the practice of
identical bidding on all commodities purchased by the government during a 12
month's period from December, 1937, to November, 1938, inclusive. The total sur-
vey included more than seven million bids and over 1,600,000 bidders. (Report,
p. 68.) The cases of identical bidding totaled 25,610 and among these "iron and
steel and their products" led all others with 6,693 cases or 26.1 per cent of the total
as against 12.8 per cent for the next highest commodity (Ibid, pp. 72, 73) and 10.15
per cent of identical bids for all commodities. The survey shows three forms of
identical bidding: (a) cases where all bids were identical, (b) cases where two or
more of the lowest bids were identical, (c) cases where two or more identical bids
were higher than other bids. Of the first class "iron and steel and their products"
had 21.4 per cent as against 17.3 per cent for the next highest commodity and 1.72
per cent for all commodities. Of the second class of identical bids "jron and steel
and their products" had 25 per cent as against the next highest commodity of
13.6 per cent and 2.46 per cent for all commodities. Of the third class of identical
bids the industry had 29.3 per cent as against 11.3 per cent for the next highest
commodity and 5.97 per cent for all commodities.
In the classification of "iron and steel and their products" however, the survey
includes 31 classes of commodities, of which steel works and rolling mill products
are one. On the basis of the sub-classification of steel works and rolling mill
products the percentages of the three types of identical bids were 30.8, 27.8 and
41.3 per cent, respectively, as against 21.4, 25, and 29.3% for the general classi-
fication of "iron and steel and their products".^, (Ibid, pi 91.) Thus it appears
that the percentage of identical bids among steel works and rolling mill products
was substantially higher than among other products classified under the designa-
tion "iron and steel end their products". y
Taking all bids regardless of commodity, the Procurement Division reported
that 89.85 per cent in value and 76.9 per cent ]in number were non-identical.
Only the remainder showed one of the three types of identical bidding previously
described. It is thus apparent that the practice of identical bidding on federal
government purchases is concentrated in a comparatively few industries and that
"iron and steel and their products" lead all the rest in that respect, and that within
tne industry defined by the quoted/ words, steel works and rolling mill products
lead all other in the percentage of identical bids to the total number included in
the survey. The actual government expenditures in cases of identical bidding
totaled nearly $36,000,000 (Ibid, p. 65). If to this total were applied the 26.1
per cent relation of identical^bids in "iron and steel and their products", govern-
ment payments of $9^,396,000 would be indicated in cases of identical bidding.
If the simple average of 23.2 per cent applying to the first two types of identical
bids for steel works and rolling mill products were applied to the total purchases
of all commodities, the government payments to the steel works and rolling mills
would be indicated as $8,352,000.
THE BASING POINT SYSTEM WAS NOT A NATURAL EVOLUTION INHERING IN THE
PECULIAR ECONOMIC NATURE OF THE INDUSTRY, BUT WAS DEVISED BY COM-
PETITORS AS A MEANS OF ELIMINATING PRICE COMPETITION
A discussion of this subject is made necessary by certain assertions of the
Corporation which are not in accord with the facts. One of the declared purposes
of Its pamphlet is "to establish that this pricing method is the natural result of
basic economic conditions in the steel industry" (Ex. 1418, foreword). In another
pamphlet, the Corporation asserts that the system is "a simple pricing medium
which has evolved over a long period of time to meet the peculiar characteristics
of the steel industry" (Ex. 1410, p. 26).
Before proceeding to an analysis of the argument made to support the state-
ments quoted, there will be described briefly the evidence developed during the
trial of the Pittsburgh Plus case, and which was summarized by the Federal Trade
Commission's Findings of Fact made in 1924. The evidence taken traced the
14566 CONCENTRATION OF ECONOMIC POWER
origin of the basing point system back to its earliest beginnings in the steel in-
dustry. According to the testimony of Col. Henry P. Bope who had been con-
nected with the Carnegie interests since 1879 and was later with the Corporation
until 1918, the first use of the Pittsburgh Plus System was in 1880, when four
manufacturers of structural beams formed an association to fix prices and adopted
Pittsburgh as the basing point on which delivered prices should be made. Prior
to that time the practice was to quote f. o. b. mill and each mill made whatever
price seemed necessary to take the business. Later on, the Beam Association
used a zone method of fixing prices building up the delivered prices upon average
freight rates within each zone. Col. Bope also testified that the various associa-
tions covering various steel products used the basing point system as fundamental
to their price fixing activities, that they could not maintain prices without a basing
point, and that when a temporary departure from the system occurred in 1909
the mills got into a condition of chaotic prices and were glad to return to the
Pittsburgh base. (Typed Transcript of Testimony, D. 760, pp. 10859, 10861,
10863, 10869, 10870.)
In 1902, the Bar Producers, including the Corporation's subsidiaries, met and
agreed upon the Pittsburgh Plus system as a basis for fixing and maintaining
uniform delivered prices. The plate and structural shape producers met and did
likewise in December, 1903, and in 1904 the large wire producers, including a
corporation subsidiary, agreed upon the Pittsburgh Plus system as a method of
maintaining uniform prices (Findings of Fact, Docket 760, par. 14, b, c and d).
The Pittsburgh Plus System was adopted in 1900 by the National Tube Com-
pany, a Corporation subsidiary, and all its competitors adopted the same practice
(Ibid, par. 14, e). A sales manager of American Steel and Wire Company, a
subsidiary of the Corporation, testified that usually there was no price competition
among the wire manufacturers and that generally all wire mills charged the same
delivered prices on a Pittsburgh Plus base (Findings of Fact, Docket 760, par.
12 c).
In 1900 the Pittsburgh Plus system was adopted by the Billet Manufacturers
as a basis for their agreed prices, and in 1918 by a^^greement among bolt, nut
and rivet manufacturers (Ibid, par. 14, f & g). The basing point system was not
applied to the sale of tinplate until 1903. Prior to that time the Corporation sold
tinplate f. o. b. mill (Ibid Par. 14, i).
In May, 1901, while the Corporation was still in process of formation, its
various sales managers in meeting assembled formally voted that all carload lots
"shall be sold delivered at destination, based on tariff rates of freight" (Govern-
ment exhibits in case of U. S. vs. U. S. Steel Corporation, Vol. 22, p. 619). This
policy was re-aflSrmed from time to time by vote of the sales managers (Ibid. pp.
625, 627 and Hearings before the Stanley Committee, Vol. 6, p. 3961).
The Federal Trade Commission found in the Pittsburgh Plus case, from evidence
received in that case, that the Corporation was continuing to cooperate actively
with the National Association of Sheet and Tinplate Manufacturers, that the
Corporation's prices were furnished to the Association and relayed by wire from
it "to its members before being announced to the public. The Commission found
that the Association members generally adopted the Corporation's prices as their
own (Findings of Fact, Docket 760, par. 14, j.). The Commission also found that
the Corporation was providing its competitors with booklets containing extras and
differentials, with freight rate books which standardized the transportation factor
in delivered prices, and with tables of tolerances and weights, all of which were
necessary in making the Pittsburgh Plus system effective in Its objective of
identical delivered prices (Ibid. par. 14, rr, n & p).
The Commission found in the Pittsburgh Plus case that during the World War
Pittsburgh Plus was discontinued at Chicago on plates, shapes and bars, but just
before the close of the war it was restored at the suggestion of Judge Gary and one
or two other steel producers (Findings of Fact, Docket 760, par. 14, z to 11).
It may be noted also that prior to the adoption of the NRA Code for the iron
and steel industry pig iron had been sold on an f. o. b. furnace basis, notwith-
standing that an effort was made by Judge Gary, of the Corporation, to have a
basing point system -established on pig iron during the World War. (Ibid, par.
l4, z 19). In testifying before the National Recovery Review Board, in April,
1934, the executive secretary of the American Iron and Steel Institute stated th&t,
with one exception, "every one of those furnace locations which had been
previously used as a place for quoting prices f . o. b. furnace is now a place listed
as a basing point", and that whereas pig iron before the Code "was quoted at an
f. o. b. furnace price, it is now an f. o. b. basing point price". (Stenographic
Report of Hearings, Natl. Recov. Rev. Bd., April 20, 1934, p. 181). Since the
Code -which provided for this change in the method of pricing pig iron was the
CONCENTRATION OF ECONOMIC POWER 14567
product of the organized steel industry, it can hardly be claimed that the estab-
lishment of the basing point system in pig iron was merely a natural evolution of
competition forces as distinguished from joint effort on the part of competitors.
Passing over this most modern instance of the extension of the basing point
system, the Corporation goes back to a period prior to the American Revolution
for an example of what it says is "a clear picture of a rudimentary basing point
structure" embodied in the Philadelphia iron market. It refers to the "remark-
able evidence of a basing point price structure centered on Philadelphia prior to the
revolution" (Ex. 1418, p. 15). A description given elsewhere in the same exhibit,
however, says that "iron products were sold on a Philadelphia base with outlying
mills absorbing freight in order to bring their products to the central market"
(Ex. 1418, p. 83). This strongly indicates that this Philadelphia iron market was
the very opposite of a basing point system, in that it was a central buying market,
like a commodity exchange. If so, that was no more freight absorption than a
farmer has in getting his crop to market.
Coming now to the argument made by the Corporation in support of its asser-
tions as to the natural economic evolution of the basing point system, it quotes
from a book by Dr. de Chazeau to the effect that the system evolved naturally
because of the growing scale of operations and the shift from iron to steel production,
and that the evolution of economic forces was more important in explaining the
development of the basing point system than "the birth of a dominating corpora-
tion". Nevertheless, the Corporation admits in the same connection that among
the economic forces referred to by Dr. de Chazeau were "the material increase in
investment and overhead cost, combined with the centralization of producing
units" (Ex. 1418, pp. 16, 17). Such factors, of course, were one aspect of the
birth of the dominating corporation and, as before shown, the Corporation, after
the merger of its various constituent corporations was completed, formally and
definitely decided upon adherence to the basing point system of delivered prices.
The question may be raised as to what logical or necessary relationship there is
between the development of large-scale productive facilities and a system of
identical delivered prices for all competitors, whether large-scale or otherwise.
There may be some logical relationship between such a system and the permanent
success of mergers which bring together under one ownership scattered productive
facilities which would otherwise compete with each other.
Referring to the fact that in the early days of the steel industry prices were
quoted f. o. b. mill, the Corporation states, "From this assumption the Commission
and other critics seem to have concluded that f. o. b. mill prices are the 'natural'
way of quoting steel prices" (Ex. 1418, p. 83). As a matter of fact, it was the
actual historical way and the natural way for competitors'^acting independently
to quote. It is not the natural way for monopoly of course, and is repugnant to
identical delivered prices. The Federal Trade Commission found as a fact in the
Pittsburgh Plus case that "no systematic'!Pittsburgh Plus system had been adopted
by the steel producers at the time of Pittsburgh's greatest predominance in the
steel industry, or until after 1900" (Findings of Fact, Docket 760, par. 14 a). The
Corporation seeks to create the impression that there was no connection between
its initial merger of competing companies and the use 6f the basing point system
as a comprehensive method of pricing all steel products. It is implied that the
basing point system had been established for most products prior to the formation
of the Corporation in 1901 (Ex. 1418, p. 16). However, the footnote citatioA
given does not support that implication. The chronology of the basing point
system as it was extended to apply to more and more steel products has been
previously shown.
It is stated that the Pittsburgh Plus system vanished in Chicago in 1911 and
1912, and that it was not in force anywhere during the World War (Ex. 1418, p. 17).
The Federal Trade Commission found from evidence in the Pittsburgh Plus
case that "from the time the Pittsburgh Plus practice was adopted by the steel
industry to the present time, Pittsburgh Plus prices disappeared whenever sus-
stantial price competition occurred in the Chicago district; prices of steel pro-
ducers in such cases were made f. o. b. their respective producing mills. When
the Pittsburgh Plus prices were resumed, price competition had ceased'.' (Findings
of Fact, Docket 760 par. 14 t) . As" a, matter of fact," when the War Industries
Board fixed maximum pricea on steel products during the war, it accepted Pitts-
burgh and established other points of production basing points for such products.
The contentions of the Corporation that the basing point system developed
as a natural evolution out of the peculiar economics of the industry are not sup-
ported by any "tangible evidence" and they are contradicted by such evidence.
They are supported by nothing more tangible than assertions, -conclusions,
surmises and rationalizations. They are in striking contrast to the tangible
14568 CONCENTRATION OF ECONOMIC POWER
evidence recited by the Federal Trade Commission to sustain its conclusion that
the basing point system in the steel industry was devised by competitors as a means
of eliminating price competition.
THE COLLECTION OF "PHANTOM FREIGHT" CHARGES IS INHERENT IN THE BASING
POINT SYSTEM OF DELIVERED PRICES AND THE AMOUNTS COLLECTED ARE PRO-
PORTIONED TO THE system's OBJECTIVE OF MAINTAINING IDENTICAL DELIVERED
PRICES.
The term "phantom freight" simply means that where the actual freight is less
than the amount added to the base price to cover the freight element in the deliv-
ered price, the difference goes to the seller, giving him a mill net yield greater
than the governing base price by the amount of that diflFerence. It is flot freight
in any sense but is an addition to the sales price. Nor is it a phantom in the
sense of being unreal. The existence of it is just as real as the base price itself
and the size of it may at times approach the base price. This is one of the features
of the basing point system which sellers find it most difficult to defend. For it
involves the anomaly of a seller realizing the most out of a delivered price where
there is little or no actual freight charge included in it. As between buyer and
seller, the nearby buyer is not only deprived of any price benefit from his location
but is penalized for it. ,
The Corporation freely concedes the existence of so-called "phantom freight"
and goes into great detail to explain the various circumstances which give rise
to the different types and amounts of such freight. An attempt is made to
vindicate the practice by arguing that it is an expression of normal competition
in which the seller merely takes advantage of his geographical location to obtain
a better price. Thus, it is said that the mill which charges "phantom freight"
merely "names a delivered price which permits it to profit from a competitive
advantage, due to a superior geographical location" (Ex. 1418, p. 8); that a
producer located on water has an advantage over produqers not so located "which
he is properly entitled to realize by a higher mill net return" (Ibid, p. 100); that
as to such a n ,11 "there is no competitive reason why it should give the benefit
of the lower tr; nsportation to the customer" and if it did so "it would be following
some non-competitive principle" (Ibid, pp. 65-70); that mills at a considerable
distance from a basing point and with a corresponding freight advantage in selling
to nearby customers "behave competitively and naturally when they charge their
customers a price which realizes that advantage" (Ibid, p. 59); and that "the
strong as well as the weak producers are behaving competitively and naturally
when they charge prices whitih reflect their freight advantage over other pro-
ducers on sales in their local territories" (Ibid, p. 62). A somewhat similar argu-
ment was advanced by the executive secretary of the American Iron & Steel
Institute in testimony before the Senate Committee on Interstate Commerce in
March, 1936, when he said that if he had a steel plant located at an isolated
point such as Duluth, such plant "would have what might be called, in effect, a
protective tariff on the transportation," because of what a mill located elsewhere
"would have to bear to get his product into my immediate vicinity." (Printed
record of hearings on S. 4055, p. 275.)
It is obvious, of course, that such arguments, except possibly the last, beg the
question. They merely assert the competitive character of the practice, the very
thing that is in dispute. They admit that the collection of "phantom freight" is
the necessary result of including more freight in the delivered price than is actually
incurred, a characteristic of the basing point system. Yet it is argued that "the
possibility of a non-basing point mill realizing mill net returns higher than those
obtained by ^competitive mills at basing points, is not due to the absence of a
basing point, but to a geographical advantage." (Ex. 1418, p. 61.)
The foregoing arguments divert attention from the crucial fact that the success
of the basing point system in accomplishing its main objective of identical delivered
prices for all competitors, necessitates that mills with advantages of geographical
location retain them, so far as prices are concerned, and not merely retain them
generally, but systematically to the last cent or fraction of a cent of their freight
advantage. If they share with their customers the slightest part of such advantages
by making a lower delivered price the main objective of the system is defeated.
Under anything approaching free competition a mill with a geographic freight
advantage might voluntarily share or be forced to share such advantage with the
buyer having the same geographic location as himself. But to do that would
undermine the system itself. The arguments even go to the length that the least
sharing of such advantage is to follow some non-coinpetitive principle. This is
equivalent to contending that a lower delivered price than that of mills with the
CONCENTRATION OF ECONOMIC POWER 14569
disadvantage of higher transportation is non-competitive. To retain the full
amount of the freight advantage of each mill is of course to cancel the full amount
of the freight disadvantage of each other mill in order to establish and maintain
identical delivered prices. Moreover, the amount of "phantom freight" that may
be collected by a non-basing point mill in a given instance depends upon its
relation freight-wise to the governing basing point. The amount that may be
collected by a basing point mill depends upon its relation freight-wise to the
destination. The amount that either may collect is also related to the difference
between all-rail freight and the actual freight by cheaper modes of delivery.
The Corporation also makes clear that the collection of "phantom freight" is not
limited to non-basing point mills but is indulged in by basing point mills also.
But as to both, the success of the system demands that this be done. The
significance of the Institute secretary's comparison between the protective tariff
and "phantom freight" is that in both cases the amount that must be paid and
the basis on which it is calculated are de+'rmined by a system of rules designed to
insure the highest degree of exactitude.
In its illustrations of certain types of "phantom freight", the Corporation
attempts to minimize their amount and importance. Thus, it is said regarding
"phantom freight" realized by non-basing mills within the switching areas of a
basing point that "the amounts which they might realize over their base prices
are of no consequence to 'either producer or consumer." (Ex. 1418, p. 63) Yet
even in such illustration the amount of "phantom freight" was shown to range
from 10 cents to 50 cents a ton and it is stated elsewhere by the Corporation that
"customers generally order in large quantities, which makes a small price cut
worth bargaining for" and "consequently, a small difference in price will shift
large orders from one producer to another." (Exh. 1418, p. 26) Again, in
illustrating "phantom freight" arising out of differences between arbitrary
switching rates and the actual, it is said that the amounts involved aie "insig-
nificant." (Ex. 1418, p. »64 footnote) These "insignificant" amounts, however,
may spell the, measure of "a small difference in price" sufficient to shift large
orders.
An effort is also made to minimize the amount and import:, .^e of "phantom
freight" arising out of differences between cost of delivery by truck and by rail.
It is stated that "only an extremely small proportion of steel tonnage is delivered
by truck, partly because many products cannot be economically hau^led by truck,
and partly because large consumers prefer rail delivery." (Ex.1418, p. 72) Yet
it is admitted that almost any steel product can be shipped by truck, that light
flat rolled product^ are easiest to load and transport by truck, that many types
of wire products can be trucked economically and that there is "considerable
demand for delivery by truck of some products." (Ex. 1418, pp. 70, 71) As
shown by the Federal Trade Commission in its report to the S ate in March,
1934, the amount of "phantom freight" involved in the 35 percent rule on truck
deliveries in many instances amounted to from $2.50 to $3.90 per ton. (FTC
Report, pp. 34, 35) ,
The Corporation also states as to "phantom freight" that it is "very doubtful
whether any mill in a basing point area realizes any net gain, even on sales to its
nearest customers." (Ex. 1418, p. 64) The important question is not whether
the total amount of "phantom freight" exceeds the total amount of "freight
absorption", whether for an individual mill or company or for the industry as a
whole. If the total amount of "phantom freight" were always less than the
total amount absorbed, there still would be identical delivered prices and a
systematic inclusion of such freight to produce that result at any given destination.
It is worthy of note that the Corporation does not show the amounts of "phan-
tom freight" which accrue to non-basing mills located at considerable distances
from basing points. Nor does it show the amounts which accrue by reason of
differentials between basing points that embody some or all of the transportation
charge from other basing points. Several illustrations may be given which will
show how substantial and important these omitted types of "phantom freight"
still are to large areas of the country, 'despite the discontinuance of the single
basing point system, the substitution of the multiple basing point system, the
1938 elimination of certain price* differentials between basing points, and the
addition of new basing points in that year.
■ In its report to the President en the Steel Code in November, 1934, the Federal
Trade Commission stated that as to sheets the Pacific Coast ports were basing
points "in name only, their prices being merelv a composite of the Pittsburgh
base price plus transportation from Pittsburgh. "Accordingly, the Pittsburgh-plus
system is literally in effect in that territory." (Report, p. 28) The Commission
quoted from a protest filed with the American Iron & Steel Institute by the Los
14570 CONCENTRATION OF ECONOMIC POWER
Angeles Chamber of Commerce in May, 1934. The Chamber said that the Pacific
Coast basing point prices were "substantially equal to the Pittsburgh mill base
prices, plus rail and water transportation charges, including wharfage, handling,
and terminal delivery." The Chamber further said that this had the effect of
"depriving local steel rolling and working industries from the volume and profits
of bunness afforded by a restricted local territory, as to which they have very
definite geographic and transportation advantages." (Report, p. 19.)
Aa to certain products the situation on the Pacific Coast remains substantially
unchanged. The general manager of the Pacific Coast Fabricators Association
testified before the Temporary National Economic Committee on November 14,
1939, that prices paid by members of his association at Pacific Coast ports were
as much or more than the eastern mills' basfe price plus rail and ocean freight to
Pacific Coast ports* plus marine insurance, wharfage and loading on cars from
the ^^jarves at such ports. (Verbatim Record, TNEC Hearings, p. 378, Ex.
1441, pp. 386, 387). Yet products so priced afe produced at San Francisco and
Seattle mills owned solely by the Corporation ^d Bethlehem. Bars produced on
the Pacific Coast are priced at Birmingham plus, shapes at Philadelphia plus, and
sheets at Sparrows Point plus. The amount of "phantom freight" thus involved
ranges from $10 to $13 a ton. Prior to July, 1938, sheets were sold on the Pacific
Coast at Pittsburgh plus and the amount of "phantom freight" was $15 per ton.
The amount of "phantom freight" which led to the application of the Western
Association of RoUed Steel Consumers for relief against the Pittsburgh Plus
practice was only $7.60 a ton at Chicago.
The effect of the present basing point system on Pacific Coast fabricators is
similar to the effect of the Pittsburgh Plus system on Midoie Western fabricators
prior to 1924. The manager of the Pacific Coast Fabricators Association testified
that Eastern and Middle Western fabricators were enabled to ship to the far
west and compete with the West Coast fabricators but that the latter could not
ship to the east. (Verbatim Record, TNEC Hearings, Nov. 14,. 1939- p. 381)
This is the very predicament that Middle Western fabricators found themselves
in under the Pittsburgh Plus system. Eastern fabricators were enabled to com-
pete with them in the west while the western fabricators were prevented from
competing in the east.
There has been a tendency in some quarters to infer that the discontinuance
of the single basing point system known as Pittsburgh Plus, and the substitution
of the multiple basing point system in 1924 had the effect of ending the dis-
crimination expressed in "phantom freight" charges. "That inference was en-
couraged by the addition of ijew basing points under the N. R. A. Code and of
others in 1938, coupled with the abrogation during that year of price differentials
between various basing points. As a matter of fact any such inference is not
well founded. "Phantom freight" and the discrimination it embodies against
important consuming sections still exist in substantial amounts in various impor-
tant steel products. It will always exist in the basing point system so long as
given product is priced on a point other than its place of production and shipment
(assuming local sales are made by non-basing point mills) and so long as it is
priced for dehvery by a mode of transportation higher than that actually employed.
Actual instances and illustrations of the substantial amounts of "phantom
freight" existing at the present time may be cited. The following consum:'-s'
goods are produced in large quantities at Sparrows Point (Baltimore) but ctre
still priced on a Pittsburgh base: Buttweld pipe, Lapweld pipe, cold rolled strip,
cold rolled sheets, tin plate, plain wire and nails and staples. Purchasers of these
goods in Baltimore are charged Pittsburgh Plus by Baltimore producers. This
involves the addition of "phantom freight" from Pittsburgh to Baltimore amount-
ing to $6.00 per ton. A subsidiary of the Corporation produces plain wire and
nails at Allentown, Pennsylvania, but the price is still based on Pittsburgh.
AUentown purchasers of these consumers' goods are charged Pittsburgh Plus
involving "phantom freight" from Pittsburgh to Allentown of $6.20 per ton.
Moving to the middle west, hot rolled sheets and plain wire are produced at
Kokomo, Indiana, by the Continental Steel Corporation and the same producer
produces hot rolled sheets at Indianapolis. The price of the latter product at
Indianapolis is based on Middletown, Ohio. Indianapolis purchasers are charged
Middletown Plus. This involves the addition of "phantom freight" from Middle-
town of $3.88^ per ton. Kokomo prices for hot rolled sheets and' plain wire are
based on Gary and Chicago. Kokomo purchasers are charged Gary or Chicago
Plus which involves "phantom freight" of $3.60 per ton on sheets and $4.00 a
ton on wire. A mill at St. Louis produoes Butfweld pipe but bas«s on ^Cjiicago.
This involves a St. Louis price equivalent to Chicago Plus including $4.80 a ton
"phantom freight" from Chicago. A mill at Pueblo, Colorado, produces large
CONCENTRATION OF ECONOMIC POWER 14571
quantities of heavy structural shapes, hght structural shapes, universal plates,
hot rolled strip, merchant bars, concrete reinforcing bars, billets and blooms for
forging, plain wire, nails and staples, barbed wire, wire fencing and bale ties.
It bases prices for these products on Chicago and Gary. To local purchasers in
Colorado, the addition of "phantom freight" from those basing points is required
by the basing point system. This amounts to $19.60 per ton.
There are two vital and complementary aspects of "phantom freight" such as
described above. The more obvious one is that purchasers who are located at or
near the non-base mill and buy such products for re-manufacture, are handicapped
by the amount of "phantom freight" in competition with rivals located at or
near the basing point. Written complaints from such handicapped purchasers
were presented by the Federal Trade Commission in its report to the President
in November, 1934. (Report pp. 19, 20, 25, 26). The less obvious but scarcely
less important aspect of "phantom freight" is that the handicap may be so great
as to preclude the estabHshment of re-manufacturing industries at or near the
non-basing mills or else choke their development. Doubtless the "phantom
freight" to Colorado and adjacent states is enough to forestall the estabUshment
of re-manufacturiiig industries there and then utilization of the numerous steel
products made in Colorado, but which are priced on a Chicago plus basis.
The efifect of "phantom freight" in crippling or preventing the dievelopment of
re-manufacturing industries is greatly enhanced by the ever present factor of
waste. Every steel re-manufacturing plant necessarily wastes some of the rolled
steel products which form its raw material. In some cases this may amount to
50% of the rolled steel products at purchases. When "phantom freight" has to
be paid on raw material of which so much must be wasted and resold as scrap the
burden may readily become too heavy for re-manufacturing to emerge or to survive
even in the vicinity of raw ^naterial suppUes, and even though the "phantom
freight" without the factor of waste would not have been enough to have that
eflFect. Competitors at basing points, without the handicap of "phantom freight"
would have a crushing advantage. In the Pittsburgh Plus case it was shown
that with a 30% waste factor, "phantom freight" to Chicago was in effect increased
from $7.60 to $10.80 per ton and this made it impossible for a Chicago re-manu-
facturer to compete even in Chicago with a Pittsburgh competitor. (Com. Ex.
6801, Docket #760)
It can hardly be said that such conditions involve only "abstract criteria" and
do not represent "tangible evidence."
THE 80-CALI<ED "ABSORPTION" OF FREIGHT CHARGES IS INHERENT IN THE BASING
POINT SYSTEM AND THE AMOUNTS ABSORBED ARE PROPORTIONED TO THE SYSTEM'S
OBJECTIVE OF MAINTAINING IDENTICAL DELIVERED PRICES
Just as the basing point system frequently requires the collection of more than
the actual freight in the exact predetermined amounts necessary to produce
identical delivered prices, it also frequently requires the acceptance of less than
the actual freight in the exact predetermined amounts necessary to accomplish
that end. Instances of the latter type are loosely and inaccurately called "freight
absorption." Just as "phantom freight" is not freight at aU but merely a graphic
characterization of a certain type of addition to the base price, so freight that is
said to be "absorbed" is not freight at all but is merely a characterization of a
certain deduction from the base price and consequent reduction in mill net return.
"Freight absorption" occurs wherever the actual freight of the shipping mil]
exceeds the freight from the governing basing point mill which forms the trans-
portation element in the delivered price.
The Corporation admits that the term "freight absorption" is misleading but
only on the ground that it implies the mills pay freight charges which the con-
sumers ought to pay. (Ex. 1418, p. 4.) The real respect in which it js mis-
leading is that it is nothing but a price reduction to purchasers located at the
delivery points to which freight is "absorbed." This is implied in the same
paragraph that makes the admission last referred to. Moreover, since the mills
ordinarily do not pay or prepay freight charges, it is not apparent that the term
is misleading in the respect claimed.
The Corporation also states that "freight absorption" is "an element more or
less peculiar to the steel industry." (Ex. 1410, p. 30.) "Freight absorption" is
not peculiar to the steel industry. It occurs in all delivered price systems wher-
ever the actual freight exceeds the imputed freight element in the delivered pfice.
In another pamphlet the Corporation argues that "freight absorption" is not rare
or confined to the steel industry, illustrating this by reference to the sale of spe-
cialties such as candy and cigarettes and by individual concerns such as deparl-
124491 — 41 — pt. 27 29
14572 CONCENTRATION OF ECONOMIC POWER
ment stores and corner grocers. In this connection the Corporation states that
some' customers of retailers carry their purchases home while others have them
delivered at no extra cost, that candy bars and cigarettes are sold at uniform
prices throughout the country at varying distances from the place of production.
(Exhibit 1418, pp. 73, 74.) Such arguments ignore the fact that department
stores and corner grocers freely permit their customers to' take their purchases
with them either to their homes or to any other place they wish, while under the
basing point system this privilege is denied. Such arguments ignore the fact that
the commodities involved are not standardized as to quality as are steel products.
More important than all else, these arguments ignore the fact that the sellers
referred to do not "absorb" the cost of delivery to the exact amount necessary to
make their delivered prices to the consumer identical with those of competitors.
It is common knowledge also that candy bars and cigarettes are not sold at uni- -
form prices all over the country so far as retailers are concerned.
The Corporation quotes from the NRA report to the effect that "discrimination
and freight absorption are natural results of bona fide competition." (Ex. 1418,
p. 76.) At best this is only bare assertion. It is obviously untenable when
applied to a situation where the "freight absorption" is systematically practiced
by an organized group of competitors, where they simultaneously supplement it
with "phantom freight," and where the coincident identity of delivered prices
depends upon those two complementary practices.
The Corporation states that one reason for "freight absorption" is that ca-
pacities of steel mills in areas containing raw materials "are usually large enough
to supply much more than the local demand." (Ex. 1418, p. 74.) This ignores
the fact that there is considerable cross-hauling of the same product from one
mill location to another and even beyond, in violation of the economic principle
that the normal movement of standardized commodities is from areas of excess
production into deficit areas and not from one surplus area to another. The
Corporation states:
"It is natural and proper for a producer, in an effort to keep his mill busy, to
sell steel in the different consuming areas where business is available, in this way
realizing varying mill net returns on his business, the variance representing freight
absorption." (Ex. 1418, p. 75.)
This statement errs in treating the variation in mill net returns as being entirely
the result of "freight absorption" when it is also the result of "phantom freight."
It omits an important fact necessary to determine whether it is "natural and
proper," namely, that the purpose and effect of this systematic "freight absorp-
tion" is ,the consistent creation of identical delivered prices.
Since the Corporation uses only hypothetical illustrations of "freight absorp-
tion" it is impossible to gain from its jjamphlets any idea as to the extent and
amount of that factor. The most recent and authoritative information as to the
extent of the practice of "absorbing" freight is that obtained by the Department
of Justice through questionnaires answered by the industry. ■ From ^uch answers,
representing a cross section of shipments for one month, it appears that the steel
"mills "absorb" freight on 70 per cent or more of their volume of business and that
the amount of such "absorption" on various products ranged from $1.25 to $6.43
per ton. In the Federal Trade Commission's 4;eport to the President on Steel
Sheet Piling in June, 1936, it was pointed out that on one set of bids the Corpora'-
tion and Inland each offered to reduce their mill net return by $6.30 a ton below
the price first bid; that Jones & Laughlin offered to reduce its mill net return by
$7.30 a ton, and that Bethlehem offered to reduce its mill net return by $10.70 a
ton. Some of these reductions resulted from a waiver of "phantom freight" in-
volved in the substitution of water transportation for all rail and others involved
a further enlargement of "freight absorption." (FTC Report, pp. 30, 31.)
The Federal Trade Commission's report to the Piesident in November, 1934,
showed that Buffalo producers absorbed freight on structural shapes to Chicago
amounting to $8.00 per ton and to Pittsburgh of $6.40 per ton, thereby reducing
their net returns by those amounts compared to sales made in Buffalo. A Balti-
more sheet producer "absorbed" $7.70 per ton on about 40 per cent of his total
distribution which was shipped to Michigan territory, this involving a correspond-
ing reduction in his mill net compared with sales in Baltimore. (FTC Report,
p.l3.)
In an extended discussion of cress-hauling, the Corporation treats that subject
as a phase of "freight absorption.'^ (Ex. 1418, pp. 76-79, inch) As a matter of
fact, it is just as much a phase of "phantom freight." It is stated that strictly
speaking the term cross-hauling means shipments which cross each other and
"the criticisms are often so phrased as to create a inental image of fi eight trains
crossing in opposite directions on parallel tracks, loaded with identical products."
CONCENTRATION OF ECONOMIC POWER 14573
(Ex. 1418, p. 76.) As a matter of fact, that is the correct mental image of cross-
hauling as applied to the basing point system. The Corporation does not deny
the correctness of that image but treats it as an extreme case. The mental
image described in the quotation, however, is less extreme than the actual situ-
ation !in that shipment of identical products not only frequently cross each
other but the mills frequently ship into each other's home towns and beyond at
identical delivered prices. Following up its contention that "freight absorption"
is the result of bona fide competition, the Corporation also states that "in fact,
cross-hauling is the necessary result of competition.'' (Ex. 1418, p. 76.) The
truth is that under the basing point system, cross-hauling becomes just as sys-
tematic and deliberate as "freight absorption" and "phantom freight." The
combined range of these determines the extent of .cross-hauling that may occur
in any given instance.
Concluding its discussion of cross-hauling, the Corporations says:
"Before cross-hauling is condemned, it should be proven that the alternative
■ would not involve economic costs, by way of transportation or otherwise, in
excess of the supposed saving which would result. Not to be overlooked is the
interference with competition which would necessarily be the consequence of any
artificial limitation of marketing territories. Freight absorption is primarily
produced by competition in the steel industry." (Ex. 1418, p. 79.)
Again the Corporation says:
"The alleged Economic waste resulting from cross-shipments must be balanced
against the countervailing advantages to the public of a competitive system and
also against the economic losses which would foUow from artificial limitations of
marketing territories." (Ex. 1418, p. 100.)
In making the contentions embodied in these last two quotations the Corpo-
ration sets up a requirement which it elsewhere admits cannot be met. It else-
where claims that it is impossible to measure quantitatively the amount of unnec-
essary transportation costs and equally impossible to measure the cost of any
interference with present practices. (Ex. 1418, p. 77.) It also admits that there
would be a small saving from an f. o. b. mill price system because of "its elimirta-
tion of a certain amount of transportation costs." It then says the amount of
such saving could not be estimated. (Ex. 1418, p. 98.) It is not necessary that
there be any accurate estimate or measurement of the amount of unnecessary
cross-hauling resulting from the basing point system or of the cost of any inter-
ference with it. The basic issue is whether the system which produces unneces-
sary cross-hauling is a collusive interference with competitive forces. If there be
such interference and it be removed, there would go with it only the type of cross-
hauling which was produced by it. The attempt to put the burden upon critics
of cross-hauling resulting from the basing point system is equivalent to putting
upon them the burden of showing that restoration of price competition would
reduce prices and dispense with unnecessary transportation costs. This seems
very much like requiring those who would attack a combination in restraint of
trade first to justify the theory that competition would produce lower prices and
thus be in the public interest." It would apparently require those suggesting
procedure under a statute which embodies long-established public policy to
justify the philosophy of the statute before proceeding under it.
Speaking before the American Iron & Steel Institute in 1928, Charles M. Schwab
referred to cross-hauling as one of the principal instances of waste in distribution
and that "it is manifestly uneconomic 'for a steel manufacturer in Chicago to ship
100,000 tons of steel to Pittsburgh at a time when a Pittsburgh manufacturer is
shipping a like quantity of like material from Pittsburgh to Chicago." (FTC
Report tp the President, Nov., 1934, p. 13.) Mr. Schwab also said that "The
net result of the cross-hauling of materials has not been to increase the output
of the individual producers by any appreciable amount" but has "merely served
to dissipate a part of their profits in unnecessary transportation." (Ibid, f). 14.)
The Corporation says that the essence of the criticisms of cross-hauling is that
"transportation costs" are so high as to involve economic waste and inordinately
high prices. To meet that the Corporation immediately asserts that the industry
does not have "excessive distribution costs." To support this it cites a study of
distribution costs made by the Association of National Advertisers covering some
312 manufacturers. An examination of that study discloses that transportation
costs are merely one of the lesser elements in distribution costs. The study covers
29 industries, including ] 9 producing consumer goods and only 10 producing indus-
trial goods. Iron and steel products do not have the third lowest "distribution
costs" of the 29 industries investigated, as the Corporation states. There are
5 consumer goods industries and 3 industrial goods industries that show lower
distribution costs than iron and steel and their products. Iron and steel have
14574 CONCENTRATION OF ECONOMIC POWER
the third lowest "transportation cost" among the industrials, but there are eight
consdmer goods industries that show lower transportation costs. (Ex. 1418, pp.
76, 77.)
The assertion is then made that the steel industry proper had even lower dis-
tribution costs than the companies included in the study. No description is given
in the study as to what concerns are included under the classification "Iron and
Steel and Their Products." The study defines transportation costs as including
"out freight, cartage and express (paid or allowed); long distance truck (own
trucks) local delivery; in freight paid on returned sales." ("Analysis of the Dis-
tribution Costs of 312 Manufacturers" published by Assn. of National Advertisers,
(N. Y. 1933) pp. 64, 106.) It is submitted that the Corporation has no ground
for comparing transportation costs under the above defmition with transportation
costs in the steel industry. The, study obviously includes costs of transportation
which represents an outlay by the seller. By contrast the greatest cost of trans-
portation in the steel industry does not represent an outlay by the seller, since
the buyer pays the freight to the common carrier, deducts it from the fa|e€ of the
invoice and remits the balance to the seller. Moreover, the fact that net sales
volume is the basis for calculating the percentage of transportation costs shows
that such costs could not include costs of transportation which do not pass through
the books of the shipper. The Corporation elsewhere makes the point that the
cost of transportation of steel products is relat-'vely heavy in proportion to the
delivered price, while in the study referred to the transportation cost of "iron and
steel and their products" is only 1.30 per cent of the net sales volume.
THE CORPORATION RECOGlflZES THE SYSTEMATICALLY VARYING MILL NET RETURNS
REPRESENTED BY "PHANTOM FREIGHT" AND "FREIGHT ABSORPTION" ARE DIF-
FERENCES IN PRICE AND CONSEQUENTLY DISCRIMINATIONS IN PRICE
In its findings of fact and order to cease and desist in the Pittsburgh plus case,
the Federal Trade Commission decided that the price actually received by the
Corporation's subsidiaries was their mill net return, that this systematically
varied in proportion to the amount of the difi^erences between the actual freight
and the freight from Pittsburgh, the basing point, and that this constituted dis-
crimination in price in violation of the Clayton Act. The amendment of that
Act by the Robinson-Patman Act in 1936 has given rise to legal questions regard-
ing price discriminations that are somewhat different from those previously arising
under the Clayton Act.
It is significant and important nevertheless to note how closely the Corporation
follows the Federal Trade Commission's concept of the basic meaning of the word
"price" in the Pittsburgh Plus Case and in identifying price with mill net return.
The Corporation is not always consistent, however, in taking that position.
The systematic character of variable mill net returns is described by the Corpo-
ration when it says, regarding a basing point mill:
' "In general the mill will realize its highest mill net returns on sales to its nearest
customers and progressively lower mill net returns as the distance from the mill to
the consumer increases. The same is true of the mill net returns realized by
non-basing point mills." (Exhibit 1418, p. 9)
The recognition that mill net return is the equivalent of price is apparent in
recent testimony of officials of the Corporation before the Temporary National
Economic Committee. Mr. Fairless, president of the Corporation, defined miU
net yield as "our realized prices" and said that "realized price means just what it
says it means. What we get for our goods, what we actually get for it." (Ver-
batim Record, TNEC Hearings November 7, 1939, p. 211). Mr. Gregg, a vice
president of the Corporation, referred to "the mill return price" and said, "what
the purchasers pay constitutes our miU net" (Ibid November 6, p. 192; November
7, p. 214). A chart prepared by the Tennessee Coal & Iron Company, a Corpora-
tion subsidiary, and introduced before the T. N. E. C, contains one column which
is headed "Actual Net Sales Prices" (Exhibit 1394; Verbatim Record, November
7, pp. 214 and 235).
The Corporation's recognition that mill net return is the equivalent of price is
further shown by certain statements in Exhibit 1418. In justifying the collection
of "phantom freight," the Corporation quotes from a report by N. R. A. as follows:
"In an extreme case, the producer who charges his nearby customers the highest
prices may not be able to afford to charge them any less, despite the apparent
contradiction involved in his voluntarily making lower prices to other customers
who are farther off, that is, he may conceivably need all the benefit he can get
from the utmost discrimination which his market situation permits, in order to
CONCENTRATION OF ECONOMIC PO)^ER 14575
cover his total costs at all. Assuming such a case to exist, he would merely be
forced out of production, and the customer would gain nothing in the way of
lower prices, but would lose the convenience of being able to get service from a
nearby source. This extremt case is not very likely to be found in practice, but
it is possible." (Exhibit 1418, p. 60)
The Corporation prefaced its use of the above quotation by stating that —
"A still stronger case is presented by the steel mill which needs high prices in
its most profitable territory in order to survive. A new producer, or any producer
ia a period of low demand, may require all the profit it can realize from sales to
its nearest customers in order to cover itt. total costs."
The above quotations plainly imply that miU net returns are prices. The
argument goes to the extent of claiming that the entire industry needs all the
discrimination it can get as the Corporation says that any producer in a period
of low demand may find need of the utmost discrimination which its market situ-
ation permits. In passing, it may be observed that if such discrimination is
necessary in order to cover a producer's total costs, there is no assurance that it
may not go beyond that point. If a producer may utilize discrimination to cover
its total costs, there is apparently nothing to prevent him utilizing it to increase
his profits also.
When the Corporation undertakes to justify "freight absorption ' and the con-
sequent acceptance of varying mill net returns from different customers, it again
quotes from the report of N. R. A. The quotation definitely shows that N. R. A.
recognized the mill net return as the equivalent of price.
"Producers regularly set a lower minimum when figuring a special price to
capture a special class of new business than when figuring a general price for the
main body of their sales. For special prices, the minimum is likely to be close to
out-of-pocket or variable costs, while for a general price, producers will not bid
below the total costs which they must cover if they are to keep running. The
difference between these two levels is frequently substantial and lies at the bottom
of the practice of absorbing freight to extend a producer's sale area." (Exhibit
1418, p. 75)
Again quoting from the N. R. A. report, the Corporation says that freight rates
to distant territory "must be absorbed if a producer is to extend his marketing
area toward the location of a competing producer and into the area where that
competitor is now selling unless he voluntarily reduces his price on nearby sales
to less than existing competition forces him to accept" (Exhibit 1418, pp. 75
and 76).
Notwithstanding its recognition as above shown that mill net return and price
are equivalents, the Corporation nevertheless' .'contends that variations in mill
net returns from its different customers are not discriminatory prices. Even on
this jKJint, however, its position is not consistent. The Corporation quoted from
the N. R. A. report to the effect that in an industry marked by the characteristics
of the steel industry "discrimination and freight absorption are natural results
of bona fide competition" (Exhibit 1418, p. 76).
In another place where it discusses variable mill net returns, the Corporation
states "This is not a 'discrimination' in any sense of the word; it is competi-
tion" (Exhibit 1418, pp. 8 and 10). By contrast with the above shown recognition
that mill net return is the equivalent of price, the Corporation states elsewhere
that "Actually the price to the buyer is the delivered price" (Exhibit 1418, p. 9).
The range in the variable mill net returns of a given mill is marked on the one
hand by its maximum "phantom freight" and on the other hand by its maximum
"freight absorption". Information is not readily available that will permit of
generalizations as to the range of variable mill net returns either as to a particular
mill or as to the industry as a whole. However, some idea may be obtained as
to the large sections of the country that may be affected by them on the strength
of the Corporation's own statements. In connection with a hypothetical illus-
tration of variable mill nets resulting from the use of water transportation and
where the miU was receiving 75(6 per ton more from a customer at one point
than a customer at another point, the Corporation stated:
"Such situations comprise a vast majority of shipments by water and include
most of the water shipments to the Pacific Coast, the Gulf of Mexico, lower
Mississippi River points and principal Great Lakes consuming centers" (Exhibit
1418, p. 67.)
Some idea may be gained of the extent of variation in mill net returns by the
figures and graphs presented by the Corporation in Exhibit 1409, Section C.
It there shows the mill net yield on various products by comparison with the base
price, and in that connection the statement is made again and again that "there
14576 CONCENTRATION OF ECONOMIC POWER
has been even more fluctuation in the mill net yield, that is, the amount per
pound actually received by the llnited States Steel Corporation subsidiary after
deduction of cost of delivery". Similar statements are made as to commodities
sold on a per ton basis.
The Corporation devotes some twenty-five pages of Exhibit 1418 to a detailed
discussion of such subjects as "phantom freight", "freight absorption" and "cross
hauling" all under the head of "Alleged Price Discrimination". While the
variation in mill net returns resulting from "phantom freight" and "freight
absorption" of various types is freely admitted, described and illustrated, the
discussion as to whether such variation constitutes price discrimination is
extremelv meager. In fact, there is little more than a general denial at the ' outset
of the discussion that variations in mill net returns constitute discrimination in
price, it is stated that the fallacies in the theory that such variations are dis-
criminations in price "have been discussed elsewhere in this study" (Exhibit
1418, p. 55; see also pp. 54 to 79, inclusive). There is no such discussion beyond
attempts to justify such variations. Nowhere is issue taken with the prop-
osition that the mill net return is the actual price received by the seller. Referring
to the criticism of alleged price discrimination as embodied in variable miU net
returns, the Corporation states "If it has any application, it is true only with
respect to mills not at basing points, of which there are few today, and with respect
to mills at basing points only on sales made within areas nearest another mill"
(Exhibit 1418, p. 9). Correcting the latter part of this statement to make it
apply to basing point mills "only on sales made within areas controlled by other
basing points" it is an admission that comprehends practically the full scope of the
criticism. The statement that few miUs are not basing points is inaccurate.
On some of the most important products the number of basing points is quite
small compared to the number and location of the mills.
In its discussion of variable miU net returns, the Corporation is at least con-
sistent in claiming that they are the result of competition and are not indicative
of its absence. Thus it says that "because of competitive conditions in the
industry, steel mills realize variable mill net returns in selling to different areas"
(Exhibit 1418, p. 8). In discussing "phantom freight" under the head of
"Alleged Price Discrimination", the Corporation states that the behavior of non-
basing mills "erroneously described as realizing phantom freight, is not to be
construed as the critics construe it — as evidence of the absence of competition.
It is, on the contrary, truly competitive behavior". It is then said to be 'of a
diflferent type from that assumed in the economic conception of perfect competi-
tion in a perfect market (Exhibit 1418, p. 62). The claim that variable mill net
returns result from competitive coiiditions obviously begs the question. More-
over, it is not the mere fact of variableness that is significant; it is the systematic
character and pattern of it. In every case it is exactly the amount that is neces-
sary to equalize the delivered prices of all competitors at any given destination.
The so-called competitive behavior in charging "phantom freight" involves
discrimination that serves no purpose but that of automatically and system'%,tically
reflecting identical delivered prices.
The Corporation argues that criticisms directed to variable mill net returns
place undue emphasis on such returns; that the customer is interested only in the
delivered. price and not in what "the mill ultimately receives (the mill net return)",
and that the delivered price to a customer near the mill fs generally lower than the
delivered price to customers located farther away "except those located^earer
another source of supply". The last quoted statement should be corrected to
read "except those located nearer another basing point" (Exhibit 1418, p. 9).
As to a customer being interested only in the delivered price, he is probably more
interested in obtaining the lowest possible delivered cost and in the fact that the
systematic variation in mill net returns produces or reflects the identical delivered
prices which prevent the delivered cost being lower from one mill than from ^
another. There is no significance in the fact that the delivered price to a customer
near the millmay be lower than, to a customer farther away. The difference in
freight rates would account for that, and the basing point system is entitled to
no credit. It is just as valid to say that the Corporation's argument places undue
emphasis on the delivered price and unduly mininjizes Ihe impoi:tance and
significance of sales made at more or less than the basing point prices.
The Corporation quotes from the N. R. A. report to the effect that if purchasers
at non-basing points "are discriminated against arbitrarily by the system then
the establishment of new basing points will be likely to remedy the case" (Exhibit
1418, p. 60). This is not true. Even though every producing point were made
CONCENTRATION OF ECONOMIC POWER 14577
a basing point, there would still be "freight absorption" and, consequently,
variation or discrimination in the mill net returns whenever one basing point
mill sells in territory at delivered prices controlled by the base price of another
basing point mill. The Corporation states "The previously existing scale of
delivered prices in -the territory around the non-basing point mill can, and
undoubtedly will, remain about the same even though the mill becomes a basing
point" (Exhibit 1418, p. 61). If this be true, there would be no material reduc-
tion in the price level if all mills were made basing points.
As a part of its argument that variation in mill net returns is not discrimmation
in any sense of the word the Corporation states that "As between a customer
nearby and a customer far away, there is no uniformity of conditionsof purchase
on which properly to base a charge of discrimination." (Ex. 1418, pp. 9, 10).
Such a statement is based on a theory of discrimination which ignores the ruling
of the Supreme Court to the effect that the discrimination forbidden by the
Clayton Act was not limited to discrimination which lessens competition among
purchasers but includes discrimination which lessens competition among sellers.
(Van Camp & Sons Co. v. American Can Co., 278 U. S. 245). The systematic
pattern of geographical discrimination in mill nets under the basing point system
is the alter ego of identical delivered prices. The argument also takes no note
of the fact that there are discriminations which do substantially affect the ability
of purchasers to compete with each other. Illustrations of such conditions may
be found in the inability of Pacific Coast fabricators to compete toward the
East with Midwestern and Eastern fabricators who are given free access to the
West Coast, and the arbitrarily lower price given to purchasers of certain products
located in the State of Michigan. Purchasers of the ^me products located
outside the state are in competition with Michigan purchasers, yet are charged
higher prices.
Arguing in justification of the realization by a producer of lowei mill net
returns from his distant customers than from nearby ones, the Corporation states
"This enables him to operate his mill at lower unit cost and then to seU to the
nearby consumer for less than he otherwise could." (Ex. 1418, p. 100)
It is equally true that the higher mill net returns from nearby customers enable
him to operate at lower unit cost and to at least as great a degree as the lower
nets from distant customers. The argument is analogous to the familiar one for
dumping in foreign trade. The statement quoted is the equivalent of saying
that by discriminating among customers the intent and effect is to real'ize a
lower average price than otherwise.
The power to determine how much more some purchasers and how much less
others shall contribute to the seller's treasury and the systematic employment of
that power to make delivered prices of all sellers identical, would seem to be the
essence of m.pnopoly. It involves the power to decide how the total price burden
shall be distributed among various purchasers and among the various sections
of the country and consequently what sections shall be developed or retarded.
By the same token it involves the power to decide how the total profit burden for
the industry shall be distributed among purchasers and among sections. In the
Pittsburgh Plus case it was shown that the margin between costs of production
and selling prices on Various products varied enormously as between Pittsburgh,
Chicago, Duluth and Birmingham. On bars the margin at Pittsburgh was
slightly over $2.00 a ton as againstyabout $8.00 a ton at Duluth and Birmingham
and nearly $14.00 a ton at Chicago. If the Birmingham price differential were
not applied and the price had been based on Pittsburgh, the margin at Birming-
ham would have been increased to over $18.00 a ton. On structural shapes the
margin at Pittsburgh was slightly over $2.00 a ton as against about $7.00 at
Birmingham and over $18.00 at Chicago. If the Birmingham differential were
not applied and the price had been based on Pittsburgh the margin at Birmingham
would have been increased to nearly $18.00 a ton. On block sheets the margin at
Pittsburgh was slightly over $10.00 a ton compared to over $25.00 a ton at,
Chicago. On plates the margin at Birmingham was about $7.00 per ton as against
nearly $10.00 a ton at Pittsburgh and almost $18.00 a ton at Chicago. If the
Birmingham differential were not applied and the Birmingham prices were based
on Pittsburgh, the margin would have been increased to nearly $'18.00 a ton.
(F. T. C, Exhibit 6853 in Pittsburgh Plus case, D. 760)
The above facts emphasize the vital importance of a knowledge of costs of
production in any attempt to determine (once the test of competition is discarded)
whether prices are reasonable or whether the prices and profit burden is equitably
distributed among purchasers and among sections.
14578 CONCENTRATION OF ECONOMIC POWER
THE B'X'BEL INDUSTRY'S USB OF JHE BASING POINT SYSTEM CONFORMS TO THE
ECONOMIC SPECIFICATIONS OF MONOPOLY AND IS NOT CONSISTENT WITH THE
ECONOMIC CONCEPTS OF A COMPETITIVE ECONOMY.
Bearing in mind the "tangible evidence" of its origin, its purpose, its collusive
methods of implementation and its arbitrary characteristics and that all these
elements unite to the single end of putting aU competitive sellers on an exact
equality of delivered prices to any given purchaser at any given destination, the
Corporation's claim that objections to the basing point system are founded
wholly on "abstract criteria" appears somewhat overdrawn. As a matter of fact
the Corporation's defense of the system is almost entirely based on "abstract
criteria" and not on "tangible evidence". Even in the realm of "abstract cri-
teria" however, the assumptions and conclusions of the Corporation are economi-
cally and logically unsound.
In considering the Corporation's economic concept of price competition it
should be remembered that it holds to the theory that for any competitor with a
lower freight rate to any customer to give him any lower delivered price than others
with a higher freight cost is "giving a lower price than competition forces him to
give" and is "following some sort of a non-competitive principle, rather than a
competitive one." (Ex. 1418, p. 62)
(a) The Corporation's Claim That Identical Delivered Prices Result From the Perfect
Competition of a Free Market.
An attempt is made to discredit the economic theory of competition and at the
same time to appropriate the benefit of that theory for the basing point system.
First, the classical economic concept of theoretically perfect competiton "in a
market" is set up in order to show that the concept "is an abstraction and exists
nowhere". (Ex. 1418, p. 21.) The quotation cited from I^r. Viner's testimony
in the Cement case to support such contention does not support it. He testified
that agricultural products are very nearly a fully competitive industry and that
the only thing that prevented it being so was recent governmental regulation.
The Corporation implies that present-day economists who use the theoretic^qd
concept of perfect competition are unaware that there are deviations from it in
the world of practical affairs and in this respect are unlike the classical economists
who formulated the concept. Present-day economists are no doubt fully aware
that there have been increasing deviations from that concept in the world of
practical affairs and it is to such deviations that their criticisms have been directed.
The Corporation appears to have no objection to the theoretical concept of
"imperfect competition" as used by economists and states that it "covers the
whole range of conditions between theoretical perfect competition and theoretical
perfect monopoly." (Ex. 1418, p. 20.)
This is substantially the same as Dr. de Chazeau's description of "administered
prices". Testifying before the Temporary National Economic Committee, he
said that "Within the group of prices which are called administered prices you
may have everything from a purely competitive situation to a very monopolistic
situation." (Verbatim Record, T.J^.E.C. Hearings, November 6, 1939, p. 182,
2nd column.)
Obviously, the crux of the problem is the nature and degree of imperfect compe-
tition that is embodied in the basing point system. In any event, no concei'"^ab'e
combination of competitors or monopoly could produce any greater identity of
delivered prices than the basing point system does when it is adhered to.
After having concluded that perfect competition is "an abstraction and exists
nowhere" (Ex. 1418, p. 21), the Corporation proceeds to claim that identical
delivered prices are the result of perfect competition as conceived lay the econ-
omists in a perfect marke^. Thus, it says —
"It is to be expected * * * that the identity of delivered prices which
would result from perfect competition in a single market at any one time will take
the form of identical delivered prices in the steel industry." (Exhibit 1418, p. 36).
Again the Corporation says that it is quite erroneous to imply, as does the Fed-
eral Trade Commission, "That identity of prices at any given time is necessarily
evidence of absence of competition." It then says:
"Quite the contrary is true. In any competitive market, the prices quoted by
different producers at any given time for any staple product will naturally tend
to be uniform." (Ex. 1418, p. 34.)
The Corporation goes on to assert that —
"Identical delivered price quotations would occur under any free competitive
system to the extent that competitors' bids could be estimated, since buyers refuse
CONCENTRATION OF ECONOMIC POWER 14579
to pay more to one producer than to another for a staple product." (Ex. 1418,
p. 35.)
This statement is made in support of the claim that The basing point system is
not per se the cause of identical bids." (Ibid.) Yet, in another place it is said
that "Substantial identity of delivered prices results" from the absorption of
freight to go into distant markets. (Ex. 1418, p. 36.) This ignores the system-
atic and reciprocal nature of so-called "freight absorption" and of "phantom
freight" which the system requires. If these were not applied systematically and
reciprocally, identical delivered prices could not result. Except on a systematic
an^ reciprocal basis they could not take place at all without destroying the
system itself. The economic concept of price uniformity in a free market never
contemplated that no competitor would undersell his rivals.
Although as shown above, the Corporation twice claimed the benefit of the
theory of perfect competition in a market to explain identical delivered prices, it
also said in between the two quotations given that,
"Neither identical delivered prices nor delivered prices of any kind, accord with
the theory of perfect competition because such theory assumed a freightless
market in which neither seller nor buyer needed to be concerned with trans-
portation costs." (Ex. 1418, p. 35.)
While prices in the-,classical market were freightless, the buyers and sellers were
always concerned with transportation costs from the market to the place of use.
The relative costs of transportation from various markets to the place of use was
a matter of concern just as it would be now if buyers could buy steel f. o. b. mill.
The Corporation says that critics claim that identical delivered prices prove the
elimination of competition, "because under perfect competition such a thing
would not often happen, i. e., the different transportation costs would usually
cause different delivered prices." (Ex. 1418, p. 35) . However, it does not dispute
the result and, in fact, substantially admits the conclusion on the next page where
it says that
"Under a f. o. b. mill system, the buyer would add freight to the mill price and
buy from the source which permitted the lowest delivered costs." (Ex. 1418,
p. 36.)
When the thr ee last quoted statements are considered side by side they are equiva-
lent to an admission that an f. o. b. mill method of pricing more nearly accords
with the theory of perfect competition. Nor is it true as the Corporation says
(Ex. 1418, p. 35) that criticisms of the basing point system assume that perfect
competition and its complete absence or monopoly are the only alternatives.
The basing point system is not the only obstacle to perfect competiton and there
should be no illusions about the attainability of the ideal. The practical question
is whether existing restraints on competition are reasonable under existing law
and the public policy embodied therein.
(6) The Corporation's Distortion of Economic Theory as to the Nature and Location
of Free Markets.
The confusion which may be injected into a discussion of "abstract criteria"
is illustrated by the Corporation's attempt to appropriate the benefit of classical
economic theory as to the effect of competition on prices "in a market." In
order to give some semblance of logic to this attempt it is necessary to postulate
the market as being at destination. The classic theory of free markets originated
before basing point systems were thought of. It did not deal with the hybrid
of a price for goods at or in a market plus transportation costs from the market
to various destinations.
The Corporation states that the attitude of the Federal Trade Commission
toward the basing point system and its proposed substitute of f. o. b. mill prices
"are obviously manifestations of a belief that the market for steel is, or should be,
at the mill, and is not, or should not be, at the destination." (Ex. 1418, p. 38).
The Federal Trade Commission has never taken the position that under the
basing point system the market is at the mill. It has taken the position that the
system, with its refusal to sell f. o. b. mill, its insistence on selling only at^delivered
prices and the resulting identity of delivered prices, is a device for closing not only
the market at the mill but by eliminating price competition, closing the market
everywhere in the sense that a market is defined by the economists. There is an
important distinction between claiming that the market is at the mill when the
mills refuse to sell f. o. b. mill and claiming that the market should be placed at
the mill as a means of preventing identical delivered prices and the consequent
elimination of price competition. Even under the delivered price system, how-
ever, there is an important question as to whether title does not actually pass to
14580 CONCENTRATION OF ECONOMIC POWER
the buyer at the mill and thus make the mill the market place for the transaction
of purchase and sale. The importance of that question and the change in the
industry's attitude toward it was shown in connection with the efforts of the
industry to induce the railroads to assist the industry in preventing diversion
in transit by the consignee. (See F. T. C. Report to President on Steel Sheet
Pihng, June 10, 1936, p. 24.)
In another place the Corporation refers to "the contention of the Federal Trade
Commission that the true market for steel is at the mill, and that the basing point
method, by providing a means for quoting delivered prices at each destination,
has destroyed or injured the market and eliminated competition." (Ex. 1418,
p. 40.) The above quotation is a more nearly accurate statement of the Com-
mission's position.
The Corporation seems to imply some doubt as to its own position when it
states, "If there is any true market for steel, it is at the buyers' doors." (Ex.
1418, p. 41.) In discussing the subject of cross hauling, however, the Corporation
adopts some terminology which can hardly be reconciled with its contention that
destination is the market in the sense used by economists. Dr. de Chazeau is
credited with having coined the term "market interpenetration" as a preferable
substitute for the term "cross hauUng." (Ex. 1418, p. 5). It is plain that a
mUl or producing market may penetrate various destinations or consuming mar-
kets and that one producing market may penetrate another. It would seem
equally clear that destinations or oonsuming markets can not penetrate each
other. The Corporation's adoption of such terminology is repugnant to the con-
cept of a market at destination. The economist's concept of the steel market as
stated by Dr. Wm. Z. Ripley in his testimony in the Pittsburgh Plus case was
in part as follows:
"The market * * * is a place (and here I think I am in agreement with
Dr. Fetter) where a commodity is sold, and this commodity we are considering
here is steel. The market for steel is in Pittsburgh or Chicago or Johnstown or
Bethlehem or Duluth or Birmingham, or what-not: but the market, as I see it,
is not at the place where some steel and some freight and some wind have all
three been hitched up together to form a kind of a combination— in other words,
where an artificial freight rate, which never was paid on that product, is figured
in on it, making up the delivered price. That does not seem to me like a market.
I think entirely in terms of that market at Chicago, where we are dealing only
with steel." (Transcript of Testimony, Pittsburgh Plus case, p. 18240)
In order to foUow through with its contention that the market is at destination
the Corporation makes certain inaccurate statements regarding payment of freight.
It is asserted that when one producer meets the delivered price quoted by other
producers nearer to a consumer's destination, "He must pay the freight necessary
to transport the steel product to the consumer." (Ex. 1418, p. 99). It also
reffers to the necessity of a producer selling a large part of its output in distant
markets and of it "paying large amounts of freight to each such market." (Ex.
1418, p. 60). In an overwhelming majority of cases and on an overwhelming
proportion of the shipments, sellers of steel do npt pay or prepay the freight.
The buyer pays the freight to the railroad, deducts it from the face of the invoice
which shows the delivered price and remits the balance to the seller. Under those
conditions" it is misleading for the Corporation to make the statements above
quoted and to claim that "delivered costs are an important part of total costs."
(Ex. 1418, p. 36). They arei^not a part of the seller's costs at all.
(c) The Corporation's Admission that Price Discrimination is not Consonant with
Perfect Competition.
The Corporation states that under conditions of perfect competition it is "im-
possible for sellers to get higher prices from some buyers than from others."
(E^. 1418, p. 20.) If this be true, then the possibility of getting higher prices
from some buyers than from others becomes increasingly greater as competition
becomes more imperfect and the greater the degree of monopolistic control the
greater the possibility of getting higher prices from some buyers than from
others. Since steel", producers use the basing point system for systematically
realizing higher prices from some buyers than from others, it corresponds more
closely to the economic specifications of monopoly than of competition on the
Corporation's own admission. The Corporation also admits that "variable mill
net returns of the kind found under the basing point method do not represent
the uniform market prices which would be expected if the assumptions of the
theory of perfect competition were realized." (Ex. 1418, p. 79.) Yet, as pre-
viously shown, it inconsistently claims that "The identity of delivered prices
which would result from perfect competition in a single market at any one time
CONCENTRATION OF ECONOMIC POWER 14581
wiU take the form of identical delivered prices in the steel industry." (Ex.
1418, p. 36.)
The Corporation says that the critics of identical delivered prices point out a
discrepancy between that condition and the results to be expected under the
theory of perfect competition "because the mill net returns of different producers
quoting the same delivered price at one location are not the same." (Ex. 1418,
p. 30.) This is not an accurate or adequate statement of the critics' position.
Not only do the mill net returns or prices of different producers vary but those
of the same producer vary and in both cases the variation is the exact amount
required to make the delivered prices of all producers identical at given destina-
tions. In this connection it may be observed that fabricators of steel, like steel
producers, have frequently located themselves in the best raw material areas
and that for producers to realize higher prices from their nearby fabricator-
customers is not only to deprive them of their natural advantage of location but
to penalize them for it. As the Federal Trade Commission said in its report to
the President in November, 1934, for the seller to monopolize the advantages of
location inherent in the natural resources of a section to the exclusion of the
buyer is but little different from monopolizing the resources themselves.
The Corporation's statement that it is impossible for sellers to obtain higher
prices from some buyers than from others under conditions of perfect competi-
tion has no logical place in its argument unless it means to admit there is such
discrimination among buyers.
(d) The Corporation's Contrast Between Physical Conditions in the Steel Industry
and Concepts of Perfect Competition.
Drawing one of several contrasts between the concept of perfect competition
and the natural physical conditions in the steel industry, the Corporation says
that the concept calls for many separately owned mills at each mill location and
that mills be scattered all over the country near consuming markets, while the
steel industry is characterized by a small number of producers with large-scale
producing units and a small number of large buyers. (Ex. 1418, p. 80.)^ The
Corporation presents a tabulation which shows that there are nine- companies
whose combined capacity represents 81.8% of the total annual capacity of the
country. The tabulation does not disclose the number of companies which com-
prise the remaining 18.2 percent. (Ex. 1410, p. 18.) It is stated also that
"The formation of a new integrated steel company, except by merger, would
not be likely" because of the large capital investment^the technological and
organizational difficulties and the difficulty of obtainin^^n immediate market.
(Ex. 1410, p. 17.)
Given such facts it would seem all the more vital to preserve among the few
large producers all the characteristics of price competition that are possible.
Doubts should be resolved against any device or cooperative method that in-
terferes with free competition among them. Otherwise, collusive price control .
will become almost automatic and absolute monopoly almost inevitable. It is
not the fact, as the Corporation states, that the same general conditions are
true of all other Industries in our economy." (Ex. 1418, p. 81.) Even though
it were true it throws no light upon the competitive or monopolistic status of
the steel industry. It is a matter of common_ knowledge that some other in-
dustries use systems of price control similar to the basing point system in steel.
To that extent it merely confirms the statement of the Federal Trade Commis-
sion to the Temporary National Economic Committee last March to the effect
tlj.at the steel industry "is a focal center of a monopolistic infection which, if
not eradicated, may well cause the death of free capitalistic industry in the
United States." (Exhibit 358 Part 5 Printed Hearings before TNEC, pi 2200.)
In one place the Corporation states with reference to the theory of perfect
competition that
"If such a theoretical state of competition prevailed, each producer would
take all the business h^^, could get so long as the price yielded more than the
additional cost of producing the additional ton of steel so sold." (Ex. 1410,
p. 3.)
In another place the Corporation states that under the actual conditions in
the industry "in periods of restricted demand, knowing that anything above his
'additional' costs contributes something toward 'over-head' or 'fixed' costs which
must be met in any event, the producer will cut prices below his average costs
if tie feels he can obtain additional business for his mills thereby." (Ex. 1410,
p. 23.) The above two quotations cannot be reconciled with each other. If the
statement last quoted be accepted as a statement of actual conditions then those
londitions would correspond to those set up in the first quotation as characteri^-
14582 CONCENTRATION OF ECONOMIC POWER
ing a state of perfect competition. Yet it is claimed in a footnote on the same
page that if the Corporation's subsidiaries sold "at a price only equal to the
additional cost of additional units or production" this would create- estimated
losses of about $182,000,000 a year, far beyond any actual showing of the
The Corporation quotes Dr. de Chazeau as pointing out the "basic fallacy" in
the reasoning of most critics of the basing point system as follows:
"Intelligent explanation of the pricing problem in the steel industry has suffered
from a failure of most commentators to distinguish between the basing point
system as a medium or mere mechanism for the translation of policy into action
and the economic roots of that primary policy itself." (Ex. 1410, p. 25)
The same might be said of any price-fixing medium or mechanism and the eco-
nomic roots of the desire to remove price competition. Even if the distinction
stated were tenable, legal concepts permit taking hold of any system "as a medium
or mere mechanism for the translation of policy into action" if that policy be one
of destroying price competition,
(e) The Corporation's Claim that the Price of and Demand for Steel are Unrelated.
A remarkable effort is made to show that the steel industry is not subject to the
generally accepted economic principle that the demand for an article varies in-
versely to its price. If this effort is soundly conceived and decreased demand does
not reduce steel prices and increased demand does not tend to enhance them, then
it would follow that some form of artificial price control is responsible for the
price changes that do take place. The truth is that where artificial price control
exists, it may or may not be powerful enough to resist the downward price pull of
reduced demand but may yet be able to take advantage of the upward price
tendency of increased demand.
The Corporation states that "The total quantity of steel bougnt from the in-
dustry would not be substantially different at any particular time if the price
were higher or lower". It also refers to "the negligible influence of price on de-
mand for steel" and states that "steel prices -have little effect on national produc-
tion or employment". (Exhibit 1410, Page 33). Again it is stated that the
elasticity of demand for steel products unlike that in the theoreticalperfect mar-
ket "is extremely low, the demand for steel is very inelastic". (Exhibit 1418,
Page 25). The Corporation qualifies its statement as to the negligible influence
of price on demand for steel by stating that this does not imply that the industry
"may charge any price its whim or fancy may dictate". (Exhibit 1410, Page 43).
The position above expressed is not consistent with the attitude of the Corpora-
tion in other connections. The telegram sent by the head of the Corporation re-
garding the price reductions of June, 1938, and which is in the record of the hear-
ings before the Temporary National Economic Committee, said that the reduc-
tions were being made "to meet competitive conditions and with the hope that
such reductions will stimulate a demand for steel products". (Verbatim Record;
TNEC Hearing Nov. 6, 1939, p. 199) Vice-President Gregg testified that the
Corporation did not want to increase its prices in 1937 to such an extent that it
"would prove a shock to the gradually increasing volume of business" and thus
reduce buying. (Ibid, Page 192). It appears also from Mr. Fairless' testimony
and from records supplied by him that immediately following the reduction in base
prices of June, 1938, ingot production increased every month for the remainder of
the year except December and that the increase was from 587,000 tons in June to
1,224,000 tons in November. Mr. Fairless admitted- that the price reductions of
June were possibly a factor in this increased demand but "not to any great extent",
"a very small extent", and finally that he "could not tell to what extent". (Ibid,
Pages 200, 201) . Mr. Fairless expressed the view that a reduction in an unreason-
able price would stimulate demand but that a reduction in a reasonable price
would not. (Ibid, Pages 199, 201). If Mr. Fairless is right, the conclusion seems
plain either that the price up until June, 1938, was unreasonable or that there was
no relation whatever between the price reductions and the doubling of demand
during the following five months.
In Exhibit 1381 before the Temporary National Economic Committee it appears
that the 1937 composite price is higher than in 1929, that in 1937 there was a
sharp price increase, and that in 1938 prices were reduced to about the 1929 level.
The Exhibit shows that coincident with that 1938 reduction, output showed a
rapid increase, and that when prices increased in 1937 there soon followed a very
marked reduction in output. (Ibid, Page 186).
In one of its pamphlets, the Corporation argues that assuming a 10% decrease
in prices during 1938 and a subsequent 10% increase in sales, the deficit of the
Corporation would have been enormously increased. (Exhibit 1410, Page 23)
CONCENTRATION OF ECONOMIC POWER 14583
It is not apparent why it should be necessary to assume a 10% increase in sales.
The industry showed about a 65% increase in output during 1939 over 1938. If
the Corporation obtained anything like its natural proportion of the total increase
in output, its sales must have increased far more than 10% above 1938. After
making the statements above referred to, the pamphlet refers next to "this overall
price-volume-cost relationship in th' industry". It is difficult to reconcile the
above argument with the contention that price and demand are independent of
each other.
By contrast with its contention that there is no relation between demand and
price of steel in general, the Corporation nevertheless states that "the underlying
conditions make for a high elasticity in the demand for the product of an indi-
vidual producer". (Exhibit 1418, rage 25). It is also stated that manufacturers
who buy steel for use as raw material consider that differences in prices paid by
them are "an important consideration". (Exhibit 1418, Page 25, Footnote). It
would seem impossible for an inelastic total demand to be built up out of a series
of particular demands that are elastic.
Referring to the fact that steel prices are relatively stable and inflexible com-
pared with the prices of agricultural products and other consumers' goods, the
Corporation states that "this is a characteristic of durable goods industries, which
results naturally from relatively inflexible costs, proportionately high overhead
costs, inelasticity of demand, and other factors * * *". (Exhibit 1418, Page
45). Unless the competitive conditions in other durable goods industries are
taken into account there is no validity in this argument. The characteristics
named may be the result of systems of restricting price competition and not be-
cause they are durable goods industries. Proceeding to justify inflexibility and
stabUity of price as ends in themselves, the Corporation expresses the views that
most buyers of steel would not like "constantly fluctuating market prices, such
as are characteristic of the prices of grain and other agricultural products". (Ibid,
Page 45). The argument is that the uncertainties, instabUities and risks that are
inherent in price competition should be removed. One may question how much
price competition would remain if all its uncertainties and ri>ks could be removed
The Corporation states that the business cycle was ignored in the thinking of
the classical economists and that "The business cycle, however, produces enorbaous
fluctuations in demand, particularly for producers of durable goods, such as steel.
These fluctuations are independent of price." (Exhibit 1418, Page 81). This
assumes that price being independent of demand could not be the cause of fluc-
tuations in demand. It -assumes that the business cycle is inescapable and ig-
nores the possibility that the collapse of demand which accompanies it may be
the reflection of monopolistic price factors. There is as much or more reason
to say that enormous fluctuations in demand produce the business cycle, not
vice -versa. The Corporation proceeds to state that the business cycle "has a
profound effect upon the supposedly beneficial consequences of the classical
theory of 'perfect competition'." It says further that it has been assumed that
perfect competition along classical lines would produce "wholly beneficial effects
for society if it could ever be established". It then says:
"No one, however, has ever contemplated that these eff'ects would follow from
'perfect competition' in an economy affected by a pronounced business cycle. In
the absence of such a dtoionstration, it is impossible to make any correct assump^
tion that deviations from the theory of 'perfect, competition' are damaging to
social welfare. On the contrary, it is quite possible that these deviations, by
interrupting or checking some of the more abrupt changes in the course of the
business cycle, perform a valuable social and economic function", (Exhibit 1418,
Page 82).
Applied to the basing point system, the above quoted language is an undisguised
argument for monopolistic control and would seem to justify still further devia-
tion from the concept of perfect competition.
As to whether monopolistic restraints upon competition are unconnected with
the business cycle, consideration should be given to the joint siktement of one
hundred twenty-seven economists in 1932. They stated:
"The most competent economic opinion, as well in Europe as in this country,
can be cited in support of the view that a strong contributing cause of the un-
paralleled severity of the present depression was the greatly increased extent of
monopolistic control of commodity prices which stimulated flnancial speculation
in the security markets. There is growing doubt whether the capitalistic system,
whose basic assumption is free markets and a free price system, can continue to
work with an ever widening range of prices flxed and manipulated by monop-
olies." (F. T. C.'s Report to the President, November 1934, Page 39).
14584 CONCENTRATION OF ECONOMIC POWER
In discussing fluctuations of demand in the business cycle, the Corporation
states that classical economic theory assumes a steady and predictable rate of
demand and ignores cyclical fluctuations. (Exhibit 1418, Page 26). This charge
that classical economic theory ignores variations in demand as a factor in price
is not well founded, but the counter charge might be made that the Corporation's
discussion ignores price as an element in demand. lib assumes that an unstable
demand requires a stable price and that the price should stand even when the
demand falls. The basic question here is whether maintenance of prices in the
face of falling demand causes, accentuates or prolongs the violent or cyclical
fluctuations in demand.
(/) The Corporation' s Claim That Prii.es and Profits are Reasonable.
The Corporation shifts from a discussion of the basing point system to a dis-
cussion of the reasonableness of prices and profits in the industry. It takes the
position that prices and profits are reasonable and that this demonstrates the
absence of monopolistic control. To tl^s it may be said that it is idle to discuss
the reasonableness of results when the more fundamental issue is the legal and
economic right to accomplish those results. Moreover, the presence or absence
of monopolistic control cannot be demonstrated )3y the criteria of prices and
profits.
The Corporation states that ,the Federal Trade ^Corpmission contends that
"the price level is so high as to threaten the survival of the capitalistic system"
and that "the steel industry earns unreasonable or monopolistic profits". (Ex-,
hibit 1418, Page 42). The Commission has not contended that the survival of
the capitalistic system is threatened by any particular price level per se. It has
pointed out that it is threatened by the destruction of price competition and by
inevitable social control once it is recognized that price competition has'^been
■ destroyed and that a permanent monopolistic condition has developed. That
position was expressed in part of the quotation from the Commission's report
which the Cc -poration cites: "The steel industry is a focal center of monopolistic
infection which if not eradicated may well cause the death of free capitalistic
industry in the United States." (Exhibit 1418, Page 42). The Commission has
not contended that the industry as a whole has made unreasonable or mo-
nopoly profits during the depression years. That question could not be answered
without taking into account the extent to which the industry is permeated with
inflated capitali^.atlon and inflated capital costs.
In its report to the Senate on the basing point system in the steel industry and
again in its report to the President on steel sheet piling, the Federal Trade Com-
mission said:
"The price structure of an industry is a very different thing from its price level
and might be seriously deserving of criticism even if the price level on the whole
were little, if any, open to criticism * * * Qn the whole, probably a proper
{)rice structure is of far more importance to the public than is merely a low priAe
evel. * * * It has been a general principle of our law and of economics,
that if competitive forces were allowed to act within a proper price structure, a
reasonable-price level would take care of itself." (F. T. C. Report on Steel
Sheet Piling, p. 28)
Such a position regarding the reasonableness of price is in close accord with
that set forth by the Supreme Court in the case of U. S. v. Trenton Potteries Co.,
et al. (272 U. S. 392) . The Court held that agreements which created the poten-
tial power to fix price's might well be held to be unreasonable or unlawful re-
straints "without the necessity of minute inquiry whether a particular price is
reasonable or unreasonable as fixed and without placing on the government in
enforcing the Sherman Law the burden of ascertaining from day to day whether
it has become unreasonable through the mere variation of economic conditions".
The Court went on to say that the question whether prices were reasonable is
too uncertain a test and an answer "can be satisfactorily made only after a com-
plete survey of our entire economic organization and a choice between rival
philosophies".
In its report to the President on steel sheet piling in June, 1936, the Federal
Trade Commission pointed out a number of reasons which make it impracticable
to determine whether prices and profits are reasonable, once the test of competition
is discarded. It pointed out the necessity of cost information in appraising the
reasonableness of price, the refusal of the industry to produce its costs, the wide
variation in mill net returns or actual realized prices which steel producers are
habitually accepting, the relation of excess capacity and reduced output to cost,
and the wide variation in earnings among members of the industry at a given price
level. It stated that the acknowledged price leader of the industry is not the
CONCENTRATION OF ECONOMIC POWER 14585
producer best fitted to produce and sell steel at the lowest price consistent with
a reasonable return on capitalization, that the Corporation established a capitali-
zatioTi at the time of its formation which was more than twice the fair market
value of its securities, and had paid dividends on such a capitalization during
many years. (F. T, C. Report to President on Steel Sheet Piling, June 10,
1936, pp. 32-33.)
The Corporation admits that its capitalization was heavily inflated at the time
of formation and says:
"When the Corporation was formed, various growing businesses were acquired
at prices in excess of the value of their tangible property, resulting in intangible
assets of about $750,000,000 (as later determined by the U. S. Bureau of Cor-
porations) representing the good will or earning power of these businesses. While
originally of real value, it has been deemed prudent to write down from time to
time the value of all such intangible items, good will now being valued at $1.00."
(Exhibit 1409, Section A).
The amount named was about 50% in excess of the entire common stock of
the Corporation down to 1927, when a stock dividend brought the total common
stock up to some $711,000,000. Dividends were paid on common stock every
year except two from 1901 to 1931, inclusive, and also in one year since 1931.
The rate of earnings on the '/combined investment of stockholders and bond
holders" for the entire period from 1902 to 1930, inclusive, was 6.33%. Despite
the 40% common stock dividend of 1927, the rate of earnings increased from 4.90
in 1927 to 6.01% in 1928 and 9.85%, in 1929. (Exhibit 14D9, Section A).
The Bureau of Corporations commented upon the Corporation's original capi-
talization as follows:
"When such values are capitalized into dividend or interest-bearing securities,
they involve important public problems. They are merely another name for
price policv, and the whole public is ultimately concerned in steel prices." (F.
T, C. Report to President on Steel Sheet Piling, June 1936, p. 34)
As the Federal Trade Commission said in its report to the President in June,
1936:
"The ability of the Corporation^ to pay dividends on such a capitalization
during many years certainly has some bearing upon the question whether prices
have been fair and reasonable. In this connection, it may be observed that over
capitalization can hardly continue to exist under genuinely competitive conditions."
(Ibid, p. 34)
The Corporation quotes from an economic study of the industry by "qualified
commentators" to the effect that the steel industry showed a relatively low return
on capitalization compared to other industries. The Corporation quotes from
this report in part as follows:
"Explanation of the persistent and relatively low rate of earnings in the steel
industry is not easily formulated. It is, of course, possible that the steel group
has placed a higher .valuation on its assets than have corporations in other
industries, but the validity of such a surmise cannot be demonstrated." (Fihibit
1418, p. 43).
In any study of the' reasonableness of prices and profits, a vital point is whether
the study is based on ^ad proceeds from the standpoint of the industry as a
whole or from the standpoint of different members of the industry. In a com-
petitive industry even under highly prosperous general conditions there are
always marginal units whose profits are not adequate because of higher costs
than their more efficient rivals. Likewise, there are always some which show
adequate or more than adequate profits. Yet they all operate upon an approxi-
mately similar level of prices. Under a competitive regime, it is to be expected
that what is a fair and Reasonable price for one producer may be wholly inade-
quate for another. A fair and reasonable price for the marginal concern is bound
to be excessive for the more efficient, low-cost producer. To average the profit
showing of a competitive industry in order to ascertain th^ reasonableness of the
price level is to discard the fact that the industry is composed of competitive units
and to treat it as though it were an.entity entitled to a return on its entire property.
Then there is the question of rate of operation, pne of the most powerful factors
aflFecting cost. Competitive theory requires that the efficient low-cost concern
shall be allowed and encouraged to operate at a substantially higher rate of
production than its less efficient, higher-cost competitors and at a higher rate
than the industry average. If it does not do so, this indicates that competition
has been displaced by some kind of cooperative policy.
All these phases of the question of reasonableness of prices and profits arq.
illustrated by the testiraony of Ernest T. Weir, President of the American Iron
14686 CONCENTRATION OF ECONOMIC POWER
and Steel Institute and head of the National Steel Corp. Mr. Weir testified that
he would want base prices established at a level that would cover the costs of
every individual company, that none "of the standard companies are justified in
selling the product below cost, on the average" and that every company should
sell on a basis which would yield it cost plus a reasonable profit. (Verbatim
Record, TNEC Hearings, Nov. 10, 1939, p. 309;. He testified further that his
company did not base its price or volume upon its own costs but upon a kind of
live and let live policy, and in consideration for the welfare of the industry as a
whole. (Ibid, p. 310). He further testified that his company did not use its
lower average cost and better average location "to go out and operate, we will
say, full,' when the balance of the industry can't meet those costs and operates at
30% or 40%. We try to take thkt in additional profit". (Ibid, p. 3Q2). Yet
during the ten years ending in 1936, including the worst years of the depression,
the National Steel Corporation earned about h}i%, while the industry earned on
the average 2.9%. (Ibid, pp. 302, 303). Mr. Weir also testified that in the
nine years ending in 1938, the industry as a whole showed a loss of $80,000,000
on the common stockholders' investment of $2,000,000,000 and that a 35% rate
of operation should be the break-even point in the industry. (Ibid, p. 300).
Mr. Fairless, President of the Corporation, testified that the rate of operation in
1938 "should have at least reflected a break-even point" but that losses had
occurred because prices were itooJow. The rate of operation for the entire indus-
try in 1938 was about 39%. (Exhibit 1409, Section D). In a public address,
however, delivered by Mr. Weir in October, ^1939, he had stated that price could
not be the subject of cooperation among competitors and in that connection said:
"A price policy is one that must? be established by each individual company in
accordance with cost and other factors peculiar to that company." (Verbatim
Record, TNEC Hearings, Nov. 10, 1939, p. 299).
He also stated in this address that:
"You must charge a price, under any given condition, which coyers all of your
costs — including the cost of carrying unused capacity — and returns a reasonable
profit." (Ibid, p. 298).
A position similar to that of Mr. Weir was taken by Mr. Eugene Grace of the
Bethlehem Corporation. In a letter written to Mr. Grace in May, 1938, a small
business man engaged in the steel industry urged price reduction as a means of
industrial recovery, reciting that the Bethlehem Company working at only 32%
of capacity had shown a profit of over $900,000 for the first quarter of the year.
In reply Mr. Grace said the operating rate was somewhat higher than 32% and,
concerning the suggestion of reduced prices, said among other things: "the
opportunities for stimulating business through price reduction should be looked
at from the point of view of the steel industry as a whole rather than the case of
a single company." (Ibid, Nov. 9, p. 279).
Another angle from which to consider the reasonableness of prices is that of
diff'erentials between various basing point prices on the same products. For
many years, down until June, 1938, the base prices at Birmingham and Chicago
exceeded those at Pittsburgh by several dollars per ton, notwithstanding the
fact as shown in the Pittsburgh Plus case, that the cost of production at Birming-
ham and Chicago substantially was less than that at Pittsburgh. In stressing the
importance of raw material assembly costs as a factor in the location of mills, the
Corporation presents a table of estimated assembly costs in the production of
pig iron. The range of variation shown is $1.28 per ton, and no showing is made
for Birmingham or Sparrow's Point. (Exhibit 1410, p. 11). Nevertheless, it is
stated that assembly costs at Birmingham are undoubtedly the lowest in the
country and that at Sparrow's Point, iron ore costs are less than at Lake Erie
and Pittsburgh, although this is' partially offset by higher assembly costs for coal
and limestone. (Exhibit 1410, p. 13).
Quoting from the N. R. A. Report, the argument is made that strong nonbasing
point mills upon becoming basing points "are likely to be able to afford the luxury
of putting their nearby customers on a more favorable basis by quoting basing
point prices more nearly comparable with those in force at other basing points".
(Exhibit 1418, p. 60). The ability to afford this "luxury" did not prevent/ the
addition of substantial price differentials when Chicago and Birmingham were
made basing ponts. It did not prevent the establishment of a $2.00 differential
on sheets at Detroit and of $3.00 at Monroe, Michigan. (Exhibit 1418, p 89,
Footnote). The $2.00 differential at Detroit is effective at the mill location of the
National Steel Corporation, whose profit showing, as previously described, is
one of the most favorable in the industry. Moreover, the pig iron assembly
costs at Detroit are 770 per ton less than at Chicago. (Exhibit 1410, p. 11).
CONCENTRATION OF ECONOMIC POWER 14587
Shifting from its previous argument that strong mills were able to afford the
luxury of lower prices upon becoming basing points, the Corporation says in
explanation of price differentials over Pittsburgh that "new mills needed higher
prices in order to cover their higher costs and to provide capital funds for expanding
their facilities". (Exhibit 1418, pp. 57 and 5S). As previously shown, the' costs
at Gary and Birmingham were substantially lower than Pittsburgh, while the
base prices were substantially .higher.
The issue of reasonable prices and profits having been raised, it cannot be
adequately analyzed without considering whether there is a fair and reasonable
distribution of the price and profit load among various sections of the country,
among various classes of consumers, and among individual consumers. In this
same connection, the fact should be considered that base prices at Pacific Coast
ports on some products are the equivalent or more than the equivalent of base
prices in the East, plus transportation costs to the Pacific Coast, plus unloading
and dock charges there, although some of the products so priced are produced at
mills on the Pacific Coast.
The Corporation's argument that prices and profits disprove the existence of
monopolistic control in the steel industry should be considered in the light of a
quotation it makes from the N. R. A. Report. After reviewing the trend of steel
prices over a period of years, the N. R. A. Report said:
"All these examinations of evidence are instructive but fall short of proving a
conclusive case for or against the existence of monopolistic control." (Exhibit
1418, p. 43).
The Corporation nevertheless continues the quotation from the N. R. A. Report
to the effect that:
"There are not only no monopoly profits at the present time, but no sustained
profits of a clearly monopolistic character during the more recent years of pros-
perity." (Ibid)
Supplementing the above argument, the Corporation cites an economic writer
to the effect that "evidence of imperfect functioning of competition" in any
industry may be found in any one or a combination of three elements, the existence
of excessive profits, excessive productive capacity or excessive selling costs.
The argument proceeds on the assumption that ttose three elements are "criteria
of the lack of competition". (Exhibit 1410, pp. 27 and 28). The three elements
named are not even proposed as proving anything more than an "imperfect
functioning of competition" which, as the Corporation states elsewhere, "covers
the whole range of conditions between theoretical perfect competition and perfect
theoretical monopoly, neither of which actually occurs in the business world".
(Exhibit 1418, p. 20). The_basic assumption of the argument is that the only
cause of excessive profits, excessive producing capacity and excessive selling costs
is monopolistic interference and that certain supposed monopolistic results must
be shown before monopoly can exist. Radically different results will be obtained
depending on whether the three elements named are considered collectively for an
entire industry or for the various members of the industry separately. In com-
paring the earnings of the steellndustry with those of other industries, the Cor-
poration based the comparison upon the ratio of earnings to net assets. (Exhibit
1410, p. 28). This entire basis of comparison is upon the unchecked claims of
various industries as to the value of their net assets which opens the door to any
inflation of those assets which may be present either in capitalization or in costs.
The table of comparative distribution costs has no validity as a comparison of the
distribution costs of steel producers unless it is known what types of concerns are
included in the classification of iron and steel and for other products. (Exhibit
14^10, p. 29). The argument is also made that "prices cannot be out of line with
total costs over any considerable period" because substantial fixed costs must be
met regfl,rdless of the amount of steel produced. (Exhibit 1410, p. 34). This
argument ignores any distinction between the varying costs of different producers
and urges that the total fixed costs of the industry must be met without regard to
whether those costs are the reflection of inflated capital assets or whether that
inflation is in turn the reflection of monopolistic practices. Despite the above-
described fallacies in the argument, the Corporation reached the conclusion that
since excessive profits, excessive capacity and excessive distribution costs do not
exist in the steel industry "it is sufficiently competitive to be free of the alleged
evils of lack of competition". (Exhibit 1410, p. 31).
124491— 41— pt. 27 30
' 14588 CONCENTRATION OF ECONOMIC POWER
THE CORPORATION DEFENDS CERTAIN UNECONOMIC RESULTS OF THE BASING POINT
SYSTEM ON THE PRINCIPLE OF VESTED INTERESTS
Apparently great reliance is placed upon the argument that whatever the legal
and Economic status of the basing point system may be the steel industry and those
dependent on it have so adjusted themselves to the system that to disturb it
would cause substantial economic dislocation and disruption. In the last analysis
this is the familiar vested interest theory. To accept its validity is to recognize
vested rights in the continuance of social wrongs and vital economic maladjust-
ments. It is to paralyze the arm of government in correcting those conditions.
It suggests the unwelcome t-hought that private monopoly may be morer powerful
than government. It leads directly to the inference that such wrongs cannot or
should not be righted within the framework of the capitalistic system of free
enterprise.
In pursuance of this line of argument the Corporation states that bankruptcy
and permanent retirement from business and "the causes thereof were not con-
templated in the theory of perfect competition". (Exh. 1418, p. 27). In the
interest of the capitalistic system that statement can and should be challenged.
It is the essence of the vested interest argument. It is wholly untenable on broad
principles of economics and public policy. It draws any persuasiveness it may
have from the degree to which competition may have already lost its vitality as
an economic disideratum. Unless competitive forces do bring bankruptcy and
retirement to concerns whose costs and overhead are higher than those whose
output and services are sufficient to supply society's needs, an ever ascending
spiral of costs and prices js invited, to the point where a cyclical collapse of the
whole economy takes place with all its terrific repercussions. The capitalistic
system cannot function normally without risk of bankruptcy and retirement for
some of those who engage in business in the hope of profit. And unless it so
functions as a normal incident, cyclical depressions may destroy its ability to
function sufficiently to meet the simplest basic needs of the people.
(a) The Corporation^ s Defense of Excess Capacity.
The Corporation takes several mutually inconsistent positions with regard to
this subject: first, that excess capacity does not exist; second, that if it exists,
there is no way of measuring the amount of it; third, that there is no feasitle way
of eliminating it; and fourth, that it has certain economic advantages which justify
its preservation.
A great deal of space is devoted to a description of alleged ambiguities and
uncertainties in the position of the Federal Trade Commission regarding excess
capacity. The Corporation admits, however, that the Commission's position is
not so ambiguous and uncertain when' it states later that "the criticism of the
Federal Trade Commission may, however, be taken to mean that the basing point
method maintains prices at higher than competitive levels, thus attracting too
many producers and causing the installation of excess capacity". (Ex. 1418,
p. 53). That is a fairly accurate statement of the Commission's position, which
is that long-continued suppression of price competition inevitably tends to
encourage the building of unnecessary plants. The Corporation itself does not
challenge the soundness of this position and it is supported both by theory and
experience. Of course, the Corporation does challenge the contention that com-
petition is suppressed by the basing point practice.
Contending that excess capacity does not exist, the Corporation states:
"The capacity of the industry, including reserve capacity, is not more than suffi-
cient to supply the needs of the country during periods of high demand, such as
1929, 1937 and the present time." (Ex. 1418, p. 99).
Again it states that the total capacity of the industry "includes reserve capacity
barely sufficient to supply peak demands." (Ex. 1418, p. 45). These statements
are refuted by the figures of capacity and production submitted by the Corporation
in Exhibit 1409. The total ingot capacity for the year 1929 was some 63,000,000
tons, as against a total ingot production of some 56,000,000 tons, a.n excess of
about 12>i%. In 1937, the total ingot capacity was some 69,000,000 tons, as
against a total ingot production of about 50,000,000 tons, an excess of 38%.
Figures for 1939 are not yet available but despite the heavy production in the latter
part of the year, it is quite improbable that the total production for the year
approached anything like the total capacity.
The capacity and production figures in Exhibit 1409 include each, year between
1901 and 1938. In only one of those years did the total production of the industry
exceed 90 % of the total capacity. That was in 1 9 1 6 when war demand temporarily
taxed the productive facilities. In 24 years out of the thirty-eight shown, the total
CONCENTRATION OF ECONOMIC POWER 14589
production was less than 75% of total capacity. In 10 years it was less than 60%.
In 8 years it was less than 50%, and in 6 years it was less than 40%. The average
percentage of production to capacity by decades is as follows:
1901-1910 68. 26%
1910-1920 77. 65%
1920-1930 70. 54%
1930-1939 •- 44. 55%
An outstanding fact of these figures is that excess capacity in the steel industry
is not the result of the depression which began in 1929. It has characterized the
industry since the Corporation was formed about the beginning of the century.
A more exact method of determining whether excess capacity exists is to con-
sider the facts regarding particular products. For example, the Corporation states
that the recent introduction of continuous hot strip mills and the continuous cold
reduction process has caused a major technological revolution. (Ex. 1410, p. 17).
■ This revolution has taken place within less than ten years, and the result has been
to make the output of hand mills largely unnecessary. These new processes
afifect primarily the manufacture of sheets, strip, and tin plate, and it is probable
that the greatest excess capacity is in those products. The American Iron &
Steel Institute figures for 1938 show that less than one third of the 52 companies
producing hot rolled sheets and hot rolled strip had a combined capacity more than
twice the total production and that the 52 companies had a combined capacity
about two and one half times the total amount produced.
Arguing that there is no way to measure excess capacity, the Corporation states:
"When idle capacity exists, however, there is no way of telling how much, if any,
thereof constitutes excess capacity." (Ex. 1418, p. 96.)
The opinion of Dr. Thorp of the Department of Commerce is cited to the etfect
that it is impossible to formulate any test of excess capacity. (Ex. 1418, p. 51.)
In the same connection, it is stated that "the criticism of the Federal Trade
Commission infers that steel capacity has been accurately measurer, against a
correct standard and has been found to be excessive." (Ex. 1418, \''. 51.) The
Commission has never undertaken to measure the degree or ext: 'it of excess
capacity. Competition is the only proper method of determining how much
reserve capacity is needed. If competition is not allowed to determine it, it is then
left to the determination of individuals who have a common interest in preventing
excess capacity from breaking down the price structure which brought excess
capacity into being.
It is not necessary to know exactly how much excess capacity exists before tak-
ing steps to eliminate it, when price competition would autoriiatically eliminate it.
If the Corporation is correct in stating that there is no way ox telling how inuch of
the idle capacity constitutes excess capacity, it would follow that there is likewise
no way of telling how much of the idle capacity constitutes proper reserve capacity.
If it is right in quoting Dr. Thorp to the effect that there is no feasible test or
standard for measuring excess capacity, then it follows that the Corporation has
an uncertain ground for its contention that excess capacity does not exist.
It is also argued that the merits of the criticism of excess capacity cannot be
accurately appraised without comparing the actualities of production and plant
location with potentialities of production and plant location under a wholly
different pricing system which has not existed. (Ex. 1418, p. 47). Later on, in
connection with its attack upon an f. o. b. mill method of pricing, the Corporation
does not hesitate to compare an actuality with a hypothetical situation. As a
matter of fact, since two systems could not be in effect at the same time and place,
even a comparison between two actualities might be invalidated by differences in
time and circumstance.
Arguipg that there is no feasible method of eliminating excess capacity, the
Corporation refers to outmoded machinery and mills which have not been operated
for some time and implies that the Federal Trade Commission would contend
that such property "should have been scrapped immediately, their capacities
deducted from total capacity figures, and their value written off from the assets of
their corporate owners". (Ex. 1418, p. 44). It goes on to state, with reference
to scrapping of miUs with decreasing demand in a downward phase of the busi-
ness cycle —
•'It is not entirely clear whether the implication is that this should occur as a
voluntary policy of scrapping mills in order of age, or degree of obsolescence,
or that it should occur as a natural, economic result." (Ex. 1418, p. 44).
It should be entirely clear that the scrapping of mills and machinery repre-
senting excess capacity should occur as a natural, economic result of competitive
conditions. It is not to be implied that the owners of such properties should
14590 CONCENTRATION OF ECONOMIC POWER
scrap and write them off voluntarily. There is a clear distinction between
voluiltary scrapping and writing off of such properties and involuntary action
forced by pressure of competition.
Arguing further the impracticability of eliminating excess capacity, the Corpo-
ration states that mills would not necessarily be eliminated in order of their
degree of obsolescence but that comparative financial strength would influence
the outcome and "play a decisive part in determining which mills were eliminated".
(Ex. 1418, pp. 45 and 88). Since disparity in financial strength has always been
a factor in determining the outcome of price competition, this is really an argu-
ment that the theory of price competition is not sound. However defective the
theory may be in the respect pointed out, the question persists as to whether
there is any equally satisfactory substitute. The Corporation argues that an
integrated producer making a wide range of products might find that a low price
on some of his products could be recouped by high prices on others, and he would
thereby be enabled to drive out of business a nearby producer making only a
limited range of products. This line of argument is suggestive of a threat to
use the power of integration and superior financial strength to drive out com-
petition.
In its argument that excess capacity has certain advantages from a public
standpoint which would be destroyed if excess capacity were eliminated, the
Corporation states that any substantial reduction in capacity would probably
leave less than is required for peak demand with the result of rapidly rising
prices in the upper course of the business cycle. (Ex. 1418, p. 97). Again, it is
urged that if excess capacity be eliminated there would be a tendency "in the
direction of the skyrocketing of prices in periods of rising demand". (Ex. 1418,
p. 45). This ignores the fact that there have been very rapid increases in price
at times in the face of existing excess capacity. For example, the base price of
heavy structural shapes at Pittsburgh increased from 1.50^ per pound in February,
1932 to 1.60ji in April, 1932, where it remained until September, 1933, when it
increased to 1.70(i, jumped to 1.85^ in May, 1934, dropped to 1.80j5 in August,
1934, where it remained until July, 1936, when it advanced to 1.90, to 2.05 in
January, 1937, 2.21 in March, 1937, and 2.25 in April, 1937, where it remained
until June, 1938. The base price of cold rolled sheets at Pittsburgh was 2.95(6
'per pound in June, 1936, advanced to 3.05 in Julv, to 3.25 in December, to 3.49
in March, 1937, and to 3.55 in April, 1937. (Ex. 1409, Section C). Other
illustrations of the same sort might be given. Rven though it were a fact that
excess capacity tends to prevent rapid upsweep in price during boom periods,
the ques,tion would still remain whether it is cheaper to pay higher prices because
of a temporary shortage of productive facilities until they are enlarged sufiiciently
to overtake demand, or to pay for mg,intaining the excess capacity during all
the periods when demand is low. That question, of course, cannot be answered
on any mathematical basis as Dr. Thorp clearly indicates.
In connection with a discussion of costs, the Corporation implies tliat it is
good pubhc policy to subsidize producers whose output is not necessary to meet
"the existing demand. The question thereupon arises as to who shall determine
how much excess capacity should be subsidized. If competitive forces are not
allowed to determine that question, it is evident that the resulting tendency is
to inflate capital costs, overhead and capitalization. If there are excess -capacity
and inflated capital costs resulting therefrom in any industry, what corrective
is there in any free economy other than competition?
The Corporation quotes from Dr. Thorp to the effect that there is a degree of
excess capacity "which is probably taken into practical financial account through
charges for depreciation. and obsolescence, and through various other forms of
liquidation of capital". (Ex. 1418, p. 51). Such charges and such liquidation
of excess capacity, of course, are an effort to evade the physical scrapping of
excess facilities and to include them in costs just as though they were actively
employed.
In an editorial entitled "Excess Capacity is Burden to Steel", the trade maga-
zine Steel produced figures to show that the average ratio of ingot production to
capacity for the period 1926-1937, inclusive, was 59.55%, and that this 60%
of capacity earned in the same period 3.49% on the capital invested in the entire
capacity, after absorbing depreciation and overhead on the idle 40%. It stated
that these facts suggest that steel, "instead of being a $4,281,264,890 industry,
actually would be capitalized at considerably less if much excess capacity whose
future usefulness is problematical, were scrapped." It also stated that the facts
suggested that the industry, "always plagued with obsolescence, is slower than
it might be in charging off depreciation." (Steel, July 18, 1938, p. 39.)
CONCENTRATION OF ECONOMIC POWER 14591
(b) The Corporation's Defense of Existing Mill Locations.
The Corporation states that "The location of production facilities has been
due to the fundamental economic traits of the steel industry which have already
been set forth, rather than to any pricing system." (Exh. 1418, p. 49). Again
it states that the present location of mills "cannot be attributed to any pricing
method." (Ibid p. 50). If this is true then the ending of the basing point
method of pricing would not cause dislocation and disruption of mill locations.
The above quoted claims are contradicted however by the Corporation's own
statements in another place. For example, it says that in many respects the
Pittsburgh Plus method of pricing had a natural tendency to encourage the
location of miUs elsewhere than at Pittsburgh in order to increase their mill net
returns by adding the freight from Pittsburgh to their mill locations. It also
says that similar motives underlay the establishment of price differentials over
Pittsburgh at other basing pomts and that "Mills at Pittsburgh enjoyed a Nation-
wide market with normally even mill net returns." (Exh. 1418, p. 46, 47).
The fact that the basing point system has had some bearing upon mill locations
is confirmed by testimony before the Senate Committee on interstate commerce
in March, 1936. The President of the Laclede Steel Company of St. Louis testi-
fied that its plant had been located in St. Louis because of the prospect of making
money "by selling for more than it cost, on account of the protection we got, on
account of the Pittsburgh Plus in existence at that particular time." The Presi-
dent of the Thompson Wire Company of Boston, Massachusetts testified that his
company was "typical of many others who have been enabled by the basing point
method to enter the steel business in the past decade and maintain their position
with fair success." (Printed record of hearings on S. 4055, pp. 123, 146.)
Such testimony from non-basing point mills is to be considered with the Cor-
poration's statement elsewhere that "the possibility of a non-basing point mill
realizing mill net returns higher than those obtained by competitive mills at basing
points, is not due to the absence of a basing point, but to a geographical advan-
tage." (Ex. 1418, p. 61.) The truth is that every mill probably has some geo-
graphical advantage, no matter what the pricing system is, but from a price stand-
point is protected in it to the full under the basing point system.
The Corporation, however, does not merely take a partially inconsistent posi-
tion. It completely reverses its position that the present location of mills "cannot
be attributecf to any pricing method." It does this by arguing that practically
all the mills were located where they are because of the basing ptoint system of
pricing and that the natural advantages of their location are not sufficient to justify
their continuing at those locations without the aid of the basing point system.
Thus it says, referring to the producer's problem of finding a price F. O. B. mill
that will cover his total costs and also provide a large enough sales area to keep
his mill operating at an economical rate:
"If any mill's costs and geographical relation to its customers should be such
as to permit a satisfactory solution of this problem, it would be an exceptional
case." (Exh. 1418, p. 84.)
The Corporation states:
"The Federal Trade Commission's theory seems to be that steel mills should be
located near the markets for steel products — in effect that they should be scattered
over the country wherever there is a market regardless of other consideration.''
(Exh. 1418, p. 50.)
This is not a correct statement. It corresponds more nearly to what was done
by some non-basing point mills which established themselves away from Pitts-
burgh and in the vicinity of large consuming markets in order to take advantage
of the "phantom freight" from Pittsburgh to their nearby customers. There is
no way of determining which mills are properly located without the competitive
test of consumer preference oji a price, quality, and service basis as between the
mills at various locations. Mills should not have been located on the assumption
that phantom freight could be collected indefinitely or that the basing point system
would continue and that price competition need not be expected.
Referring to any further scattering of mills into various consuming territories,
the Corporation argues that "If they were located outside the Northeastern United
States they would be farther from raw materials than the corresponding capacity
is today, and their assembly costs would be higher." (Exh. 1418, p. 95.) This
statement overlooks the fact that there has been a great development of the steel
industry in the Middlewest and that production costs there have been lower than
;n the Pittsburgh District. The statement gives no consideration to the feasibility
of using iron ore near its place of production in the Middlewest, especially with
*uel being available in the form of oil and natural gas. Unless all mills are equally
14592 CONCENTRATION OF ECONOMIC POWER
well located which of course is inconceivable, it follows that some of them are
disadvantageously located from a competitive standpoint. The entire argument
of the Corporation is devoted to a defense of the status quo of mill locations in
the entire industry.
(c) The Corporation's Use of Overhead and Capital Costs to Justify the Basing Point
System.
By contrast with the dearth of detail regarding unit costs of production, the
corporation gives much space and emphasis to the importance of overhead and
capital costs in the steel industry. The argument is obviously addressed to a
rationalization of overhead and capital costs. There is no showing, however, of
the proportion that these two kinds of costs have to each other or to total costs.
Data from which the reasonableness of costs may be tested are not presented for
examination.
It is asserted that "large scale integrated operations produce steel at a lower
cost per ton than small ones." (Ex. 1418, p. 23.) No unit costs are presented in
support of this assertion. Moreover, no light is thrown on the crucial question
whether the overhead and capital costs of some large scale integrated companies
may not so far exceed thosci of smaller concerns as to make the former's total costs
per ton exceed the total costs of the latter.
The argument then proceeds with the above unsupported assertion as a premise.
It is urged that since large integrated operations produce low costs such operations
must have a wide area of distribution in order to maintain those low costs, and
that consideration must be had for the price policy of other competitors and its
effect on the steel markets of the entire country. (Ex. 1418, p. 24.) The sugges-
tion implied in this argument is that the identical delivered prices of the basing
point system are somehow necessary to maintain the low costs of production of
large scale integrated companies. The simple truth is ignored that low costs make
possible low mill prices and that low mill prices would provide a wide area of dis-
tribution. The question may be raised'^s to what benefit the consumer gets from
low cost and wide distribution accompanied by the loss of price competition and
attained at such a sacrifice. Again the point may be stressed that there is no
assurance that low unit cost of production may not be offset, or more than offset,
by high overhead and capital costs.
' Without providing any means for measuring such costs on a unit basis, the
Corporation stresses their importance. Thus, it says that "a large proportion of
the costs in the steel industry are overhead costs, which must be met, no matter
how much or how httle steel is produced," (Ex. 1418, p. 27) and that ''the cost
structure in the industry is marked by substantial fixed costs which must be met
regardless of the amount of steel produced." (Ex. 1410, p. 1) It is also stated
that the two most important factors in cost are, in order of importance, raw
material assembly costs and capital investment required per ton of steel. (Ex.
1418, p. 96) Since the first of these factors involves the second, the second will
also be a partial reflection of the first.
It is also stated that "the capital investment per ton of steel is high and the
annual turnover is relatively low, compared with many other industries." (Ex.
1418, p. 95) In its argument that ending of the basing point system would
involve dislocation and relocation of industry, the corporation says that "scattered
mills mean a much higher per ton investment cost than under existing conditions,
and would present a serious economic danger to the mdustry in periods of low
demand." (Ex. 1418, p. 96) The nature of this danger is not stated, but it
may be surmised that the temptation to reduce prices in such periods is not ex-
cluded. WTiether the corporation itself has "scattered mills" withinthe meaning
of the above quoted statement is not known, but it does have mills that are widely
scattered, and were widely scattered when they were taken over, to the accom-
paniment of high infusions of "water" into the Corporation's capital structure.
In this connection, a study of the industry's capitalization per ton of ingot
capacity is illuminating. A portion of these facts as to four producers only was
presented in the Federal Trade Commission's report to the President on Steel
Sheet Piling in 1936. (P. 32) The magazine ^'STEEL" tabulated the 1935
earnings, capitalization, assets, and liabilities of twenty-three producers who
represented an aggregate annual ingot capacity of over 63,000,000 tons, or 90%
of the total capacity. The magazine also translated some of that information
into terms of per ton ingot capacity. The range of capitalization per ton of
capacity was from $12.60 to $185.71. Only three concerns were capitalized at
more than $100 per ton of capacity, and they are engaged largely in the production
of special alloy steels. Excluding them, the highest per ton capitalization was
$72.41. The corporation's capitalization per ton was $62.41, and was the third
CONCENTRATION OF ECONOMIC POWER 14593
highest of twenty producers. Twelve of the twenty producers, however, showed
a capitalization of less than $50 per ton of capacity, six less than $40 per ton, and
three less than $30 per ton.
The significance of these facts is that concerns with relatively low capitalization
per ton of capacity are thereby equipped to produce steel and pay satisfactory
returns on their investment at a price level that would not permit concerns with
higher capitalization to pay any returns thereon. To argue generalities about
high capital costs per ton of capacity is to ignore these wide differences among
supposedly independent competitive enterprises. It assumes that such differ-
ences should not express themselves in the form of price competition lest the
relatively high capital costs of some concerns be reduced. It is an extension of
the vested interest principle to include the capitalization of anticipated earning
power based on monopolistic suppression of price competition. If any inflation
of capital costs does exist, the argument :s perfectly calculated to protect and
continue it.
The Corporation states that "the average investment required for a modern
steel works of efficient size is approximately $100,000,000," exclusive of invest-
ment in operations prior to the assembly of raw materials at the plant site. (Ex.
1410, p. 14) The implication is that smaller plants and smaller companies are
not efficient. This is to be considered in connection with the fact that in 1935
only ten out of twenty-three companies, representing 90% of the total ingot
capacity of the industry, each had assets running as high as $100,000,000 and
four of these ten each had less than $125,000,000, total assets. ("Steel," May
11, 1936)
The close connection between overhead and capital costs and excess capacity
should not be overlooked. As the magazine "Steel" said in an editorial on
excess capacity, steel, "instead of being a $4,281,264,890 industry, actually would
be capitalized at considerably less if much excess capacity, whose future useful-
ness is problematical, were scrapped." ("Steel," July 18, 1938, p. 39)
(d) The Corporation' s Claim That Substitution off. o. b. Mill Pricing for the Basing
Point System Would Dislocate Industry and Create Monopolistic Conditions
In no respect does the Corporation's defense of the basing point system more
clearly invade the realm of economic sophistry than in its argument that^ abroga-
tion of the system in order to restore price competition will mean in fact the
establishment of monopoly. Building upon the premise that the innovation of
price competition would produce important changes in the physical and geo-
graphicalgeharacteristics of the industry, the Corporation magnifies such changes
to the point of suggesting that price competition would be the equivalent of
economic disaster. Apropos of this it might be said that unless pi ice competition
would produce some important changes it would not be worth insisting upon.
The changes that might result would simply be the automatic measure of the
need for them, provided our social and economic philosophy is not to be basically
and permanently altered.
The Corporation's argument combines the contention that the leasing point
system is competitive with the claim that its abrogation would therefore destroy
competition and create monopoly. But the most insinuating part of the argu-
ment is that in the process of changing from one type of economy to the other
the result would be financial losses, dislocation of industry, increased unemploy-
ment, and consequent detriment to the pubhc. This is the vested interest
argument at its ultimate. It could have been applied with equal force to the
institution of slavery or to any other institution that has conflicted with basic
public policy as does private monopoly.
The Corporation's contention as to dislocation and disruption of industry is
that the only substitute suggested for the basing point system is one of f. o. b.
mill prices uniform to all customers. As shown hereafter this is a misconception
and the conclusions based upon that contention as a premise are therefore beside
the point. Aside from that, however, the Corporation attempts to measure the
extent of dislocation resulting from a hypothetical f. o. b. mill price on sheets,
one of the most important rolled steel products. As to that product, it endeavors
to demonstrate that a series of local or sectional monopolies would result. An
analysis of this attempt will now be made.
A striking fact is that in making this attempt the Corporation employs a
technique which it elsewhere says is not accurate. Thus it says:
"It is impossible to measure quantitatively the amount of transportation costs
which might be considered unnecessary from any point of view, and it is equally
impossible to measure the economic costs which would result from any inter-
14594 CONCENTRATION OF ECONOMIC POWER
ference with present practices, or, more specifically, from any direct or indirect
limitation of selling territories." (Ex. 1418, p. 77).
Again it says:
"The effect of the basing point method upon the flexibility of steel prices
could only be measured accurately by comparison of present prices with prices
which would have existed in the absence of the basing point method. Such
alternative prices cannot be known, as it cannot be determined what practice
would have developed if the basing point method had not been used, and thus it
cannot be estimated what effect this other practice would have had upon prices."
(Exhibit 1418, p. 45).
To a similar effect is a statement made with reference to the criticism that the
present location of mills is "the result of the basing point system, as follows:
"An accurate appraisal of this criticism would require comparison of the
existing facilities at Pittsburgh and other large basing points with those which
would exist there if the Pittsburgh plus and basing point pricing methods had not
been in use. Such comparison would require an examination of the extent to
which any pricing practice could affect the location of production facilities,
what practice would have been followed in the absence of Pittsburgh plus and the
basing point method, and what effect such different practice would have had
upon the location of production facilities. There is no way by which the present
steel producing facilities can be compared scientifically with those which would
have existed under other conditions. (Ex. 1418, p. 47.)
The above-admitted infirmities in the technique employed by the Corporation
are enough to vitiate the conclusions that are worked out from certain assumptions
with much mere elaborate detail and show of s6ientific exactitude. But there are
other fallacies that may be pointed out. Discus&ing the probable effect of a
mill price method, the Corporation says:
"An isolated producer would be protected from other producers by a wall of
freight rates, and would be able to cl^arge high prices to consumers in his own
area." (Ex. 1418, p. 86.)
Whatever protection is given an isolated producer by a wall of freight rates
is given in fullest possible measure under the basing point system. He would
violate a cardinal principle of the system if he did not avail himself of that pro-
tection. It is also argued that under f. o. b. mill pricing the prices at each mill
would be identical since "otherwise the mill with the lowest price would obtain
all the business." (Ex. 1418, p. 37.) This overlooks the fact that identical
mill prices could not produce identical delivered costs in view of the difference
in transportation charges. The Corporation also says:
"Under the proposed uniform f. o. b. mill base system, unless the isolated
producer's prices were exceedingly high outlying producers could not afford to
name a price enough below his to take any substantial part in his market."
(Ex. 1418, p. 87.)
That is exactly the situation under the basing point system. No matter how
high the isolated producer's mill net price, no matter how much "phantom freight"
is included in it, no matter whether outlying producers can afford to undersell
him, the system will not permit them to do so. Nor is the producer with the freight
rate advantage permitted to use it to reduce his mill net priceJay sharing that
advantage with the purchaser. The Corporation goes on to say that under the
basing point system outlying producers are willing to compete in the vicinity
of the isolated producer by accepting lower mill net returns. This omits the
fact that they accept these lower returns in the exact amounts needed to make
their delivered prices the same as those of the isolated producer. It also omits
the fact that each producer is isolated as to some of his business, and-so reciprocal
relationship develops if the system is to be maintained.
In flat contradiction of the foregoing claims the Corporation has elsewhere
admitted that the ending of the~basing point system would tend to reduce priceB,
and then proceeded to exaggerate it to the point of absurdity. Testifying before
the Senate Committee on Interstate Commerce- in April 1936, W. A. Irvin,
president of the Corporation, said that the effect of f. o. b. mill pricing would,
be -"to produce a downward spiral of prices." (Printed Hearings on S. 4055,
p. 596.) In the pamphlet under consideration, the Corporation says that under
a mill pricing method producers that are close together "would be in intense
competition with each other" and the buyers for the most part "would buy
from the nearest mill because its price "plus the transportation charges to desti-
nation would be the lowest." (Ex. 1418, pp. 85, 87.) Again it is said that:_
"In order to sell sheets in any important market a mill would have to reduce
its price by the amount of the freight to such market. In many cases this would
arbitrarily result in wiping out the selling area of other mills, "compelling retalia-
CONCENTRATION OF ECONOMIC POWER 14595
tion by them which in turn would deprive the first mill of access to"^he market
sought by such mill in making the price reduction. The price would be lower,
with little or no real gain in marketing area." (Ex. 1418, p. 93.)
In still another place the Corporation argues the reverse of the above. It
says that a mill price method "would increase the tendency to follow price raises
by other mills by reducing the number of producers and by lceeping~Ehe mills
out of contact with each other's customers." It also says that "The mills would
be more apt to follow a rise in the price at one mill, than to try to initiate sales
efforts in the new area in which their old prices were the lowest because the mill
which had raised its price would almost certainly be obliged to reduce its price
if the others did so." (Ex. 1418, pr^5.)
Despite the admission that f. o. b. mill pricing would reduce prices, the Corpo-
ration uses twelve printed pages and presents maps all based on the assumption
that mill prices at non-basing point mills would be made equal to present basing
point prices at the nearest basing points. In making that assumption the Cor-
poration cannot maintain its statement that "the prevrously existing scale of
delivered prices in the territory around the non-basing point Tnill can and un-
doubtedly will remain about the same even though the mill becomes a basing
point." (Ex. 1418, p. 61.)
When the Corporation finally concludes that the effect of f. o. b. mill pricing
would be to give local mills a virtual monopoly against their more distant com-
petitors, it necessarily reverts to the position that a mill price njethod would
reduce prices. It assumes, concedes, and emphasizes that fact. (Ex. 1418, pp. 89,
92, 93, 94, 101.) Unless prices were reduced the mills could continue to sell in
as wide a territory as at present. In reverting to this position, the Corporation
holds up the bogey of a monopoly that would keep out competitors by the simple
process of underselling them. This is no more than any competitor does when
he makes a lower price. To apply the word "monopoly" to the particular
business which a competitor takes by making a lower price is to distort and reverse
the ordinary meaning of the word, if indeed it is not "economic sophistry." The
same might be said of applying the word "competition" to a system that permits
all producers to share in business anywhere but only at identical delivered prices.
Purchasers might well forego access to so many sources of supply if they could
thereby obtain lower prices.
There are other weaknesses in the conclusions drawn as to the effect of f. o. b.
mill prices in allegedly creating the local monopolies described. Some of them
may be mentioned. The geographical effects are based on all rail carload freight
rates with slight exceptions, while, of course, the use of water and truck rates
would substantially enlarge the sales area of the mills using them. (Ex. 1418,
"pp. 89, 91.) It is also assumed that the ratio of mill operation to capacity would
be no larger than in 1938 when it was 43%. (Ex. 1418, p. 92, footnote.) Inci-
dentally, sheets, the product selected for the showing, probably has a greater
degree of excess capacity than any other and might, therefore, not be typical of
results as to other products. The conclusions drawn assume that the present
base price level will continue, that each mill would have the same mill price,
that the sales area of, each mill would remain constant, and that differences in
the costs of various mills would have no effect upon the sales areas or prices.
In short, the necessities of the argument require that these unstable factors
be arbitrarily stabilized in order to make them conform to an assertedly resultant
condition of monopolistic stabilization.
Finally, it may be observed that if f. o. b. mill pricing actually tended to
create monopolies, it had abundant opportunity to demonstrate it in the case
of pig iron. Pig iron had always been priced f. o. b. furnace until the NRA
Code in 1933 substituted the basing point system on that underlying product
of the steel industry. This was fifteen years after Judge Gary's effort to that
end had failed. As shown in the Federal Trade Commission's report to the
Senate in 1934, when the so-called "monopoly" of the f. o. b. furnace price of
pig iron was replaced by the so-called "competition" of the basing point system,
prices were simultaneously advanced. ("Practices of the Steel Industry Under
the Code," p. 58. See also F. T. C. report to the President of November 1934,
p. 7, and Appendix C.) Likewise, when the price of steel billets was changed
under the Code from an f. o. b. mill basis to the basing point system it auto-
matically increased the delivered cost to a certain purchaser by over $3.00 a
ton, this increase representing "phantom freight" to a nearby source of supply.
(F. T. C. Report to the Senate, p. 59.) Only in the topsy-turvy realm of eco-
nomic sophistry can such behavior of competition and monopoly be explained.
The Corporation of course doet, not carry the vested interest argument to
the Doint of opposing: changes that the industry might find it advantageous to
14596 CONCENTRATION OF ECONOMIC POWER
make, regardless of their effect upon other vested interetss. The trade magazine
Steel, commenting upon the results of the changes in base prices and abolition
of base price differentials of June 1938, said:
"Some consumers may move their plants with a view to improving their
position in respect to buying material and selling their products. Others may
change their products; a few already have indicated their intention of doing
so." (Steel, July 1938, pp. 23, 24.)
The magazine Steel summarized the replies to a questionnaire it had sent out
to representative steel users, concerning the effect on their business of the changes
in base prices and base price differentials made in July 1938. It appears that
about 13% of the replies were to the effect that their competitive position had
been unfavorably affected, while about 20% reported that their competitive
position had been affected favorably. (Steel, July 24, 1939, p. 15.) Such facts
illustrate the point that in considering vested interests much depends on "whose
ox is gored."
An article entitled -"War and the Steel Ghost Towns" in the January 1940
Harpers' Magazine describes graphically the technological displacement of hand
mills by the continuous strip process, the consequent disemployment of thousands
of skilled workers, and the shattering effect upon the whole economy of scores
of substantial communities. The only pertinent comment in this connection
is that the public policy of preserving competition is no less fundamental than
that of preserving the right of technological advancement. Nor is the vested
interest defense any more valid in the one situation than in the other.
Under the NRA Code, many long established and important business interests
protested various steel code provisions as damaging, discriminatory and destruc-
tive to their respective businesses. Yet such code provisions were not modified
and the ones objected to are still in practical effect. The vested interests that
have been protected by and embodied in the basing point system are at least
partially oflFset by vested interests that were injured and perhaps destroyed by
it. So, unless government should take the broader view that the vested interest
of the whole public in fundamental public policy is paramount to all other con-
siderations, it must choose which particular group of vested interests shall be
protected and which other groups may become its prey.
THE CORPORATION HAS MISSTATED THE ATTITUDE OF THE FEDERAL TRADE COM-
MISSION REGARDING ALTERNATIVES TO THE BASING POINT SYSTEM
In order to support its thesis that objections to th basing-point system are
founded upon abstract criteria and not upon tangible evidence, the Corporation
devotes 18 pages of its 101 page pamphlet to an analysis of what it says is the
alternative to the basing point system that is proposed by the Federal Trade
Commission. It is said that such alternative has been proposed in order to
"produce all of the assumptions of 'perfect competition' " (Ex. 1418, p. 85).
Besides being itself theoretically abstruse and highly speculative, such analysis
is whoUy beside the point. The Commission has not proposed the alternative
to which the Corporation's analysis is directed. What it has proposed is quite
diflferent from what the Corporation claims. The crux of this issue is whether
the quoting of f. o. b. mill prices, which is the natural and logical negation of a
delivered price system, must take the form of a uniform mill price to all customers.
The most extreme misstatement of the Commission's position on this question
appears in the following terms:
"The Federal Trade Commission has publicly taken the position that the uni-
form f. o. b. mill price system was prescribed by its 1924 'cease and desist' order
directed against said subsidiaries of the United States Steel Corporation, in the
Pittsburgh Plus case." (Ex. 1418, p. 82)
To support this statement the Corporation cites page 13 of the Commission's
pamphlet, entitled "Monopoly and Competition in Steel," submitted to the
Temporary National Economic Committee in March 1939. The citation given
does not support the above quoted statement of the Corporation. On the page
cited, the Commission stated its position to the effect that the basing point,system
should be eliminated as a device that prevents price competition and that it was
necessary to guard against any substitute for it which would produce the satne
results in the form of identical delivered prices. The Commission then quoted
the text of its order in the Pittsburgh Plus case and stated that the principles of
that order should be applied to the steel industry. The terms of that order
made no reference to f. o. b. mill prices'of steel uniform to all customers. Im-
mediately following the text of the order, the Commission said: - -
CONCENTRATION OF ECONOMIC POWER 14597
"The open f. o. b. mill price system is essential, in the Commission's opinion,
for the maintenance of fair competition in steel. To fulfill this purpose, however,
there must be no obligation to maintain any announced price for any time what-
soever." (Exhibit 358, Part 5 of Printed Hearings before TNEC, P. 2200).
From this last statement of the Commission's position, it is clear that the
Commission has not proposed to require the use of a mill price uniform to all
customers.
Certain of its findings in the Pittsburgh Plus case were to the effect that the
pressure of buyers would compel equal price treatment by a particular seller
quoting f. o. b. mill, when discrimination between buyers would not be concealed,
as it is under the basing point system. But it is a distortion of facts to say, as the
Corporation does, that "the Federal Trade Commission proposes to impose by
law or mandate" a uniformity in mill prices to all customers (Ex. 1418, p. 37).
From its enactment, in 1914 until its amendment in 1936, the Clayton Act
specifically safeguarded the right of a seller to discriminate in price for various
reasons, among them being discrimination in good faith to meet competition.
The amended Act now safeguards the right of a seller to discriminate in price in
good faith to meet an equally low price of a competitor, but he has the burden
of proof on that question. This right is guaranteed by statute and could not be
curtailed by any mandate or order of the Commission. The Commission has
never proposed that this right be disturbed by amendment of the statute. The
right of self defense against competitive price attacks is as vital in & competitive
economy as the right of self defense against personal attack.
In view of the above clear and consistent record of the Commission on this
question, numerous statements or references by the Corporation may be challenged,
such as the Commission's "insistence that uniform f. o. b. mill prices should be
required" (Ex. 1418, p. 38); that the Commission had "clung to its old opinion"
that "steel should be sold at uniform f. o. b. mill prices without freight absorption"
(Ibid. p. 83) ; that the "proposed uniform f. o. b. mill price systefii differs funda-
mentally from its earlier model in the requirement that mill prices be uniform to
all buyers" (Ibid. p. 83) ; that it is questionable whether "the proposed uniform
mill price system would bring about the assumed conditions of 'perfect competi-
tion' as contended by the Federal Trade Commission" (Ibid. p. 84) ; that refer to
"the rigid and arbitrary nature of the system recommended by the Federal
Trade Commission" (Ibid, p.- 89); and that it would be impossible to foresee
"What steps the mills would be forced to take to escape the procrustean rigidity
of this system" (Ibid. p. 94).
The Corporation further states that "The only alternative seriously suggested
by the critics of the basing point method is the uniform f. o. b. miU price system"
(Ibid. p. 82). This is not true. The alternative has been proposed of restoring
price competition through f. o. b. mill pricing and the ending of the basing point
system as a means of ending a system of identical delivered prices. If the ending
of the system and the substitution of f. o. b. mill prices did not operate to prevent
a miU from charging different prices to its different customers, this would be taken
care of under the law as it now stands if it amounted to unlawful price discrimina-
tion.
In furtherance of its argument on this question, the Corporation states "a
requirement that all sales by any producer be made at uniform prices, regardless
of the buyer's location, is artificial" (Ex. 1418, p. 84). To this it may be said that
even if such a requirement were to be imposed by some form of social mandate,
it would be much less artificial than the present requirement of the basing point
system which is that the mill net returns or prices shall vary systematically
according to the location of the buyer in order that he may be quoted identical
delivered prices, regardless of the location of the sellers.
THE STEEL INDUSTRY SHOULD BE PREVENTED FROM CONTINUING TO RESTRAIN
PRICE COMPETITION THROUGH USE OF THE BASING POINT SYSTEM OR THROUGH
ANY EQUIVALENT METHOD
As stated at the outset, the Corporation admits that "price competition is
necessary in any industry operating in a capitalistic system." (Exhibit 1410,
p. 27) In making this statement the Corporation agrees that the stability and
perpetuity of the capitalistic system depends upon the preser\'ation of price
competition. The only real issue, therefore, is whether the structure and the
philosophy of the basing point system are hostile to the existence of price compe-
tition. Considering its inception, its purpose, the methods employed to imple-
ment it, and most of all, its results, it is believed that the "tangible evidence"
presented herein supports the conclusion that the basing point system in the
14598 CONCENTRATION OF ECONOMIC POWER
Steel Industry is the negation and frustration of price competition. It is also
believed that even judged by the standards of "abstract criteria", the system
conforms to the economic concepts of monopoly and violates the economic
concepts of a competitive economy. If the Congress or other socially created
agencies should accept these conclusions as embodiments of ultimate fact, then
the Corporation itself, if it is to follow the logic of its own position must abandon
the basing point system or imperil the capitalistic system. If the theory of vested
interests is to dominate the decision, the status quo will ' ive been maintained
at the sacrifice of a cardinal principle of the capitalistic system.
As stated by the Federal Trade Commission in its report to the President on
steel sheet piling in June, 1936 (p. 41) "the issue thus presented is whether this
Industry shall be required to obey the law or whether it shall be allowed to violate
the law in the guise of maintaining the so-called 'standards of fair competition
which are described in the Steel Code' ". The Commission also said in that
report that either an affirmative or negative policy on the subject would have
equally far reaching and fundamental consequences. More specifically, the
fundamental issue of public policy is whether the systematic suppression of price
competition which was perfected under the N. R. A. Steel Code and the emergency
legislation which preceded it shall be allowed to continue indefinitely after that
emergency legislation has been nullified.
The Commission recommended to the President that the results of its investiga-
tion on steel sheet piling be referred to the Attorney General for appropriate
action. This was done. On April 26, 1937, the Attorney General reported to
the President that an investigation by his department had failed to produce
"sufficient evidence admissible in civil and criminal litigations to make advisable
proceedings in court or under the Anti-trust Acts as they have been construed by
the courts."
The Commission recommended to the President in the Steel Piling report that
he consider "recommending to Congress the enactment of legislation making
unlawful such organized systems of delivered prices as frustrate price competi-
tion." The Commission's statement on the advantages of such legislation was
as follows:
"Bills are now pending in both Houses of Congress that would make the
operation of non-competitive basing point systems unlawful per se. There are
distinct advantages to be gained through legislation directly outlawipg such
basing point systems. The,enactment of such a general act supplementary to the
Anti-trust laws would render unnecessary the separate investigation of a great
number of industries together with the effect of the system in each upon the
competition therein, looking toward the bringing of separate proceedings with
respect to each industry using such a basing point system. Once Congress has
enacted an anti-basing point bill, the immense expense of separate investigations
and the laborious trial of separate suits would be avoided. If in but one case
the Supreme Court upheld the validity of the statute, it is believed that the
artificial character of such basing point systems would aid in their collapse.
There would be a strong sentiment on the part of many members of the Industry
to return to price competition rather than defy an Act of Congress and await
action by the Department of Justice or by this Commission. The result would
be the elimination of uncertainty as to the law which is expensive to Industry
and to the public in many ways." (Report, to President on steel sheet piling
June 10, 1936, pages 41, 42)
The Attorney General in his report to the President above referred to, recom-
mended the establishment of a committee to survey the whole field of methods of
monopolistic control and the desirability of amending, extending and clarifying
the Anti-trust laws. The Temporary National Economic Committee has grown
out of that recommendation. No more vitally needed legislation within the scope
of the committee's functions can be suggested than that of directly prohibiting
the basing point system by Congressional mandate. The constitutional power of
Congress to regulate interstate commerce could find no more appropriate exercise,
assuming that our long established public policy of preserving competition and
free enterprise is to be something more than an abstraction.
CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
14615
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14616
CONCENTRATION OF ECONOMIC POWER
Supplement to "Exhibit No. 2242"
A detailed analysis (on the basis of number Of awards) of the respective pages of
"Bid and Award Record of U. S. Government Purchases" for the year 1938 and
the first quarter {3 months) of 1939 as shown by Exhibits 2211 and 2210, respec-
tively, which were submitted by U. S. Steel Corporation, summaries of which
exhibits were submitted as Exhibits 2231 and 2232
[A— steel producers as listed in Iron and Steel Works Directory of United States and Canada, 1938. 15 —
Concerns not listed as producers in Iron and Steel Works Directory of United States and Canada, 1938]
[Note.— Exhibit 2232 is an analysis of the number of "tie" and "unlike bids" of the several bidders on
"rolling mill products" and "other steel products" by the producers of "rolling mill products" and "other
steel products" respectively. In some cases the rolling mills, as listed in the Iron and Steel Works Directory
of the United States and Canada were also bidders on "other steel products."]
1938
-3.
'Be;
Number of
awards
Total
3
Other than
Only bid-
Rolling mil], products
awards
All other steel products
Is
1
2
steel prod-
ucts
4
der
awards
6
At tie-
lot bids
6
At un-
like bids
7
At other
than
price
8
At tie-
lot bids
9
At un-
like bids
10
At other
than
price
11
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
B
1]
16
12
15
6
13
13
19
14
17
1
12
14.
11
12
13
14
16
17
26
6
14
14
12
17
15
16
12
17
17
13
10*
6
I
5
8
11
10
8
9
8
7
10
8
6
4
7
2
4
7
7
5
4
9
10
6
6
3
11
3
8
3
7
8
4
7
3
2
3
......
2
1
3
5
5
3
9
5
8
9
8
5
20
23
15
14
15
12
9
11
12
10
12
7
10
13
14
13
11
14
22
12
11
16
13
14
12
21
18
18
17
16
21
22
21
V 25
1
18
18
18
15
15
17
16
19
28
6
17
19
17
20
24
21
20
26
25
18
30
29
22
21
20
20
20
21
20
19
20
14
20
21
20
17
18
16
26
19
18
21
17
23
22
6
2
4
2
2
3
5
7
....
"5'
1
1
8
7
3
2
8
9
10
7
7
4
5
2
11
2
2
1
2
6
2
1
1
1
2]
1
1
....
31
2
41
a
3
1
3
1
1
2
6
7
1
....
8
6
4
»
3
1
1
7
4
10
11
....
1
3
1
5
4
4
\
3
1
5
4
1
9
3
6
4
4
6
7
7
21
2
3
6
3
1
2
1
8
2
1
2
1
....
1«
1
13
2
2
14
2
2
1
1
1
1
1
::::
15
3
2
1
1
16
1
17
18
2
2
1
3
4
5
3
6
3
8
3
7
2
1
1
1
6
19
20
. 2
"2
21
22
—
9
8
12
10
8
7
9
10
11
8
....
....
....
....
—
....
23
24
7
2
5
2
3
1
1
....
25
1
4
3
3
2
26
1
....
27
1
28
1
2
1
1
3
2
3
7
4
6
6
1
7
9
9
8
6
8
6
5
3
3
2
3
3
6
1
2
7
8
7
13
12
11
6
11
10
6
9
7
9
10
11
10
11
11
7
10
7
7
11
10
10
....
29
1
30
31
...J--.
11
13
6
2
2
2
2
1
2
»2
1
1
33
1
U
1
2
35
1
1
1
1
1
36
1
37
1
2
....
1
38
39
''
2
40
3
3
1
41
2
2
1
42
1
1
1
43
4
2
3
2
4
....
1
144
2
1
45
....
1
46
3
47
48
......
2
14
2
1
6
1
4
2
3
1
1
49
1
50
3
1
1
2
1
6
51
1
I
1
2
1
1
1
"2
....
1
52
1
53
54
55
...
CONCENTRATION OF ECONOMIC POWER
14617
A detailed analysis (on the basis of number of aivards) of the respective pages of
"Bid and Award Record of U. S. Government Purchases" for the year 1988 and
the first quarter (3 months) of 1939 as shown by Exhibits 2211 and 2210, respec-
tively, which were submitted by U. S. Steel Corporation, summaries of which
exhibits were submitted as Exhibits 2231 and 2232 — Continued
1938— Continued
■a
1
2
Total
3
Other than
Only bid-
Rolling mill, products
awards
All other steel products
=1
aw
steel prod-
ucts
4
der
awards
5
At tie-
lot bids
6
At un-
like bids
7
At other
tban
price
8
At tie-
lot bids
9
At un-
like bids
10
At other
tban
price
11
So
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
1
B
ism
6
3
10
6
2
12
9
9
8
8
6
4
13
7
10
3
3
2:
11
13
6
12
10
9
9
8
6
17
17
8
14
8
13
17
6
18
17
15
9
7
12
11
17
17
7
18
9
19
2
5
18
15
14
13
11
13
18
18
14
i4
8
6
7
9
19
20
16
23
19
27
18
16
20
19
23
21
20
25
19
22
5
26
29
28.
20
25
21
22
27
26
20
31
25
14
21
17
1
......
1
....
1
3
4
"i
2
1
2
2
1
3
2
2
3
5
2
"¥
6
3
2
2
2
3
6
5
6
3
10
10
6
11
4
3
1
3
7
8
14
15
6
11
7
15
2
5
13
14
12
13
5
10
8
11
10
10
4
3
5
8
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
4
2
1
1
1
1
4
1
1
1
3
1
......
3
11
9
6
2
1
1
1
5
4
2
2
1
6
....
1
....
2
1
1
1
1
1
4
1
1
3
2
3
2
1
1
2
1
3
11
5
8
2
6
5
3
7
3
3
11
7
....
7
6
3
3
.6
"3"
2
2
3
3
6
6
13
5
1
....
5
1
2
1
1
1
1
1
1
....
1
1
....
3
5
2
2
1
1
1
.....
1
4
1
......
4
4
2
2
2
"2
....
....
1
....
1
2
1
1
2
1
1
1
1
1
1
2
2
1
86
87
1
1
1
1939
(1
13
4
3
6
5
6
11
16
13
8
2
6
6
4
1
4
4
0
1
6
15
10
9
10
6
10
15
16
14
14
4
2
1
....
7
1
2
6
5
■ 3
1
2
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1
2
1
1
1
2
3
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4
3
1
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5
10
6
3
1
2
2
5
2
3
4
6
2
4
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6
1
7
2
8
9
1
1
....
4
[10
I 11]
_
12
9
3
4
1
4
4
7
5
5
5
6
5
4
3
6
9
8
8
8
4
5
4
8
11
9
8
8
12
11
6
18
11
12
9
8
9
11
13
16
14
14
13
16
14
11
3
1
6
3
3
8
7
8
8
3
4
4
7
9
8
8
8
9
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5
13
1
14
1
15
1
16
2
2
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18
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1
1
1
21
2
3
22
23
1
24
3
25
2
26
4
1
• Duplicate of page 10.
14618
CONCENTRATION OF ECONOMIC POWER
A detailed analysis (on the basis of number of awards) of the respective pages of
"Bid and Award Record of U. S. Government Purchases" for the year 1938 and
the first quarter (3 months) of 1939 as shown by Exhibits 2211 and 2210, respec-
tively, which were submitted by U. S. Steel Corporation, summaries of which
exhibits were submitted as Exhibits 2231 and 2232 — Continued
1939— Continued
"3
Number of
awards
Total
3
Other than
Only bid-
EoUing mill, products
awards
All other steel products
1
2
steel prod-
ucts
4
der
awards
6
At tie-
lot bids
6
At un-
like bids
7
At other
than
price
8
At tie-
lot bids
9
At un-
like bids
10
At other
than
price
11
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
B
A
B
(27
4
4
2
8
3
14
10
13
7
1
8
1
6
7
13
9
10
10
2
6
2
11
......
4
1
11
17
11
18
13
16
16
15
18
1
10
5
7
1
- ..-.
2
2
2
8
1
1
6
6
7
7
6
1
3
2
9
128
1
1
[29
2
[30
3
....
1
1
8
6
10
2
1
2
2
4
2
4
3
2
4
1
3
1
2
[31
1
— -
1
(32
- —
1
....
1
(33
....
3
(34
1
(35
1
....
2
(361
(31
2
3
1
1
[38
4
1
[39
1
....
3
TotaL
236
230
466
3
3
31
— -
35
5
70
36
4
0
12
25
79
156
2
6
SUMMARY
1938
Total
879
876
1,755
9
112
89
102
11
306
130
32
2
43
79
287
524
11
18
1939
Total
236
230
466
3
3
31
....
35
5
70
36
4
....
12
25
79
166
2
S
1,115
1.106
2,221
12
115
120
....
137
16
376
166
36
2
55
104
366
680
13
23
SUPPLEMENTAL DATA
The following exhibit, introduced in Hearings, Part 20, is included
at this point in connection with testimony supra.
Exhibit No. 1418
THE BASING POINT METHOD OF QUOTING DELIVERED PRICES
IN THE STEEL INDUSTRY
Foreword
The basing point method of quoting delivered prices in the steel industry has
been the subject of criticism by certain economists and by the Federal Trade
Commission for a number of years. The views of one of the critics, Professor
Frank A. Fetter, are set forth in his book "The Masquerade of Monopoly." The
Federal Trade Commission has issued a number of statements criticizing the basing
point method, the most recent of which is a pamphlet entitled "Monopoly and
Competition in- Steel" which was submitted by the Commission to the Temporary
National Economic Committee in March, 1939.
While at least one authoritative and comprehensive work on the steel industry
has been published (Daugherty, deChazeau and Stratton — "The Economics of the
Iron and Steel Industry"), it is believed that there exists a need for a shorter
treatment of the fundamental economic traits of the steel industry and the pricing
method which has evolved in this industry over a long period of years as a con-
sequence thereof.
Thio statement has been prepared by the United States Steel Corporation in
connection with the hearings on the steel industry before the Temporary Nation"al
Economic Committee. It has a twofold purpose: first, to clarify in the mind of
the reader who is not familiar with the facts, the origin and operation of the basing
point method of quoting delivered prices in the steel industry and the theoretical
nature of the criticisms of this pricing method; and second, to establish that this
pricing method is the natural result of basic economic conditions in the steel
industry and does not result in the absence of price competition. The delivered
prices of steel products at any consuming point are determined by competition
and not by an inflexible application of the basing point method.
October 30, 1939,
table of contents
A. The Operation of the Basing Point Method.
Delivered Prices.
Pittsburgh Plus.
Basing Point, Multiple Basing Point System.
Calculation of Delivered Prices.
Applicable Basing Point.
Price Absorption.
Freight Absorption — Mill Net Eetum.
Freight Disadvantage.
Market Penetration.
Market Inter-Penetration — Cross-Hauling.
So-called "Phantom Freight"— Freight Advantage.
Basing Point Price Diflferential.
"Phantom Freight" Arising from Water Transportation.
Variable Mill Net Returns.
Geographical Price Discrimination.
Natural Market Territory.
Effect of New Basing Point.
Extras, Base Prices, Delivered Prices.
B. HiSTQEiCAL Material.
C. Criticlsms of the Basing Point Method.
1. "Perfect Competition" and the Steel Industry.
(a) Geographical Separation of Producers.
(b) Size of Plants.
(c) The Nature of the Demand for Steel.
(d) Fluctuations of Demand in the Business Cycle.
(e) Costs in the Steel Industry.
(f) Cyclical Fluctuations and Overhead Costs.
2. Price Leadership.
3. Elimination of Competition.
(a) Identical Delivered Prices.
(b) Where Is the Market for Steel?
(c) High and Inflexible Prices.-
14619
124491 — 41— pt. 27 32
14620 CONCENTRATION OF ECONOMIC POWER
C. Criticisms of the Basing Point Method— Continued.
i. Undue Concentration of Production Facilities.
5. Excess Capacity.
6. Alleged Price Discrimination.
(a) So-Called "Phantom Freight."
(1) Non-Basing Point Mill.
(i) Mills Far From a Basing Point,
(ii) Mills Near a Basing Point.
(2) Use of Cheaper Means of Transportation,
(i) Water Deliveries.
(ii) Truck Deliveries.
(b) Freight Absorption.
(1) General Discussion.
(2) Cross-Hauling.
(c) Summary.
D. The Proposed Alternative to the Basing Point Method.
1. Introduction.
2. The Proposed Uniform F. 0. B. Mill Price System.
(a) "Perfect Competition" and the Uniform F. O. B. Mill Price System.
(b) The Effects of the Uniform F. O. B. Mill Price System.
(1) The Nature and Extent of Competition.
(2) Price Leadership.
(3) Concentration of Production Facilities.
(4) Excess Capacity.
(5) Price Discrimination.
(6) The Cost of the System,
E. Summary.
A. The Operation of the Basing Point Method
DELIVERED PRICES
steel is generally sold on a delivered price basis. A delivered price is the price
of steel delivered at the town or city where the consumer of such steel is located.
The use of delivered prices results largely from the fact that the cost of trans-
porting steel from the steel mill is often a substantial part of its cost at point of
consumption. Buyers for this reason are seldom interested in its price at any
place except where they need it. Manufacturers of steel must take this factor
into account.
Delivered prices are usually calculated on the basis of the price announced at
the steel mill which is nearest freightwise to the buyer's destination. This
method of calculating delivered prices is often called the "basing point system".
PITTSBURGH PLUS
Under the so-called "Pittsburgh Plus" practice, which the steel industry gener-
ally used until the 1920's, delivered prices were calculated on the basis of the
quoted f. o. b. Pittsburgh price, with the addition of railroad freight from Pitts-
burgh to the buyer's destination, regardless of where the steel was produced.
Pittsburgh was the basing point. This method of calculating the delivered price
is often termed a "single basing point system". However, even during the so-called
'Pittsburgh Plus period, delivered prices were often calculated on the basis of the
quoted f. o. b. price at other steel producing points, with the addition of freight
from such points to the buyers' destinations. The practice of using basing points
other than Pittsburgh did not become generally prevalent until about 1924.
In 1924, the Federal Trade Commission ordered certain subsidiaries of the
United States Steel Corporation to "cease and desist" from using the Pittsburgh
Plus practice, and from selling steel products based on any point except the actual
place of production or shipment. The practice of announcing prices at producing
centers in addition to Pittsburgh, where such subsidiaries had mills, was then
extended. Other producers announced prices at points selected by them. Such
a point at which steel prices are quoted is generally called a "basing point" and is
usually a place of steel production, although base prices for some steel products
are quoted today f. o. b. certain ports on the Gulf of Mexico and on the Pacific
Coast where there are no production facilities. This group of places at which
steel prices were quoted was the nucleus of the present method of determining
delivered prices in the steel industry, which is often termed a "multiple basing
point system" .
CALCULATION OF DELIVERED PRICES
The existence of many basing points makes the calculation of delivered prices
much more complex than it was under the Pittsburgh Plus practice. Diagram 1
presumes the simplest possible situation, with one basing point, and one consuming
CONCENTRATION OF ECONOMIC POWER 14621
point. The base price ' at the basing point, A, is $40.00.2 -phe freight from A to
the consuming point X is $4.00, making a delivered price of $44.00. Diagram 2
presents a slightly more complicated situation. There are three basing points,
A, B, and C, each with a base price of $40.00. The freight to X from A is $3.00,
from B $6.00, and from C $5.00. If A, B and C were each to maintain such base
price of $40.00, there would be three delivered prices at X — $43.00, $45.00, and
$46.00. However, as the buyer naturally wants to purchase his steel as cheaply
as possible, the lowest combination of base price and freight determines the
delivered price. This means that the delivered price at X will be calculated by
reference to A, the nearest mill freight-wise, and will be $43.00 ($40.00 base price
plus $3.00 freight). A will be the "applicable basing point" for sales to X.
The lowest sum of base price and freight determines the delivered price for
competitive reasons. When a mill at A announces or quotes a base price of
$40.00, other producers k»ow that such mill will sell at X for $43.00, or, at any
rate, for no more than $43.00. If the outlying mills at B and C want the business,
they wiU also quote $43.00 to the consumer at X, because they know that the
THE BASING POINT METHOD
Most steel products are sold on a Delivered Price basis.
Diagram 1 : How the Delivered Price is computed.
BASING CONSUMING
POINT POINT
(a) *\J]
. V^ FREIGHT TO DESTINATION I '
BASE PRICE $4 DELIVERED PRICE
$40 t«4
mill at A otherwise will undersell them. Thus the consumer at X may receive the
same quoted delivered price from every mill.
The above paragraph ignores the fact that price concessions are common,
especially in times of slack steel demand. Actually, the market price at X may
be considerably lower than $43, and any mill must meet such lower price, or give
up- the business. If a sale is made at a price lower than the lowest sum of base
price and freight, the concession is often termed "price absorption"
FREIGHT ABSORPTION — 'MILL NET RETURN
To the extent that prices are uniform at X, this means that the consumer may
give his business to any of the mills which are competing for such business. His
final decision may rest upon his preference for the prod^ "t of one of the mills,
upon superior service, or upon one or more other facto-s outside of the basing
point practice. If the mill at C secures the business, it wiJ use only $3.00 freight
in calculating the delivered price, while it must actually pay $5.00 for freight.
The mill at B will also use only $3.00 freight in calculating the delivered price,
1 The use of the terms "base price" and "delivered price" in this meroorandum is explained infra.
> The figure $40.00, used in the text and accompanying diagrams is purely arbitrary and is not to be taken
as an actual price. Prices vary for different steel products.
14622
CONCENTRATION OF ECONOMIC POWER
but will have to pay $6.00. The difference between the freight used by these
mills-' in calculating the delivered price, and the freight actually paid by them
is often called "freight absorption." Freight absorption results from "freight dis-
advantage," or the fact that some miUs are further away freight-wise from the
consuming point than the mill at the applicable basing point. In this example,
the miU at C will receive a delivered price of $43.00 which, when the transporta-
tion cost of $5.00 is paid, will result in a mill net return of $38.00, — $2.00 less than
its base price. The mill at B will receive a delivered price of $43.00 which,
when the transportation cost of $G.00 is paid, will result in a mill net return of
$37.00, — $3.00 less than its base price. The amount realized at the mill, the
delivered price less the transportation costs, is called the "mill net return." Only
the mill at A will receive a miU net return equal to its base price of $40.00.
The term "freight absorption," it should be noted, is misleading in one sense.
It implies that the mills pay freight charges which the consumer ought to pay.
In fact, however, each miU is selling steel at a given destination, usually in com-
petition with other mills. It has to meet the delivered price which other miUs
THE BASING POINT METHOD
Diagram 2: Explanation of Freight Disadvantage and Freight Absorption.
Mill at (A) has lowest Base Price plus Freight to [x]
Mills at (B) and © are at a Freight Disadvantage;
to sell at [x] they must absorb Freight.
BASING
POINT
(c)
BASE PRICE $40
FRT DISAOV 2
MILL NET 38
BASING
POINT
(i>
FREIGHT
$5
i CONSUMING
POINT
4f
BASING
POINT
BASE PRICE $40
FRT OISADV. 0
MILL NET 40
DELIVERED
PRICE $43
BASE PRICE $40
FRT DISAOV 3
MILL NET 37
will quote, and it knows, within limits, what that price is. The mills which
"absorb freight" are merely recognizing the fact that by reason of a lower freight
rate the mill at A has a competitive advantage over them in selling to X.
MARKET PENETRATION
To the extent that prices are uniform at X, all of the mills are on an equal
level in bidding, regardless of their distance from X. If the order is given to the
mill at B or C, it is argued that the steel is shipped further than is necessary to
lay it down at X, for the nearest source of supply is A. This practice of shipping
from other than the nearest mill has been called "market penetration." * It
results principally from the competition of all the mills for the business at X.
It may also be caused by a preference of the consumer for the product of a par-
ticular mill, or by the inability of the nearest mill to supply the consumer, or by
one or more other factors outside the scope of this discussion.
. ' By Professor Melvin Q. deChazeau. See "Economics of the Iron and Steel Industry," by Daugherty,
deChazeau and Stratton, Chapters XII-XIV, passim (Published by McGraw-Hill Book Company,
N. Y., 1937).
CONCENTRATION OF ECONOMIC POWER 14623
MARKET INTER-PENETRATION CROSS-HAULING
Market penetration occurs constantly because most of the larger producers in
order to operate at a low unit cost compete in all of the major market., fo the
products they make^ Consequently, while one mill sells for delivery at points
nearer to other mills, it finds that more distant mills are making sales for delivery
in territories nearer to it. The resulting shipments have been called by Ciitics
of the basing point practice "cross-hauling." Professor deChazeau has coined the
term "market inter-penetration." It is not by any means clear what type of
shipments critics of the basing point practice intend to include within the term
cross-hauling.
Apparently some critics would call any .shipment to a point nearer another
mill having capacity to make the product a cross-haul. However, it is believed
that the term "cross-hauling" should be limited to cross shipments of identical
products at about the same time, as shown on Diagram 9, infra.
Such critics have asserted that cross-hauling is economically wasteful, and
have assumed that the waste is more or less accurately measured by freight ab-
THE BASING POINT METHOD
Diagram 3: Explanation of first type of Freight Advantage and so-called "Phantom Freight"
Mill at (a) has lowest Base Price plus Freight to [x].
Mill at © charges the same Delivered Price. Having a Freight
Advantage of $1 over (A), © realizes a Mill Net
$1 higher than (A). This $1 is so-called "Phantom Freight".
NO BASE PRICE
FRT ADV. $1
Mia NCT 41
NON-BASING
POINT
©
BASING
POINT
BASING
CONSUMING roil^
(a) [SSGHIiL ^t]*-— Jl^i=F-L5_ ^
BASE PRICE $40 DELIVERED BASE PRICE $40
MILL NET 40 PRICE $44 MILL NET 39
sorption. There are many reasons why this is not so. And, even assuming that
cross-hauling could be satisfactorily measured, there are many reasons why it is
not necessarily wasteful. Nothing is wasteful unless some means can be found
to eliminate it, and unless the cost of elimination is less than what is saved. The
alternatives to the basing point method would not necessarily eliminate all
cross-hauling and they would probably cost more than tlic cross-hauling which
now occurs.
BO-CALLED "PHANTOM FREIGHT" FREIGHT ADVANTAGE
It has been shown that when a mill is at a freight disadvantage, it must ab-
sorb freight and accept a mill net return below its base price, if it wishes to com-
pete with a miU located nearer to the buyer. In some cases, however, a mill is
said to have a "freight advantage" which means that its delivered price will yield
it a mill net return higher than the applicable base price. Diagram 3 illustrates
one type of such a freight advantage. In this Diagram, A and B are basing
points' and c is a non-basing point miU. X is a point of consumption. Assum-
ing a price of $40.00 at basing points A and B, the delivered p'-ice of steel at X,
predicated on A, will be $44.00 ($40.00 base price at A plus $4.00 freight from
A to X). A will be the applicable basing point. If the mill at c were a basing
14624 CONCENTRATION OF ECONOMIC POWER
point, with a base price of $40.00^ it would be the applicable basing point for X,
for it has the lowest rail freight rate ($3.00). The mill at c, however, is not a
basing point and has no base price, possibly because it is located in a territory
where the demand for steel is greater than the local production. The mill at c
will meet the delivered price of its competitors and quote the lowest corabination
of base price and freight calculated by reference to existing basing points.
If the mill at c obtains the business at X, it will realize a mill net return of
$44.00, minus $3.00 (actual freight) or $41.00. Critics have dubbed this $1.00
in excess of the applicable base price "phantom freight", because they say the
mill at c charges $4.00 for freight in calculating the delivered price, but actually
pays only $3.00. This terminology is misleading, and contains an erroneous
implication. The mill at c does not charge $4.00 for freight, or any other amount.
On the contrary, it quotes a delivered price, which takes competitive advantage
of its superior geographical location so far as this business is concerned, thus
permitting it to realize a higher miU net return than the applicable base price of
$40.00. The miU at c uses the freight rate from A only to find out what the mills
at A will quote at X. If the mill at c were to quote delivered prices, based on a
THE BASING POINT METHOD
Diagram 4: Explanation of second type of Freight Advantage and so called "Phantom Freight"
Mill at (B) has lowest Base Price plus Rail Freight to [x].
Mill at (J) charges the same Delivered Price.
When mill at (A) ships by water it has a Freight Advantage
of $1 and realizes a Mill Net $1 above its Base Price
This $1 is so-called "Phantom Freight"
BASING CONSUMING BASING
POINT POINT POINT
BASE PRICE $40*^'' =====:==^=*DELIVERED BASE PRICE $40
FRT ADV. (WATER) 1 fREIGHT (WATER) $2 PRICE 143 MILL NET 40
MILL NET $41
Note: When mill at (a) ships by rail it is at a Freight Disadvantage
of $1 and realizes a Mill Net $1 below its Base Price
base price at c which was $1.00 higher than the base price at A and B, it would
realize a higher mill net return on a sale to X just as it did before c became a
basing point.
If a base price is quoted at a basing point, higher than the price at other basing
points, the difference"is called a "basing point price differential", or simply a "differ-
ential" The freight advantage of mills located nearer the buyer than other mills
may be realized either bj^ so-called "phantom freight" or by a differential. In either
rase, such freight advantage, due to the mill's location, could only be taken away
from it by the erection of another mill equally near or nearer to its markets. It
should be pointed out that, in most cases, non-basing point mills, and mills which
quote prices with a differential, actually suffer a freight disadvantage due to
higher raw material assembly costs, so that "phantom freight" or differential
may be merely compensation for such assembly cost disadvantage.
"phantom freight" arising from water transportatio
Referring to Diagram 4', it will be seen that the delivered price at X predicated
on shipment by B, is $43.00 ($40.00 base price at B plus $3.00 freight from B to X).
The mill at basing point A, however,, can ship to X by water for only $2.00. The
delivered price at X will remain $43.00, as, generally speaking, rail freight rates are
CONCENTRATION OF ECONOMIC POWER 14625
the onlj' transportation rates which are considered in calculating delivered
prices. But if the mill at A gets the business at X, and ships by water, it will
realize a mill net return of $41.00 that is, $43.00 minus $2.00, or $1.00 more than
its base price. Critics also call this $1.00 "phantom freight", because, as in
the other case, they say the mill at A charges $3.00 for freight in calculating the
delivered price, but pays only $2.00 for water transportation. Here again,
however, the mill at A does not charge $3.00 for freight or any other amount^ but
names a delivered price which permits it to profit from a competitive advantage,
due to a superior geographical location so far as this business is concerned, over
other mills which have to ship to X by rail, if they ship at all.
There are good reasons why the mill at A usually does not quote a delivered
price at X based upon the cost of water transportation. First, a barge shipmen>t
must be much larger than a rail shipment before it can be carried economically.
Comparatively few customers are v.-illing to order the quantity of steel required
for a barge load. This rules out many shipments which might otherwise be made
by water. Second, water transportation is slower than rail, and buyers are not
always willing to wait for water delivery. Third, facilities may not be available
at destination for economically and efficiently handling a delivery by water.
Fourth, shipments by water always involve extra costs at both mill and destina-
tion, which greatly reduce or eliminate any saving in transportation costs, except
when shipped for considerable distances. Fifth, closed seasons of navigation by
reason of climatic or flood conditions present transportation hazards uncertain
in time or effect which prevent sound business determinations with respect to
future delivery. Furthermore, if a delivered price of $42.00 at X were quoted by
the mill at A, other mills would meet this reduced price, and by offering quick
delivery by rail would compel the mill at A to ship by rail. Thus the price at
X would fall to the extent of $1.00 and all the steel consumed there wouIJ still be
carried in by rail.^
VARIABLE MILL NET RETURNS
From the discussion thus far, it appears that because of competitive conditions
in the steel industry steel mills realize variable mill net returns in selling to different
areas. If a mill is located at a basing point, it may realize a mill net equal to its
base price on sales in the area nearest to it; on sales outside the area in which it
has a freight advantage, its mill net returns will steadily diminish as the freight
disadvantage grows. "Phantom freight" occurs only if its delivered price is
based upon rail freight and it uses a form of transportation cheaper than all-rail,
as for example, barge shipments on rivers and lakes. By means of water ship-
ment the area in which it can sell without freight absorption may be greatly
increased, but in general the mill will realize its highest mill net returns on sales
to its nearest customers and progressively lower mill net returns as the distance
from the mill to the consumer increases. The same is true of the mill net returns
realized by non-basing point mills. This practice of realizing variable mill net
returns is often critically described as "price discrimination" , and because it
follows a more or less regular geographical pattern, it is therefore called by some
critics "geographical price discrimination" . tr-^'
These critics contend that this so-called geographical price discriniination is
unjust because the nearest customers have to pay the highest mill net returns.
They say that under the basing point method the farther the customer is from
a mill the lower is the mill net return, the inference being that distant customers
are given a better price than near-by customefs. Actually, the price to the buyer
is the delivered price. This criticism, furthermore, if it has any application, is
true only with respect to mills not at basing points, of which there are few today,
and with respect to mills at basing points only on sales made within areas nearer
another mill. The criticism places undue emphasis on the mill net return. The
customer is only interested in the price he pays (the delivered price), not what
the mill ultimately receives (the mill net 'return), and the delivered price to a
customer near the mill generally is lower than the delivered prices to customers
located farther awav, except those located nearer another source of supply.
The fact cannot be ignored that steel is sold on a competitive basis and that
the size of an economical steel mill is so large and its product so diversified as to
require distribution of certain classes of its products in markets which are nearer
to other mills. In the area in which a mill has a freight advantage, it naturally
quotes a price which will enable it to realize that advantage. When it sells in an
area nearer to some other mill, it has to accept a delivered price which will yield
a lower mill net return, i. e., to be competitive it must meet the delivered price
* The problems of water transportation and the stuall extent to which this type of "phan^": ^ ''■' ' ':. .
may be realized are discussed at length, in section C-6-(a)-(2) infra.
14626 CONCENTRATION OF ECONOMIC POWER
which the nearer mil] is quoting. , This is not a "discrimination" in any sense of
the word; it is competition. As between a customer nearby and a customer far
away, there is no uniformity of conditions of purchase on which properly to base
a charge of discrimination.
NATURAL MARKET TERRITORY
The variance in mill net returns is illustrated by Diagrams 5 and 6. Diagram 5
shows the general effect of freight charges upon the competitive position of a mill.
A and B are basing pomts, each with a base price of $40.00 The line 0-0 connects
points at which the delivered prices calculated by reference to A and B are equal.
Thus, at X the delivered price calculated from the base prices and freight from
both A and B, is $47.00 At Y, the delivered price is $46.00 and at Z, the delivered
price is $45.00. This means that both mills can sell in X, Y and Z without absorb-
ing freight. The line connecting X, Y and Z is the boundary of what is sometimes
termed the "natural market territory" of the mills at A and B. The term natural
market territory is used here in a special sense, meaning the area in which each
mill can i«ejl at a delivered price calculated on the basis of its own base price,
plus the actual freight to the point of delivery. Because of the desirability of
operating each mill at a high rate of production and thus obtainmg a low unit
cost, and of maintaining an even flow of orders, neither mill limits its sales to its
own side of the line. Each mill must reach the markets where the demand exists
for its products.
The mills at B have a competitive advantage in selling on their own side of
the boundary 0-0 but they must absorb freight in selling on A's side of the line
and in increasing quantities as they approach A, because on that side of the line
delivered prices are calculated by reference to freight rates from A. This fact
is illustrated by Diagram 6. The line 0-0 is again the boundary of the natural
market territories of mills at basing points A and B. At Y, a consummg point,
the delivered price, calculated by reference to A, the nearest basing point, is $41.00.
The mill at B, which realizes Its base price on a sale to X, must absorb $3.00
freight in selling to Y, because its delivered price at Y cannot be in excess of $41.00,
while it must pay $4.00 freight. Thus, when a mill sells outside its natural market
territory, the delivered price often falls, while the freight actually paid always
increases, and these two factors combine to reduce the mill net return.
EFFECT OF NEW BASING POINT
Diagrams 7 and 8 illustrate the effect of naming a new basing point. In
Diagram 7, A and B are basing points, and c is a non-basing point mill. The
line 0-0 is again the boundary between the natural market territories of A and B.
Mills at these basing points will realize mill net returns equal to their base prices
on sales on their own side of the boundary line 0-0. The non-basing point mill
at c has no base price, and in naming delivered prices at points in the natural
market territories of A and B meets the delivered prices of A and B at such points.
Suppose that the mill at c decides to make c a basing point, and announces a
base price of $40.00. Any non-basing point mill may at any time announce
base prices and thus become a basing point mill. Diagram 8 shows the immediate
effect of this change. The line 0-0 markirig the natural market territories of
A and B now ceases to be significant. Instead, the two new boundaries A^-A'' and
N'-N' arise. The mill at C now realizes a mill net return equal to its base price
on sties in the territory between N-N and N'-N'. The mills at A and B must
absorb freight in selling to some parts of their old natural market territories (be-
tween A^-A'' and 0-0 and between N'-N' and 0-0), in which they formerly realized
mill net returns equal to their base prices. The effect of so naming the new
basing point has been to lower prices in the area between N-N and N'-N', aiid
to increase the territory in which the mills at A and B must absorb freight in
order to sell, but it should be noted that these consequences fellow only if the base
price named at C is equal to, or lower than the base price at A and B.
***** ♦
In order to simplify the above discussion, no mention has been made of one of
the elements of the delivered price to a buyer. "Extras" are amounts added to
or deducted from the base prices announced for product classes in order to take
care of the particular buyer's specifications of size, special quality, special treat-
ment, or quantity. Announced prices, not including extras, are termed "base
prices", and, depending upon whether or not the freight charges to destination
are included, are termed "basing point base prices" or "delivered base prices".
Price* ^quoted for delivery at given deetinatiops, including both freight and extras,
CONCENTRATION OF ECONOMIC POWER
14627
THE BASING POINT METHOD
Diagrams: Determination of Boundary between Natural Market Territories
The Boundary dividing the Natural Market Territories of mills at
Basing Points (A) and (§) :s the line 0-0 connecting the
points at which the delivered prices from (A) and (B) are equal
DELIVERED I CONSUMING
PRICE $47 rrj POINT
&-■
BASE PRICE
$10
.^y DELIVERED
.f-/ PRICE $46 r^ POINT
DELIVERED
PRICE $45
CONSUMING V-fJf^
<'^//
''br .
-^ s BASING
^^^^, POINT
CONSUMING
POINT
0
BOUNDARY
BASE PRICE
$iO
THE BASING POINT METHOD
Diagram 6: How shipping beyond Boundary of Natural Market Territory reduces Mill Net.
When mill at (B) sells to [x]- its Mill Net is $40.
When mill at (B) sells to \T\, its Mill Net is only $37 because
1. Freight is $2 higher.
2. Delivered Price is $1 lower.
CONSUMING
POINT
DELIVERED Lj_K~~^
PRICE $41 *■ ^--^
li ~-"~^
RiciNr '"^ CONSUMING
raNT(^ ^f£EIGHIi2 r^'lMYU- 13!^11:
BASE PRICE $40 [DELIVERED
MILL NET (X or Y) PRICE $4?
— -^^ POINT
■<B)
BASE PRICE $40
MILL NET (X) 40
MILL NET (Y) 37
o
BOUNDARY
14628
CONCENTRATION OF ECONOMIC POWEH
THE BASING POINT METHOD
Diagram 7 Non-basing Point Mill.
Mills at Basing Points (A) and (§) realize full Base Prices on sales in their
respective Natural Market Territories.
Non-basing Point mill at © has no Base Price and meets the Delivered Prices
of (a) and (B) when it sells in their respective Natural Market Territories.
NON-
BASING
POINT
MILL
©
BASING
POINT
BASE PRICf
$40
BASING
POINT
®
BASE PRICE
$40
0
BOUNDARY
THE BASING POINT METHOD
Diagram 8: Effect of naming new Basing Point.
After (C) becomes a Basing Point, the Boundary 00 between (A) and (B)
ceases to be significant.
Mill at (C) then has a Natural Market Territory, bounded by NN and N'N', in
which it establishes lower delivered prices than (A) or (§)
To sell in this territory, mills at Basing Points (A) and (B) must now absorb freight.
N ON'
NEW OLD NEW
BOUNDARY BOUNDARY BOUNDARY
BASING
POINT
BASE PRICE
$40
CONCENTRATION OF ECONOMIC POWER
14629
are termed "net delivered prices". The use of the word "base" as an adjective
meaning "without extras", and the use of the same word "base" as a noun,
meaning basing point, and also the use of its derivative, "based", is often confusing
to persons not familiar with steel industry terminology. In common parlance
outside of the steel industry, "base price" and "delivered price" are used to
differentiate between the announced price at the basing point and the price at the
destination which is the price quoted to the buyer. Such terminology, while
strictly not in accordance with the word", used within the steel industry, need
cause no confusion as long as extras are not involved, as is the case in the present
discussion. Since this simpler terminology has been used in most of the theoretical
analyses of the basing point method and in public discussions thereof, it has been
adopted herein.
B. Historical Material »
The production of iron in America began in a limited area east of the Alleghenies,
centered around Philadelphia, which was also a principal port of entry for
THE BASING POINT METHOD
Diagram 9; Illustration of Cross-haulmg.
Products shipped from (A) to [Y] go past products shipped from (§) to [x]
This involves Cross-hauling on|y if
1. The products shipped are identical.
2. Shipments occur at substantially the same time.
CONSUMING
POINT
FREIGHT $6
BASING
POINT
_,<T\ BASE PRICE
BASING /T<_
POINT \^J~
BASE PRICE
$40
FREIGHT J6
CONSUMING
POINT
foreign iron. A contemporary author, writing of the industry as it was in the
1750's, presents a clear picture of a rudimentary basing point structure. Prices on
domestic iron were apparently quoted f. o. b. Philadelphia and were higher in
the outlying territory where the iron was actually made. The manufacturers
absorbed freight in order to move their iron to the central market, where it com-
peted with foreign iron.'
Philadelphia's dominance did not endure. Better ores from the Lake Superior
district and good coking coal in the vicinity of Pittsburgh later caused tl:e vast
development at Pittsburgh which rapidly reduced the importance of the eastern
Pennsylvania iron makers and their market. This shift had been accomplished,
at least in rolled products, by 1884.'
In spite of the remarkable evidence of a basing point price structure centered
on Philadelphia prior to the Revolution, there seems to be little doubt that prices
» The material in this section was largely drawn from the Trial Examiner's Report on the Facts in the
Pittiburgh Plus case before the Federal Trade Commission (1924).
' Acrelius' History of New Sweden, printed in 1759. See the Report of the National Recovery Adminis-
tration on the Basing Point System in the Iron and Steel Industry, dated Nov. 30, 1934, p. 18. This source
is hereafter referred to as the NRA Report.
' NRA Report, pp. 19. 36.
14630 CONCENTRATION OF ECONOMIC POWER
in early days were usually quoted f. o. b. the mills. The industry was small-scale,
and probably local producers discriminated in price between buyers, and enjoyed
the other privileges of local monopolies, due to immunity from outside com-
petition.8 F. o. b. mill prices seem to have been the general rule at least until the
1880's.* Such price system was in the process of gradual change during a period
which extended to the late ISQO's.'"
One writer " has interpreted the successive steps in the change of the price
structure from an f. o. b. mill basis to a delivered price basis in terms of the growing
scale of operations and of the shift from iron to steel products. The mills were
increasing in size and capacity, serving wider areas, and concentrating, at the
same time, in centers where the necessary raw materials could be assembled at a
low cost. For example, in the thirty years before 1899, pig iron production per
establishment increased 1,258 percent, and per employee, 416 percent, while steel
works and rolling mill production per establishment increased 777 per cent, and
per employee, 179 per cent." This trend has continued, as shown by the fact
that between 1889 and 1938 the number of individual blast furnaces in the United
States declmed by 60%, while the national capacity for the production of iron
increased by 300%. At the beginning of the period there were 575 blast furnaces,
operating in 162 counties and 24 states: at the end of it, there were only 236
furnaces, located in 56 counties and 17 states.i^
The growth in size and capacity of blast furnaces and steel mills and the material
increase in investment and overhead costs, combined with the centralization of
producing units, the widening of markets and the increasing significance of trans-
portation costs in the cost ot steel to the consumer, gradually developed a price
structure which would better meet the needs of the steel industry. It was neces-
sary for these large steel mills to have a wide market for their various products in
order to maintain a satisfactory rate of operations and thus achieve a low unit
cost. In the opinion of Professor deChazeau "this evolution of the economic
forces impinging upon competitive practices seems more important than the birth
of a dominating corporation" in explaining the development of the basing point
method."
When the United States Steel Corporation was formed in 1901, the evolution
in the price structu^t; of the steel industry, which had been going on for several
decades, had crystaiized to the extent that most steel products were then sold on
a delivered price basis and a great many on a Pittsburgh base price plus freight
from that city.'*
The development of the" Illinois Steel Company made Chicago important in
the steel industry as early as 1897. By 1908 the Chicago mills had grown to such
extent that they were definitely shipping outside their local market territory.
This growth has continued. The trial examiner in the Pittsburgh Plus case found
that in a circle with a 60 mile radius centered on Chicago, there was an ingot
capacity of 3,230,900 tons in 1908, and that by 1913 the ingot capacity had grown
to 5,557,800 tons." From October, 1911 until March, 1912, the Pittsburgh Plus
price system vanished in Chicago, and prices were quoted by Chicago mills on a
Chicago base.^^ Such a Chicago base price was established for bars, plates, and
shapes, among other products. The report of the National Recovery Adminis-
tration in 1934 thus analyzed this change: '*
"In the growth of the Chicago District's productive capacity, we find early
signs of the natural basing point development, whereby when capacity in a
district increases to the point where it begins to require all its own market and
to press for more, it breaks away from the 'mother' basing-point, stands on its
« NRA Report, p. 34.
» Daugherty, deChazeau. and Stratton, Economics of the Iron" and Steel Industry, p. 533, citing the Federa
Trade Commission's Practices of the Steel Industry under the Code (Report to the U. S. Senate, 73rd Cong.,
2nd Sess., Doc. 159, 1934) p. 60. See also the Trial Examiner's Report on the Facts in Federal Trade Com-
mission V. U. S. Steel Corp., pp. 68-9. This source, which will be referred to as the Trial Examiner's Re-
port, is found on cages 35-380 of the Statement of the Case by Amici Curiae, V. 1.
10 Daugherty, etc., op. cit., pp. 538-9.
» Professor Melvin Q. deChazeau. See Daugherty, etc., op. cit., pp. 534, 636.
" Op. cit. p. 536.
'» Steel Facts, Nov. 1938. (No. 29), p. 3.
'* deChazeau, in Daugherty, etc., op. cit., p. 534.
» Id. pp. 534-8. The Trial Examiner's Report on The Facts In Federal Trade Commission v. U. S.
Steel Corp. states that by 1901 and 1902 the Pittsburgh Plus system had appeared as an established system,
p. 181.
i« Id., pp. 298-9.
1' Id., pp. 81, 139-40, 184-5, 534-5. The Ingot capacity In 1918 was 7,941,850 tons, and in 1923 it was 8,645,936
tons. Trial Examiner's Report, p. 299.
18 NRA Report, pp. 39-40. See January 4, 1912 issue of Iron Age, p. 69.
CONCENTRATION OF ECONOMIC POWER 14631
own feet and quotes its own base prices which are lower than prices delivered
from distant producing points. * * *
"While this early defection of Chicago from the Pittsburgh base prices was
only temporary, it is an indication of the maturing of the Chicago District
as an independent basing point, and it is common knowledge that while
Chicago base prices were not regularly pubhshed, they existed whenever the
?roducers in Chicago found it to their advantage to quote under the ruling
ittsburgh plus prices, long before the Federal Trade Commission's order
issued in 1924 r squiring the United States Steel Corporation and certain of its
subsidiaries to cease and desist from selling at 'Pittsburgh Plus' prices."
Aside from a brief period of Government price control during the World War,
the Pittsburgh Plus practice was generally followed in the steel industry until the
1920's. In February, 1921, a price war developed at Chicago with the result that
by July of that year Pittsburgh Plus prices on plates, shapes and bars had to a
large extent been abandoned in the Chicago district.'' By January, 1923, the
Chicago mills were selling large quantities of steel products on a Chicago mill base,
but prices seem to have recovered to some extent.^"
Underlying this war of prices was the fact that Chicago and other new centers
of production had developed enough capacity to supply their own local markets
and to require other outlets. Under these circumstances, it was natural that new
basing points should be established. Opposition to the Pittsburgh Plus practice
had also developed among the fabricators in the Middle West, possibly caused by
the large" increases in freight rates which were made during and after the war.
In 1921 action was begun by the Federal Trade Commission to investigate the
Pittsburgh Plus pricing method, and to determine whether it violated any pro-
vision of law. This proceeding was directed against the United States Steel
Corporation and certain subsidiaries thereof. In 1924, the Federal Trade Com-
mission ordered certain subsidiaries of the United States Steel Corporation to
"cease and desist" from selling at prices based on any point except the actual
place of production or shipment.
The increase in the number of basing points then accelerated. The subsidiaries
of the United States Steel Corporation announced base prices at many cities where
they had plants. These new prices were higher than the base prices at Pittsburgh,
but at many points of consumption resulted in delivered prices which were less
than the full Pittsburgh Plus prices had been before the order of the Federal
Trade Commission. Other steel producers began to name basing points of
their own, and the number of basing points slowly increased. The naming of a
basing point through the announcement of base prices at such point rests solely
in the discretion of the particular steel producer.
The NRA Steel Code recognized and continued the use of the basing point
method in the steel industry. There was some increase in the number of basing
points, but the method remained unchanged in its main outlines. It should be
noted that during the Code period two groups of-cities, one on the Gulf of Mexico,
called "Gulf Ports", and the other on the Pacific Coast, called "Pacific Coast
Ports", were added to the list of basing points. There is no production at the
Gulf Ports and comparatively little production at the Pacific Coast Ports. Base
prices were introduced at these ports, principally to meet foreign competition.
Delivered prices, which were lower than the base prices at the applicable basing
points plus rail freight therefrom to these ports, had been quoted at these ports
for some time before the NRA Code, and the formal naming of base prices at these
ports may have been merely a recognition of an existing condition.
During the Code period, the President of the United States issued an executive
order requiring the NRA and the Federal Trade Commission to study the opera-
tion of the steel basing point practice under the Code, and to. report to him their
findings. The Federal Trade Commission, in its report, clung to its old opinion
that the basing point method was an undue restraint on competition, and that
steel should be sold at uniform f . o. b. mill prices without freight absorption. The
NRA Committee, however, came to the conclusion that the basing point method
was a competitive method of selling, and was properly suited to the requirements of
the steel industry. The NRA Committee did not believe that the uniform f . o. b.
mill price system with elimination of freight absorption would produce competition
of a useful kind. The NRA report recognized that some measure of freight ab-
sorption was necessary to enable the mills to function efficiently, but expressed
'• Trial Examiner's Report, pp. 84-85.
» On the Chicago price break, see also id., pages 94, 141-2, 187, 424, 425-8, 536.
14632 CONCENTRATION OF ECONOMIC POWER
the belief that freight absorption and cross-hauling should be limited by establish-
ing some sort of limitation upon sales in areas where the mille had freight dis-
advantages. The report also stated that owning to the few number of basing
points there were still some areas in which too much "phantom freight" was
reahzed. The report concluded by suggesting two similar plans for modifying
the basing point practice in these respects, the second of which plans it favored.
Both plans, which need not be discussed in detail, were designed to change the
basing point method into a producing center method of marketing steel, to reduce
"phantom freight" to a negligible quantity by the addition of new basing points
and to reduce cross-hauling by a limitation upon freight absorption. With
these modifications, the NRA Committee believed that the basing point method
would serve the best interests of the steel industry and the public more efficiently
than the uniform f. o. b. mill price system would do, and that it would remedy any
abuses without destroying existing investments. Neither plan suggested in the
NRA report was put into operation. The National Indlistrial Recovery Act was
declared unconstitutional in May, 1935, and the Steel Code was immediately
abandoned.
On June 24, 1938, subsidiaries of the United States Steel Corporation reduced
the base prices on many steel products at the several basing points where they
had producing mills, and in addition abolished almost all of the price dififerentials
at basing points outside of Pittsburgh. Other producers made adjustments by
naming lower base prices and new basing points of their own. These changes
have resulted in the establishment of basing points in almost all areas of large
production, and have increased the necessity of absorbing freight to reach the
various consuming areas, while decreasing the possibilities of the realization of
"pha>ntom freight"
C.
Criticisms of the Basing Point Method
1. "perfect competition" and the steel industry
Present day ideas of "perfect competition" are abstractions derived by classical
economists fr m the fairs and markets of the 18th century and earlier times. In
order to have a perfectly competitive market it would be necessary: (1) that the
commodity dealt in be strictly uniform; (2) that there be so many sellers inde-
pendently offering the commodity for sale, and so many buyers independently
bidding for the commodity, that no one seller or buyer could influence the price
level in the market; (3) that sellers and buyers would know all or at least many of
the offers and bids; (4) that all sellers and buyers would be fr^e to enter or retire
from the market; and (5) that as a consequence of the preceding conditions, price
would be the only possible inducement for any buyer or seller to consummate a
sale. Under such conditions there would be a prevailing market price and it
would be impossible for sellers to get higher prices from some buyers than from
others. Since no producer could affect the market price, he would maintain his
operations at the point at which the additional cost of producing an additional unit
would be equal to the market price. It should be noted that "perfect competition"
means, competition solely in price and is sometimes called "pure price competition" ,
which is probably a more descriptive term. It excludes the possibility of in-
ducing purchases by selling or advertising activities.
Competition which deviates from the assumed state of facts on which the theory
of "perfect competition" is based, results in what is called by the economists
"imperfect competition". This term can be easily misunderstood by the ordinary
reader. It may be taken to mean complete lack of competition (that is, "perfect
monopoly"), or an agreement or other behavior restraining competition in violation
of the anti-trust laws.
In fact, however, the term "imperfect competition" as used by the economists
covers the whole range of conditions between theoretical "perfect competition"
and theoretical "perfect monopoly," neither of which actually occurs in the
business world, but which are concepts used in the science of economics for the
purpose of analyzing elements of market phenomena. "Imperfect competition,"
therefore, might equally well be called, and is sometimes called, "imperfect
monopoly." It is merely a term used to describe conditions as they are in the
business world, in which there is competition, not only in price, but also in adver-
tising, selling, adaptation of product to the market, and rhany other factors.
The term has no ethical or legal implications, and is used in the sense described
abov: by most economists regardless of their social or political views. Never-
CONCENTRATION OF ECONOMIC POWER 14633
theless, it is difficult in social and economic controversies, to limit the term to
its proper definition.^!
The term "imperfect competition" is particularly misleading to one not versed
in economic terminology, since it may be taken to imply that "perfect compe-
tition" is a standard of what competition ought to be in the business world.
This was certainly not the intention of the classical economists who formulated
the concept. "Perfect competition" was assumed to be the result which would
follow the presence of the assumed conditions set forth above, but it was not
expected that it would or should result in the absence of such conditions, and the
classical economists were well aware that there were deviations from such condi-
tions in the business world of their own day, which resulted in "imperfect compe-
tition." Consequently, when "perfect competition" is set up as a basis for
criticizing current industrial practices, a use is being made of the term which was
not intended by the theorists who first employed these words. "Perfect compe-
tition" is an abstraction, and exists nowhere."
Since deviations from "perfect competition" are universal, aiid "imperfect
competition" merely implies deviations from an abstraction, it is obviously an
error to conclude that such deviations are necessarily signs of monopoly, in either
1,hc legal or ordinary business sense, or that such deviations can or should be
.prevented by law.
This discussion of economic terminology has been necessitated by the fact that
the classical model of "perfect competition" seems sometimes to be held up as a
practical standard, in spite of the manifest absurdity of such a position. There
are those who insist that "perfect competition" naturally results from the absence
of restraints, that it autoqiatically develops whenever men can be prevented from
interfering with its development, and that, when realized, it solves all our eco-
nomic ills. The criticisms of the basing point practice in the steel industry all
stem from the proposition that it results in deviations from "perfect competition,"
and the proposed alternative, the uniform f. o. b. mill price system, is put forward
as a supposed means of realizing "perfect competition."
Both the criticisms and the proposal of such alternative system ignore factors
in the steel industry which necessarily produce conditions differing from the
assumed conditions of the theory of "perfect competition," and therefore must be
expected to result in "imperfect competition" under any pricing system. There
will often arise, in discussing separately the criticisms of the basing p/oint practice,
>' Professor Edward Chamberlin of Harvard University, in his "Theory of Monopolistic Competition,"
published by the Harvard University Press, in which he attempts to formulate a concept for studying
practical economics based neither on "perfect" or "pure" competition, nor "perfect" or "complete" mo-
nopoly, but upon actual conditions, states (p. 10):
"Because most prices-involve monopoly elements, it is monopolistic competition that most people think
of in connection with the simple word 'competition.' In fact, it may also be said that under pure com>e-
tition'the buyers and sellers do not real'y compete in the sense in which the word is currently used, die
ncer hears of 'competition' in connection with the great markets, and the phrases 'price cutting,' 'under-
selling,' 'unfair comnetition,' 'meeting competition,' 'securing a market,' etc. are unknown. No wonder
the principles of such a market seem so unreal when applied to the 'business' world where these terms have
meaning. They are based on the supposition that each seller accepts the market price and can dispose of
his entire supply without materially affecting it. 'Thus there is no problem of choosing a price policy, no
problem of adapting the product more exactly to the buyers' (real or fancied) wants, no problem of adver-
tising in order to change their wants. The theory of pure competition could hardly be expected to fit facts
so far different from its assumptions."
Professor Frank H. Knight in his "Risk, Uncertainty, and Profit," page 193, states that under economic
theory practically every business is a partial monopoly, and points out that, in view of this, it is remarkable
that the theoretical treatment of economics has related so exclusively to complete monopoly and perfect
competition.
« In the proceeding now pending against the cement industry, Dr. Jact'^ Viner of the University of
Chicago, a witness for the Federal 'JTrade Commission, testified as follows' •
"Q. Will you describe for us just what you mean by 'fully competitive' meiuod of selling? What are its
requisites? A. Well, its appearance would be that of a movement downward of price at any time when
orders were flowing in less rapidly than the capacity of the— the comfortable capacity of the plants of the
producers to meet them, and the movement up of price, whenever orders were ccaning in at a quantity such
as to press the capacity of the plant at the existing price, the requisites of the exisfence of such a state of
affairs would be the existence of a substantial number of producers so that what anyone — of substantial
coordinate importance or unimportance — so that what one individual producer should do would not be a
matter of substantial concern to any other producer in the industry, and so that this group should beliave
as individuals rather than in a concerted fashion through arrangement. Q. Would you say that those are
all of the requisites needed for the existence of complete competition. Doctor? A. I think so. Q. Now,
again, will you list for us all of the industries that use whafyou call a fully competitive method of selling?
* * A. I would say there are very nearly none at the present moment. I won't vouch for there not
bemgone. I would say that wheat is still very near— wheat growing— very near a fully competitive industry,
but I would not say that it is quite that, because of Government interference. And so with oats, and
barley, rye, and hay^ although hay may be. I don't think that hay is under any sort of control, but you
would have to hunt for them, I will say that. You w'U have to hunt for them, they are not easy to find
now. • ♦ Q. So, at the present time, you have not such knowledge that would enable.you to say-
to make such statement, as I understand it? A. That there exists. Q. A fully competitive industry?
E^'j i7 ^™°'^'''*'^^ '°<^"^*''y- 0- Yes. A. No, there does not. 'I See Record of proceedings of the
federal Trade Commission against Cement Institute, et al, pp. 15814-15817.
14634 CONCENTRATION OF ECONOMIC POWER
the question of whether a given departure from the assumed conditions of "perfect
competition" is due to the basing point practice or to some fundamen+al economic
trait of the steel industry. Likewise, in discussing the proposed uniform f. o. b.
mill price system, the question will often arise of whether such system is compat-
ible with the fundamental economic traits of the steel industry. It seems perti-
nent, therefore, to consider briefly these economic traits.
(a) Geographical Separation of Producers.
The more important raw materials for steel,' — iron ore and coking coal — are
concentrated in a few deposits. Iron ore is found principally in Minnesota and
other States bordering on Lake Superior, in Alabama, and in restricted areas of
the West. Coking coal comes, for the most part, from the fields of Pennsylvania,
West Virginia, Kentucky, and Alabama. Limestone occurs more generally
throughout the United States. When using ore of high metallic content, it takes
more than 4 tons of raw materials (including coal for power and heating purposes),
to produce one ton of finished steel. Consequently it is necessary to locate steel
mills in areas where raw materials can be assembled at a low cost.* This is a
factor of greater importance than nearness of the. steel mill to important markets.
The NRA Committee which studied the operation of the basing point practice
under the Code concluded:*'
"* * * the principal producing centers will always be confined to those
areas within which assembly costs are lowest, such as the general Pittsburgh and
Ohio River District, the Great Lakes cities, the Birmingham District, and Eastern
Pennsylvania and Maryland. Steel producing outside such minimum cost
assembly areas must be limited to the availability of low cost melting scrap."
Assembly costs of raw materials limit the construction of economical integrated
steel plants to a few areas, resulting in steel mills often at great distances from
each other. Most steel products are now produced in the Pittsburgh-Youngs-
town district, the Buffalo district, at Sparrows Point, Md. apd in the Philadelphia-
Bethlehem district, at Chicago-Gary, and at Birmingfiam, Alabama, although
some products are also produced in Colorado and on the West Coast and, in
smaller quantities, at other points. Producers so widely separated from each
other, with differing freight costs to the areas of demand, do not at all resemble the
picture of a "perfectly competitive" market, which assumes many sellers and many
buyers in close contact with each other, such as upon the floor of a stock exchange.
(&) Size of Plants.
Large scale integrated operations produce steel at a lower cost per ton than
small ones. Furthermore, a mill large enough to produce a diversified list of steel
products has merely by reason of such size a large tonnage capacity. Therefore,
the size of individual plants and the amount of the investment therein have grown
enormously, and at the same time there necessarily has been a reduction in the
number of integrated producers of steel. Today there are about a dozen such
companies in the country. To obtain the even flow of orders required to keep
these large mills operating at a satisfactory rate and thus achieve a low unit cost,
it is necessary that their products be sold in areas where the demand therefor
exists, even though outside of the local district surrounding the mill. As a conse-
quence, every seller of steel products must consider, among other things, the effect
of his prjce polic}' upon the steel markets of the country and he must take account
of what other sellers will do if he raises or reduces his base prices. He does not
limit his reflections to the probable reactions of producers near at hand, but must
consider, as well, possible responses of producers far away. In all of these ways
the steel industry in actual operation varies from the assumed conditions under-
lying the theory of "perfect competition."
(c) The Nature of the Demand for Steel.
Demand in a "perfect" competitive state is assumed to be concentrated in some
market. The demand for the diversified products of a large steel mill is not
concentrated in any one market or any few markets, and the pattern of the demand
for each of such diversified products presents peculiar characteristics. The de-
mand for certain grades or classes of sheets and strip shows a high degree of con-
centration in the Detroit area, with lesser degrees in the Philadelphia, Chicago,
Cleveland, and Cincinnati areas, while for other grades or classes the demand is
scattered or concentrated elsewhere. Fabricated structural steel is sold prin-
* It is also necessary to have available largo quantities of water, principally for cooling j)urposes.
" NRA Report, p. 12.
CONCENTRATION OF ECONOMIC POWER 14635
cipally in the large metropolitan nreas, and important unpredictable fluctuations
occur in the relative demand Vn such areas. Furthermore, from time to time the
heaviest demand shifts to wiaely sc.ittered areas where important structural jobs
are undertaken. Very similar products are destined for the east and west coast
shipbuilding industries, and the central Pennsylvania railroad carbuilding in-
dustry. Tin plate demi.,Dd is somewhat concentrated in a few markets, such as
New York, Chicago and the Wrst Coast, biit is largely scattered among various
areas where different types of canning industries are located, and to a high degree
the demand in the latter areas is subject to seasonal shifts and fluctuations.
Some tubular products have a widely scattered distribution, while others, such as
oil country products, move principally to the Texas and Oklahoma oil fields, or
those of the West Coast. To effect low cost operations, each producer attempts
to operate his mills at as high a rate of production as possible. To do so, he must
have a diversification of products, as it is dangerous to establish integrated
facilities merely to produce a few finished steel products, and to sell such products
he must reach the actual markets of the country, however widely separated they
may be. Also, he must have access to the most important markets for individual
products in order to avoid seasonal and other shifts and fluctuations in demand.
The demand in a "perfect" competitive market is supposed to be divided among
the many buyers, none of them large enough to affect the level of prices. The
demand for many important steel products is concentrated in the hands of a
relatively few large buyers, such as the automobile and container companies,
whose requirements are an appreciable part not only of the market for particular
products, but also of the whole steel market. Accordingly, the requirements of
these large buyers may affect price levels, which is quite at variance with the
theory of "perfect competition".
In a theoretical "perfect market", demand is assumed to have some degree of
elasticity, that is, consumption is assumed to increase or decrease in response to
decreases or increases in price. In the steel industry this degree of elasticity is
extremely low; the demand for steel is very inelastic. Since the cost of steel is
only a small part of the total cost of the finished consumer product, the price of
steel has "Very little effect upon the ultimate consumer demand.^*
Under "perfect competition", the demand for the product of an individual
producer (as differentiated from the product of the industry as a whole), would
be infinitely elastic, since uniformity of product and indifference of buyers and
sellers to any factors except price are among tlfe conditions assumed. Thu^ each
producer's participation in the total business would increase without limit if his
price were below (or decrease to zero if his price were above) the prevailing price.
Obviously this condition of "perfect competition" does not exist in most indus-
tries. Advertising, trade names, style preferences, geographical distribution of
sellers, etc., have tended to reduce the elasticity of the demand for the product
of individual producers. For example, advertising and trade names enable
sellers of cosmetics, tooth paste and other similar commodities to hold customers,
within limits, even though their prices are above the prevailing level for such com-
modities. In the steel industry, "contrary to the general circumstance, the under-
lying conditions make for a high elasticity in the demand for the product of an
individual producer. Since buyers are good judges of the quality of steel, intense
competition, assisted by the science of metallurgy, has caused great uniformity
in the products of all steel producers. Customers generally order in large quanti-
ties, which makes a small price cut worth bargaining for. Consequently, a small
difference in price will shift large orders from one producer to another, but will not
increase the total consumption of steel.
Thus, the demand for steel is dispersed over wide geographical areas, and is to a
great extent concentrated in the hands of a few large buyers whose individual
requirements and bargaining powers are often large enough to affect the level of
prices. The demand for steel substantially resembles one of the assumpttons of
"perfect competition," in one respect, namely, that any individual producer's
participation in the market responds very quickly when he names a price below
the prevailing level. The producers with higher prices simply lose this piece
of business. However, reduction in price does not materially affect the total
quantity of steel which the market will absorb.
** On the other band, differences in prices paid by competing manufacturers for the steel used by tbem is an
Important consideration. A large disturbances in the relative market levels in different important markets
for steel products, such as might be brought about by an uniform f. o. b. mill price system, might seriously
aSect the competitive sosition of some manufacturing customers of steel mills.
124491 — 41 — pt. 27 33
14636 CONCENTRATION OF ECONOMIC POWER
(d) Fluctuations of Demand in the Business Cycle.
The cc-icept of "perfect competition" assumes conditions not corresponding to
reality and ignores some major complicating factors. In particular, it assumes a
fairly steady and predictable rate of demand for various products, thus ignoring
cyclical fluctuations in demand. This is a fatal omission in the application of the
theory of "perfect competition" to problems in which the business cycle is impor-
tant. Experience over a long period of time has shown that the demand for dur-
able goods, including steel, fluctuates violently, and in a manner which makes it
almost impossible to predict the occurrence and degree of such fluctuations. If
a durable goods industry is built to supply the peak or near peak demand of the
business cycle, it will necessarily have a large amount of idle or unused capacity
during other phases of the cycle. Likewise if it is built to supply only the demand
at the lowest point, or even the average demand, it will be unable satisfactorily to
serve the consumer during the higher phases of the cycle.
Fluctuations during the past two years furnish a striking example. According
to weekly estimates collected and distributed by the American Iron & Steel In-
stitute, ingot output was at 92.3% of capacity for the week of April 26, 1937, a
high for recent years. By December, 1937, it had dropped to 19.2% (week of
December 27), the low for recent years. After fluctuating between 22.4% and
62.6% during 1938 (weeks of July 4 and November 14), the rate was 38.5% in
July, 1939 (week of July 3). The rate rose to 63% for the week of August 28,
1939 and for the week of October 16 reached 90.3%, a high since April, 1937.
(e) Costs in the Steel Industry.
Under "perfect competition," as demand decreased and prices fell, the producer
with the highest costs would be driven from the market, at least temporarily.
The price would stop falling when it reached the level which would keep in business
the marginal producer, i. e., the highest cost producer whose production was re-
quired to meet the existing demand. The price level at all times would be just
above the additional cost of producing the last unit necessary to supply the de-
mand, regardless of whether or not this price covered the average cost, including
overhead, of producing all units.
A large proportion of the costs in the steel industry are overhead costs, which
must be met, no matter how much or how little steel is produced. The additional
cost of producing additional units, however, remains fairly constant at all levels
of production up to very near capacity production. Thus, while the overhead
costs pet unit decrease as the rate of production increases, nevertheless the average
cost per unit, including overhead, remains considerably higher than the additional
cost of producing additional units, from a low level of production to very nearly
the point of capacity production. As'ia result of these factors, under "perfect
competition," in a period of decreasing demand and falling prices, the level of steel
prices would almost immediately reach a point, which, while still just above addi-
tional costs, would be below average costs.
High overhead costs, the very large expense incurred in shutting down and start-
ing up mills and departments of mills, and the costliness of intermittent opera-
tions, and the disruption of working forces caused thereby, also make it virtually
impossible for producers to retire from the market in a period of falling demand
and subsequently to re-enter the market as demand increases. Even high cost
producers will try to keep on producing and selling as long as the price realized
is more than the additional cost of producing additional units, even though such
price may be considerably below average cost, since overhead continues and thus
any long continued retirement from the market means bankruptcy and permanent
retirement. These results and the causes thereof were not contemplated in the
theory of "perfect competition."
(/) Cyclical Fluctuations and Overhead Costs.
When the effects of large overhead costs are considered in conjunction with the
extreme cyclical fluctuations which are characteristic of durable goods industries,
it can readily be seen that the results would be disastrous, if "perfect competition"
prevailed. In the early stages of the downward phase of the cycle high cost pro-
ducers would find themselves losing more than their overhead costs and would soon
be forced out of business. Lower cost producers would lose most of their over-
head, but rather than retire immediately, would continue producing as long as
CONCENTRATION OF ECONOMIC POWER 14637
prices were just above additional costs and thus contributed something towards
overhead; and, as a direct consequence, even the lowest cost producers would be
unable entirely to cover their overhead costs. In other words, the inability of
producers to retire from the market, except permanently, would keep some pro-
ducers in the market long after the point at which they should have retired under
the theory of "perfect competition," and the lowest cost producers, who, under the
theory of "perfect competition," should be operating at a level which would enable
them to more than cover average costs, would be unable to operate at such level
and would be losing a portion of their overhead costs. As the cycle reached its
lowest level there would be not only an elimination of high cost producers but a
great risk of throwing aU of the industry into bankruptcy.
Furthermore, as the upward phase of the cycle began, the producers remaining
would not have capacity to meet the demand, and prices would tend to skyrocket.
If the upward phase continued long enough, additional capacity might be created,
but the time required to build or rehabilitate steel mills and the difficulty of at-
tracting the necessary large capital under such conditions would at least delay for
a long time any increase of capacity. These results — periodic alterations between
extremely low prices and bankruptcy of most producers, on the one hand, and en-
tirely inadequate capacity with extremely high prices, on the other hand — were
certainly not contemplated in developing the theory of "perfect competition."
Such results are certainly not socially desirable from any point of view. They are
the effect of applying to short run cyclical changes, a theory based or normal
adjustments during long term changes.
2. PRICE LEADERSHIP
A common charge against the basing point method is that it facilitates "price
leadership". Critics claim that there exists price leadership by a large company
or companies and that the prices established by by price leaders are enforced by
retaliations against competitors for price cutting or for other forms of local ini-
tiative in prices. For example, the Federal Trade Commission said in the state-
ment recently submitted to the Temporary National Economic Committee: ^
"Free initiative in the sense of trying to get business by oflfering advantages
to the consumer is not only restricted under the basing point system, but is
regarded as an offense, subject to the danger of retaliation by the industry.
"If a mill merely follows the price leaders irwa generally observed price system,
it has relaxed from competition, and is trusting to some more subtle influence
to provide its share of the business. Initiative means leading the price in its
own area, and leading it down to the level at which the area of the local mill is
effectively protected by freight costs against the loss of its profitable business.
Initiative in the form of local self determination is seldom, if ever, found today
in the steel industry.
"Local initiative is frowned upon by the the leaders of the industry. In 1930, a
steel industry leader deplored that 'several months ago price instability was per-
mitted to come into our commercial relations'. Another high steel executive,
saying that price cutting kiUs business, added: 'We have got to be honest.' The
potential punishment for any serious attempt to violate the basing point price
system is price raiding, that soon brings the rebels to terms. It is vital to an
understanding of this situation to make clear the ethics on which it is based."
In answering this charge, certain features of the steel industry should be
examined which are independent of the basing point method. First, separate
steel producing units are large and diversified as to products. There are only a
few of them by reason of the huge investment required therefor and the restricted
areas in which they may be economically operated. This means that each
producer in an endeavor to safeguard his own investment will consider the effect
of his actions upon the market. Secondly, the large size of individual , orders
and of individual buyers gives the buyers great bargaining powers and means
that buyers can often influence the course of prices. The consequence of these
facts is that each seller is apt to meet any price reduction because, owing to the
standard quality of the products of the various mills, a failure to meet a lower
price would probably result in the seller not sharing at aU in the business, with
consequent heavy loss to him. In tiijies of good demand, this factor, together
with the expected business demands has a tendency to continue prices at the
published levels. In times of poor demand, on the other hand, the pressure of
high fixed costs and the desirability of maintaining a satisfactory operating rate,
>' Federal Trade Commission, "Monopoly and Competition in Steel", p. 11.
14638 CONCENTRATION OF ECONOMIC POWER
result in an effort to obtain additional business through unannounced lower prices
in spite of the certainty that such reductions will become known and will be met
by other mills. Price increases are governed by somewhat similar considerations.
If- a producer initiates an increase in prices which is not followed by other pro-
ducers, he will usually lose heavily. Consequently, although increasmg demand
and rising costs of raw materials and labor may make a price raise advisable,
producers of small or average size may be disposed to wait for the larger pro-
ducers to initiate the change. , . , t, ■
A third consideration is the nature of costs in the steel mdustry. Price com-
petition in steel is more risky than the classical theory of "perfect competition"
contemplated. As shown above, the lowest possible level of prices at which a
producer will continue to produce and sell steel is just above the marginal pro-
ducer's additional production costs for the additional units so produced and sold,
and less than his total cost. At this price level, which contributes little or noth-
ing toward overhead, no company can long survive financially. Considering
that this fact is welLknown to steel producers, its influence in discouraging price
cutting is obvious.
If the foregoing describes what is meant by "price leadership , such a state
of affairs does not originate from or have any relation to the basing point practice,,
but is the consequence of the above mentioned economic factors.
The relation of the basing point method to price leadership of this character
was summarized in the NRA Report, as follows: "
"The basing-point system clearly facilitates the use of the open-price system
of price quoting. This system is openly defended as a means of putting compe-
tition on a basis which will yield higher prices than would result without it.
According to the advoca'tes of the system, this does not mean monopoly prices,
but normal competitive prices which can be steadily maintained and will not
naturally tend to degenerate into cutthroat competition as discriminatory price
cutting without system or order is prone to do, especially if discriminatory prices
are secret. Such a condition cannot last, but leads to informal agreements which
in turn cannot last, and thus the natural result is an unhealthy alternation
between profiteering and destructive warfare. An open-price system could be
carried out under any kind of orderly price structure, or even a disorderly one;
but it has its fullest efifect if each producer knows the delivered prices he has to
meet at each purchasing point.
"The basing-point system serves this end particularly well by furnishing a
relatively simple formula by which these delivered prices can be calculated.
The sys,tem tends to restrain cutthroat competition both by informing each
producer precisely what prices he has to meet at each consuming point, and by
causing changes in prices by any producer to apply to his whole business in his
own basing-point area, with the result that he is practically forced to figure on
a price which will cover total costs and not disregard his overhead costs as he is
likely to do if figuring a special price for a limited area."
The charge of the Federal Trade Commission, however, goes beyond a mere
'general accusation of price leadership and asserts that price leadership is cen-
tralized, and has stifled local initiative in prices. This charge cannot be sustained.
The NRA Committee concluded that no one company exercised full lea^lership: ^7
"There seems to be no invariable rule as to what companies take the lead.
Cases systematically canvassed show too few price changes to afford an adequate
basis for generalizing, but general observation indicates that certain producers
more or less habitually take the lead in certain products and other producers in
other products. There is no consistent price leader for the entire industry."
Basing points for various steel products have sprung up all over the country
since the early 1920's. Every steel producer is free to name basing points at his
own places of production, and many of them have done so. Such producers can
and do lead in the establishment of prices at their own locations. The basing
point method, consequently, has not stifled local price initiative, but, on the
contrary, supplies it with an effective means of expression.
The forces which have produced price leadership of this kind in the steel industry
would probably have done so under any system of orderly selling. Assume, for
example, that a uniform f. o. b. mill price system were adopted. No mill could
absorb freight, and its sales would be confined to the area in which its mill price
plus freight would be lower than the delivered cost of steel from any other mill.
Boundaries determined by the relative level of mill prices at different locations
would be drawn around each mill, defining the area in which it could sell its
2« NRA Report, pp. 134-5.
>' NRA Report, p. 139.
CONCENTRATION OF ECONOMIC POWER 14639
products. These boundaries would depend, not upon the absolute level of prices,
but upon the relative levels of prices at different locations. A five, ten or twenty
dollar increase at every mill would leave the market territory of each unchanged,
but would enhance the mill net return of each mill by the full amount of the
increase. Under such conditions, price leadership might well flourish, par-
ticularly after the lapse of time had denfiied the normal market territories of the
different mills.
The basing point method does not cause price leadership. The economic
causes which have produced such price leadership as today exists, if any, would
also produce a similar condition under other circumstances and notably under a
uniform f. o. b. mill price system. The basing point method has not eliminated
local price initiative, for it leaves to the producer at each location the power to
decide whether the location of its mill shall be a basing point and what base prices
shall be named at such basing point.
3. ELIMINATION OF COMPETITION
(a) Identical Delivered Prices.
Charges that the basing point method is a device for eliminating competition are
frequent. The Federal Trade Commission is one of the most earnest proponents
of this view. For example, the Commission has stated: ^
"The statement that the basing-point system is intended to destroy and does
destroy all opportunity to buy at other than an identical delivered price regardless
of where purchased is emphasized by a study of prices quoted and received by the
industry in actual transactions. Private buyers state that there is no price
advantage in buying from one steel producer rather than another, since only
delivered prices are obtainable, and that these are identical at any given destina-
tion, regardless of natural advantages of particular buyers or sellers and regardless
of differences in cost of production and delivery."
"This extreme range in prices is the automatic result of a system (an offspring
of the Pittsburgh plus system) by which producers reciprocally forego their
advantages of location and then set up the specious claim that thus any producer
anywhere may 'compete' with every other producer everywhere. The result is
price discrimination and a more or less permanent differential treatment of
buyers in what would otherwise be a common market. It is economically inde-
fensible as free competition and provocative of social unrest. Yet it is defended
by the industry as an 'open price plan', 'open competitive plan' and even as a
'one-price plan', 'similar to that of retail trade'." ^^
The fact that many producers can and do compete in every important market is
taken by the Federal Trade Commission as proof that competition does not
exist: ^o
"As to the monopolistic effect, the witness takes this credit to the system, namely
that it 'does not permit any producer to monopolize any piece of business', since
the mill 'can go to every place in the United States to compete for whatever
business may be offered'. * * * The obvious rejoinder to this defense of the
system is:
"(a) Whatever 'competition' may exist under these circumstances is in some-
thing other than price.
■ * * * * * * *
"(d) The alleged freedom from monopoly is absurd. The prices are monopolis-
tic in the true sense. The system may give many an opportunity to bid, but the
privilege given to the buyer to choose between mills at Birmingham, Chicago,
Pittsburgh, and eastern Pennsylvania at precisely the same delivered price is the
negation of that freedom from monopoly which must be restored if the consumer
is to be enabled to return to the market."
These excerpts are taken from the Federal Trade Commission's Report to the
President, published in November, 1934. In the pamphlet "Monopoly anfd
Competition in Steel", issued by the Commission dunng the March, 1939,
" Federal Trade Commission, Report to the President with respect to the Basing-Point System in the
Iron and Steel Industry, pp. 4-5. This report, hereinafter cited as the "F. T. C. Report", was rendered in
1934, when the industry was operating under the NRA Code. Many of thi, charges against the basing
point system published in this report ba. e since been reiterated by the Commission.
" F. T. C. Report, p. 14.
" F. T. C. Report, p. 16.
14640 CONCENTRATION OF ECONOMIC POWER
hearings before the Temporary National Economic Committee, the charges were
reiterated: ^^
"To the customer, at his location, there is no difference between the quaUty
and deUvered price offered by all the bidders. Occasional variations from this
perfect identity are observed, but only during short periods when there was a
temporary flurry of price cutting. Such flurries have been an incident of practi-
cally all price-fixing systems. They occurred even in the days of signed price
agreements in the steel industry.
"On the surface, the producers approach the consumer with a united front.
Competition in such crude matters as price and quality has been put aside, and
all that seems to remain is a gentlemanly emulation in the art of making friends
and influencing people."
A related series of charges have arisen in connection with alleged identical
bids. When a government agency or subdivision calls for bids on a certain
quantity of steel delivered at a certain place, identical bids may result. This
occurred frequently under the Code, and it has also occurred since the NRA
was declared unconstitutional.
The Federal Trade Commission has said: '^
"The Federal Government is probably in as good a position to obtain competi-
tive prices as any other buyer. The statutory requirements and administrative
safeguards thrown about competitive bidding, the volume of its purchases, its
ability to get special rates on land grant railroads, and numerous other factors
unite to make of it a buyer which can get competitive prices if any buyer can.
Against the price-fixing combination of the steel basing-point system, however,
the purchasing agencies of the Federal Governihent are helpless. They have been
reduced to the impotence of having to select the successful bidder by lot because
the bids are identical."
In "Monopoly and Competition in Steel", the Commission made the following
statement, under the heading "Indicatprs of Monopoly": ^'
"If identical or close bids on delivered steel are received from mills at different
distances from the buyer, there is a presumption of monopoly, unless the facts
can be explained by differences in cost of production. The only locations at
■ which the receipt of closely similar bids, from diversely situated mills, can be
disregarded as indicators are on the borderlines between producing areas."
Briefly summarized, the argument of the Federal Trade Commission is as
follows: Price competition has been eliminated in the steel industry; this is
evidenced by the uniformity of delivered prices quoted at each destination by
mills at different distances from such destination; the basing point method is the
collusive medium used to bring about such identity of delivered prices. None
of these statements is in accord with the facts.
It is not a fact that identical delivered prices are universally charged by all
producers, particularly in times of low demand. Price cutting is frequent, and
since it is not announced, is not immediately met. If such price cutting con-
tinues, it becomes known and other producers, if they wish to be competitive, and
to share in the available business, must meet the lower prices. In this way a
lower general level of prices may be established, and various producers for a time
may again quote identical delivered prices.
Identical quotations probably occur more frequently in sealed bids to govern-
mental bodies than in private sales of steel products. There are two reasons for
this: (1) The sealed bid practice required by statute prevents public agencies
from bargaining individually with producers as is usually done by private buyers;
(2) Sealed bids are eventually published, and although a producer may be willing
to quote a lower price on a private sale, he is reluctant to do so when he knows
that such lower price will soon be published and possibly may have to be made
applicable to every similar ton of steel sold by him in the future. Nevertheless,
in spite of this tendency, identical bids on governmental contracts are by no means
the general rule. An examination of records, covering Federal Government
awards for steel products made at Washington, D. C. during 1938 and the first
quarter of 1939, indicates that such awards aggregated approximately $10,550,000,
of which about 80% in value went to the lowest bidder and only about 16.5% in
value by lot on account of identical bids. The balance of 3.5% Was awarded on a
basis other than of price.
" F. T. C, "Monopoly and Competition in Steel", p. 2.
" F. T. C. Report, p. 5. See also Appendices A & B.
" Statement submitted by Federal Trade Commission to Temporary Nationai'Economic Committee, p. 6.
CONCENTRATION OP ECONOMIC POWER 1464X
Furthermore, it is quite erroneous to imply, as does the argument of the Federal
Trade Commission, that identity of prices at any given time is necessarily evidence
of absence of price competition. Quite the contrary is true. In any competitive
market, the price quoted by different producers at any given time for any staple
product w^ill naturally tend to be uniform.
In times of good demand, and to some extent at other times, producers at
different distances from the destination may quote identical delivered prices.
The basing point method is not per se the cause of identical bids. It is of course
true, whenever the identical delivered price quotations occur at the exact level
of published base prices plus freight, that aU producers making such quotations
have used the basing point method of computation, but identical delivered pi ice
quotations do occur at levels lower than the sum of base price and freight from
the applicable basing point, such quotations being based upon market prices on
like steel products at the destination as reported by sales representatives. Identi-
cal delivered price quotations would occur under any free competitive system to
the extent that competitors' bids could be estimated, since buyers refuse to pay
more to one producer than to another for a staple product. It is even too broad a
charge to say that the basing point method per se makes identical bids possible
by enabling producers to determine competitors' prices, since the same would be
true of any open price method.
It is charged by the critics of the steel industry that the quotation of identical
delivered prices proves the elimination of competition, because under "perfect
corupetition" such a thing could not often happen, i. e., the different transportation
costs would usually cause different delivered prices. This charge assumes that
there are only two alternatives, "perfect" competition, and the complete absence
of competition, or monopoly. It does not recognize the existence of the vast range
of phenomena between theoretical "perfect competition" at one extreme and
"perfect monopoly" at the other. Neither identical delivered prices, nor delivered
prices of any kind, accord with the theory of "perfect competition" because such
theory assumed a freightless marketin which neither seller nor buyer needed to be
concerned with transportation costs. In the steel industry, both seller and buyer
must take into consideration the cost of transportation of steel. This factor
produces competition where the steel is to be used, and thus upon a delivered
price basis. In turn, such competition tends to result in identical delivered
prices. An examination of the importance of the factor of transportation costs,
from the point of view of producer and consumer, clearly shows that these^ten-
dencies do not result from monopoly and are not symptoms of monopoly.
First let us take the point of view of an individual producer with one integrated
mill located, say, at Pittsburgh. This producer has base prices at Pittsburgh
for the various products made at his mill. He has located at Pittsburgh primarily
because of the low assembly cost of raw materials at Pittsburgh. He has devel-
oped a, large pig iron and steel ingot capacity because of the need of aichieving low
costs, and in order to provide an outlet for his steel making capacity he has at-
tempted to secure diversification of product by various rolling and finishing
facilities designed to produce a number of different steel products. A large part of
his total output is sold within a hundred miles of Pittsburgh, at delivered prices
which yield him a mill net return approximately equal to his base prices. But
he cannot d''spose of his entire tonnage there, partly because many other pro-
ducers are also located at Pittsburgh, and partly because he makes some products
which are not in demand in that area, in order to. have the necessary diversification
of product. Therefore, he sells part of his output in areas farther from Pittsburgh
and nearer to other producing centers, which also have base prices for similar
products. On this more distant business he cannot hope to get more than the
delivered prices quoted by the nearer mills, andhe therefore meets those prices.
This forces him to absorb freight, taking a lower mill net return than he realizes
on the similar business nearer to Pittsburgh. Because his mill net return is already
lower on this business, he is not apt to cut the prices quoted by the nearer mills —
he is usually content to meet such prices of his competitors. Substantial identity
of delivered prices results.
Examining now the buyer's side of the market, it is evident that the cost of
steel delivered where the buyer wants to use it is the total cost of the steel to such
consumer — the only cost in which he is interested. Under a f. o. b. mill price
system, the buyer would add fre'qht to the mill price and buy from the source
which permitted the lowest delivered cost. Steel products for the most part are'in
the nature of staple commodities ana the product of one mil' does not differ sub-
stantially from that of another mill. Consequently, it i,s tis be expected that the
various mills will compete in meeting the lowerst delivered prices to the different
buyers, and that the identity of prices which would result ficin. "perfect competi-
14642 CONCENTRATION OF ECONOMIC POWER
tion" in a single market at any ope time will take the form of identical delivered
prices in the steel industry. Critics charge, however, that identical delivered
prices do not conform to the expected results under the theory of "perfect competi-
tion" because the mill net returns of different producers quoting the same delivered
price at one location are not the same. This charge is unrealistic. It has been
pointed out that the theory of "perfect competition" assumed a freightless
market. It seems obvious that all of the expected results of the theory of "per-
fect competition" cannot be satisfied in an industry in which delivery costs are an
important part of total costs, and in which the producers are geographically
separated from each other, while the demand for the product is widely scattered
over large areas.
To anticipate the discussion of alternative systems, it may be noted that
the uniform f. o. b. mill price system with the elimination of freight absorption,
which the Federal Trade Commission proposes to impose by law or mandate,
would by definition prevent identical delivered prices. It would do so because
the system would inherently prohibit or prevent competition at more than a few
destinations at any given time. Thr areas in which mills might compete would
be limited by the relative freight rates from such mills regardless of the relative
levels of mill prices. Producers located close together might compete in a com-
paratively large area to which t he freight rates from their mills were the same.
In such an area, it is certain that identical prices at each mill would prevail,
since otherwise the mill with the lowast price would obtain all the business.
Competition between such closely located producers might well be less vigorous
than at the present time when other mills also compete in such area. With respect
to mills located at a distance from each othef', competition would be limited to
the boundary between the market territories of such mills. The boundary
of each mill's territory for each product, or most products, would be different.
Such boundaries would be expected to shift from time to time in accordance with
changes in the relative levels of mill prjces, but at any given time would embrace
only a very few points. Unless such points happened to be important markets
for the product in question, by the accident of freight rates, there would be little
or no competition between the mills. Thus, while buyers located near a group
of producers might be expected to enjoy competition between the local mills,
the probability of competition would be reduced, since the number of competing
producers would be less than at the present time, and in many areas in which
a single producer was located, there would be a virtual monopoly.
The NRA Report thus contrasted the two systems: ^*
"The outstanding characteristic of the basing-point system is the fact that
it puts rival producers on a footing of price equality with each other in all the
consuming points over a wide area, instead of merely at the boundary lines of
their respective market areas, as under the unqualified mill-base system. It
thus increases the number of producers the purchaser has to choose from and who
are competing for his business, and widens the areas over which direct competition
acts. This fact is hardly open to question."
Although it may be admitted that there are deviations from theoretical "perfect
competition" in the steel industry, it does not follow that price competition
has been eliminated through the use of the basing point method, or that identical
delivered • prices are symptomatic of the absence of price competition. Price
competition has been, and is, vigorous at all principal consuming points. The
basing point method permits many producers to compete on the basis of price,
quality, service and other factors at every market location, thus enabling the
buyers to induce price concessitfns by trading One producer's prices against
another's. The uniform f. o. b. mill price system would clearly reduce the areas
of competition and would by no means be certain to increase the degree of
competition in the areas in which it would permit competition. It seems obvious
that itwon' ^ produce less real com^/i^tition than exists under the present method.
(6) When is the Market for Steelf
The irisistence of the Federal Trade Commission that delivered prices and the
generar identity of such delivered prices at consuming points establish lack of
competition, and the further insistence that uniform f. o. b. mill prices should be
required, are obviously manifestations of a belief that the market for steel is,
or should be at the mMl, and is not, or should not be, at "the destination. This
belief has apparently be"en derived from the theories of Professor Frant A. Fetter.
5' NRA Report, p. 143.
CONCENTRATION OF ECONOMIC POWER 14643
Under the theory of "perfect competition," a market was assumed to be at a
given place, with many buyers and sellers present, and with the goods to be sold
actually present in the market or represented by saleable documents. Professor
Fetter in his "Masquerade of Monopoly," after summarizing the history of the
older fairs and markets, states: ^^
"Every real market is a concrete thing, an actual place where traders gather,
to which actual goods or certificates of ownership are brought for sale and delivery,
where special facilities for trade exist, where buyers and sellers alike have an
opportunity to learn and know the amounts and qualities of goods present and the
probable intentions of other traders, where traders are forbidden to get apart
and trade outside, and where they act independently, without collusion with each
other, and without discrimination against any traders on the other side. If
we iniagine all these conditions to be completely attained we get an idealized
picture of a market, and in the degree that these conditions are imperfectly
realized, any particular market falls short of the ideal.
"Against one alteration in this ideal picture of markets a warning is especially
needed. A market must not be thought of either as the various places or as the
whole area to which the goods are taken or delivered after sale."
It would seem equally appropriate to warn against thinking of a market as
the place where goods are produced, at which point they cannot be used, but
must first be transported to another place.
The differences between prices in the theoretically "perfect" market and de-
livered prices quoted under the basing point practice has led to the assertion that
uniformity of prices in the first is a sign of competition, while in the second it is
a sign of monopoly. Thus Professor Fetter, in the March, 1939, hearings before
the Temporary National Economic Committee, testified as follows : 3'
"It is a market in the sense that numerous buyers are there; they are watching
each other; they overhear each other, and consequently the fundamental uni-
formity is a un^ormity in the treatment of one's own custonfers, of the cus-
tomers of each seller.
"Now there follows from that a secondary uniformity, namely a uniformity in
the prices that the dififerent sellers are charging, but I beUeve this to be less
fundamental for the reason that if any one of the sellers thinks that price is too
low he temporarily withdraws from the market. He simply continues to quote
a somewhat higher price, expecting that the conditions of the market a little later
will bring a higher price.
"Therefore, for the time being, he has a reserve valuation that is a little higher
than the market price, the going market price, and if he has figured it right the
others have sold out at a little lower price and then his stock will sell at the
higher price.
"So we can say there is uniformity in a general sense, a tendency toward uni-
formity, both as between the buyers and as between the prices quoted and received
by the sellers, but the second uniformity is a somewhat less accurate one than the •
other.
"So we have laid down practically the test of a true market by the economists,
a price uniformity the»"e. That has no reference whatever to a delivered price,
nor is it a uniformity in the price quoted at places outside of the market."
Professor Fetter is here discussing the theoretical "perfect" market, one of the
assumed conditions of which is the ability of a seller to retire temporarily from
the market if the price is"too low. It has been shown that this condition does not
prevail in the steel industry, at least in the majority of instances, where large
orders are involved. Because of this assumed condition alone (since no other
reason is given). Professor Fetter concludes that uniformity of the prices of dif-
ferent sellers is unimportant, although clearly the market would not be competi-
tive unless the prices of most sellers were uniform at any given time. He con-
cludes, on the other hand, that uniformity of each seller's return is essential.
This conclusion may perhaps be tested by considering possible situations which
might arise, not n the theoretical "perfect market," which is merely an economic
concept, but in the older fairs and markets which were taken as a model. It does
not violate credibility to presume that some of the sellers in such markets fre-
quented several markets, at dififering distances from the place of production of
the goods, and that some transportation costs to the markets were involved.
The price at which such a producer would sell in each such market would be
determined, not by the difference in transportation costs, but by the competitive
" F. A. Fetter, "Masquerade of Monopoly", published by Harcourt, Braoe & Company, Inc., p. 261.
" Record of Proceedings of Temporary National Economic Committee, The Bureau of National Affairs,
Inc., March 7, 1939, p. 329, (hereinafter cited as "T. N. E. C. Record").
14644 CONCENTRATION OF ECONOMIC POWER
price in each such market. Buyers in one market would often pay this producer
a different price than buyers in another market, and his return, less transporta-
tion costs, would be less. Prices of all sellers at each market would tend to be
uniform, but the returns to the particular seller would tend to vary. Of course,
the older markets and fairs were not "perfect markets," but merely the nearest
approach to the theoretical concept of a "perfect market."
Assuming that Professor Fetter has accurately described a "perfect market" as
it was defined by the older economists, he has taken the further step of assuming
that that definition is or was intended to be a norm, or standard, to which all
industries should conform. The economists who developed this concept did not
intend it as a standard, and they were well aware that no "perfect markets"
actually existed in the business world even of their day. Thus Professor Fetter's
attack upon the basing point method is founded upon an unsupported assumption.
Professor Fetter, continuing his analysis, asserted that the true market for steel
is at the mill, and that if the mills were compelled to quote uniform f. o. b. mill
prices, without "phantom freight" or freight absorption, "perfect competition"
J would result. Hence arises the contention of the Federal Trade Commission,
that the true market for steel is at the mill, and that the basing point method, by
providing a means for quoting delivered prices at each buyer's destination, has
destroyed or injured the market and eliminated competition.
Professor Fetter's insistence that the existence of identical delivered prices
alone, and in and of itself, establishes monopoly, regardless of other economic
considerations, is shown by subsequent statements made during the March, 1939,
hearings before the Temporary National Economic Committee. After remarking
that it is always difficult to tell whether business men are actually fixing prices,
he concluded : ''
«<* * * If what they are doing is what they would do if they got together
and made a formal agreement, then we should treat that as a formal agreement.
"Mr. Hinrichs. Your primary test, Professor, of behavior would be what?
Would it be the establishment of a breakeven point for an industry when it is
operating at an extremely low percentage of capacity? Would that be the
primary test of whether the price were a competitive or a non-competitive price?
"Professor Fetter. No, let's stay here at home; it would be quoting identical
delivered prices."
Even if the uniform f. o. b. mill price system were put into operation, the result
would not be "perfect competition," since the conditions under which "perfect
competition" was expected to occur do not exist in the steel industry. Professor
Fetter makes no attempt to explain such differences, or to prove that his theory
would work satisfactorily in spite of such differences. Aside from this, however,
his conclusion that the market is at the mill must be doubted. If there is any
true market for steel, it is at the buyer's door. As transportation costs cannot be
disregarded, every buyer, under any price system, will look to the delivered pnce
at his door, and not to the f. o. b. mill price fifty or five hundred miles away.
Since delivered prices are the principal concern of the buyers, competition between
steel producers naturally takes the form of meeting the others' delivered prices.
Certainly, there is no approach to this assumed condition of a true market at the
mill.
(c) High and Inflexible Prices.
The Federal Trade Commission stated in 1934 that base prices for steel were
too high, and that the basing point method made them inflexible. An example
of such a contention follows : '*
"It is a most significant fact that the steel industry was able to show satisfactory
profits for the first 6 months of 1934 without operating to more than half its
producing capacity. Profits under such conditions necessarily involve prices
per ton which include a high margin over cost of production. It is theoretically
possible to fix prices at a point where profits would be shown on a much smaller
percentage -of capacity. The consuming public would doubtless revolt against
the exaction of prices that would provide a profit on an investment of which only
a minor percentage is being used. It has borne more or less patiently the burden
of prices which provided a profit on an investment of which only 50 percent was
used. Recent trade press reports state that some of the younger and stronger
independent producers of steel are now contending for a drastic reduction in
prices on the theory that it is better business to have a high volume of production
on a reduced margin of profit than a small output at a high price. Su^Cli a position
" T. N. E. C. Record, p. 363.
'• F. T. C. Report to President, p. 37.
CONCENTRATION OF ECONOMIC POWER 14645
is consonant with the view of the Commission above expressed and with any
logical long-run view of economic recovery."
This contention was repeated by the Federal Trade Commission in 1939 in the
statement submitted to the Temporary National Economic Committee r^^
"Overequipment in the industry, with failure to eliminate the least'efficient
plants, tends to discourage technological progress, but its chief effect appears to
have been to accustom the industry to the idea of a low ratio of production to
capacity. The industry has felt entitled to a price level that will allow it to make
a profit when operating at less than 40 per cent of capacity, although this required
percentage increased with the base price reductions of June, 1938."
The Commission also contended that the price level is so high as to threaten
the survival of the capitalist system : *>
"Thus the advantage or disadvantage of location for many buyers is an arti-
ficial one, which may be altered by arbitrary private decree through a change in
the basing point. Price competition in the steel industry, during all periods when
the system is working, is eliminated. High prices, not in conformity with the
law of suppl}'^ and demand, place unreasonable limitations on use of the material.
The effect,, when combined with that of similar artificial prices in many other
lines of production, is a depressed condition which can be kept from utter collapse
only by repeated doses of public subsidy.
"The ability to decide on a price and hold to it regardless of demand, which is
the essence of monopoly, is a prime factor in establishing the vicious circle of
high prices, restricted production, and reduced employment so widely condemned
as 'scarcity economies'. Starting with a price level designed to protect obsolete
and unnecessary plants, and therefore having long periods of part-time operation
and high overhead, the steel industry has established a habit of low production
and high cost that seems to justify high prices. The demand is thereby restricted,
and the vicious circle is completed by the continuance of high" costs based on
restricted output.
"Moreover, in a product like steel which serves as raw material for other prod-
ucts, and for the machines with which other products are made, any unnecessary
cost will be multiplied from step to step throughout industry so far as the influence
of steel extends. The consumer is burdened with monopoly costs of steel multi-
plied several fold. * * * The steel industry is a focal center of monopolistic
infection which, if not eradicated, may well cause the death of free capitalistic
industry in the United States."
These contentions may be summarized as follows : Base prices under the basing
point method are high, and the proceeds are used to defray the costs of excess
capacity and of wasteful cross-hauling, and to realize unreasonable profits. The
contention that the steel industry earns unreasonable or "monopoly" profits is
refuted by the steel industry's low rate of return on investment.
The NRA Report, published in 1934, concluded that steel prices had declined-
relatively to other prices over a long period. *'
"* * * It appears that over a term of thirty-three years, steel prices have
declined relatively to^ all prices. While the same could be said of metals and
metal products generally, it is still significant that there have been periods of
long continued gradual decline, from 1900-1914 and from 1923-1929. This
beha'ior is certainly not unmistakably monopolistic. All these examinations
of evidence are instructive, but fall short of proving a conclusive case for or
against the existence of monopolistic control. * * *"
The NRA Report contained the following statement relative to profits in the
steel industry : *^
"* * * In 1929, the industry's best year since the War, net income was
$362,000,000— (Compiled from Standard Trade and Securities of May 4, 1934,
by G. C. Gamble, Division of Research & Planning, N. R. A., May 8, 1934).
These earnings were to be compared with total assets in the general neighborhood
of $4,500,000,000, indicating a return of about 8% in this uniquely prosperous
year. The average for the four years 1927-1930 was about $231,000,000, or
less than 5% on actual investment. Thus there are not only no monopoly
profits at the present time, but no sustained profits of a cleariy monopolistic
" F. T. C, "Monopoly and Competitior in Steel," p. 4.
« F. T. C, "Monopoly and Competition in Steel," pp. 6, 8, 14.
*' NRA Report, pp. 139-40.
« Id., p. 138.
14646 CONCENTRATION OF ECONOMIC POWER
character during the more recent years of prosperity, which might serve as ofifsets
to the losses of the past four years." *^
Thus, it is demonstrable that the earnings of the steel industry show no signs
of excessive profits. In the case of the United States Steel Corporation, the
ratio of earnings to total assets, less current liabilities, as reported by its annual
reports, has averaged approximately 3.4% during the period from 1920 to 1938,
inclusive. For the ten year period ending with 1938, such ratio has been less
than 2%.
The correlated statements that the proceeds of high prices are dissipated in the
costs of excess capacity, retention of obsolete plants, and wasteful cross-hauling
are dealt with at length elsewhere in this memorandum, but the first two may be
briefly analyzed and considered at this point. Contrary to the unsupported
assertion of the Federal Trade Commission, technological progress has been
extremely advanced in the steel industry. In the last dozen years, the develop-
ment of modern machinery and processes has revolutionized the industry and
its products, and, to a high degree, industries and products of industries which
are consumers of steel. Such changes necessarily have outmoded some machinery
and mills, a large proportion of which have not been operated, until recently,
for some tirre. It seems implicit in the Federal Trade Commission statements
that the Commission would contend that such mills and machinery should have
been scrapped immediately, their capacities deducted from total capacity figures,
and their value written off the assets of their corporate owners. However, such
plants were by no means so obsolete as to make it necessary to scrap them, since
their fuU useful life had not been served and their products were, and are, still
useful for many purposes, and the cost of retaining rather than scrapping such
mills was not appreciable. Thus, the policy of most corporations has been to
retain such plants as reserve capacity, and this policy is justified by the fact
that the recent sudden increase in demand has already forced into operation
many of such older mills, and is requiring others to be brought into operation
as rapidly as possible.
The capacity figures of recent years have included the capacity of many such
older mills. To say that capacity figures, when compared with production figures
during periods of business recession, show excess capacity is to ignore entirely
the proper distinction between excess capacity and idle, or reserve capacity. The
capacity of the steel industry is not more than sufficient to supply the demand
at the height of the business cycle, even with the utilization of what may be
termed marginal mills, as is'clearly shown by the situation at the present time with
mills operating in excess of 90% of ingot capacity. Apparently the Federal Trade
Commission would wish to see mill after mill scrapped as demand decreased in a
downward phase of the business cycle. It is not entirely clear whether the im-
plication is that this should occur as a voluntary policy of scrapping mills in order
of age or degree of obsolescence, or that it should occur as a "natural" economic
result. At any rate, the Commission contends that the industry should not have
shown a profit during the first six months of 1934 when operating at 40% of
capacity, and it may be assumed from the Commission's statement that the indus-
try would have been expected to show a not inconsiderable loss during such period.
A continuation of such circumstances for any substantial period of time would,
undoubtedly, result in a forced liquidation of many steel producing companies.
Thus, it may perhaps be concluded that the Federal Trade Commission expects
this to be the means by which capacity utilized at periods of high demand would
«' ether qualified commentators have reached the same conclusion. In Daugherty, etc., "Economics
of the Iron and Steel Industry," Vol. 1, pp. 408-410, it is stated:
"A survey of the financial operations of the Steel industry as it is represented by the integrated companies
indicates that it earned but a modest return Xnet income) on its capitalization even in the 1924 to 1929 era.
For those six years the average rate of return on its capitalization was approximately 6.37 per cent. For
the yearj 1931 to 1934 inclusive, losses after charges exceeded net income, with the result that an average
net loss of 1.82 per cent on capitalization was experienced. The relatively low earning power of the steel
industry Is furtner emphasized when it is compared with groups of miscellaneous manufacturing corpo-
rations. From Chart 59 it is apparent that the average annual rate of return on capitalization earned by
both the 60 corporations and the larger sample of 2,046 corporations exceeded the rate of return earned by
the steel industry in every year of the period covered.
"Further substantiation of the relatively low return on capitalization in the steel industry is to be found
in Epstein's Industrial Profits in the United States. Epstein shows that of 106 minor industrial groups,
the 'Citings and Forgings' industry ranked, in percentage of net income to capitalization, 13th from the
lowest both in 1921 and in 1928. This group comprised 99 corporations with an average total capital of
*49.5 millions. Included in this group are foundries, rolling mills, and all kinds of iron and steel plants.
"Explanation of the persistent relatively low rate of earnings in the steel industry is not easily formulated.
It IS, of course, possible that the steel group has placed a higher valuation on its assets than have corpo-
ration in other industries, but the validity of such a surmise cannot be demonstrated. At least, if such
Inflation of assets exists, it does not appear in such items as goodwill and patents. In none of the years of
the period covered did these items exceed 0.3 per cent of total assets."
CONCENTRATION OP ECONOMIC POWER 14647
be eliminated as demand decreased. It is apparently immaterial in the Commis-
sion's view that this method would not necessarily eliminate mills in order of degree
of obsolescence since many other factors, such as the comparative financial strength
of producing companies, would influence the determination of which mills would
disappear. Furthermore, the Federal Trade Commission does not suggest the
means of increasing capacity in periods of rising demand. The length of time
necessary to construct a modern mill, or to rel' bilitate a mill abandoned by a
bankrupt company, would alone cause a considerable lag of capacity behind de-
mand. The necessary amount of capital and the difficulty of attracting capital
under such circumstances would increase this problem. The natural result would
be in the direction of the skyrocketing of prices in periods of rising demand. These
are all factors which should be, but often are not, considered before assertions
are made that total capacity, which includes reserve capacity barely sufficient to
supply peak demands, is excessive, and that "obsolete mills," which constitute
such reserve capacity, are improperly retained.
There remains for consideration the contention that steel prices are inflexible
and that the cause of such inflexibility is the basing point method. Steel prices
are relatively stable, or inflexible, as compared to prices of agricultural products
and other consumers' goods. This is a characteristic of durable goods industries,
which results naturally from relatively inflexible costs, proportionately high over-
head costs, inelasticity of demand, and other factors, and, thus, inflexibility is
not necessarily an indication of monopolistic or price-fixing tendencies. Steel
prices are certainly not entirely inflexible, and no evidence has been brought for-
ward to prove that they should be more flexible or that any advantage to steel
consumers or the community as a whole would result from a greater degree of
flexibility. In fact, a relative degree of stability is essential from the point of
view of the buyer of steel since he must plan his production and his own prices
for advanced periods of time. It is not believed that most buyers of steel would
wish to be forced into the necessity of dealing in "futures" in steel products by
constantly fluctuating market prices, such as are characteristic of the prices of
grain and other agricultural products.
The eff'ect of the basing point method upon flexibility of steel prices could only
be measured accurately by comparison of present prices with prices whi(;h would
have existed in the absence of the basing point method. Such alternative prices
cannot be known, as it cannot be determined what practice would ha,ve developed
if the basing point method had not been used, and thus it cannot be estimated
what effect this other practice would have had upon prices.
Nevertheless, it is probably correct to assume that some features of the basing
point method have contributed to an orderly price structure. For example, the
publication of prices probably has a stabilizing influence on the market, and thus
has some effect upon actual prices, although this influence is subject to many and
powerful counteracting tendencies. The same stabilizing influence would result
from any open price system. It is to be noted, however, that any stabilizing
influence of the basing point method operates more powerfully to prevent prices
from rising than to prevent them from decreasing, since unpublished price reduc-
tions are possible, whereas unpublished price increases do not, of course, occur.
Finally, if it be assumed, merely for the sake of argument, that the basing point
method has had some influence in the retention of older mills as reserve capacity,
it then follows that the basing point method has prevented large increases in
prices in periods of high demand, such as at the present time.
4. UNDUE CONCBNTBATION OF PRODUCTION FACILITIES
Critics of the basing point practice have asserted that it has caused undue con-
centration of production facilities, particularly at Pittsburgh, but also at other
basing points. They have also conter^' 1 that the basing point practice has
resulted in "uneconomic" location of proaucing mills. This may be taken as the
same criticism differently expressed. The criticism continues to the effect that
producing mills should be scattered over the country and assumes that steel
mills would be so scattered had it not been tor the basing point practice. The
following passage from the statement submitted by the Federal Trade Commission
to the Temporary National Economic Committee is an example:"
"Sound competition would be efficient for the nation because it would reduce
wasteful cross hauling, the cost of which the nation must bear. It would promote
decentralized location of mills, tending to favor the growth of numerous scattered
mills close to customers, or in the shortest line between customer and raw material,
an important item in terms of economic stability and of national defense."
** F. T. 0., "Monopoly and Competition in Steel," p. 10.
14648 CONCENTRATION OF ECONOMIC POWER
Under the Pittsburgh Plus pricing method, the mills at Pittsburgh sold steel
products all over the country at delivered prices equal to the Pittsburgh base
price, plus freight from Pittsburgh, thus realizing net mill returns equal to their
base prices. Other mills, in theory, met those delivered prices. Consequently,
the mills at Pittsburgh enjoyed a nation-wide market with normally even mill
net returns. Some critics have concluded that this supposed advantage resulting
from Pittsburgh Plus was the cause of the location of the many large producing
mills at Pittsburgh. They have also concluded that the location of large steel
producing capacities at other basing points has resulted from the basing point
practice.
An accurate appraisal of this criticism would require comparison of the existing
facilities at Pittsburgh and other large basing points with those which would exist
there if the Pittsburgh Plus and basing point pricing methods had not been in use.
Such comparison would require an examination of the extent to which any pricing
practice could affect the location of production facilities, what practice would
have been followed in the absence of Pittsburgh |Plus and the basing point method
and what effect such different practice would have had upon the location of produc-
tion facilities. There is no way by which the present steel producing facilities
can be compared scientifically with those which would have existed under other
conditions. However, it can be pointed out that in many respects the existence
of the Pittsburgh Plus method would have a natural tendency to encourage loca-
tion of mills outside of rather than at Pittsburgh.
Under the Pittsburgh Plus method delivered prices all over the country were
higher than the Pittsburgh base price by the amount of the freight from Pittsburgh.
The mill located away from Pittsburgh realized a higher miU net return on sales
in its immediate territory than Pittsburgh mills. For example, a mill at Chicago,
or other producing points, received a delivered price on sales at such point higher
than the Pittsburgh base price by the amount of the freight from Pittsburgh to
such point; it retained this advantage roughly on sales in directions away from
Pittsburgh ; ■•* and it retained an advantage over Pittsburgh mills in stnaller amounts
in sales toward Pittsburgh up to points half-way between Pittsburgh and the
location of the xiill. This encouraged the location of mills at Chicago, Buffalo,
Bethlehem, Sp; rrows Point, Cleveland, Birmingham, etc., and made possible the
constant expansion of their facilities. The price differentials at basing points
outside of Pittsburgh during the Pittsburgh Plus period and subsequently had
the same effect.
Such statistics as are available indicate that Pittsburgh declined in relative
importance as a producing center during the Pittsburgh Plus period and sub-
sequently.
In Chapter VIII of "The Economics of the Iron and Steel Industry," there is
an incomplete study of the relative capacities in the Pittsburgh district and at
other locations during the years from 1900 to 1934. The author concluded that
Pittsburgh declined relatively in pig iron capacity during that period: "
"(1) Pennsylvania throughout the period 1900-1934 suffered a gradual decline
in its relative importance as an iron-producing state. Inspection of the curve
shows that, in general, in years when total production of pig iron of the country
declined, e. g., 1921, 1924, 1927, Pennsylvania's percentage of total production
decreased. The subsequent increases in the share of total output in years of revi-
val of total production were insufficient to maintain the relative posion of Pennsyl-
vania. Decline in the output of the smaller furnaces in years of falling prices
and the gradual abandonment of such furnaces, together with an increase in the
number of larger stacks in the regions west of Pennsylvania, are behind the changes
noted.
"(2) In sharp contrast to the situation in Pennsylvania were the developments
in Ohio and in Indiana- Michigan. The upward slope of the curves shows strik-
ingly the tendency for pig-iron production to move westward. For most of the
period the gains made in Indiana-Michigan represent developments at Gary, Ind.
In Ohio advances made in the Cl'eveland and Youngstown Valley district soffset
the declining output of the smaller furnaces in central Ohio.
*******
"(4) The sharp decline in total pig-iron production subsequent to 1930 was
accompanied by striking changes in the relative positions of Ohio and Pennsyl-
vania. In 1932, for the first time in the entire period, production c"" pig-iron in
Ohio exceeded the output of Pennsylvania furnaces."
" It was reduced to some extent by the difference between long and short haul rail freight rates.
" Daugherty, etc., "Economics of the Iron and Steel Industry," Vol. I, pp. 33i-337.
CONCENTRATION OF ECONOMIC POWER 14649
This writer found the same trend in the capacity for the production of ingots
and rolled steel products:^'
"Chart 38 presents similar curves for steel ingots and castings, but the lack
of comparable data has made it necessary to omit Alabama. On the other hand,
it has been possible to plot separate curves for Michigan and for Indiana. In
general, where the data are for identical regions, the curves show much the same
slopes as those already noted for pig-iron production and capacity. In Illinois,
however, the percentage of ingot and castings capacity increased sharply after
1929, but at the same time the percentage of production of ingots and castings
declined appreciably. In this instance, the behavior of the percentage curves for
capacity resulted, in part at least, from the erection by one of the large steel cor-
porations of 14 basic open-hearth furnaces with a total annual capacitv of more
than 1,560,000 tons. * * *
"The relative importance of the several regions changes but little when meas-
ured in terms of the production of finished hot-rolled products. Nor do these
regions exhibit any important difference in trends over the period covered. Per-
haps of chief significance is the fact that the decline in the relative importance
of Pennsylvania has not been equally sharp in each of the stages of iron and
steel production. Throughout the period, Pennsylvania has maintained first
place in the production of finished steel products. (It will be recalled that Ohio
surpassed Pennsylvania in 1932 in the production of both pig iron and ingots and
castings.) Inspection of the curves in Chart 39, however, yields no indication
that the downward drift in the percentage of finished steel production will not
continue. Since 1920 Pennsylvania rolling mills have improved their relative
position only in 1926 and in 1929, years of expanding production for the entire
industry. In 1933 and in 1934, total production of the country increased, but
Pennsyjvanv''. plants continued to account for slightly smaller percentages of tot 1
output. The development of the continuous rolling mill and the erection of such
mills in regions nearer to the automobile plants, which are the important con-
sumers of sheet and strip steel, may result in further decline in Pennsylvania's
relative importance as an iron- and steel-producing state."
The Federal Trade Commission's assertion that the existence of basing points
has caused the location of mills at such points may be countered with the fact
that, as a matter of record, with certain minor exceptions,^^ the naming of a basing
point has followed rather than preceded the installation of production facilities
at such points. This is the normal course of development of the basing point
method. The NRA report stated:
"In the growth of the Chicago District's productive capacity, we find early
signs of the natural basing point development, whereby when capacity in a dis-
trict increases to the point where it begins to require all its own market and to
press- for more, it breaks away from the 'mother' basing point, stands on its own
feet and quotes its own base prices which are lower than prices delivered from
distant producing points." ^*
In fact, the location of production facilities has been due to the fundamental
economic traits of the steel industry which have already been set forth, rather
than to any pricing system. The primary factor has been low assembly costs of
raw materials. Large steel producing capacities would be expected in the Pitts-
burgh district independently of any pricing method because of the location at
Pittsburgh in relation to the raw materials necessary in the production of steel.
Pittsburgh is near deposits of the best coking coal, and large supplies of iron ore
can be brought to it cheaply by water from the Lake Superior district with only
short rail haula; Limestone is also readily obtainable. This factor was the cause
of the rise of Pittsburgh as a steel producing center long before the Pittsburgh
Plus pricing method grew up. This consideration also caused the location of mills
at other large producing centers and has been one of the principal determining
factors in limiting the location of steel mills to a comparatively few districts.*"
While nearness to markets is also an important factor, which had an influence
upon the location of existing miUs, it cannot be the determining factor in the
location of a steel mill. The Federal Trade Commission's theory seems to be that
steel miUs should be located near the markets for steel products — in effect that
they should be scattered over the country wherever there is a market regardless
of other considerations. Such location might result in lower transportation costs
for finished steel products but no evidence is presented that this would offset the
*' Jd., pp. 337-339.
*' Certain Gulf Ports were named basing points, although there was little capacity located5near them, in
order to enable domestic mills to meet foreign competition. The effect has not been the installation of
producing facilities at such points.
" NRA Report, p. 39.
•" See the passage from the NRA Report quoted on p. 23, supra.
14650 CONCENTRATION OF ECONOMIC POWER
disadvantage which such scattered mills would have in the transportation costs
of assembling more than four tons of raw materials for every ton of finished steel.
Furthermore, there is an entire disregard "of other costs which would be an
inevitable consequence of an application of the Commission's theory. Concen-
tration of steel producing facilities in a few districts is also due to the economies
of integration. The economies of vertical integration necessitate the location of
steel producing operations near the blast furnaces and rolling mill operations
near the ster 1 producing facilities. A modern integrated mill inherently has large
capacities and its products must be distributed to many markets. The demands
of large markets are often limited to one or a few products. An integrated mill
cannot economically limit its production to one or two products but must have
a wide diversification of products, the demand for which is geographically scattered.
Thus, a location cannot justly be called "uneconomic" unless some other loca-
tion can be shown to be better. The benefits of proximity to a large consuming
market may be offset by high assembly costs. A large steel mill cannot limit
its operations to the few products for which there might be a local demand, and
the small scale operations of a smaller mill would undoubtedly result in high
operating costs with no saving to its customers.' The location of mills upon the
sole basis of nearness to a market would always subject them to local and seasonal
variations in demand, and might well be disastrous if the market should subse-
quently move away because of labor difficulties or other causes. Concentration
of facilities necessarily results from the nature of the steel industry, and present
locations of mills are based upon a proper consideration of the economic factors
involved. They cannot be attributed to any pricing method.
6. EXCESS CAPACITY
Critics of the basing point method have stated that it causes "excess capacity".
For example, the statement recently submitted to the Temporary National Eco-
nomic Committee by the Federal Trade Commission, contained the following
passage : ^*
"The protection of obsolete plants under the umbrella, by retaining excess
capacity in the industry, impairs the incentive to build new and more efficient
plants or to secure a better location."
What is meant by "excess capacity"? What factors should be considered in
determining capacity? Should theoretical output be based upon a 24 hours-a-day
operation, or on some lesser number of hours? Should one deduct for idle time
required by repairs, labor shortage, etc.? Steel capacity figures are generally
taken from the "Directory of the Iron and Steel Works of the United States and
Canada", published by the American Iron and Steel Institute, which has adopted
the following formula:
"The figures of capacity desired'jare your practical capacity, that is, an output
which you feel can be attained under conditions of maximum demand, assuming
adequate transportation service and no serious labor shortage. You are especially
requested to base your figures on j'our usual normal number of operating turns
per week; and to make due allowance for ^uch holidays as you customarily observe,
as well as for average time lost for repairs, relining, and for rebuilding of furnaces."
This definition, among others, is quoted by Dr. Willard L. Thorp, now asso-
ciated w;ith the. Department of Commerce in connection with its work for the
Temporary National Economic Committee, m a study of the relation of over-
capacity to business depressions, entitled "The Problem of Overcapacity." ^^
The criticism of the Federal Trade Commission infers that steel capacity has
been accurately measured against a correct standard and has been found to be
excessive. ' But Dr. Thorp, after noting that unused or idle capacity in the steel
industry is necessary and inevitable, denies that it is possible at present to for-
mulate a test of "excess" capacity. He saj's:
"There is somewhere a degree of excess which, under the techniquee of produc-
tion and the shifts arising in demand, might be considered nctessary, a degree
which is probably taken into practical financial account through charges for depre-
ciation and obsolescence, and through various other forms of liquidation of cap-
ital. * * * A study of excess capacity as a cause of depression would involve,
then, a knowledge of its fluctuations above and below the line of necessary excess.
Such knowledge is only in the smallest fraction available today." ^^
T)ie Federal Trade Commission has probably based its conclusion upon the fact
that the industry during most of the past ten years has operated at a low per cent
cf its reported capacity. This is a sign of idle, but not necessarily of excess capacity.
•1 F. T. C, "Monopoly and Competition in Steel", p. 11.
«» Contained in "Economic Essays in Honor of Wesley Clair Mitchell", pp. 477-495. All references to
Dr. Thorp's views contafned in this section are from this study, and quotations are made by permissloil of
the Columbia University Press.
CONCENTRATION OF ECONOMIC POWER 14651
Dr. Thorp lists the following as being among the causes of idle capacity : *2
1. Seasonal variations in demand. For example, telephone, electric light and
power industries, docks, wharves and ice cream all experience sharp seasonal
fluctuations in demand. (This applies jto some steel products, such as cotton bale
ties, automobile sheets, tin plate, etc.)"
2. Seasonal variations in supply. Canning factories, brick yards and logging
camps are examples of industries which must maintain facilities to deal with one
busy season, and which operate at a low rate during the rest of the year. (Through
storage of raw materials, the steel industry largely avoids seasonal fluctuations in
supply.)^
3. Reduced demand, resulting from technological changes, substitute products,
legal prohibitions, fashion changes, etc. (The steel industry over the last ten
years has experienced a reduced demand for heavy products, such as structurals
and rails, partly compensated by an increased demand for light, flat rolled prod-
ucts.)"
4. Style changes. In certain industries style changes require new machinery,
while the old machinery is retained because it is not worn out. This results in
unused capacity. (In the steel industry style changes occur in finished articles
made from steel products, and such changes are closely inter-related to techno-
logical improvements in the quality of steel products. The one piece steel tops,
deeply recessed steel panels, and sharply rounded, high crowned one piece fenders
of modern automobiles, which may be considered in part style changes, were made
possible by the greatly improved steel sheets produced on modern continuous
rolling mills. The demand for the improved sheets required the installation of
continuous rolling mills, but the old hand mills were retained because their product
was still satisfactory for other purposes, and the capacity of the hand mills was
useful as a reserve.)"
5. Hand-to-mouth buying. In industries in which the carrying of stocks of
their products is risky because of style changes, adequate capacity must be main-
tained to meet sudden demand. (Most steel products are made to meet varying
customers' requirements, but this furnishes no clear basis on which to charge that
excess capacity results.)"
6. Technical advances and obsolescence. New inventions and improvements
may increase the capacity of old facilities, and new equipment may supplant
older facilities which are still usable but not as efficient. Nevertheless, the old
machinery which has not served its full usefuWife is held as reserve capacity and
is usually included in total capacity figures. (The capacity figures assembled
by the American Iron & Steel Institute include the capacity of various so-called
hand mills, which have been largely outmoded by the modern continuous mills.
Many such old mills were retained as reserve capacity, rather than scrapped,
because they had not served their full useful life. The sudden increase in demand
in the fall of 1939 has forced into operation all or most of this formerly idle capacity,
and the existence pf these mills has been of inestimable importance in satisfying
customer requirements. It has also probably been a factor in preventing any
sudden change in prices during this marked upturn iri~the business cycle.)"
7. Planning ahead. After years of steady growth in a given industry's facilities,
new plants will ordinarily be built to accommodate expected future growth,
which in the interim-may result in some temporary overcapacity. (This probably
is true to some extent in the steel industry, in which the building of a plant is a
major engineering job. Additions to already existing steel plants are not easy to
design, and when built are not apt to be satisfactory.)"
8. Competition. The competitive scheme requires that there be at least two
sellers between whom the buyer can choose. As a result, there ^must be some
duplication of capacity. (Some duplication of capacity results from the desire
not only to earn a profit but also to insure against deeper losses for the time being.
For example, following the recent shift in demand from heavy steel products to
light, flat-rolled products, many companies installed continuous sheet and strip
mills, as a long-range program, not only because they thought such facilities could
eventually be profitably employed, but also because they felt they had to do so
in order to stay in the marketr This probably has resulted in some temporary
overcapacity for sheets and strip.)"
Since Dr. Thorp was examining the eS'ect of capacities in producing depressions,
he did not list the business cycle among the causes of idle capacity. Demand
fluctuates enormously through the different phases of the business cycle, particu-
larly in the durable goods industries, as clearly appears from the figures cited
" tarenthetical statements are not derived from Dr. Thorp's essay.
»* Parenthetical statements are not derived from Dr. Thorp's essay.
■ ra449l — 41— pt. 27 34
CONCENTRATION OF ECONOMIC POWER 14652
supra. Naturally, if the industry has facilities to supply the peak or near-peak
demand, it will have idle capacity during the periods of lower demand. Even if
excess capacity were proven, it would be extremely diflficult to establish that any
part of it could properly be attributed to the basing point practice.
The criticism of the Federal Trade Commission may, however, be construed to
mean that the basing point method maintains prices at higher than competitive
levels, thus auracting too many producers and causing the installation of excess
capacity. However, the price of steel over a long period has declined, relatively
to other prices, and the profits of the steel industry have been considerably lower
than the average among industries.
The attack on "excess capacity" has received an emphasis out of proportion to
its real significance. Dr. Thorp says,
"* * * the few indicators which have been gathered together here faU to
provide any final affirmative evidence to support the belief that unusual increases
in productive capacity did much to bring the recession." *
Dr. Thorp notes, for example, that output during the years 1925 to 1929
increased faster than capacity. The NRA Report made the following comment: **
"So far as the installing of new productive capacity is an indication, it is
significant to note that the recent study made by the Brookings Institution:
'America's Capacity to Produce', pp. 251-270, finds no evidence that the per-
centage of excess capacity in the industry had shown any long-run tendency to
increase prior to the present depression, but distinctly the opposite, especially if
the figures are carried back to 1898-1900."
6. ALLEGED PRICE DISCRIMINATION
Steel mills, in general, realize their highest mill net returns on sales to buyers
in the territory nearest to the mills, and, after passing beyond their natural market
territories, progressively lower mill net returns as the distances to the customers
increase.*" As before mentioned, this variation in mill net returns is often
critically, although inaccurately, characterized as "price discrimination," and
because it foUows roughly a geographic pattern, it is sometimes called "geograph-
ical price discrimination."
The basing point method is often criticized on the basis of such a difference in
mill net returns. In a "perfect market", the argument runs, discrimination of this
character would not take place. A seller would then either meet the price deter-
mined by supply and demand and sell in the market at that price, or he would
demand a higher price and, failing to obtain it, would withdraw from active par-
ticipation in the market. But, the critics argue, he would not have two prices for
the same product at the same time and thus would not discriminate in price
between different buyers (ignoring quantity discounts, possible differences in
handlrug costs, etc., which would require some classification of buyers). By con-
trast, according to such commentators, the variable mill net returns realized by a
steel mill on business in different areas are discriminatory, and therefore non-
'competitive. The fallacies in this theory generally, and with reference to the steel
industry in particular, have. been discussed elsewhere in this study. The causes
of variations in miU net returns may be considered here.
(a) So-called "Phantom Freight."
Critics of the steel industry contend that producers charge "phantom freight"
in two types of situations, first, in certain sales by non-basing point mills, sind
8econd,_ on shipments made by a medium of transportation cheaper than that
which is used' in calculating the delivered prices. These may be considered
separately.
(1) Non-Basing Point MiU. — Referring to the foregoing Diagram 3, which is
here reproduced, A and B are basing points, and c is a non-basing point mill.
A is the applicable basing point. The delivered price at X, a point of consump-
tion, is $44 ($40 base price at A, plus $4 freight from A to X). The mill at c, a
non-basing point mill, will meet this delivered price at X, paying only $3 freight
and realizing a mill net return of $41, or $1 more than the base price at A. This
$1 is called by the critics "phantom freight", because, it is said, the mill at c
charges $4 for freight, while it pays only $3. Of course, this criticism is inaccurate.
The mill at c has not charged any freight, "phantom" or otherwise, but has merely
named a delivered price of $44, equal to that of the competitive mill at A.
Diagram 10 shows a more complex picture of the mill net returns of a non-basing
point mill. A is a basing point with a base price of $40, and c is a non-basing point
• See fooinote 52, supra.
M NRA Report, p. 65.
•• See supra, pp. 8, 9.
CONCENTRATION OF ECONOMIC POWER
14653
THE BASING POINT METHOD
Diagram 3: Explanation of first type of Freight Advantage and so-called "Phantom Freight"
Mill at (a) has lowest Base Price plus Freight to [x]
Mill at © charges the same Delivered Price. Having a Freight
Advantage of $1 over (A), © realizes a Mill Net
$1 higher than (A). This $1 is so-called "Phantom Freight".
BASING
POINT
EASE PRICE $40
MILL NET 40
NON-BASING
POINT
NO BASE PRICE <^
FRT ADV. $1
MIU NH 41
DELIVERED
PRICE $44
CONSUMING
POINT
BASING
POINT
-<D
BASE PRICE $40
MILL NET 39
THE BASING POINT METHOD
Diagram 10: Mill Net Returns of Non- Basing Point Mill.
BASE PRICE $40
MILL NET RETURNS TO MILL AT © |
•'0N5UMING FREiGHI
- '^INT ADDED
fBEIGHT
PAID
MILL NCT
RETURN
X $400
JlOO
14300
Y »300
$300
$4000
2 $ISO
$350
$38.00
14654
CONCENTRATION OF ECONOMIC POWER
mill. X, Y and Z are points of consumption. The delivered price at X will be $44,
and the mill at c will meet that price realizing a mill net return of $44 minus $1
actual freight, or $43. This difference of $3 between the freight rates from A to X,
and from c to X, is characterized by such critics as "phantom freight." In fact,
however, the mill at c is only naming a delivered price which will enable it to
realize the proper advantage resulting from its superior geographical location with
respect to a sale at X. At Y the delivered price will be $43, and the mill at c will
pay exactly as much freight as is used in determining its delivered price, realizing
a mill net return equal to the base price of the basing point mill at A, or $40.
The delivered price at Z will be $41.50, and the mill at c will pay $3.50 freight,
realizing a mill net return of $38.00. On this sale the mill at c is said to be abosrbing
$2 freight. Actually, it is merely meeting the competitive price at Z.
Summarizing, the non-basing point mill at c realizes its highest mill net returns
on sales to the customers nearest it, at X for example, and progressively lower mill
net returns as the distance to the customer increases, so long as it is selling toward
the basing point. On sales in directions away from the basing point, it will con-
tinue to realize mill net returns which such critics argue embrace "phantom
THE BASING POINT METHOD
Diagram 11: Freight Rates from Pittsburgh to Certain Important Consuming Centers.
fr
\ Grand Rapids i J^
1| n $680 Y ^—^HpB"*^^'"
) Chicago dL
$740 >
/ j
k i
— JL Toledo /^\\ ,^ ' J /
'"^^~^--~-— J"$V2d^5^;;i>^x^'*^^"" /
Fort Wa/ne c>-4-__I|^^^^^------!!];^^^^^ /
! ^ ■ TjMtsbutgn
•BettileViem ,/
$6_M^,'
Philadelphia
0/ $640
Indianapolis 1 , /
$660 i ■
/
„.-"' ■--. ' -. ;' '
\ A-..-.-'^-"
VrS'
freight", until it begins to sell in territory nearer freightwise to some other basing
point.
This practice of a non-basing point mill of merely meeting delivered prices of
basing point mills when the freight rate from the non-basing point mill is lower is
said to be non-competitive and an evidence of monopoly. The objections probably
arise from two sources. The first is a survival of the criticisms which developed
during the long Pittsburgh Plus period, when almost every mill calculated delivered
prices by adding the freight from Pittsburgh to the destination. Diagram 11
shows roughly the substantial amounts of freight charges from Pittsburgh to
certain important consuming centers. This diagram is based upon existing freight
rates, which have not chg,nged greatly since 1922. During much of the Pittsburgh
Plus period, however, the freight rates were lower, the major increases coming
during and immediately after the last World War. It should be noted, moreover,
that price differentials over Pittsburgh at outlying basing points were a nati^ral
part of the development of the basing point practice. New mills needed higher
prices in order to cover their higher costs, and to provide capital funds for expand-
ing their facilities. Pittsburgh, on the other hand, stood in need of wide market
territories to provide an outlet for its capacity, and it was natural for the price
there to be lower. The conditions illustrated by Diagram 11, however, have not
CONCENTRATION OF ECONOMIC POWER 14655
existed for more than 15 years. Since 1920, the number of basing points has
steadily increased, and the basis of this criticism has correspondingly diminished.
A second source of misunderstanding about this practice of non-basing point
mills is the idea that it is made possible by some act of monopoly. Professor
Fetter, for example,"- in his testimony at the March, 1939 hearings before the
T. N. E. C, explained the origin of "phantom freight" roughly as follows: First
there are two widely separated cities, with a number of producers at each. The
producers at each city compete with each other in the local market, and the
market price at each city determines what part of the area between the cities
will buy from each group of producers. Now, he says, the producers at one city
may merge. There will be no competition in that city, and the merged concern
will simply adopt the market price at the other city, (i. e., use that other city as
a basing point) and collect "phantom freight" on sales in that part of the sur-
rounding territory which is nearer to it than to the basing point. The merged
concern thus would realize its ^nghest mill net returns on sales in the area im-
mediately around its mill and progressively lower mill net returns as it sold to-
ward the other market."
While Professor Fetter did not state that he was describing actual occurrences
in the steel industry, his language might have been so understood. In any case,
this is not a true story of the steel industry. As steel producing capacity was
installed at points outside of Pittsburgh, the distant mills confined then^selves to
meeting Pittsburgh Plus prices instead of setting up prices of their own. They
could easily do so as long as the demand in their locality exceeded the local pro-
duction, and in so doing they were only taking advantage of their superror geo-
graphical location. No record has been found of any steel producer originating
a basing point at another producer's mill, or of an existing basing point being
eliminated.
In further analyzing this criticism, separate consideration may be given to (i)
mills far from a basing point, and (ii) mills near a basing point.
(i) Mills Far From a Basing Point.- — ^As has been pointed out, mills at a con-
siderable distance from a basing point have a freight advantage over other mills
in selling to buyers in the territory around their mills. They behave competi-
tively and naturally when they charge their customers a price which realizes that
advantage. They are merely reaping the benefit of their superior geographical
location, as compared with competitive steel mills. They can scarcely be .ex-
pected to offer lower prices than their nearest competitors until further competi-
tion forces them to do so. The advantage of a non-basing point mill cannot be
taken from it except by the erection of another mill near it or between it and its
best markets. It is interesting to note that a representative of the Federal Trade
Commission expressed this same opinion before the Temporary National Eco- ,
nomic Committee.*'
"I would say that under our competitive system, a man who is particularly
well located as regards his raw materials, and his market, will charge, and unde:
our system is expected to charge, a good fat profit until somebody else puts in a
plant and competes with him."
The NRA Report also supports this position: '9
"Akin to the preceding point is the criticism, on the grounds of justice, of
the relatively high prices paid by customers located close to mills which do not
happen to be basing points. For such customers, located near a non-basing
point mill in the direction of its governing -basing point, the less freight cost
actually incurred, the higher price is charged.
"It is hardly necessary to point out that this criticism depends on the assump-
tion that the customer has a right to a price based on the freight service he
actually uses rather than the higher freight for the longer haul from the more
distant basing point — a haul which he does not use. It may seem strange to
call this an assumption, since to many it is a self-evident truth. Yet it will repay
some examination. In the utmost strictness, the customer is not literally paying
for the freight haulage which he does not use; he is merely paying a price for
steel which the nearby producer is enabled to charge through the protection
afforded him by the barrier of a long freight haul from his competitor's mill."
At a later point in this NRA Report, it is said: «"
"As for the producer who is located at some distance from any competitor,
there is no reason why he should, under competition, be compelled to charge a
" T. N. E. C. Record, pp. 332-3.
!! '^l: Eugene W. Burr, in the March 1939 hearings before the T. N. E. C— T. N. E. C. Record , v 3lf
" NRA Report, pp. 71-2.
•» NRA Repor p. 127.
14656 CONCENTRATION OF ECONOMIC POWER
base price to his nearest customefs and add the actual freight to all customers at
a greater distance. On the principle formulated above, that he is governed by
the best alternative offer which is open to his customer, it is quite likely that the
farther he goes from his own mill, the lower is the price at which his customers
can get goods from some rival, because the customers are nearer to the rival's
miU. Thus an isolated producer may start immediately from the door of his
mill to charge his customers the freight which his competitor has to pay, instead
of the freight he has to pay himself, and as a result he may charge his nearer
customers a higher price than his more distant ones, from the very start, at least
in the direction in which the mills of his most active competitors lie."
These excerpts support the propriety of a non-basing point producer realizing
the benefits of his geographical location in selling to customers near his mill.
A still stronger case is presented by the steel mill which needs high prices in
its most profitable territory in order to survive. A new producer, or any pro-
ducer in a period of low demand, may require aU the profit it can realize from
sales to its nearest customers in order to cover its total costs. This is particularly
true when the producer, in order to obtain an economical rate of operation, must
sell a large. part of its cuitput in more distant markets, paying large amounts of
freight to reach such markets. The NRA Report recognized this fact: «'
"In an extreme case, the producer who charges his nearby customers the
highest prices may not be able to afford to charge them any less, despite the
apparent contradiction involved in his voluntarily making lower prices to other
customers who are farther off, that is, he may conceivably need all the benefit
he can get from the utmost discrimination which his market situation permits,
in order to cover his total costs at all. Asshming such, a case to exist, if this
producer were not allowed to charge high prices to a nearby customer, he would
merely be forced out of production, and the customer would gain nothing in
the way of lower prices, but would lose the convenience of being able to get
service from a nearby source. This extreme case is not very likely to be found
in practice, but it is possible.
"If a plant of this character becomes a basing point, the chances are that
it will automatically settle the question by quoting prices not much lower than
the prices it now receives from its nearby customers. And plants which are
in a stronger position are likely to be able to afford the luxury of putting their
nearby customers on a more favorable basis by quoting basing point prices
more nearly comparable with those in force at other basing points. Thus, if
the customers are discriminated against simply because the producer near whom
they are located is a weak producer, the discrimination will not be removed;
but if they are discriminated against arbitrarily by the system, then the estab-
lishment of new basing points will be Ukely to remedy the case."
Even if a producer were compelled by some outside force to name a basing
point at his mill, he probably would minimize the effect of the change by quoting
a high base price. Diagram 12 illustrates the technical consequences of such a
change. A has long been a basing point, and C represents the location of a mill
which has only recently announced base prices at this point. The base price at
A is and has been $40. The mill at C has been meeting delivered prices calculated
by reference to A, and consequently has been realizing its highest mill net returns
on sales in the territory closest to it. Delivered prices have been highest in the
territory farthest from A, no matter how near the purchasers were to C. Upon
announcing base prices at C, the mill at C still needs the highest mill net returns
it can get, and accordingly it announces a base price of $45 at C. The line 0-0
represents the boundary of the natural market territories of the basing points as
determined by these prices, i.e., the territory in which each mill can quote a
delivered price equal to its own base price plus freight. On sales at any point on
its own side of the line 0-0 the mill at C will now realize "a mill net return equal
to its base price of $45. But in selling past the line 0-0, for example, at Y, the
mill at C could still be accused by such critics of adding more freight than it
pays on the theory that C is adopting A's base price. In fact, however, C is
merely meeting A's delivered price at Y and thus taking advantage of its own
superior geographical location. The same accusation could be made of sales by
the mill at C in all of the territory on A's side of the line up to the point where
freight rates from A and C are equal.
When the mill at C names a base price of $45, the effect is to lower prices slightly
on its side of the line 0-0, while on sales beyond that line, neither the previous
level of delivered prices nor C's mill net returns will be changed.
•1 NRA Report, pp. 72-3.
14657
CONCENTRATION OF ECONOMIC POWER
Thus, the previously existing scale of delivered prices in the territory around
the non-basing point mill can and undoubtedly will remain about the same even
though the mill becomes a basing point. The possibihty of a non-basing point
miU realizing mill net returns higher than those obtained by competitive miUs at
basing points is not due to the absence of a baaing point, but to a geographical
advantage over these other mills — an advantage which a representative of the
Federal Trade Commission, in the excerpt quoted above, has said should be
retained by the well located mill until the erection of competing facilities near
its location takes that advantage away.
The accuracy of the assumption made in the NRA Report that a mill ir a'
strong position, upon becoming a basing point, would quote substantially lower
prices to its nearby customers, is open to question. It would appear much more
likely that an isolated producer, whether strong or weak, would quote delivered
prices which would enable it to realize its freight advantage as against other
competitive mills. If it did not, then, as the NRA Report says in another pas-
sage, it would be following some non-competitive principle. Of course, it is pos-
THE BASING POINT METHOD
Diagram 12: Effect of Differential between Prices at Basing Points.
In selling at [x] or any point up to the Boundary 0-0 of its Market
Territory, (C) realizes its Base Price.
In selling at [Y], (C) realizes less tfian its Base Price, altfiough
it adds more Freigfit than it pays.
0
BASE PRICE $40
Ljj delivered
PRICE J46
BASE PRICE {«
o
BOUNDARY
sible that other competitive factors would make it advisable for an isolated pro-
ducer to establish a base price and substantially to lower delivered prices in its
local territory. An example of such a factor- would be the desire to enable its
local fabricators to sell in more distant markets. But the fact remains that the
strong as well as the weak producers are behaving competitively and naturally
when they charge prices which reflect their freight advantage over other producers
on sales in their local territories.
Thus, the behavior of non-basing mills, erroneously described as realizing
"phantom freight", is not to be construed as the critics construe it — as a symbol
of the absence of competition. It is, on the contrary, truly competitive behavior,
but of a type which varies from the assumptions of "perfect competition", because
marketing conditions in the steel industry are more complex than those which
were assumed in developing the concept of a "perfect market".
The following statement from the NRA Report indicates an appreciation of the
true situation:
"* * * one competitor's price to customers is governed or limited by the
price charged to these same customers by the rival whose price the first com-
petitor has to meet if he is to sell goods to these particular customers. If the
rival's price includes the rival's freight costs, then the pri' twhich the fitst com-
petitor has to make includes his rival's freight charges ra\ r than his own. If
14658
CONCENTRATION OF ECONOMIC POWER
his own freight costs happen to be, lower, and if he gives the customer the benefit,
he is giving the customer a lower price than competition forces him to give. In
other words, he is following some sort of a non-competitive principle rather than
a competitive one." **
(ii) Mills Near a Basing Point. — The above discussion has concerned mills
located at a considerable distance from a basing point. Mills located within a
25 or 50 mile radius of a basing point city are generally considered basing points
mills. However, some mills may receive delivered prices which yield a mill net
return higher than their base prices, due to their being located in the industrial
area of a basing point city, but not within the switching limits of such city. Dia-
gram 13 shows what might be called a typical situation. It was suggested by the
location of mills in the Pittsburgh area, although it does not purport to be an
accurate representation of that area. The irregular rectangular area near the
center of the chart marks the switching limits of a basing point city. A, B, C,
D, E, F, G and H are mills, aU located within a 50 mile airline radius of the basing
point city, and X is a near-by consuming point. All of the mills announce base
prices at the basing point city and quote delivered prices based upon such basing
THE BASING POINT METHOD
Diagram 13: "Phantom Freight" and Freight Absorption in Immediate Basing Point Area.
CONSUMING I V
POINT I '^
SWITCHING LIMITS
OF BASING
POINT CITY
MILLS
■PHANTOM
rdElCMT"
FRtlGMT
••SORPTION
A
t0.2S
• -
B
»050
-
C
to 10
-
0
-
tioo
E
-
-
f
-
JO 25
G
-
$0.10
H
-
tO.M
point. On sales to customers at X, only the single mill E, which is inside the
switching limits of the basing point city would realize the exact base price. Any
other of the miUs which sell products at X, would in the eyes of the critics realize
"phantom freight" or absorb freight, depending upon whether freightwise they
were farther from or nearer to X than is the mill at the basing point city. Since
freight rates on steel products for short hauls are comparatively high, the varia-
tion among their miU net returns might be as much as a dollar and a half per
ton, as indicated on the diagram, but the amounts which they might realize over
their base prices are of no consequence to either producer or consumer.
The problem here is different from the problem of mills located far from a basing
point, not only in the amounts of freight involved but also in the reason for
merely meeting competitive delivered prices. Freight rates from all outlying mills
to most consuming points are the same as, or within a few cents of the rates from
the basing point city to such points. Customers consider all of the mills as located
at the basing point city. It would be difficult for producers and customers alike
to calculate freight rates from the obscure suburban stations nearest the mills,
while the rates from the basing point city are more easily ascertainable. Thus,
»2 NRA Eeport, p. 125.
CONCENTRATION OF ECONOMIC POWER 14659
convenience dictates the announcing of base prices at and the calculation of
delivered prices upon the basing point city.**
The reason for the practice of such mills can be better understood by examining
the consequences of prohibiting it. This is illustrated by the detailed map of the
Pittsburgh area shown facing page 90.* Then each mill located in the area near
the present basing point would have its own base price, and would realize that base
price exactly on every sale. To calculate a delivered price at any destination near
the basing point and in the vicinity of these many competitive mills, the base price
of each of these mills and the freight from each mill would have to be considered.
The resulting inconvenience is obvious. Each mill would have a monopoly in a
few towns in its immediate neighborhood, and there would be a few towns in which
more than one mill could sell. A slight induction in base price by one mill would
enlarge its exclusive territory, but all other mills would be forced to follow such
reduction, or else be excluded not only from most of their nearest markets, but
also from all markets to which freight rates from the group of mills were the same.
To prohibit the practice of announcing prices at the basing point city, instead of at
the actual mill location a few miles away, would involve a very great trouble for
THE BASING POINT METHOD
Diagram 4: Explanation of second type of Freight Advantage and socalled "Phantom Freight"
Mill at (B) has lowest Base Price plus Rail Freight to [x]-
Mill at (a) charges the same Delivered Price.
When mill at (A) ships by water it has a Freight Advantage
of $1 and realizes a Mill Net $1 above its Base Price
This $1 is socalled "Phantonh Freight"
BASING CONSUMING BASING
POINT POINT POINT
rr\- J--^^LiI'-i:}Jt nn^ rwEiGHT $3 /y.
BASE PRICE $40'*^'=^''='^'^=====^DELIVERED BASE PRICE $40
FRT AOV. (WATER) 1 FREIGHT (WATER) $2 PRICE $43 MILL NET 40
MILL NET $41
Note: When mill at (a) ships by rail it is al a Freight Disadvantage
of $1 and realizes a Mill Net $1 below its Base Price
a very small gain, if it would, under any circumstances, be a gain at all.^^ One
should also note that while a mill may realize small amounts in excess of its base
prices on some sales in its own local district, it must accept returns less than its
base prices on other sales in the same district, in order to meet competition, so
that it is very doubtful whether any miU in a basing point area realizes any net
gain even on sales to its nearest customers.
(2) Use of Cheaper Means of Transportation. — Referring to the foregoing
Diagram 4, which is here reproduced, the mill at A must "absorb" $1 freight if it
sells at X and ships by rail. On the other hand, if it ships by water, it will pay
$1 less freight than it uses in calculating the delivered price, and will realize a mill
•Of the original document.
" Tlie same reasoning applies to tlie so-called "switching arbitraries". Before the adoption of the NRA
Code, all mills sold to a customer located within the switching limits of a basing point at the base price,
without adding any freight. Freight rates vary even within switching limits. The variations are not large
and the most convenient way of calculating the delivered price was sirriply to add no freight. Under the
Code the practice was developed of adding to the base price a so-called "switching arbitrary" of 2i^c a
hundredweight (3c a hundredweight in the Chicago-Gary switching limits)£or delivery within the switch-
ing limits, and the practice has generally been followed since the Code. Since the actual switching rates
vary, the mills may be said to realize "phantom freight" on some deliveries, and to absorb freight on others,
but the amounts involved in either case are insignificant.
'* Many of these points are noted in the NRA Report, pp. 104-107, and p. 173.
14660 CONCENTRATION OF ECONOMIC POWER
net return $1 higher than its base price. As before mentioned, this $1 has been
called "phantom freight" by critics of the basing point method.
The same result would be reached if the mill at A could ship by truck to X for $1
less than the rail freight from B. This $1, too, would be called "phantom freight"
by such critics.
This practice is criticized because it is said that the mills are keeping to them-
selves all the benefits of the cheaper forms of transportation which they employ.
Critics assert that the mill should sell to any customer at the mill for its base price,
and should let the customer arrange for shipment by any means that appeals to
him. For example, in Diagram 4, the mill at A should, it is said, sell steel at its mill
to the customer at X for $40 per ton, because that is its base price at A, and
should let the customer ship the steel by water himself, with a total delivered
cost to him of $40 plus $2, the cost of water transportation, or $1 below the pre-
vailing delivered price at X.
Likewise, the argument continues, the customer should be permitted to arrange
for delivery by truck or any other available kind of transport cheaper than aU-rail,
such as rail-and-water.
THE BASINS POINT METHOD
Diagram 14: Water Shipment may merely reduce Freight Absorption.
Mill at ® absorbs $2.50 Freight when shipping to [x] by rail.
It absorbs only $.75 Freight when shipping to 0 by water.
BASING
POINT
BASE PRICE HO
(i) Water Deliveries. — In discussing Diagram 4, a case was assumed in which
the mill shipping by water realized a mill net return which was $1 over its base
price. On such a shipment, critics say, the benefit of the cheaper transportation
should be given to the customer. The answer is that if the mill is the only one
which can reach the destination by water, there is no competitive reason why it
should give the benefit of the lower transportation to the customer. In fact, if it
did so, it would be following some non-competitive principle. Consequently,
critics are obviously mistaken when they contend that the alleged collection of
"phantom freight" on such deliveries is evidence of a lack of competition. The
same conclusion follows when some, but not all, of the competing mills are able
to reach a destination by water, and all of these particular mills retain the benefits
of the cheaper water transportation when it is used by them.
Water shipments, even though they may cost less than rail transportation,
do not always, however, result in the miU realizing more than its base price.
In Diagram 14, A and B are basing points, each with a base price of $40, and X is a
consuming point with a delivered price, calculated from B, the applicable basing
point, of $42. When the mill at A ships to X by rail, it realizes $42 less $4.50
actual freight or $37.50, — $2.50 less than its base price. If it ships by water to X,
it realizes $42 less $2.75 actual freight, or $39.25 — $0.75 less than its base price.
CONCENTRATION OF ECONOMIC POWER 14661
That is, the use of water transportation by the mill at A for shipments to X does
not yield a mill net return above its base price, — it merely enables the mill at A
partially to overcome its freight disadvantage as compared with B. It can hardly
be said that in such a case the consumer at X is being discriminated against.
Such situations comprise a vast majority of shipments by water and include most
of the water shipments to the Pacific Coast, the Gulf of Mexico, Lower Mississippi
River points and principal Great Lakes consuming centers.
It may be argued that this is no reply to the criticism as applied to instances
in which the mill actually does realize more than its base price on a water ship-
ment. However, a general review of the revenues of a miU on navigable waters
puts the matter in a different light. In Diagram 15, A is a basing point, located
on a navigable river, and the irregular circular line marks its natural selling terri-
tory based on rail freight rates. So long as A ships by rail, it has a freight disad-
vantage on sales outside of this line, because it is hemmed in by competitive mills
at other basing points. The use of river transportation, however, increases the
areas in which A can sell without a freight disadvantage, as shown by the dotted
lines. Beyond the dotted lines, A has a freight disadvantage even if it ships by
THE BASING POINT METHOD
Diagram 15: Natural Selling Territory increased by use of water route.
BOUNDARY OF NATURAL
SELLING TERRITORY ON
RAIL SHIPMENTS
BOUNDARY OF INCREASED
NATURAL SELLING TERRI
TORY RESULTING FROM
WATER SHIPMENTS
water, but the lower water freight cost will reduce the freight disadvantage below
that present in a rail shipment. The mill at A will realize more than its base
price on sales to points within the dotted lines, but since on all other water ship-
ments it will still be "absorbing" freight, it may not, on the whole, be profiting
by the use of water transportation, — it will merely be reducing its freight disad-
vantage. Hence, from the point of view of successful operation of the mill, it is
natural and even necessary for A to keep the advantages resulting from some
water shipments in order to offset disadvantages resulting from other shipments.
It should also be remembered that water transportation, if available, can be
used only on a limited class of business. Ordinarily, only orders of 200 tons or
more can be carried economically by barge, and the minimum load for shipment by
boat on the Great Lakes or oh large rivers is also considerably larger than for rail
transportation. Furthermore, water delivery is slower than rail delivery and
consequently the customer must be willing to wait. This means that much of the
steel carried to towns which are accessible by water moves by rail because buyers'
requirements are too small or because buyers demand quicker delivery. At the
same time, a mill located on water is probably absorbing large amounts of freight
on shipments outside its local market territory. Consequently, it seems proper
for the mill to keep such savings as it -can effect through the use of water trans-
portation, until it is compelled by c(Sbapetition to give up this advantage.
14662 CONCKNTRATION OF ECONOMIC POWER
Competitively, there is a good reason why a mill located on water is not dis-
posed voluntarily to give customers the advantage of cheaper water delivery.
Suppose that a new mill is built, which is ideally located for shipment of its
products by water, and can so reach many towns which are inaccessbile to any
other mill except by rail. Assume that it can reach town X by water for $1 less
than the prevailing delivered price at that destination. Suppose that the mill
makes a delivered price at X, based on water freight, $1 less than such prevailing
delivered price. It will, of course, quote that delivered price only on business
which can actually move by water, which means that the buyer must order a
minimum of 200 tons at one time, and must be willing to wait for water delivery.
These requirements in themselves greatly limit the number of customers who can
take advantage of the lower price, and these limitations are imposed not by the
steel mills but by the natural circumstances of water shipment. However,
some customers may take advantage of the lower price. Competitors will find
out about the new price and will meet it. That is normal practice in the steel
industry. One might expect that so long as competitors merely met the cut, the
customers would keep ordering from the mill which initiated it, by way of a
reward. But the competitors meeting the lower delivered price will be inland
mills, which cannot ship by water. In addition to meeting the new price, these
inland mills will offer other inducements, for they will ship by rail, which is faster,
and will require a minimum order of only a 20-ton carload, instead of 200 tons.
Salesmen naturally will emphasize these advantages and buyers will welcome
them. Moreover, the inland mills will not confine the lower price to the few
customers who are able to order in 200-ton lots, as the first mill did; the 200-ton
minimum which applies to water shipments wiU have no significance for a mill
which must ship by rail in any case and the lower price will be extended to cus-
tomers to whom the first mill would not have given it. Consequently, the first
mill will find that the delivered price at X has fallen by $1 and that inland com-
petitors, by accepting smaller orders and delivering more quickly, are taking the
bulk of the business there. It will ultimately be forced to ship by rail also and
perhaps to accept mill net returns less than its base price. The net result will
be to lower the delivered price at X, while aU or most of the steel used there will
still be carried by rail.
When competitors find that a lower delivered price has been made at one
destination on navigable water, they may themselves initiate prices based on
water freight at other towns, similarly located, believing that the first mill has
made or will name lower t)rices all along the water route. Lower prices may
thus extend from town to town, into areas in which the first mill intended to
maintain its delivered prices based on rail freight. After buyers have become
accustomed to the new price level, they may begin again to put pressure on the
first mill to cut the prevailing delivered price by the amount of its savings on
water shipment. And so the circle may be traversed again.
Price reduction of this kind throws delivered prices along the water route out
of relation to the ordinarily applicable base prices. Such price changes spread to
inland shipments. Frequently consumers located away from water are in com-
petition with consumers on the water, and they will insist that the lower price
should be given also to them. A steel mill is reluctant to see any customer losing
his market, because that means a loss of business for the mill. Consequently,
inland customers after a period of time, are apt to be given the lower price, merely
because it is applicable to their competitors on the water route, thus tending to
reduce the entire price level in a large area with no ultimate advantage to the
mill initiating the lower delivered price.
Apart from theoretical considerations, however, it may be stated that the
problems of water transportation have been greatly exaggerated by critics of the
steel industry. In actuality, water transportation is not available to the extent
suggested by the criticisms nor to the extent which might be supposed merely
from a study of the location of steel mills and markets in relation to waterways,
since there are many limitations to water transportation, the most important of
which is that only very large tonnages can ordinarily be transported economically
by water. Customer demand for water shipments is negligible and the only
basis for such demand is the possibility of a saving in delivered prices, since
water delivery is much slower and involves other inconveniences to the buyer.
In a great many situations, charging the customer the water freight rate from the
mill to the destination would not result in lower delivered prices than charging
the rail freight rate from the applicable basing point to the destination, in view
of the number and location of existing basing points. In many instances, where
lower delivered prices would result, the actual water rate is charged or the cusr
tomer is given all or a part of the saving resulting from water transportation.
CONCENTRATION OF ECONOMIC POWER 14663
(ii) Truck Deliveries. — When delivery by truck is cheaper than rail delivery,
if the mill includes rail freight in calculating the delivered price, it will realize
more than its base price. Critics will contend that it has charged "phantom
freight". The situations with respect to which this criticism may be made,
however, are limited by several factors.
Although almost any steel product can be shipped by truck, not every product
can be shipped economically in that way. Light, flat rolled products are the
easiest to load and to transport by truck. Many types of wire products also can
becarriedeconomically by truck. But the shipment by truck of heavy products,
s ich as structural shapes, plates, heavy tubes, etc., which usually are ordered in
carload quantities, is almost certain to cost more, both in money and in incon-
venience, than delivery by rail.
Large- consumers of steel, moreover, are usually equipped with railroad sidings,
cranes, and other machinery for large-scale railroad car unloading operations.
The use of trucks, which carry smaller loads, would][require the installation of
new equipment, while the smaJer scale of operations would make it doubtful
whether any savings could be realized, even if the cost of transporting by truck
should be lower than by rail.
While there is considerable demand for delivery by truck of some products,
it is primarily with a view to obtaining quick delivery of small quantities from
nearby mills, rather than any advantage in delivered prices. Truck freight rates
are generally substantially the same as rail freight rates for corresponding quan-
tities, except in a limited weight range, and are not infrequently higher. On
deliveries within the rail switching limits of producing centers, truck freight rates
are almost always higher than the rail switching rates, and, on carload quantities,
substantially higher. Also to be considered is the additional cost and incon-
venience of loading trucks, which reduces any possibility of advantage to the
mills. Subsidiaries of the United States Steel Corporation -seldom receive any
advantage from truck deliveries, and lose, rather than gain, on truck shipments
as a whole. This is believed to be true of the steel industry generally.
Large consumers usually have found it unprofitable to use their own trucks in
assembling raw materials at their plants. Trucks belonging to such an industrial
company are generally forced to make an empty trip from the plant to the source
of the raw materials. The use of trucks produces a saving only when the trucks
have a pay-load both coming and going. An industrial company could fill its
trucks on runs in both directions only by maintaining a staff to find business for
the trucks, which would mean entering a new and competitive business as a side-
line.
A practice generally exists in the steel industry of including in the delivered
price to a buyer, who accepts delivery by sending his own truck to the mill, the
rail freight from applicable basing point to destination, and allowing him a credit
equal to 65% of the rail freight from mill to destination. This might be construed
to mean that the buyer always pays one-third of the rail freight used in calculating
the delivered price for the privilege of taking delivery by his own truck. This is
true, however, only when the mill is at the basing point freightwise nearest to the
buyers' destination. If the mill is not at any basing point, the effect of this
practice will be either to increase the amount realized by such mill in excess of the
base price at the basing point as a result of its geographical location, or merely to
decrease the freight absorption which would result from a rail shipment. For
example, suppose that the buyer is located $.50 "freightwise from the applicable
basing point, while the mill is only $.12 freightwise from the destination. In this
case $.50 per hundredweight will be included in the competitive delivered price,
while only two-thirds of $.12 or $.08, will be allowed as a credit, thus resulting in
a mill net return of $.42 higher than the base price at the basing point. If the
mill had shipped by rail it would have realized $.38 higher than the base price at
the basing point. Conversely, suppose the buyer is located $.10 away from the
applicable basing point, while the mill is §.30 freightwise away from the destina-
tion. In this case $.10 freight is included'in the delivered price, while two-thirds
of $.30, or $.20 will be allowed as a credit, thus resulting in a freight absorption
of $.10, as compared with $.20 which the mill would have absorbed if it had
shipped by rail.
Freight absorptions may also occur in the case of mills at basing points. For
example, suppose that both Chicago and Cleveland are basing points, that a buyer
locatec $.10 freightwise away from Chicago sends his own truck to a Cleveland
mill, perhaps in an effort to obtain a quicker delivery, and that the freight from
Cleveland to the destination is $.33. The mill will include $.10 freight in com-
puting its delivered price (based on Chicago as the applicable basing point), but
will allow a credit of $.22, which results in freight absorption of %.1'Z.
14664 CONCENTRATION OF ECONOMIC POWER
The practice of including in the delivered price the full rail freight from the
applicable basing point and allowing a credit of only 65% of the rail freight from
mill to destination is primarily due to the fact that the loading of trucks is more
costly and inconvenient than the loading of railroad cars. It is undoubtedly true
that truckloading generally costs more, and often considerably more than railroad
carloading, although this is not universally the case. The inconvenience to the
mills and indirect costs resulting therefrom is considerable at almost all mills.
Such inconvenience arises from the problems of routing trucks through the grounds
of large works, waiting for late trucks, arranging for trucks at the buyers' request,
interruption of railroad carloading operations, etc., and is greater in the case of
buyers' trucks. Undoubtedly the additional cost and inconvenience of loading
trucks justifies an extra charge, particularly at older mills which were planned
exclusively for carloading, and offer little possibility for installation of truck-
loading facilities.
In summary, the answers to the criticism of "phantom freight" supposedly
realized by steel mills on truck deliveries may be summarized in the following
points: first, only an extremely small proportion of steel tdnnage is delivered by
trucks, partly because many products cannot be economically hauled by truck,
and partly because large consumers prefer rail delivery. Secondly, truck move-
ments frequently result in freight absorptions, sometimes because of the 65%
allowance for shipments in buyers' own trucks, and also, because of deliveries
within the switching limits of basing points, where only the "switching arbitraries"
are included in the delivered price. Third, the rates of common carrier trucks,
regulated by governmental agencies, are seldom much lower than rail freight rates,
and sometimes are higher. Fourth, at the majority of miUs it costs more to load
steel into trucks than to load into railroad cars, and furthermore delivery to trucks
involves inconvenience, loss of time, and other similar considerations which cannot
easily be translated into dollars and cents. It seems clear that the mills are not
profiting as a result of truck deliveries. The criticisms on this score are more
theoretica than real.
(b) Freight Absorption.
(1) General Discussion. — When a miU competes with another mill which is
closer freight wise than it is to the destination, it must meet the delivered price of
such competitive miU in order to obtain the business. This usually results in the
first mill not realizing a mill net return equal to its base price. Such difference is
said to be "absorbed" freight. This practice has sometimes been criticised as
discriminatory, because it is contended that the mills realize their highest mill net
returns on sales to their nearest customers and progressively lower mill net returns
as the distance to the customer increases. Critics saj' that under "perfect com-
petition" the same mill net return would be realized on sales to every customer,
with only such differences as were brought about by changes in the market price
due to supply and demand. They contend that under the basing point practice
the mills permit other mills to sell in their local territories, and, conversely, they
themselves sell in the local territories of other mills, always at the delivered price
calculated with reference to the applicable basing point, and with discriminatory
mill net returns.
It is true that freight absorption of this kind and variable mill net returns were
not contemplated by the classical theory of "perfect competition." Critics of the
basing point practice ignore the fact that "perfect competition" is an abstraction,
and was not intended, by the economists who developed it, as a standard to which
all industries should conform. Furthermore, as has been pointed out, they as-
sumed a freightless market so that neither buyer nor seller needed to be concerned
about transportation costs. ^^ Freight absorption is not by any means rare, or
confined to the steel industry. Some customers of department stores, corner
groceries, etc., carry their purchases home, while others have them delivered at
no extra cost. Candy bars and cigarettes are sold at uniform prices all over the
country and at varying distances from the factories where they are made. Com-
peting railroads charge the same rate between two cities, though one ot them may
have a longer route than the other. These few examples will suffice to show that
freiffht absorption occurs over a wide range of industry.
The competitive reasons for such a practice in the steel industry can best be
understood by considering the problems of a producer located at a particular
«« See the testimony of Prof. F. A. Fetter before the Temporary National Economic Committee, T. N-
E. C. Record, p. 329. In the discussion of Prof. Fetter's theory of markets, the following question was
asked:
Mr. Frank: This is a picture of a railroad-less world?
Professor Fetter: Yes, it is really, of a non-transporting price. A freightless market, in other words.
CONCENTRATION OF ECONOMIC POWER 14665
producing center — Pittsburgh, for example. The mills in the Pittsburgh district
have a freight advantage over outside mills in selling in their own local territory,
that is, in and around Pittsburgh. Naturally, therefore, they will quote delivered
prices which realize as fully as may be this advantage of location over their farther
away competitors. The discussion of the location of steel mills has shown that
the most economical locations are those near the sources of raw materials. Con-
sequently, capacities of steel mills in those areas are usually large enough to
supply much more than the local demand. The producer in Pittsburgh undoubt-
edly will have facilities of such size that the fuU output thereof cannot be sold in
the area in which he has a freight advantage over other mills. He may choose
between three courses. First, he may sell as much of his output as he can in the
area around Pittsburgh, and not attempt to dispose of the balance of his output.
Or, he may lower his base price in an effort to expand the area in which his de-
livered price will be as low as or lower than that of his competitors at other basing
points. Or he may maintain his base price on sales in the Pittsburgh area, and
sell the rest of his output in territories nearer to other mills by meeting the de-
livered prices of such competitive mills, thus realizing lower mill net returns on
such sales than on sales in the Pittsburgh district.
The producer is not apt to be content with selling only that part of his output
which can be disposed of in the territory around Pittsburgh at the prevaifing
prices. The resulting low rate of operations would greatly increase his unit costs,
and reduce his margin of profit. On the other hand, he is not likely to initiate a
lower base price in his own local territory, because that is the area in which he
rightfully has the greatest advantage over competitors. So long as competition
does not compel him to quote a lower base price there, he is not likely to do so.
This leaves open to him the one remaining course, which is, while selling as much
of his output as he can in his own local territory, to sell the balance in areas nearer
to other mills, where they have a freight advantage over him, at a lower mill net
return. In the steel industry, one producer's advantage over another is for the
most part geographical, and is reflected in different freight rates on both raw
materials and finished steel. Consequently, a producer will try to reach the
existing markets and in so doing may sell a part of his output at points nearer to
other mills, meeting the prices of such competitive mills and thus realizing a lower
mill net return on such sales. It is natural and proper for a producer, in an
effort to keep his miU busy, to sell steel in the different consuming, areas where
business is available, in this way realizing varying mill net returns on his business,
the variance representing freight absorption.
The NRA Report thus described the reasons for such freight absorption: ^^
"* * * Producers regularly set a lower minimum when figuring a special
price to capture a special class of new business than when figuring a general price
for the main body of their sales. For special prices, the minimum is likely to be
close to 'out-of-pocket' or variable costs, while for a general price producers wiU
not bid below the total costs which they must cover if they are to keep running.
The difference between these two levels is frequently substantial, and lies at the
bottom of the practice of absorbing freight to extend a producer's sale area,"
This NRA Report also contained the following summary, in which it was stated
that such freight absorption and such variable miU net returns are the natural
results of bona fide competition: "
"* * * the industry includes localities where several competitors are grouped,
and others at which there is only one producer, fn the latter case, the only kind
of competition met is competition at a distance, while in the former case, both
near-by and distant competition may be met. For example, the Pittsburgh
switching area contains a number of different producers who compete not only
with each other, but also with producers located at Birmingham, Chicago, and
other places.
"Fourthly, this competition at a distance is the kind in which, in order to reach
out a little farther and acquire some additional business, a.producer wiU be willing
to accept on this additional business a lower net yield than the minimum which
he must receive on the average from his whole business, provided he is not in some
way required to extend this low net yield to his entire output if he accepts it on
any business at all. The reasons for this have been discussed under 'Guiding
Principles,' II, 3 above, p. 38ff.
"Fifthly, freight rates are substantial, relative to prices, with the result that a
difference in freight rates, if the customer has to pay them, is just as decisive as
a difference in prices in determining which producer will get an order. And at the
«« NRA Report, pp. 61-62.
" NUA Report, pp. 120-122.
14666 CONCENTRATION OF ECONOMIC POWER
same time the freight rates between different producing centers are considerably
less than the margin of difference in net yields which a company may voluntarily
accept on different units of business in the attempt to cover its constant costs as
best it can. In other words, the freight rates are not more than producers of this
character are wilUng to absorb in order to sell more goods by extending their
marketing areas; and they must be absorbed if a producer is to extend his market-
ing area toward the location of a competing producer and into the area where that
competitor is now selling unless he voluntarily reduces his price on nearby sales to
less than existing competition forces him to accept.
"In an industry marked by these characteristics, discrimination and freight
absorption are natural results of bona fide competition. They result because
competition acts with different force in different parts of the market. The
conclusion that a producer accepts a lower net yield on a part of his sales only
because he has raised the net yield on the rest of his business to a monopolistic
level, is unwarranted. It may, of course, be true in a given case. But the mere
existence of discrimination does not prove it. The discrepancy is quite adequately
explained by the difference between competition for added business at the fringe
of one's market, and competition affecting one's main output over the principal
part of his market area."
(2) Cross-Hauling. — Due to competition and the necessity!, of J obtaining an
even flow of orders, most of the larger producers of steel compete in all of the
major markets for their products. Consequently, while one mill may sell at
points nearer to other mills, more distatit mills are making sales in territories
nearer to it. Thus, some of the shipments of steel from mill to destination cross
each other. Critics of the basing point practice have called such shipments
"cross-hauling" and have contended that cross-hauling results in great economic
waste.
The issue is somewhat beclouded by the fact that such critics have never
described with any degree of accuracy what they mean by this ambiguous term
"cross-hauling", which they condemn so heartily. Strictly speaking, the term
means shipments which cross each other, and the criticisms arei often so phrased
as to create a mental image of freight trains passing in opposite directions on
parallel tracks loaded with identical steel products. Clearly, however, the
criticism is not limited to the extreme case which is used to support it. Some
statements of such critics indicate that they would consider any shipment to a
destination from any mill other than the mill nearest such destination as a cross-
haul, irrespective of whether there was a corresponding shipment in the opposite
direction. If such critics intend to criticize something more than cross shipments
of substantially identical products at approximately the same time, some other
term should be used as the expression of the supposed evil. In fact, cross-hauling
is the necessary result of competition. .
In substance, the criticism is that transportation costs in the steel industry are
so high as to involve economic waste and to result in inordinately high prices for
steel products. Actually the steel industry does not have excessive distribution
costs, as is evidenced by the fact that such costs are lower in that industry than
in most .other industries. In a study of distribution costs of 312 manufacturers
in 1931,^^ "Iron and S,teel and Their Products" ranked among those having the
lowest distribution costs of the 29 industries investigated. The steel industry
proper, undoubtedly, had even lower distribution costs than those companies
included in the classification "Iron and Steel and Their Products", if the records
of the United States Steel Corporation are in any way indicative of the average
costs for the steel industry.
The problem of cross-hauling resolves itself inlo ^e question of what trans-
portation costs are unnecessary and, at the same time, avoidable without the
incurrence of other costs which would have an effect upon steel prices similar to
that which it is charged results' from so-called cross-hauling. It is impossible to
measure quantitatively the amount of transportation costs which might be con-
sidered unnecessary from any point of view, and it is equally impossible 4o measure
the economic costs which would result from any interference with present prac-
tices, or, more specifically, from any direct or indirect limitation of selling terri-
tories. However, many of the factors in the steel industry wliich necessitate the
wide distribution of the products of steel mills have been considered herein', and
" "Analysis of the Distribution Costs of 312 Manufacturers", published bv the Association of National
Advertisers and the National Association of Cost Accountants (N. Y. 1933), pp. 64, 106.
CONCENTRATION OF ECONOMIC POWER 14667
consideration may be given at this point to the contention f the Federal Trade
Commission that the above mentioned freight absorption is a measure of uneco-
nomic cross-hauling.
This position is entirely untenable, as such freight absorption is not a measure
of cross-hauling in any sense, and is certainly not a measure of unnecessary and
avoidable transportation cost. A few examples wUl emphasize this point.
(1) Some freight absorption occurs when the mills which are nearest freightwise
to the destination do not have suflficient capacity at any time to supply the de-
mand at such destination. To the extebt that shipments from more distant mills
supply the excess demajod, there is no economic waste.
(2) Some freight absorption results from shipments to destinations for which
the applicable basing points are Gulf of Mexico Ports or Pacific Coast Ports.
Only two of such ports are producing points and these are relatively minor pro-
ducing points, so that in most cases the delivered prices are less than the sum of
base price plus freight from any mill. Such freight absorption certaiiily does not
represent excessive transportation costs.
(3) Freight absorption occurs in shipments from mills, located within a 25- or
50-mile radius of basing points, to the basing point city, or its immediate vicinity.
The amount of absorption per ton is minute, and any saving resulting from its
ehmination would not justify an artificial prohibition against the mills in such a
small area competing with respect to all the business in that area.
(4) Some freight absorption occurs on shipments from one mill belonging to a
steel company, which has another mill located nearer the destination. Obviously,
there are compensating economies which cause such shipments. Even products
of a single general classification, such as plates, differ greatly in size, gauge,
metallurgical analysis, etc. When a mill in one area is engaged in producing one
kind of plates, it is often more economical to ship another kind of plates from a mill
in another area rather than to change the production schedules at the first mill.
Furthermore, the demand for many speciaUzed products is not large enough to
justify their production at more than a few mills. Production will often be con-
centrated at one or two points, although the product is. sold in areas nearer oth'er
producing mills.
(5) Some freight absorption occurs as a result of shipments by a transportation
medium more expensive than that used in calculating the delivered price; e. g.,
shipments by rail where the delivered price reflects the cost of water transporta-
tion, and shipments in less than carload lots of a large order priced on the basis
of the carload rate. Similarly, freight absorption occurs in some cases because
the customer is charged freight on the weight of the steel alone while the mill pays
freight on the total weight, including packing and blocking material. Such freight
absorption cannot be condemned as economic waste.
(6) Some freight absorption occurs as a result of customer preferences. Among
the bases of customer preference are suitability of the product of a particular mill
to a particular customer's needs, conditions of service, including time of delivery
and desire on the part of customers to maintain several sources of supply. If
economic waste is here involved", it is, nevertheless, waste which could be elimi-
nated only at the expense of arbitrarily depriving steel consumers of any choice
in their source of supply.
The circumstances above enumerated indicate clearly that freight absorption is
no accurate measure of cross-hauling as this term is used by the critics, that is,
in the sense of an economic waste. There is a further important consideration,
however, which must be emphasized. A large amount of freight absorption may
occur in shipments from mills, located near the source of raw materials, to destina-
tions nearer to competitive mills which have longer hauls of raw materials. To
consider such freight absorption alone gives a most incomplete picture. Off-
setting this freight absorption is the saving in transportation charges, as compared
with such competitive mills, which such mill has secured by being located near its
source of raw ma,teria]s. Clearly economic waste is not involved in such cases.
Before cross-hauling is condemned, it should be proveh that the alternative
would not involve economic costs, by way of transportation or otherwise, in excess
of the supposed saving which would result. Not to be overlooked is the inter-
ference with competition which would necessarily be the consequence of any
artificial limitation of marketing territories. Freight absorpition is primarily
produced by competition in the steel industry.
(c) Summary.
In this section, two causes of variation in mill net returns have been considered
one of which results in a mill net return above the base price, while the other results
in a mUl net return below the base price. Both of these variations have beep
124491 — 4l_pt. 27 39
14668 CONCENTRATION OF ECONOMIC POWER
criticized as symptoms of monopoly. It has been shown, however, that the
realization of mill net returns above the base price which critics misname "phantom
freight", is actually the result of competition; it is the way in which a producer
realizes his competitive advantage over other producers resulting from his superior
geographical location. The realization of mill net returns lower than the base
price, which critics term freight absorption, also results from the competition of
producers at varying distances from the destination for the same business. With-
out freight absorption, freight rates would set up a wall between different producers
and their markets, greatly limiting the area over which competition now takes
place, and producing in many parts of the country virtual monopolies.
It is true that variable mill net returns of the kind found under the basing point
method do not represent the uniform market prices which would be expected if the
assumptions of the theory of "perfect competition" were realized. The fact is,
however, that these variations from the classical assumptions, which are also
found in other industries, are due to certain inherent characteristics of the steel
industry, primarily the importance of low assembly costs in determining the
location of steel mills, the large size and great cost of integrated and diversified
steel mills, the geographical separation of producers, the geographical distribution
of demand and the nature of steel production costs.
D. The Proposed Alternative to the Basing Point 'Method
1. INTRODtJCTION
In the preceding discussion, it has been pointed out that the theory of "perfect
competition" is an abstraction, and that the steel industry, like other industries,
varies from the theoretical assumptions underlying "perfect competition"; that the
basing point method is not a responsible cause of variations from the theory;
that the underlying causes are economic factors which are independent of the
basing point method; and that monopoly or monopolistic practices are not among
the underlying causes. The basing point method is not evidence of monopoly,
nor is it caused by monopoly.
Consideration may be given, however, to the question of whether these differ-
ences from the assumed conditions of the theory of "perfect competition" are
desirable from the point of view of the public welfare.
In order to satisfy one of the theorectical requirements of "perfect competition",
it would be necessary that there be steel mills scattered aU over the country near
each market and that thete be many separately owned mills at each location.
The reasons why this physical division of mills could not be accomplished economi-
cally in the steel industry have already been stated. First, raw material assembly
costs limit the locations of mills to a few areas. If mills were erected in other
districts, more than four tons of raw materials would have to be hauled to the
mills for every ton of steel produced. Second, large scale diversified operations
are cheaper than small scale operations. Thus, if the present large units were
broken up and replaced by scattered small mills, both assembly and production
costs would be higher than they are now and would be reflected in higher prices
for steel products. A mi'l of economical size near the sources of raw materials
probably could and would undersell these local mills in their own territories
gradually forcing a return, through competitive pressiye, to present conditions,
unless artificial barriers were set up. Third, mills large enough to produce many
products inherently have large capacity, so that the scattered mills would merely
result in duplication of capacity. To approximate another condition of theoretical
"perfect competition" in the steel industry, the same conditions would have td
exist with respect to the buyers as with respect to the sellers, and on the buyers'
side either the economies of size would also gradually cause a return to present
conditions or the disregard of such economies would result in higher prices.
Thus it appears impossible to produce in the steel industry an imitation of the
assumed conditions of "perfect competition" along classical lines. It should be
remembered, however, that the same is true of all other industries in our economy.
In considering the desirability of "perfect competition" in the steel industry,
even if it could possibly be attained, a principal factor is the cost to the public
which it would entail. The costs involved in breaking up sellers and buyers so as
to have many competitors on both sides of the market has been dealt with in a
preceding paragraph. Another element previously discussed, which cannot be
overemphasized, is the effect of the business cycle.
As has been pointed out herein, the business cycle was ignored in the thinking
which led to the development of the theory of "perfect competition". The
classical economists assumed fairly steady demand or, at least, moderate, long-run
, CONCEJSfTRATION OF ECONOMIC POWER 14669
shifts in demand. Working on this assumption, they concluded that "perfect
competition" would result in the eUmination of high-cost producers, would limit
the profits of average and low-cost producers to a reasonable amount, and would
prevent any great amount of excess capacity or of deficiencies in capacity. The
business cycle, however, produces enormous fluctuations in demand, particularly
for producers' durable goods, such as steel. These fluctuations are independent
of price. Due to such fluctuations, "perfect competition" would produce results
vastly different from those contemplated by the classical economists.
Cyclical fluctuations in demand tend to produce a disproportion between ca-
pacity and demand at either the lower or upper phases of the cycle, which condi-
tions are not satisfactory to industry or to the public. Particularly in the steel
industry, which requires large and expensive plants and machinery, either facilities
will be built to supply peak or near-peak demand, which will result in idle capacity
during the other phases of the cycle, or facilities constructed to supply a lesser
demand wiU be insufficient to supply the peak demand, with the result, in the up-
'ward phase of the cycle, of a scarcity and a great rise in prices which might well
impede the development of the expanding economy. It is important to note that
no matter which course the industry may take, dislocations wiU occur which were
not contemplated in constructing the theory of "perfect competition."
The steel industry has facilities for supplying the peak or near-peak demand for
steel. This is shown by the high operating rates during the big production years
of 1929 and 1937, and the present operating rate of more than 90% of ingot
capacity, which rates may be compared with the low operating rates during the
intervening periods.
The injection of the phenomenon of the business cycle has a profound effect
upon the supposedly beneficial consequences of the classical theory of "perfect
competition". It has been assumed that if "perfect competition" along classical
lines could ever be established, it would produce wholly beneficial effects for
society. No one, however, has ever demonstrated that these effects would follow
from "perfect competition" in an economy affected by a pronounced business
cycle. In the absence of such a demonstration, it is impossible to make any cor-
rect assumption that deviations from the theory of "perfect competition" are
damaging to the social welfare. On the contrary, it is quite possible that these
deviations, by interrupting or checking some of the more abrupt changes in the
course of the business cycle, perform a valuable social and economic function.
In considering the question of the social desiffi.bility of the basing point practice,
it is necessary to keep constantly in mind the fact that practical analysis cannot be
made in a vacuum. It requires an investigation of alternatives. The practical
problem is whether any alternative would not cost more than it would contribute.
The only alternative seriously suggested by the critics of the basing point method
is the uniform f. o. b. mill price system.
2. THE PROPOSED UNIFORM F. O. B. MILL PRICE SYSTEM
The uniform f. o. b. mill price-system, proposed by the Federal Trade Commis-
sion and by Professor Fetter, would require every mUl to sell aJl its products at
prices quoted f. o. b. the miU. The prices at each mill would have to be uniform
for all buyers. In other words, every mill would have to sell its product at the
mill door, at the same price to every buyer, leaving the buyer to find his own means
of transportation from mill to destination.
The Federal Trade Commission has publicly taken the position that the uniform
f. o. b. mill price system was prescribed by its 1924 "cease and desist" order di-
rected against certain subsidiaries of the United States Steel Corporation in the
"Pittsburgh Plus" case.6»
The origin of the proposed uniform f . o. b. miU price system probably is to be
found in the testimony of certain ecoitoiniBta who testified in the Pittsburgh Plus
case against the continuation of that practice. The trial examiner found as a
fact that prices of steel products had been quoted f. o. b. the mills until the Pitts-
burgh Plus practice began to be followed some time in the 1890's. However, it is
known that about 1750 iron products were sold on a Philadelphia base, with out-
lying miUs absorbing freight in order to bring their product to the central market.
The Federal Trade Commission appears to have taken the view that f. o. b.
mill prices were the rule until the beginning of the Pittsburgh Plus practice.
From this assumption the Commission and other critics seem to have con-
cluded that f. o. b. mill prices are the "natural" way of quoting steel prices. This
" See. the Federal Trade Commlssiou's pamphlet "Monopoly and Competition In Steel," submitted In
Marchl939 at the hearings before the T. N. E. C, p. 13. An appeal from such 1924 order of the Federal
Trade Commission is now pending before the United States Circuit Court of Appeals for the Third Circuit,
14670 CONCENTRATION OF ECONOMIC POWER
opinion is bolstered by the further assumption that the "true market" for steel is
at the mill. From this reasoning has come the conclusion that uniform f. o. b.
mill prices would reproduce all the assumed conditions underlying the theory of
"perfect competition", and would produce all the beneficial results which are
supposed, under classical theory, to follow from "perfect competition". This is
the basis of the view that a substitution of uniform f. o. b. mill prices for the basing
point method would result in lower prices for steel, better locations for steel plants,
and, in general, a cure-aU for the various alleged defects of the basing point
practice,
(a) "Perfect Competition" and the Uniform F. 0. B. Mill Price System.
Since the Federal Trade Commission's view developed, at least in part, from-
the supposed earlier f. o. b. mill prices, it should be pointed out tljat the proposed
uniform f. o. b. mill price system differs fundamentally from its earlier model in
the requirement that mill prices be uniform to all buyers. There is no reason to
suppose that such earlier f. o. b. miU prices, if they existed at all generally, were
the same to all buyers. Undoubtedly, competition must have forced producers to
quote lower prices to customers located nearer other mills, which had geographical
advantages in selling to such customers. The requirement that prices of a pro-
ducer be uniform is arbitrary from the point of view of the producer, both in and
of itself and because of its consequence of strictly limiting the selling territory of
his mills. Since wide distribution is necessary to obtain an even flow of orders
and for other reasons which have been discussed, the producer naturally attempts
to realize the highest mill net return on each sale. Thus when he is dealingwith
a customer near to him, who cannot purchase from another producer without the
addition of the freight from this other producer's plant, the nearer producer will,
in some circumstances at least, quote a price which is equivalent to what the buyer
will have to pay if he purchases elsewhere. In other cases he will be forced to
meet the price of competitive mills which are nearer to the buyer. Thus sales at
varying mill net returns are natural in the steel industry and result from the play
of competitive forces. A requirement that all sales by any producer be made at
uniform prices regardless of the buyer's location is artificial. It means that the
producer must either refrain from taking orders which are necessary to the opera-
tion of his mills, or else he must extend a lower price to customers near his mill
when competition does not compel him so to do.
Under the uniform f. o. b. mill price system a producer would have to find^
price which would cover his total costs, including overhead, and at the same time
extend his sales over an area broad enough to keep his miU operating at an eco-
nomicarrate. If any mill's costs and geographical relation to its customers should
be such as to permit a satisfactory solution of this problem, it would be an excep-
tional case.
Consideration may also be given to the question of the extent to which the
proposed uniform f. o. b. mill price system would bring about the assumed condi-
tions of "perfect competition," as contended by the Federal Trade Commission.
For the 'most part, the sales of steel producers would be restricted to an area
surrounding their own mills. If they set prices low enough to permit sales to be
made in the territories of other mills, retaliation by the latter mills would natur-
ally follow. In consequence, buyers for the most part would be reduced to pur-
chasing from the nearest miU, unless price differentials at different mills were so
sharp as to permit a lower delivered cost on a shipment from a more distant mill.
In any event there would be very little or no choice.
In some districts where there are many mills, local buyers might have some
choice of sources of supply.'" The number of producers among whom they could
choose and who would be competing with each other for each buyer's business
would, however, be greatly reduced. Any single producer located at a distance
from all other mills would have a virtual monopoly with respect to the buyers in
his territory. Competition would be principally along the boundary between the
market territories of geographically separated mills and, at all relative price levels,
would actually be limited to a few points.
It is difficult to understand how such a competitive situation would conform to
the assumed conditions of the theory of "perfect competition." The theory
requires many buyers and many sellers in contact with each other. In most
producing districts, however, there are not more than two or three competing
producers, and in many areas there is only one. Since buyers, for the most part,
would buy from the nearest mill because its price plus the transportation charge
to destination would be the lowest, there would often be only one producer and*
»» This would not necessarily be true. See the detailed map p. 90, infra.
CONCENTRATION OF ECONOMIC POWER 14671
never more than a very few producers with whom each buyer could be in contact.
On the buyers' side there would be the same number at each point of competition
as at present, but no more. This certainly does not correspond to the assumptions
of the classical theory of "perfect competition."
It is also unlikely that new mills would be constructed near the mill of an
isolated producer who was realizing a high price, unless the local market was
greatly in excess of the output of such isolated producer. The capital investment
required for a steel plant is extremely large, and the nature of the business, with
its difficult production processes, would make the enterprise very questionable.
Furthermore, a new mill, and particularly a small one, would have high produc-'
tion costs, and would be more than likely to accept the price structure as it found
it. Thus, it seems unlikely that even over the long run any substantial increase
in the number of producers in any district would occur under the proposed price
system. A law cannot prevent large scale operations being cheaper than small
scale operations, or shift the iron ore and coking coal deposits to dififerent and
scattered locations.
It thus appears that the uniform f. o. b. mill price system would not produce
conditions resembling those assumed in the theory of "perfect competition." It
would simply be the substitution of a new set of variations from thoi.s assumed
conditions. The assertion that the uniform f. o. b. mill price system would pro-
duce all of the assumptions of "perfect competition" cannot be supported, and it,
therefore, cannot be presumed that this system would produce the social and
economic benefits which it is supposed would result from the realization of "perfect
competition."
Some economists have expressed the opinion that the suggested uniform f. o. b.
mill price system would not produce theoretical "perfect competition." The
NRA Report, for example, says:^'
"Professor F. A. Fetter's discussion of basing point practices classes as competi-
tive only that type of price structure which would result from rivalry between
producers located at identical shipping-points, and thus classes as monopolistic
all modifications of the price structure resulting from rivalry of producers at a
distance from each other. From the standpoint of this second variety of competi-
tion it would be equally valid to class as monopolistic the uniform mill-base price
system which Professor Fetter accepts as the only truly competitive structure."
Professor de Chazeau has written of Professor Fetter's "Masquerade of Monop-
oly" as follows: ^2
"Nowhere in his book is there the faintest recognition that the economic condi-
tions of production and distribution may have become fundamentally inconsistent
with the existence of perfect competition. Professor Fetter never raises the ques-
tion: What method of pricing can be made to work in the steel industry? His
defense of the mill-base price rests not on an analysis of the steel industry but on a
deduction from the concept of a free market under perfect competition. This is
unfortunate. As an exposition of monopolistic discrimination. Professor Fetter's
book is authoritative; as a proof of the economic feasibility and social desirability
of the miU-base price for steel, it is irrelevant except in so far as the opinions of a
recognized economist command respect."
(b) The Effects of the Uniform F. 0. B. Mill Price System.
(1) The Nature and Extent of Competition. — Existing steel mills have been
located largely by reason of low raw material assembly costs. They are obliged
to sell their products over wide areas. Most of such mills have developed large
scale operations, with the object of supplying the entire country from a small number
of producing districts. Nevertheless, some isolated plants have been erected, at
points like Detroit; Granite City, Illinois; St. Louis; Kansas City; Pueblo, Colo-
rado; and Birmingham, Alabama. There are some areas with many producers
whose total capacities far exceed local demands, and other areas in which there is
only one producer, and, over great expanses of the country, no producer at all.
A uniform f. o. b. mill price system would affept the closely grouped producers
and the isolated producers in different ways. An isolated producer would be
protected from other producers by a waU of freight rates, and would be able to
charge high prices to consumers in his own area.
The IJederal Trade Commission says that in such a[case either outlying producers
would sfet lower prices and force the isolated producer to lower his own price, or
someone else would construct a miU nearer the isolated producer, and would com-
pete with him in his own market. These suppositions would probably not be
" NEA Report, pp. 59-60.
" Daugherty, etc., "Economics of the Iron & Steel IndiAry," p. 547, note 1.
14672 CONCENTRATION OF ECONOMIC POWER
realized. In the first place, if an, outside producer tried to compete by naming a
lower price, he would have to extend that price to aU of his customers. He would
be much less likely to reduce prices than he is under the present practice, which
does not require him to realize the same mill net return on sales to all customers,
including those from whom, owing to a geographical competitive advantage, he
can realize a higher mill net return. Thus, under the proposed uniform f. o. b.
mill price system, unless the isolated producer's price were exceedingly high, out-
lying producers could not afford to name a price enough below his to take any
substantial part of his market. These same outlying producers, it should be
noted, are probably today willing to compete in that area by accepting a lower mill
net return on that part of their output which can be sold in the market territory
of the isolated producer. The artificial requirement of uniform mill net returns
would prevent this existing competition.
The producers who are close together would be in intense competition with
each other, not only because of their nearness to each other, but also because they
could sell only in the territory around them in which demand would be far below
their total capacity. For example, the numerous producers in the Pittsburgh,
Youngstown, and Canton-Massillon districts could sell only in the territory sur-
rounding them, and in that territory demand would be by no means sufficient to
keep their mills operating at an economical rate. The Federal Trade Commission
appears to believe that such groups of mills would enlarge their sales territories by
setting lower base prices than the price at surrounding mills. However, there are
very definite limits to the adjustments which can be made in that way. At Pitts-
burgh, for example, a producer would not only find intense competition from other
mUls in the Pittsburgh district, but he would also find that-lowering his base price
would not extend his sales territory to any great extent, because Pittsburgh is
surrounded by Youngstown, to the northwest, Weirton to the southw st, Bethlehem
and Johnstown to the east and Buffalo to the north.
One possibility which might be envisp.ged with respect to some products is that
the mills at Pittsburgh would set their price low enough to enable them to sell up
to the nearest miU in each direction, and that such mills would in turn set prices
which would enable them to sell beyond up to the next nearest mill. The resulting
price structure would greatly resemble that which existed under Pittsburgh
Plus. However, it is more probable that the mills surrounding Pittsburgh, at least
at first, would attempt to meet any lower prices that Pittsburgh mills might
name. The net result of competition of this kind would necessarily be' the
elimination of some mills. It is asserted that this result would be beneficial,
because the highest cost producers would be eliminated in accordance with the
theory of "perfect competition" and the alleged excess capacities would thus be
withdrawn from the market. It is by no means certain, however, that the high-cost
producers would be the ones to be so eliminated. Financial strength would play
a d^ ?sive part in determining which mills were eliminated. A company with
sev^ra' mills might make enough from its lower cpst units to keep a higher cost
unit ■"« ""(^siness until it had eliminated a more economical competitor. In these,
and in -<any other ways, the elimination of producers would vary from the classical
assumpt ^n that the high-cost plants would be driven from the market.
There is another extremely important factor in the market for steel which
must be taken into account. Steel is sold in the form of many different products
which vary all the way from semi-finished products, such as ingots or slabs, to
highly finished products such as cold reduced strip; and from light polished wire
to heavy wide-flange beams. The uses of steel products v^ry from fine wire
used in musical instruments to thick plate used in the construction of ships, or
heavy girders in skyscrapers and bridges. The market for every product in this
wide range varies. For example, wide-flange beams are used very largely in
big cities such as New York and Chicago. Sheet piling is used almost exclusively
in harbors and other developments on the shores of the oceans and Great Lakes
and in navigable rivers. Sheets and strip in one form are used in the manufacture
of automobiles and furniture, and -in other form for the construction of roofs for
barns and houses, or in the manufacture of pails and agricultural implements.
Tin plate is used in the manufacture of many varieties of cans extending from
the heavy milk can to the tiny sardine tin. Thus, there are tremendous differ-
ences in the market for different steel products. Some are highly specialized
and are purchased in only a few districts and by a few buyers, while others are
used for many purposes over wide areas and are sold to many different kinds of
buyers. The effect of a uniform f . o. b. mill price system upon the steel industry
cannot be envisaged without considering its different effects upon the markets
for all of these products. For example, one producer, making a range of products
from thin strip to wide-flange bearns might find that the low price on some of his
DiAOBAM 16
MARKET TERRITORIES OF MAJOR MILLS
PRODUCING STEEL SHEETS
Assuming Each Such Mill Adopb A Uniform P.O. B. Mill
Price Equal To Prevailing Base Prices
/ ^^^
/ Hi.
^t
n
X
i.
o
^ i
>
;
\ ILL 6
(
Oiicjjo^
Indiana
Hartof
T
° r
(0 L_ L,
Gary
H
-r,- !
^ \
•-•s / i ..xV..,
CONN. \
O 1 P^'^^
[I f Y^~\.,^^^ Ocvelandi _
^ •■ -* N 0 rnVtoTn^iifc McDonald
'OH/O _ I I w*J YMungyo:
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icirton;
nald _/ Q
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N.J.
^ I
SfpMffiJ ^'tderehf. O
Stitjbenvllle*
Middletown
O
w/ Beecti
" Bottom
w
Pitu-, , ^
' P-B / '* O
\
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.^Granite
/■ City
GRANITE
C'-l^ T Y
v'
Portsmootli
^-B^'---;, AID.
.■■' '"■.. .■ "^ Spatrows<
»-A> W. VA.
0
>^-
X
LEGEND
rs~l SPARROWS POINT
n~l LACKAWANNA
rP~l PITTSBURGH
rB~l BUTLER APOtLO
C- VANDERGRIiFT
rvn W IRTON, BEECH BOTTOM
£. . JTEUBENVILLC
r"Y~i YO NSSTOWN, CAMPBEa
&. M' DONALD
rw;^] WARREN
rcTI CLEVEL-AND
fSn CANTON-MASSiaON-
fPol PORTSMOLTTH
r~A~l ASHLAND
["Ml AMODLETOWN
rScI GRANITE QTY
QTI] CHICASO
rsn GARY, INTIANA HARBOR
FmoI MONROE
f~D~1 DETROIT
J^
124491— 40~pt 27 (Face p. 146T3)
CONCENTRATION OF ECONOMIC POWER 14673
products could be recouped by high prices on other products. A producer nearby,
however, making only sheets and strip might be driven out of business by low
prices on those products. If a producer had plants in several different districts,
it would be still more difficult to foretell what eflfect the proposed sj'stem would
have upon him.
In order to illustrate some of the complexities of the situation, the accompany-
ing two maps have been prepared showing the distribution of sheets under the
proposed uniform f. o. b. mill price system. The first map shows the locations of
seventeen major sheet producing points, together with the territories in which
the mill or mills at each such point would be able to sell sheets under a uniform
f. o. b. mill price system, assuming prices corresponding to the present level."
The areas in which the mills of each producing point could sell, either exclusively
or in competition with mills at other producing points, are marked with the name
or symbol of such producing point. Under the existing freight rate structure, no
mill would be able to sell sheets in areas other than those marked with its symbol.
The first map demonstrates the rigid and arbitrary nature of the system recom-
mended by the Federal Trade Commission. The uniform f. o. b. mill price
system would arbitrarily fix both the size and boundaries of the soiling territory
of each miU, and the size of its market area would depend generally upon the
proximity of other mills. Thus, mills at Sparrows Point, Maryland, and Lacka-
wanna, New York, .would, between them, have a monopoly of the sheet market
in the entire North Atlantic Seaboard. Likewise, the mills at Chicago and
Gary-Indiana Harbor would have as their exclusive selling territory for sheets
all of Wisconsin, the Northern sections of Indiana and Illinois, and the Western
half of Michigan, not to mention territory to the west not shown on this map.
In contrast, the mills located in Western Pennsvlvania and in Ohio, which have
very large sheet producing capacity, would have very restricted selling areas.
The mills at Youngstown-Campbell-McDonald could sell sheets in only two coun-
ties in Ohio and five counties in Pennsylvania, and the territory of the Pittsburgh
mills would be almost equally circumscribed.
The first map shows graphically the series of local monopolies for the sale of
sheets which would be created by a uniform f. o. b. mill price system. A vast
majority of all areas would be allocated exclusively to a single producing point,
and only a few small areas would enjoy competition from more than one source.
All of the important steel sheet consuming centers, Detroit, Chicago, Milwaukee,
Cleveland, Toledo, Cincinnati and Philadelphia, would be in the exclusive territory
of a single producing point. The areas in which more than one producing point
could compete do not include any which have a large consumption of sheets.
The arbitrary character of the limitation of territory, resulting from such a
rigid pricing system operating under the present freight rate structure, is further
illustrated by the pattern of the selling territories of certain mills. For example,
the mills at Warren-Niles and Youngstown each would have monopolies for the
sale of sheets in the counties in which they are located, Trumbull County and
Mahoning County, Ohio, respectively. Warren-Niles and Youngstown would
share the County of Ashtabula, north of Trumbull County, Ohio, while the mills
at Warren-Niles, passing Youngstown, would share Columbiana County, Ohio, to
the south of Mahoning, with the mills of the Weirton group, and Youngstown
mills could not reach this county. Similarly, the Canton-Massillon mills would
share with the Cleveland mills Henry and Wood Counties in Northern Ohio,
after passing considerable territory in which the Cleveland mills would have a
local monopoly. To be noted also are the sheet selling territories of Chicago and
pary. These mills would share most of the territory which either could reach,
including certain Indiana counties. However, there are three Indiana counties
in which Chicago mills, after passing Gary, could undersell the Gary sheet mills,
and a large area in which Gary mills, after passing exclusive Chicago territory,
would have a monopoly for such sales.
" The first map was constructed on the following principles:
Prodiicing Points— The 17 major producing points are those which, according to the American Iron &
Steel Institute Directory, have modern continuous or modernized mills with a substantial capacity for the
production of sheets. Outmoded hand-mills and mills having smaU capacities were not considered. In
some cases, two or three mills located close to each other were grouped together, such as the mills at Butler,
Vandergrift and ApoUo, since the freight rates from each such mill to most consuming areas are the same.
Prices — Mill prices equal to prevailing basing point prices at nearest basing points were assumed. This
would result in a price of $40 per net ton at aU producing points, except at Detroit and Granite City, where a
price of $42 would result, and at Monroe where a price of $43 would result, corresponding to existing diflfer-
entials at<;'ich points.
Method 0] Allocation of rerrftory— Territory was allocated upon a county basis, each county being assigned
to the producing point or points from which there exists the lowest freight rate to one or two key towns in
the county. (In the case of counties near differential producing points, the lowest combination of mill price
and freight was used). All-rail carload freight rates wore used, except in the tase of certain counties along
the Ohio River having facilities for handling large shipments, for which barge rates were used.
14674 CONCBNTEATION OF ECONOMIC POWER
The arbitrary nature of the allocation of territory under the uniform f. o. b.
mill price system, and the limited points at which competition could occur, is
even more strikingly illustrated on the second map, which also concerns the sale
of sheets. This map gives a somewhat microscopic view of a section of Western
Pennsylvania and Eastern Ohio. Whereas the allocation on the first map was
on a county basis, according to existing freight rates on sheets from producing
points to one or two key towns in each county, on the second map allocation is on
a town basis, all towns of any importance in each county being separately allocated
to the mill or mills from which the existing freight rates to such towns are lowest.
The symbol of the miU or mills which can sell sheets in each such town are marked
in heavy print.
Although the first map indicated that competition for the sale of sheets between
groups of miUs would be possible in various areas shared by them, the detailed
second map shows that even in such areas many towns would be served exclusively
by one producing point — there being only a few towns that would enjoy competi-
tion in the sale of sheets from more than one producing point. For example, the
County of Columbiana, in Eastern Ohio, is shown on the first map as being shared
by the mill* at Warren-Niles and by the mills at Weirton-Beechbottom-Steuben-
viUe. The detailed second map shows, however, three towns accessible only to
the Niles mill, one accessible only to the Steubenville miU, and a fifth town
accessible only to the Canton mill. So, too, Crawford County in Northwestern
Pennsylvania, indicated on the first map as shared by the Youngstown and Butler
grotipe of mills, is shown on the detailed second map to have six towns which can
be reached only by the mills of the Youngstown group and one town shared by
the mill at Butler and the mills of the Youngstown group. Another example is
Westmoreland County, Pennsylvania, adjoining Allegheny County on the East,
which was divided on the first map between the Pittsburgh mills and the Butler
group of mills. On the detailed second map it appears that six towns in this
county would be reached only by the mill at Dravosburg, another town would be
reached by the mill at Vandergrift alone, still another would be shared by the
mills at Dravosburg and Apollo, and the remaining town would enjoy the com-
petition of the mills at Pittsburgh, Brackenridge and Vandergrift.
Consideration should also be given to the territories shown on the first map as
the exclusive sheet marketing areas of a group of mills located very near each
other, such as at Butler- Vandergrift- Apollo. It would appear from the . first
map that the competition between all these mills would exist throughout the
area allocated to them as a group. The detailed map shows that this would not
be the case and that frequently only one mill of the group would reach a particular
town, while the majority of towns would be reached by not more than two mills.
For example, seven towns in Butler County, Pennsylvania, adjoining Allegheny
County on the north, would be served exclusively by the mill at Butler, and in
Cambria County, Pennsylvania, five towns would be reached by the mill at
Apollo alone, while three towns would be served by the mills at Apollo and Vander-
grift. Similarly, in the area to be shared by the mills at Weirton-Beechbottom-
Steubenville, all towns in Belmont County in Eastern Ohio would be reached
only by the mUl at Beechbottom, while in Jefferson County, just north of Belmont,
two towns would be accessible to the Steubenville mill alone, a third would be
shared by the mills at Steubenville and Weirton, and a fourth would be served
by the Canton mill.
This detailed map emphasizes both the local monopolies and the -arbitrary
nature of the allocation of the territory for the sale of sheets which would result
from a uniform f. o..b. mill price system.
Referring again to the first map, some consideration should be given to the
comparative capacities of mills and the sheet consumption in the areas served
by such mills.'* With the exception of Detroit, where consumption is in excess
of capacity, every producing point has capacity in excess of the estimated 1938
sheet consumption figures. In most cases, such excess of sheet capacity over
consumption is large. For example, the capacity of the Pittsburgh mills is more
than 1,500,000 tons, while the sheet consumption in areas which under the pro-
posed pricing system would not be shared with mills in other districts is estimated
at less than 78,000 tons, and the sheet consumption in the total territory which
would be reached by the Pittsburgh mills is approximately 110,000 tons. The
'< Capacity figures were obtained from the 1938 directory of iron and steel mills, published by the American
Iron and Steel Institute. Taken into consideration were capacities of the modern continuous mills and the
modernized old type mills, the capacities of the old hand mills being disregarded. Consumption figures
are the estimated consumption in 1938, on the basis of mills operating at approximately 43% of the rated
capacity, and were compiled by the sales department of a subsidiary of the United States Steel Corporation.
These figures, while believed to be reasonably accurate, are subject to some margin of error.
Diagram 17
LEGEND
A APOLLO
BB BEECMBOTTOM
Br BRACKENRID6E
Bu BUTLER
C CANTON
CI CLEVELAND
D DRAVOSBURe
L LACKAWANNA
M MASSILLON
N NILES
P PITTSBURSH
SP SPARROWS POINT
S STEUBENVILLE
V VANDERGRIFT
w« 'warren
W« WEIRTON
Y YOUNeSTOWN
6- McDonald
X ^ :
^ LAKE I
4„ [----■'
DETAILED A\AP OF COUNTIES
IN WESTERN PENNSYLVANIA AND EASTERN OHIO
C 'W.-N
Wa-N*
ilMK
@ ©Cinton
Maifillen
r.^vM J »M«kOi»
-li uoLMii 'i.---^-'.'~'~r.r~.~x —
V.J»,o C.»b..^. V.-5.
ill
Showing towns controlled by mills producing steel sheets
assuming each such mill adopts a uniform F.O.B. mill price
equal to prevailing base price.
' ViNANGO
FOKST < £LIC
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124491— 40— pt. 27 (Face p. 14674)
CONCENTRATION OF ECONOMIC POWER 14675
discrepancy is even more striking in the case of the Butler- Vandergrift-Apollo
sheet mills, where the capacity is over 730,000 tons, and the consumption vi^oulcl
be less than 5,000 tons in the exclusive territory under the proposed system, and
less than 41,000 tons in the total territory to be reached by these mills under that
system. The Weirton-Beechbottom-Steubenville mills have a rated capacity
of over 1,160,000 tons of sheets, which may be contrasted with an estimated
consumption of less than 7,000 tons in the territory which they would not share
with other mills, and less than 55,000 tons in the whole territory to be reached by
such mills under the proposed system.
While outlying sheet mills at Chicago-Gary, Granite City, and Sparrows Point,
which serve nearby large consuming centers, have capacity greatly in excess of the
total estimated consumption in 1938, it should be borne in mind that such mills
would serve territory outside the confines of this map. In the exceptional c&se of
Detroit, sheet capacity is rated as over 1,400,000 tons, with consumption estimated
for 1938 at slightly more than 1,650,000 tons.
If 1939 consumption of sheets is estimated at twice the 1938 consumption, sheet
capacity at all producing points is still in excess of consimiption in the areas served
by the mills at such pointb ('which is natural since the miUs were designed to sup-
ply the demand in many areas outside the confines of this map), with the excep-
tion of Detroit and Sparrows Point. The excess of consumption in Detroit is, of
course, enormously increased.
The preceding discussion has been based upon the assumption ,of mill prices
equal to prevailing base prices for sheets at the several basing points. Of course,
this price structure could not endure, as the sheet mills would necessarily seek
larger markets for their product. It should be emphasized, however, that the local
monopolies and the arbitrary and rigid limitation of territories would prevail under
any given relative level of prices. It is assumed by the proponents of the uniform
f. o. b. mill price system that competition would occur over large areas as the miUs
sought markets. In practice, however, there are important limitations upon the
possibility of this occurring. It appears certain that miUs located close together
would necessarily have practically identical mill prices since the difference in
freight rates from such mills to consuming points is so small that a slight reduction
in price by one mill would exclude mills close to it from all marketing areas, if such
mills did not follow the price reduction. Thus the pattern of local monopolies
shown on the detailed map would be unlikely to change to any great extent, even
if the present price structure should be so altered.
There would undoubtedly be changes in the relative levels of prices for sheets
at producing point groups, and prices at producing points surrounded by other
producing points would naturally be lower than at the surrounding points. A
small reduction in price would result in increasing a mill's territory for the sale of
sheets, but in many cases the added territory would not increase the market pro-
portionately. In order to sell sheets in any important market a mill would have
to reduce its price by the amount of the freight to such market. In many cases
this would arbitrarily result in wiping out or greatly reducing the selling area of
other mills, compelling retaliation by them, which in turn would deprive the first
mill of access to the market sought by such mill in making the price reduction.
The price would be lower, with little or no real gain in marketing area.
Furthermore, mills at two or more producing points could compete, generally,
at only one important consuming point at the same time. If the Pittsburgh and
Youngstown mills, for example, were to quote mill prices for sheets which would
enable them to compete in Cleveland, the Youngstown mUls would automatically
be excluded from the Detroit market, as the Pittsburgh mUl price would result
in a lower price in Detroit. Likewise, if prices at Pittsburgh and Youngstown
mUls were such as to result in equal competitive prices in Detroit, the Pittsburgh
mills would be excluded from the Cleveland market. It is impossible to foiesee
what steps the mills would be forced to take to escape the procrustean rigidity of
this system. The Federal Trade Commission contends that the result would be a
scattering of steel producers to areas of large consumption. The catastrophic
effects of such a dislocation upon producer and consumer alike have been consid-
ered at length herein. Possibly the result would be merely the installation of final
finishing mills at important markets. Such a change would result in no saving in
transportation costs, and ultimately could only result in higher steel prices, since
costs would be enormously increased.
It should be emphasized that these maps deal with only one product — sheets.
On everj' other product, maps prepared on the same assumptions would show
similar arbitrary territorial limitations, but on each product the territories would
be different, since the allocation would depend upon the location of competing
14676 CONCENTRATION OF ECONOMIC POWER
mills producing the same product. Thus, a consumer wishing to purchase two
kinds of products to be used together, such as structural shapes and plates, would
often be forced to purchase each product from a different mill.
These maps do not attempt to picture all of the effects of a uniform f . o. b. mill
price system, even with respect to sheets, but they show definitely the delicate
nature of the price structure which would be imposed thereby, and the vast com-
plexities which are involved in any attempt to impose an arbitrary pricing system.
It is believed that the maps and the foregoing analysis of them establishes that
competition under such a system would not be more in the public interest than
it is under the basing point practice, and would necessarily result in local monop-
olies, in widespread dislocation of the steel industry and of industries dependent
upon it, and inevitably in higher prices for steel.
2. Price Leadership. — Price leadership of the kind which naturally occurs in
an industry with large units and substantial inescapable costs would not be
eliminated by a uniform f. o. b. mill price system. Assuming that some mills
in each of the present large production districts would survive the introduction
of such a system, after some period of time a sort of equilibrium would probably
develop. The surviving mills would become accustomed to the normal territories
which would result to them. Since the prohibition of freight absorption would
prevent sales outside of these territories, the miUs would gradually lose their con-
tacts with distant customers, and would cease their efforts to sell to them. Once
this condition was established an equal rise in the price at every mill would leave
the selling territories unchanged and would enhance mill net returns of all the
mills by the amount of the advance. The temptation to follow price increases
is obvious. The mills would be more apt to follow a rise in the price at one mill,
than to try to initiate sales efforts in the new areas in which their old prices were
the lowest, because the mill which had raised its price would almost certainly be
obliged to reduce it if the others did not foUow.
For these reasons, there is no reason to suppose that a uniform f. o. b. miU price
system would do away with any price leadership which rnay exist today. On
the contrary, it seems that by reducing the number of procjucers and by keeping
the mills out of contact with each others' customers, such ia price system would
increase the tendency to follow price raises by other mills.
(3) Concentration of Production Facilities. — One contention of the Federal Trade
Commission is that uniform f. o. b. mill prices would produce more economic
locations of steel mills. By "more economic" locations the Commission seems
to mean that instead of the present concentrations at various points in the north-
east, mills would be scattered all over the country near the various consuming
territories. As a corollary, it is probably thought that supposed "uneconomic"
producers at present basing points would be eliminated.
This reasoning ignores the fact that more than 4 tons of raw materials would have
to be hauled to these scattered mills for every ton of steel produced. If they were
located outside the northeastern United States they would be farther from raw
materials than the corresponding capacity is today, and their assembly costs
would be higher." If mills were built to supply small local markets, their scale
of operations would be smaller. This, too, would raise costs. Considering the
low level of profits in the steel industry during the past decade, it seems clear that
higher prices would be necessary to cover these higher costs. Even if the recom-
mended uniform f. o. b. mill price system would conform to the assumptions of
"perfect competition" (although it seems clear that it would not), higher prices
for steel would be too much to pay for such conformity.
The same factors which prove the undesirability pf scattered small mills would
militate against the occurrence of any change. The capital investment per ton
of steel is high, and the annual turnover is relatively low compared with many
other industries. Scattered mills mean a much higher per ton investment cost
than under existing conditions, and would present a serious economic danger to
the industry in periods of low demand. This result is obvious from the fact that
a compact, well-balanced centralized producing unit lends itself to greater flexi-
bility as an economic operating unit than would a number of separately located
mills, each of which would require the same production facilities and complement
of auxiliaries, as does the one compact centralized mill:
A centralized miU, because of its greater flexibility in adjusting readily to a
diversity of products, assures lowest operating costs under all conditions, tends
to restrict the amount of unused capacity, and secures to employees the maximum
amount of employment possible when the industrial cycle swings downward.
" It is obvious that it is ctieaper to haul one ton of finished steel a long distance to consumer, than to haul
more than 4 tons of raw material a shorter distance to a steel mill, although freight rates on raw materials are
somewhat lower than on finished steel products.
CONCENTRATION OF ECONOMIC POWER 14677
In the last analysis, the question of scattered mills rests on a determination of
how and where the product can be made at the lowest cost — not only lowest pro-
duction cost at the miU, but lowest cost of the steel delivered to the user of steel,
wherever located. And in that determination, consideration must be given to
(1) the cost of assembling suitable raw materials, (2) the capital investment re-
quired per ton of steel, (3) the kinds of steel products for which a market exists
in the given area, (4) the probable consumer demand for such products in the
particular area and the stabiUty of that demand, (5) the freight charges involved
in dehvering the production to the buyer of the steel, and (6) an adeqiate labor
supply, taking into account housing facilities and living conditions generally.
The weight to be given to each of these considerations will differ according to
the kind of product that is made, and no single rule wiU apply to every condition.
Item (1) in most cases would probably carry the greatest weight, with item (2)
next in importance. The most important of the considerations have been taken
into account in present locations. It is doubtful whether the other considerations
would outweigh them under any system.
(4) Excess Capacity. — The steel industry had for some time past, until very
recently, a considerable amouni of idle capacity, but not necessarily excess capac-
ity. With the sudden increase in the demand for steel products, which has
coincided with the outbreak of the European war, a large part of this idle capacity
has already disappeared, and the balance of idle miUs are being brought into
operation as rapidly as possible to meet the existing demand. Whei) idle capacity
exists, however, there is no way of telling how much, if any, thereof constitutes
"excess capacity". There are many reasons for what, at times, may appear to
be excess capacity, including one predominant one — the business cycle. The
steel industry has capacity to supply peak or near-peak demand at the height of
the cycle, as in the years 1929, 1937, and at the present time, and consequently
some of its capacity stands idla during the lower phases of the cycle. The alter-
native is to have less capacity than the peak demand requires, thus producing a
scarcity and a tremendous rise in prices during the expanding phase of the cycle.
Neither condition is satisfactory. The business cycle and the other causes of idle
capacity would operate even if a uniform f. o. b. mill price system were adopted.
A uniform f. o. b. mill price system probably would eliminate some producers,
thus reducing to some extent the possibility of idle capacity. But no accurate
estimate can be made of how much of such capacity is necessary to supply the
peak demand, or whether the proposed system would eliminate just the right
amount, or at the right place. Any substantial reduction in capacity would prob-
ably leave less than is required for peak demand, and the equally undesirable
alternative of rapidly rising prices would then occur as demand increased in the
upward course of the cycle.
Thus, a uniform f . o. b. mill price system, if it had any effect at all on the amount
of steel capacity in the country, would probably cause extremely large fluctuations
in prices, which are as undesirable as idle capacity. There is no reason to suppose '
that it would produce any better working results than the basing point method.
(.5) Price Discrimination. — The suggested uniform f. o. b. mill price system, by
definition, would do ^way with variable mill net returns. It would accomplish
this, not by removing the causes of the present variation in such returns — the
location and geographical separation of producers, the wide distribution of con-
sumers, the large size of economical and efficient steel mills — but by an arbitrary
prohibition. The artificiality and rigidity of the situation which would result
have already been discussed.
(6) The Cost of the System. — In considering any alternative to the basing point
practice, one vital question is how much the alternative will cost economically.
Even could it be shown to be better in some ways than the present method, if it
would cost the public more than the benefits resulting from it are worth, it would
not be wise to adopt it. The above criticisms of the uniform f. o. b. mill price
system have shown that it involves definite economic costs. It would destroy
the investment in many plants. It would also act injuriously on many local
communities whose welfare is dependent upon the steel miUs at that point. It
would not eliminate shipments from other than the nearest mills. It would
probably result also in widespread dislocation of consumers who have located
their manufacturing establishments in reliance upon existing steel mills. It
might eliminate some idle capacity, but it would not necessarily be high-cost
capacity, and this change woiid probably produce, in the course of the business
cycle, another phenomenon as expensive and as undesirable as idle capacity.
All these are economic costs which it appears would follow from a imiform f . o. b.
mill price system.
14678 CONCENTRATION OF ECONOMIC POWER
The only corresponding saving wlyph would result frem a uniform f. o. b. mill
price system would be in its elimination of a certain amount of transportation
costs. As has been pointed out, it is impossible to estimate the amount which
could be saved, but in any case such amount is not the whole amount of freight
absorption under the present pricing method.
E. Summary
The basing point practice in the ste6l industry is a simple method of quoting
delivered prices, which results in the competition of many geographically separated
steel producers at the markets for each of the diversified products of modern steel
miUs. It is not a price-fixing medium nor does it result in high prices. It
does not stifle price competition but rather extends the benefits of such competition
to all consumers.
This basing point practice has evolved over a period of more than half a century
to meet fundamental economic conditions in the steel industry. Delivered prices
result from the buyer's need to know the cost to him of steel delivered at his
plant, since transportation charges from mill to consumer are often a substantial
part of the value at the place of consumption.
The producer of steel must take into consideration all of the elements of cost
involved, from the transportation of raw materials, through Uhe processes of
converting such raw materials into steel products, to the final dehvery of such
products to the consumer. It requires more than four tons of raw materials to
produce one ton of finished steel. The location of facilities for producing pig
iron and steel ingots must be determined largely by the factor of raw material
assembly cost. This limits the location of blast furnaces and open hearth furnaces
to a few areas where the raw materials are readily available. In turn, the econo-
mies of integration cause the location of rolUng mills near the steel producing
units. Large well-integrated mills, designed to supply the scattered markets of
the entire country, have been constructed in such areas. These mills produce
many diversified products in order to utihze ingot capacity to the fullest extent
and achieve low production cost pei;^unit. A modern integrated mill must serve
more than its immediate area; it mast reach many of the important markets
for its diversified products in order to obtain an even flow of orders. Thus,
concentration of production facilities in a few areas and wide distribution of
products is a rule in the steel mdustry enforced by economic considerations.
The result ^s competition at all consuming points between several geographically
separated producers.
The demand for steel is subject to enormous fluctuations in the business cycle.
The capacity of the industry, including reserve capa^city, is not more than sufficient
to supply the needs of the country during periods of high demand, such as 1929,
1937 and the present time. Less capacity would result in scarcity and high prices
during such periods. The problem of adjustment to the fluctuations of the
business cycle is solved in the most economical way. While the industry is
constantly constructing new facilities to incorporate technological advances, the
older miUs which, although outmoded, have not served their full useful life, are
retained in reserve to meet the demand at high levels of consumption.
Most criticisms of the basing point method disregard entirely these funda-
mental economic facts. The steel industry is often judged by criteria derived
from abstract theory, based upon imaginary conditions which cannot exist.
Natural deviations from these criteria are arbitrarily assumed to be evils and are,
without demonstration, ascribed to the basing point method. Critics sometimes
rest their case solely upon bland assertions and rheotrical exaggeration. In
many instances, mere name-caUing is resorted to. Thus, in the language of some
critics, the practice of meeting competitive prices at a distance becomes "freight
absorption"; the resulting difference in mill net returns becomes "price dis-
crimination"; the resulting shipments from other than the mill nearest the desti-
nation becomes "cross-hauling"; and the realization of a competitive advatange
due to superior geographical location becomes "phantom freight."
Competitive forces determine the prices quoted at all destinations. To obtain
business in a market at a distance from his mill, a producer must meet com-
petitive prices quoted by other producers nearer to such markets; he must pay
the freight necessary to transport the steel product to the consumer; and he will
therefore realize a lower mill net return than on sales to consumers nearer his
CONCENTRATION OF ECONOMIC POWER 14679
mill. This enables him to operate his mill at a lower unit cost and thus to sell to
the nearby consumer for less than he otherwise could.
There will always be some shipments of similar products past each other in
opposite directions unless competition between geographically separated producers
is arbitrarily hmited to the marginal territory between their mills. Even under
the uniform f. o. b. mill price system proposed by the Federal Trade Commission,
shipments would "not always be made from the nearest mill. The alleged eco-
nomic waste resulting friDm cross-shipments must be balanced against the counter-
vailing advantages to tne public of a competitive system, and also against the
economic losses which would follow from artificial limitation of marketing terri-
tories.
If an isolated producer is located nearer than other producers to an important
market, he will be able to realize a higher mill net return. In so doing, he may
be merely taking proper q,dvantage of his superior geographical location, or he
may need such higher return to compensate for his additional costs in assembling
and processing raw materials. He can obtain higher mill net returns than some
of his competitors either by announcing a higher price at his mill, or by merely
meeting the competitive delivered prices of other producers. Characterizing the
latter practice as the collection of freight charges which are not paid is a distortion
of the facts.
Transportation of steel products by water vehicles, and trucks has received
attention unwarranted by its true importance, and significant factors in the
situation have been overlooked. The practical availability of each of these
mediums of transportation is circumscribed by many inherent limitations. The
producer located so as to be able to transport some products by water has an
advantage over other producers not so located, which he is properly entitled to
realize by a higher mill net return. His advantage often lies merely in the ability
to reach markets from which rail freight rates would bar him. Where all the
circumstances warrant it, the advantage is passed on to consumers by lower
delivered prices. The producer's advantage, however, is one which may easily
turn into a disadvantage. If he gives one consumer the benefit of the saving
resulting from water transportation, he may soon have to make the same price
to all consumers in the area and ship by rail, with freight disadvantages which
will lower his mill net returns. Shipment by truck seldom involves an appreciable
freight saving, and often involves additional freight cost. The acjded expense
and inconvenience to the producer in truck shipments justify any additional
charges made.
The proposed alternative to the basing point method is a uniform f. o. b. mill
price system. The effects of thi^ system would be extremely complex, and are
therefore largely unforseeable. Its exponents propose it in the name of abstract
theory, and nave outlined its charaeteristics and effects only with respect to the
elimination of supposed evils of the basing point method. They have never
'described the operation of the system nor analyzed its effects in relation to the
economic facts of the steel industry.
The uniform f. o. b. mill price system is expected by its exponents to eliminate
high cost, inefficient and supposedly uneconomically located mills and to break
up concentration of production facilities, by forcing the erection of small mills in
all parts of the country. Such results, even if they would be accomplished by
the system, would conflict with basic economic factors, and necessarily increase
present production and transportation costs.
The system is also expected to produce theoretical "perfect competition", or
at least to increase competition. This is to be accomplished by the extraordinary
means of arbitrarily limiting the competition between mills not adjacent to each
other to \Tiarginal territory. Each mill, or group of mills, would be restricted in
• distribution to a circumscribed area subject to only slight possible variations in
size. Each customer would be 'confined to a single or a very few sources of
supply. The capacities of mills would be limite4 to the consumption in the
prescribed territories, and any existing additional capacity would have to be
scrapped. Serious dislocations in the steel industry and in industries dependent
upon it Would be inevitable.
TJnder a uniform f. o. b. mill price system, local monopolies and high, assembly
afid production costs would displace the present Wide-spread competition and
low costs.
14680 CONCENTRATION OF ECONOMIC POWER
The following documents are included at this point in connection
with testimony supra.
United States Steel Corporation,
71 Broadway, New York, February 2, 1910.
Walter B. Wooden, Esq.,
Assistant Counsel, Federal Trade Commission, Washington, D. C.
Dear Mr. Wooden: Enclosed is a photostatic copy of a price announcement
on concrete bars issued by Carnegie-Illinois Steel Corporation under date of June
4, 1936, which, I believe, is the announcement requested by you at the hearing
before the Temporary National Economic Committee on Monday, January 29,
1940. I have been unable to send this announcement earlier, as no copy thereof
was available in New York, and it was necessary to obtain one from Pittsburgh.
I am informed that the provision contained in this announcement regarding the
place of delivery, which reads as follows: "Place of delivery is recognized to be the
railroad freight station nearest the place where the material is to be used or stored
for resale, except in the case of products sold ^or fabrication for an identified
structure when the place of deUvery is the railroad freight station nearest to the
place at which such structure is to be assembled or erected.", is one of the standard
terms and conditions of sale, still printed on the reverse side of price announce-
ments for all products, and that' such a provision does not mean that structural
material will only be sold by Carnegie-Illinois Steel Corporation delivered at the
place of erection and will not be sold by it delivered at the shop of the fabricator,
as was provided in the following provision of Section 4 of Schedule E of the Code
of Fair Competition for the Iron and Steel Industry, as approved on August 19,
1933: "and (b) in the case of plates, shapes, or bars intended for fabrication for
an identified structure, for the purpose of establishing the delivered price thereof,
the place of delivery shall be deemed to be the freight station at or nearest to the
place at which such structure is to be erected, and not the shop of the fabricator;".
According to the testimony of Mr. Fairless on Saturday, January 27, 1940, the
above quoted provision of the Code "was never effective, even during the Code"
(T. N. E. C. Verbatim Record, Vol. XI, No. 10, page 351). According to the
testimony of Mr. Adams on Monday, January 29, 1940, "The practice today is
to quote on the b sis of the price at point of fabrication" (T. N. E. C. Verbatim
"Record, Vol. XI, No. 11, page 373).
I am informed that, after the invalidation of the Code, while Carnegie-Illinois
Steel Corporation continued to quote prices on structural material intended to be
used for an identified structure delivered at the place of erection of such structure,
many sales were made at a price delivered at the fabricator's shop, and that at
the present time, although the general practice of Carnegie-Illinois Steel Corpo-
ration is to sell structural material delivered at the fabricator's shop, sales are still
made from time to time at a price delivered at the point of erection. I am also
informed that, in view of the above, it is impossible to name any date as the time
of a definite change by Carnegie-Illinois Steel Corporation from one method to
the other, but that the present general practice became more prevalent during
1938.
IMay I ask that this letter be made a part of the record of the Temporary Na-
tional Economic Cornmittee?
Very truly yoiirs,
Irving S. Olds.
Irving S. Olds.
ISO:MRW
Enclosure
CONCENTRATION OF ECONOMIC POWER
14681
Cahnbgie-Illinois Steel Corporation
united states steel corporation sttbsidiart
General Offices; Carnegie Building
Pittsburgh, Pa., June 4, 19S6.
Price Announcement to Contractors and Owners of Construction
Projects on Concrete Bars
new england
Effective this date, and until further announcement, the following prices will
apply ori sales of concrete reinforcing bars for delivery and consumption in the
United States:
Price F. 0. B. cars delivery point car-
load lots
Delivery Point
Concrete Bars
Spirals
New
Billet
Rail
H"
Larger
than H"
$2.49
a, 46
2.46
2.46
2.43
2.45
2.47
2.44
$2.34
2.30
2.31
2.31
2.28
2.30
2.32
2.29
$4.14
4.10
4.11
4.11
4.08
4.10
4.12
4.09
$3.64
3.60
Concord, N.H ... . -
3.61
Boston, Mass - ... ...
3.61
3.58
Worcester, Mass . . .
3.60
Providence, R. I -.
3.62
3.59
All sales will be made subject to the Extras and to the Standard Terms and
Conditions of Sale as covered in Pages 2, 3, and 4 of this Price Announcement.
Prices and delivery at other points in the United States, and to Denver Recla-
mation Bureau, T. V. A., U. S. Army, U. S. Navy and Panama Oanal, will be
quoted upon request.
Carnegie-Illinois Steel Corporation,
C. V. McKaig,
Vice President & General Manager of Sales.
June 4, 1936.
Carnegie-Illinois Steel Corporation — Extras, Standard Terms and
Conditions op Sale Concrete Bars to Contractors or Owners op Con-
struction Projects
All >orders and contracts will be subject to approval at seller's General Offices,
Pittsburgh, Pa., or Chicago, 111.
TERMS OF payment
The terms of payment, unless otherwise hereinafter specified, are net cash within
thirty (30) days, or a discount of one-half (y2) of one (1) per cent on the net value
after deducting transportation charges for payment within ten (10) days, both from
date of invoice. The discount which will be indicated on the invoice may be
allowed on the basis of settlements twice a month as follows : '
(a) On all invoices for these products dated from the 1st to the 15th inclusive
of any month, such discount may be allowed on payment of such invoices on or
before the 25th of such month,
(b) On all invoices for these products dated from the 16th to the end of any
.month, such discount may be allowed on payment of suph invoices on or before the
. 10th of the next following month.
On shipments made by ocean or rail and ocean to the States of California,
X)regoh, and Washington, terms of payment are net cash within sixty (60) days,
or a discount of one-half (%) of one (1) per cent, for payment within forty (40)
days, both from date of invoice.
14682 CONCENTRATION OF ECONOMIC POWER
On sales of these products to the United States Government, the above terms
of net cash within thirty (30) days, or a discount of one-half (}4) of one (1) per cent
for payment in cash within ten (10) days, shall apply from date of receipt of
material at destination rather than the date of invoice.
Shipments and deliveries shall at all times be subject to the approval of Seller's
Credit Department, and Seller may at any time decline to make any shipment or
delivery except upon receipt of payment or upon terms and conditions or security
satisfactory to such Department.
PLACE OP DELIVERY
Place of delivery is recognized to be the railroad freight station nearest the
place where the material is to be used or stored for resale, except in the case of
products sold for fabrication for an identified structure when the place of delivery
is the railroad freight station nearest to the place at which such structure is to be
assembled or erected.
TRANSPORTATION BY TRUCK
When transportation is effected by truck provided directly or indirectly by
the buyer, an allowance will be made from the delivered price equal to 65% of
the carload all rail published tariff freight rate including surcharge if any from
shipping point to destination.
DELIVERIES TO RAILROADS
Prices which will be applicable on sales made, to Railroads, Trustees or Agents
thereof, will be quoted upon application. In sales of this character, however,
the freight allowance shall not exceed the sum of the foreign line portion (if any)
of the through published tariff freight rat« and five (5) mills per ton per mile- for
the on-line movement fr^ra shipping point to destination.
LAND GRANT FREIGHT RATES
In the case of sales made to the United States Government, or any department
or division thereof, where shipment moves via aU-rail transportation on Govern-
ment bills of lading, at land grant rates, title will be passed at the point of ship-
ment, and the lowest all-rail published freight rate to destination will be allowed,
plus an additional amoimt, if necessary, to equalize any greater benefits from
land grant rates which would accrue to the Government from shipping point of
any other bidder.
EXTllAS
To the foregoing base prices are to be added the following extras:
Size %" $0.10 per 100 lbs.
J4" 0.20 " " "
%" 0.40 " " "
Yi" 1.00 " " "
Spiral extras for cold drawn wire add $0.50 per 100 lbs.
For spirals without spacers deduct 0.25 " " "
QUANTITY EXTRAS
Less than 15 tons but not less Ik&n 5 tons $0.15 per 100 lbs.
Less than 5 " " " " " 1 ton 0.25 " " "
Less than 1 ton 0.50 " " "
BENDING EXTRAS
Heavy Bending $0.30 per 100 lbs.
Light Bending 0.80 " " "
WEIGHT SPECIFICATIONS
For weight tolerance more restrictive than the A. S. T. M. Tolerance, $0.10
per 100 lbs.
CONCENTRATION OF ECONOMIC POWER
14683
TRUCKING
In Metropolitan New York, Philadelphia and Eastern Pennsylvania, $0.10
per 100 lbs.
All other points, $0.05 per 100 lbs.
Note. — Above cartage is in all cases in addition to published freight rate of
switching charges.
ENGINEERING
Designing (Preparing designs and placing plans), $0.25 per 100 lbs.
Design only (Preparing design without placing plans, $0.10 per 100 lbs.
Detailing and placing plans (from designs made by others) :
Quantity
Per 100 lbs.
Max. Chge.
Less than 100 Tons
$0.15
0.12M
0.10
0.07M
0.05
$250.00
100 tons to 199.99 tons . ...
400.00
200 tons to 499.99 tons.-
750.00
600 tons to 999.99 tons..
1000.00
Over 1000 tons ... .■
GENERAL
If any changes are made in prices and conditions as stated in this list, a supple-
ment will be issued immediately setting forth such changes.
Federal Trade Commission,
Washington, D. C, February 5, 1940.
Mr. Irving S. Olds,
Director, United States Steel Corporation,
71 Broadway, New York, New York.
Dear Mr. Olds: Your letter of February 2nd and enclosure were received
today, and I thank you for the information given.
As a matter of further clarification, howe^^er, will you kindly state in what
classes of products and cases the Carnegie-IUmois Steel Corporation quotes on
structural material (including concrete bars) for use in identified structures
f. o. b. place of erection, and in what classes of products and cases it quotes
f. o. b. place of fabrication..
Please state whether there was any formal action by the Code Authority which
had the effect of revoking Section 4 of Schedule E of the Code relative to quota-
tions on material intended for fabrication for an identified structure.
I shall be glad to ask that yoUr letter and the reply to this one become a part of
the record of the Temporary National Economic Committee, as it is important
that the record be corrected and clarified in accordance with your supplementary
statements.
Yours very truly,
W. B. Wooden,
Assistant Chief Counsel.
WBW:MJM
United States Steel Corporation,
71 Broadway, New York, February 8, 1940.
Walteb- B. Wooden, Esq.,
Assistant Chief Counsel, Federal Trade Commission,
Washington, D. C.
Dear Mr. Wooden: Your letter of February 5, 1940, was received on Tuesday.
In answer to the request contained in the second paragraph thereof, I am in-
formed that the present sales practices of Carnegie- Illinois Steel Corporation are
as follows:
(a) Plates, Shapes and Bars for use as structural material are generally sold
delivered at the point of fabrication.
(b) Concrete reinforcing bars (which were sold delivered at the point of fabrica-
tion during the N. R. A. Code period and were not covered by the provisions of
Section 4 of Schedule E of the Code, approved on August 19, 1933, which provided
124491 — 41— pt. 27-
14684 CONCENTRATION OF ECONOMIC POWER
that sales should be made delivered at the point of erection rather than at the point"
of fabrication) are largely handled through jobbers and are usually sold delivered
at the place of the jobber's warehouse. This product, however, when the pur-
chaser so requests, is very often sold delivered at the point of erection of the identi-
fied structure.
In answer to the request contained in the third paragraph of your letter, I am
informed that there was no formal action by the Code Authority, which had the-
efifect of revoking such Section 4 of Schedule E of the Code.
In this connection I would like to correct an apparent misapprehension of the
meaning of my letter of December 18, 1939, addressed to Mr. James R. Brackett,
Executive Secretary, Temporary National Economic Committee, in which I
stated, following the language of Mr. Brackett's question: "I am informed that
the officials of United States Steel Corporation know of no amendments or modifi-
cations since June, 1935, of Commercial Resolutions and Regulations adopted
during ttie N. R. A. Co(ie period, or similar statements or announcements of com-
mercial practice made since June, 1935." You have apparently interpreted this
to mean that these Commercial Resolutions and Regulations continued in effect
after June, 1935. These Commercial Resolutions and Regulations were, of course,
invalidated along with the Code itself by the decision of the United States Supreme
Court in the Schechter case in May, 1935, and I am informed that thereafter no
authority existed in any body to adopt, amend, modify or revoke any such resolu-
tions or regulations or any similar statements or announcements of commercial
practice.
I am informed that on June 3, 1935, the Board of Directors of the American Iron
and Steel Institute adopted the following resolution, which was referred to in the
hearings last month, and also by Mr. Burr at the hearing on March 6, 1939:
"Whereas the Chairman of the National Industrial Recovery Board has issued
a statement with regard to the decision of the United States Supreme Court in
the Schechter Poultry Corporation case in which he expressed the hope 'that all
employers heretofore operating under approved codes and all their employes will
cooperate in maintaining those standards of fair competition in commercial and
labor relations which have been written into the codes with practically universal
sanction, and which represent a united effort to eliminate dishonest, fraudulent
trade practices and unfair competition in overworking and underpaying labor.';
"Resolved, That it is hereby declared to be the sentiment of the Board of Direc-
tors of the American Iron and Steel Institute that the individual members of the
Iron and Steel Industry, acting voluntarily, during the present uncertainty, main-
tain the, present rates of pay and maximum hours of labor and the standards of
fair competition which are set forth in the Steel Code, and that the members of
the Industry continue to protect the employes' rights of collective bargaining; and
"Resolved, That the Executive Secretary of the Institute be, and he hereby is,
authorized and directed to send a copv of these resolutions to each member of the
Industry."
I. am informed that, as stated in the language above quoted, this resolution was
"adopted as an expression of sentiment by the Board of Directors of the American
Iron and Steel Institute in order to comply with the publicly expressed wishes of
the Chairman of the National Industrial Recovery Board. I am further informed
that the United States Steel Corporation and its subsidiaries never at any time
considered that such resolution, or the ratifying resolution adopted by various
members of the iron and steel industry on June 6, 1 935, covered or called for any
continuation of the above mentioned Commercial Resolutions and Regulations
adopted during the N. R. A. Code period.
As Mr. Burr, in his testimony before the Temporar}' National Economic Com-
mittee on March 6, 1939 (page 316 of Verbatim Record), referred to such ratify-
ing resolution adopted by various members of the iron and steel industry on June
6, 1935, I should like to call to your attention the full text of such resolution as
then sent to members of the steel industry by the American Iron and Steel In-
stitute. The full resolution reads :
"Resolved, That the members of the Iron and Steel Industry in General Meeting
assembled this sixth day of June, 1935, hereby unanimously ratify the resolution
of the Board of Directors of American Iron and Steel Institute, adopted June 3,
1935, and each of us hereby declares that the Company which he represents is in
favor of supporting the position taken by such resolution and that it is the inten-
tion of such Company, acting individually and voluntarily, in so far as it may do
so, during the present uncertainty to maintain the present rates of pay and maxi-
mum hours of labor and the standards of fair competition which are described in
the Steel Code, and that such Company will continue to proteot'the employees'
rights of collective bargaining." . - .
CONCENTRATION OF ECONOMIC POWER 14685
Referring to willingness on your part stated in the last paragraph of your letter
of February 5th, I shall appreciate your asking that this letter and my earlier
letter of February 2, 1940 to you be made a part of the record of the Temporary
National Economic Committee.
Very truly yours,
Ikying S. Olds.
ISO:MRW
Carnegie-Illinois Steel Cobporation
united states steel corporation subsidiary
General Oflfices, Carnegie Building
Pittsburgh, Pa.
Clement V. McKaig
Vice President and Qeneral Manager of Sales
J. Halsey McKown
Assistant Vice President and Assistant Qeneral Manager of Sales
Mat 26, 1936.
To all managers of sales:
Subject: Third quarter prices 1936
Supplementing our letter of May 23rd, we are sending you, in today's mail, a
supply of two new Price Announcement forms — (1) Hot Rolled Carbon Steel —
(2) Hot RoUed Alloy Steel — both of which have been designed to simplify the work
of the District Office.
We have arranged, and are enclosing for your convenience, a chart showing
prices announced to date on various commodities. This will be supplemented
from time to time as additional details are ascertained.
The Price Announcement on Hot Rolled Alloy Steel Bars only covers such
products as are specifically mentioned in our Standard Classification of Extras.
In this respect, we ask that you confer regarding prices for Hot Rolled AUoy
Small Shapes, Plates, and Structural Shapes.
We also call your attention to the following changes in our Standard Classifi-
cation of Extras for the Third Quarter, these in addition to the recently announced
change in Size Extras on Hot Rolled Carbon Steel Blooms, Billets and Slabs,
Forging Quality— rthese changes will be incorporated in the next revisions of the
several extra cards involved:
1. Hot Rolled Carbon Steel Bars — Automobile Bumper Steel Bars (Page 5).
REVISION
Front or Impact Bars — Special Sections. Extras for Section and Quality,
in addition to regular extras for chemical specifications:
Sections .156" thick and heavier .15ji per lb.
Sections under .156" to .125", inc .25^ per lb.
Sections under .125" .35ji per lb.
Other Bumper Bars are subject to Automobile Spring Steel extras plus
extras for chemical specifications.
2. Hot Rolled Strip Steel, Cutting Extras (Page 6).
REVISION
Specified Lengths — 42" or over.
Over 24" to 42", exclusive.
Over 12" to 24", inclusive.
Not RoUed Strip Steel, Quality and V/orkmanship Extras (Page 7),
REVISION
Tack Plate Quality -' .30^ per lb.
3. Hot Rolled Sheets and Hot Rolled Annealed Sheets, Processing Extras
(Page 6).
REVISION
Tack Plate Quality (In addition to size extras) .SOji per lb.
If any details given you thus far are not entirely clear, please do not hesitate to
call upon us for further information.
Very truly yours,
J. H. McKowN,
Assistant Vice President and Assistant General Manger
of Sales.
14686 CONCENTRATION OF ECONOMIC POWER
Delivery Point Prices
[All prices
are base
per 100#]
2
n
d
•8
1
ra
S
5
Ph
8
1^
Sheets
o.
'S
to
s
03
ja
m
•3
pa
§
O
B
§
CO
.a
Delivery Points
o
■*©
S o
M
1
<
Pittsburgh, Pa
Birmingham, Ala...
$1,925
' 2.075
2.025
2.025
1.98
$1,925
2.075
$3,475
$1. 975
2.125
$2. 525
2.675
$1,975
2.125
$1. 975
2.125
Confer .
Confer .
$1,825
Confer.
Confer -
Confer.
Confer.
Buflalo N Y
2.075
2.03
2.025
Confer.
Confer.
Confer -
1.825
1.83
Confer -
Confer.
Chicago, 111--
1.98
3.53
2.08
Confer.
2.025
3.575
1.825
2.125
2.03
i.98
2.025
2.08
2.63
2.08
Confer.
Sparrows Pt.,Md..
Youngstown, Ohio .
Gulf Ports
1.825
1.825
Confer,
Confer.
Confer .
2.325
2.475
2.325
2.475
3.875
4.025
2.375
2.525
Confer.
Confer.
2.525
3.175
• Birmingham, Ala.: Standard Structural Shapes Only.
Pacific Coast and Gulf Ports prices bstso plus Ocean Carrier long length and heavy lift extras per Freight
Tarifl #1-A in addition to standard extras.
Minimum Carload: Chicago and Gary.. 60,000 Ib.!^;.;.!,.^ 30 Gross Tonslonmi WiniohoH
Other Points 50,000 ib./*"»'siiea ^ q^^^ rj,^^^ji>6m\-i!m\sQm.
Carnegie-Illinois Steel Corporation,
General Sales Department.
Delivery Point Prices, Alloy Steel
[Billets, Slabs and Ingots, Prices Base per Gross Ton; All Others, Prices Base per 100#]
Delivery Point
Struct.
Shapes
Alloy
Plates
Alloy
Bars
Alloy
Small
Shapes
Alloy Billets
& Slabs
Alloy Ingots
^Pittsburgh, Pa....
Birmingham, Ala.
Bethlehem, Pa
Buflfalo, N. Y
Canton, Ohio
Chicago, 111
Gary, Ind
Massillon, Ohio...
Confer.
Confer.
$2. 575
Confer. .
$51.50 Q. T.
$42. 50 a. T.
Confer.
Confer.
Confer.
Confer.
Confer.
-Confer.
Confer.
Confer.
2.575
2.575
2.575
2.58
Confer.
Confer.
Confer.
Confer.
51.50
51.50
51.50
51.60
42.50
42.60
42.50
42.60
Confer.
Confer..
2.675
Confer..
51.50
42.50
Minimum Carload: Chicago and Gary-BO.OOO lb.1 pi^i.^.^/SO Gross Tonslc,..^, pin,-.>,p,i
Other Points -50,000 Ib.P i°'s'>e^l25 Gross Tons/^^™''*^"''*^^*^-
CARNEGIE-ILLINOIS STEEL CORPORATION,
General Sales Department
CONCENTRATION OF ECONOMIC POWER
14687
Delivery Point Prices, Semi- Finished Material
'All prices are base per gross ton]
Delivery Point
Blooms,
Billets,
Slabs,
Rerolling
Blooms,
Billets,
Slabs,
Forging
Ingots
Forging
Sheet
Bars
Hot Rolled
Rods over
IS/SB" to
47/64". incl.
Pittsburgh, Pa
Anderson, Indiana
Birmingham, Ala
Buffalo, N. Y
Canton, Ohio
Chicago, 111- -
Cleveland, Ohio
Duluth, Minn. (Billets only)
Galveston, Texas (Gulf Ports)
Gary, Indiana
San Francisco, Cal. (Pacific Coast).
Sparrows Point, Md
Worcester, Mass
Youngstovrn, Ohio
$30.50
$37.60
Confer
$30.50
30.50
30. M
37.50
37.50
Confer.
Confer.
30.60
30.60
32.60
37.60
37.50
39.50
Confer.
Confer.
30.50
30.50
31.60
30.50
37.60
Confer.
30.50
37.60
Confer
30.50
'30." W
Confer.
Confer.
Confer.
Confer.
Confer.
Confer.
Confer.
Confer.
Confer.
Minimum Carload: Chicago and Gary— 60,000 Ib.\Tr.„.„i,nH/30 Gross Tonlo^^, vt^u^^A
Other Points -50.000 lb.r'°'^''°^|25 Gross Ton/^®™^"^'^'^^^''-
CARNEGIE-ILLINOIS STEEL CORPORATION,
General Sales Department.
Carnegie-Illinois Steel Corporation
united states steel corporation subsidiary
General Offices: Carnegie Building
Pittsburgh, Pa.
CLEMENT V. M'KAIG
Vice President and General Manager of Sales
J. HAISEY M'KOWN
Assistant Vice President and Assistant General Manager of Sales
June 6, 1936.
To all managers of sales:
Subject: Third Quarter Prices 1936
Supplementing our letter of May 23rd covering price announcements, wish to
advise you that there will be an advance of $2.00 per ton on Steel Axles for such
business to be shipped during the third calendar quarter year ending September
30, 1936, resulting in the following delivered prices:
Pittsburgh 2.9250 base
Birmingham 2.9250 base
Chicago 2.930 base
These prices are subject to the Standard Classification of Extras covering Steel
Axles as well as our Standard Terms and Conditions of Sale as provided for our
other products.
All inquiries should be submitted as heretofore.
Very truly yours,
J. H. McKowN,
Assistant Vice President and Assistant General Manager of Sales.
14688 CONCENTRATION OF ECONOMIC POWER
February 1, 1940.
Hon. Joseph C. O'Mahonbt,
Chairman, Temporary National Economic Committee,
United States Senate, Washington, D. C.
Dear Senator C Mahoney : My attention has just been called to certain state-
ments made by Mr. Willis J. Ballinger, Director of Studies of the Federal Trade
Commission, at the hearing before the Temporary National Economic Committee
on January 30, 1940, in which Mr. Ballinger purported to summarize some of my
testimony at previous hearings. I was not present at this hearing on January 30,
1940, as I had been informed by representatives of the Federal Trade Commission
at the conclusion of the hearing on the preceding day that the Federal Trade
Commission had no further questions to ask of Mr. Avery C. Adams and myself,
and that we were excused from attending the hearing on January 30, 1940.
As events beyond your control prevented you from attending any of the hearings
at which I was a witness, I think it is proper for me to state to you that the sum-
marization of my testimony so given by Mr. BaUinger is not accurate and gives a
meaning entirely different from that conveyed by my conaplete testimony. I
respectfully ask that before you and the other members of the Temporary National
Economic Committee reach any conclusion, my entire testimony be considered,
rather than any summarization thereof given by Mr. Ballinger or by any other
representative of the Federal Trade Commission.
As reported on page 395 of the Verbatim Record of the Proceedings on January
30, 1940, Mr. BaUinger stated: "Mr. Fairless admitted that when the basing-point
system was followed that it eliminated price .competition in the steel industry.
That was a very significant admission. * * *"; and then quoted a few excerpts
from my testimony, apparently in an attempt to support his further statement
(also reported on page 395) that "when the basing-point system was observed,
Mr. Fairless clearly conceded that price competition was eliminated from the steel
industry. * * * Now it becomes s question of how much the basing system
is followed in the steel industry, and Mr. Fairless' whole defense was that this
thing, the basing-point system, is sort of a shadowy thing that stands there and
nobody takes advantage of it, they are always departing from it, and naturally
that suggests why they have it in the first place. * * * Apparently, as I get
it, they did not defend the basing point system. They said competition existed
in the industry because of departures from it."
Another statement by Mr. Ballinger to the same effect is reported in the first
column on page 396 of the Verbatim Record of the Proceedings on January 30,
1940.
May I bring to your attention that Mr. Ballinger failed to cite the following
portions of my testimony, which I think throw some additional light on the
character of my testimony relative to the particular points he was discussing:
(Extract from page 318 of Verbatim Record of Proceedings on January 26,
1940) :
"Mr. Wooden. Mr. Fairless in that connection, even when the basing-point
system is working one hundred percent and producing an identical delivered price,
your mill net realizations fluctuate even then, do they not?
"Mr. Fairless. The basing point system works one hundred percent every day,
twenty-four hours of every day, but it doesn't result in uniform prices because
that isn't the reason that the system is in vogue or practice."
(Extract from page 319 of Verbatim Record of Proceedings on January 26,
"Mr. Fairless. I. would like most emphatically, if I have that ability, to once
and for all state our position in so far as the basing-point system is concerned-
Our contention is that breaks in prices are not a breakdown to any degree of the
so-called basing-point system. We contend that the basing-point system was in
effect and worked just as well when sheets and other flat rolled products sold for
eight dollars a ton under the market as it did when they sold definitely on th^
market.
"There is no relationship, and to constantly be asking us the question about the
breakdown of the basing-point system we don't believe is a fair presentation.
Everybody, of course, is entitled to their own opinion of the basing-point system,
but we contend that the basing-point system is only a vehicle which we use to
merchandise our products. We have told you we use it because ^e know of no
better method to merchandise our product. There might be, and if out of these
hearings could come that, we would be the first to welcome it.
"Now so far as competition, the fact that you have basing points and that prices
are quoted as applying to those basing points for various products, and the fact
CONCENTRATION OF ECONOMIC POWER 14689
that those prices are not maintained or are maintained or are reduced, so many
dollars one time and more or less dollars at another time, is in no way in relation-
ship to the basing point system is our contention, and I would like to make that
clear if I can."
(Extract from page 341 of Verbatim Record of Proceedings on January 27,
1940) :
"Mr. Wooden. Now I also recall that you testified yesterday afternoon that
you agreed with Mr. Gregg, Vice-President of your company, when he testified
that if the basing point systems were fully operative there would be no competition
in price. Is that correct?
"Mr. Fairlbss. That is not correct.
"Mr. Wooden. What is your position with reference to that?"
*******
"Mr. Fairless. My contention is that competition exists even although two or
more companies arrive at the same price or have identical bids, providing, of
course, that the conclusion is arrived at legally. It seems to me that when two
or more companies are interested in getting a piece of business, tonnage, a con-
tract, that has to do with steel, you immediately have competition. The fact
that each of those companies has announced prices to the public certainly pre-
vents them from charging any price that they might choose to charge."
(Extract from page 342 of Verbatim Record of Proceedings on January 27,
1940):
"Mr. Fairless. What I did say, Mr. Chairman, was this, that if all steel com-
panies— if all steel companies — had basing points and posted their base prices,
which is to begin with a competitive situation, but if they did post their prices
and they did quote in respect to steel tonnage in a territory, or any territory,
and they used the nearest basing point and applied the base price that had been
published by the company that governed or controlled that basing point, and
added all the charges, extras and all the transportation charges, there would be
obviously uniform price arrived at, but that doesn't mean that that would not
still be a competitive price so far as competition is concerned, because the basis
to begin with, the base price, was competitive, bound to be competitive."
Various statements made by Mi. Ballinger and Mr. Wooden at the hearing on
January 30, 1940 seem to me to convey the impression that the testimony of Mr.
Adams and myself was contrary to and not in support of the pamphlet on the
basing point practice, submitted to the Committee by United States Steel Cor-
poration as Exhibit No. 1418. That is not correct, and I hope that you and each
other member of the Committee will read this pamphlet in its entirety before
reaching any conclusion.
May I request that this letter be made a part of the record of the Temporary
National Economic Committee?
Respectfully yours,
Benjamin F. Fairless, President.
BFF:MRW
Copy to: Mr. Willis J. Ballinger, Director of Studies, Federal Trade Commis-
sion, Wabhington, D. C.
Federal Trade Commission,
Washington, February 6, 1940.
Hon. Joseph C. O'iJ phoney, Chairman,
Temporary NationA Economic Committee, United States Senate,
Washington, D. C.
Dear Senator O'Mah.onet: The letter of Mr. B. F. Fairless, president of
the United States Steel Corporation, to you under date of February 1, 1940, has
come to my attention through a copy which he sent to Mr. Ballinger. The
statement is noted that various comments by Mr. Ballinger and me at the hearing
of January 30 imply that Mr. Fairless' tetimony was contrary to, and not in
support of, the Corporation's pamphlet submitted to the Committee as "Exhibit
1418. Such a conclusion is now challenged by the Corporation,
There are other portions of Mr. Fairless' testimony to which iattention should
be called, as well as those set forth in his letter. Taken collectively,- they support
the challenged conclusion. They also support the comments of Mr. Ballinger
to which exception is specifically taken. '"^
The Corporation's letter quotes from Mr. Fairless' testimony on page 341 of
the verbatim record that it was not correct to say that he had agreed with Mr.
Gregg, a vice-president of the Corporation, who had eaid that if the basing-point
system "were universally followed, there would be no competition in so far as
14690 CONCENTRATION OF ECONOMIC POWER
one element of competition is copcerned, namely, price." Yet Mr. Fairless had
previously testified, as shown on page 317 of the verbatim record, as follows:
"We will concede, if that is the point we are trying to make, that if base
prices as announced were followed in every transaction, and that the nearest
basing point to the consumer governed, and that the rail freight was added
from that point, and the delivered price arrived at in that manner, there
wouldn't be any competition in the Steel Industry. It would be a one price
industry pure and simple."
Mr. Fairless had also testified that "As I read from the record, Mr. Gregg said
substantially what I have just said." (Page 318 of verbatim record.)
By contrast with the foregoing, Mr. Fairless now quotes from his testimony on
page 318 of the verbatim record, as follows:
"The basing point system works 100% every day, 24 hours of every day,
but it doesn't result in uniform prices because that isn't the reason that the
system is in vogue or practice."
Although Mr. Fairless made that claim, the Corporation, in its prepared statement
to the Committee, quoted from a report of the NRA that "the outstanding
characteristic of the basing point system is the fact that it puts rival producers on
a footing of price equality with each other in aU the consuming points over a wide
area." (Exhibit 1418, page 37.) Mr. Fairless testified that this was "a true
statement", although claiming at the same time that this did not preclude com-
petition in such areas. (Page 318 of verbatim record.)
Taking these several quotations together, they amount to saying that if the
basing point system is working 100% there would be no price competition, but
that although the system works 100%, 24 hours of every day, it does not result
in uniform prices. They amount to saying also that the system is not intended to
produce uniform prices although that is its outstanding characteristic.
Mr. Fairless' letter also cites his testimony on page 319 of the verbatim record
to the effect that the fact that basing point prices "are not maintained, or are
maintained, or are reduced so many dollars one time and more or less dollars
at another time is in no way in relationship to the basing point system." He
testified that such "is our contention and I would like to make that clear if I can."
He further testified that "our contention is that breaks in prices are not a break-
down to any degree of the so-called basing point system," and that "the basing
point system was in efifect and worked just as well when sheets and other flat
roUed products sold for $8 a ton under the market as it did when sold definitely
on the market."
Such contentions are equivalent *o saying that the system whose outstanding
characteristic is to put rival producers on a footmg of price equality everywhere
works just as well when steel products are sold far below the equal delivered
prices which the system contemplates. They are the equivalent of saying that
while reductions below the market price of the system have no relationship to the
system itself, nevertheless, the system is in effect and works just as well when
prices are being made below the market price refiected by the system. If, in
fact, price reductions have no relation to the system, it would follow that the
system, as such, tends to maintain prices on a higher level.
In the concluding parts of Mr. Fairless' letter, his testimony on pages 341 and
342 of the verbatim record is cited, to the effect that competition exists even where
producers make identical bids and that as long as the base price is competitive
the whole basing point system is competitive, notwithstanding that it produces
identical delivered pHces. Tiiis position cannot be reconciled with- Mr. Fairless'
testimony on page 317 that if delivered prices were arrived at by adding rail
freight from the governing basing point to the annourfced base price "th^re
wouldn't be any competition in the Steel Industry." Nevertheless, the position
that the system is competitive is the main theme and thesis of the Corporation's
pamphlets submitted to the Committee as Exhibits 1418 and 1410.
Since you were not present when Mr. Fairless gave his testimony, it would be
desirable, as he suggests, that his entire testimony be considered, and not only the
portions which he and I have called to your attention. There is not the slightest
objection to having Mr. Fairless' letter made a part of the record, as he requests,
but may I not ask that this letter of comment be similarly received?
Respectfully yours,
, (Signed) Walter B. Wooden,
Walter B. Wooden,
Attorney.
Copy to: Mr. Benjamin F. Fairless, President, United States Steel Corporation,
New York, New York.
CONCENTRATION OF ECONOMIC POWER 14691
The following letter and tables are included at this point in con-
nection with testimony supra.
Chairman
Board of Directors
United States Steel Corporation,
71 Broadway, New York, October 4, 1940.
Hon. Joseph C. O'Mahonet,
Chairman, Temporary National Economic Committee,
Senate Office Building, Washington, D. C.
Dear Senator O'Mahonet: In order that the record of the Temporary Na-
tional Economic Committee may be accurate as to the facts set forth therein, we
request that this letter and the two accompanying tables be made a part of that
record at the appropriate place.
A pamphlet entitled "The Basing Point Method of Quoting Delivered Prices in
the Steel Industry" was submitted to the Temporary National Economic Com-
mittee by United States Steel Corporation and was introduced into the records
as Exhibit 1418. Ih that exhibit there appears on page 34 thereof the following
statement:
II* * * ^jj examination of records, covering Federal Government awards
for steel products made at Washington, D. C, during 1938 and the first quarter
of 1939, indicates that such awards aggregated approximately $10,550,000, of
which about 80% in value went to the lowest bidder and only about 16.5% in
value by lot on account of identical bids. The balance of 3.5% was awarded on
a basis other than of price."
The above statement represented the result of a statistical analysis made by
United States Steel Corporation of awards on United States Government pur-
chases of steel products made at Washington, D. C, during such period of fifteen
months. The underlying records upon which such analysis was based were fur-
nished by us, upon request, to the Federal Trade Commission and were introduced
by the Federal Trade Commission into the record of the Temporary National
Economic Committee as Exhibits 2210 and 2211.
At the hearings before the Temporary National Economic Committee on
January 30, 1940 (the witnesses for the United States Steel Corporation having
been excused the preceding day), the accuracy of the above quoted state-
ment was questioned by Mr. Hugh E. White, Economist for the Federal Trade
Commission..
Since such hearing on January 30, 1940, we have followed your suggestion and
have recliecked the underlying records (Exhibits 2210 and 2211), using the
annotations thereon made by the Federal Trade Commission which show their
classification of the items contained therein, in an effort to determine whether or
not an error was committed. This letter and the accompanying tables give the
results of such recheck.
1. Dollar Amounts of Awards. — The underlying records (Exhibits 2210 and
2211) cover total awards of more than $28,000,000. In the statistical analysis
originally made by the United States Steel Corporation there were excluded
awards for all products other than steel products, and there were also excluded
awards for certain steel products, such as those sold for export and armor plate
and special treatment steel, which were not sold under the Basing Point Method.
Awards for the remaining steel products, which formed the basis of our analysis,
had a total value of approximately $10,500,000. In the computation made by
the Federal Trade Commission the total awards were divided into "Rolling Mil]
Products", "All Other Steel Products" and "Other Products". The awards
which the Federal Trade Commission found to be in the first class totaled approxi-
mately $4,500,000. Messrs. White and Wooden of the staff of the Federal Trade
Commission gave the impression at the hearing on January 30, 1940, that such
awards were the only ones to be considered and that, therefore, the Corporation's
statement of the total value of the awards for steel products was erroneous. We
do not believe that the Federal Trade Commission's bases of classification are
proper, or that there is any good reason for restricting such awards only to those
for "Rolling MiU Products". Our re-examination of the underlying records
indicates that awards for steel products during this period aggregated approxi-
mately $10,000,000, or about $500,000 less than the amount named in our original
statistical analysis.
2. Awards by. Value. — An examination by your Committee of Exhibit 2231,
the table which Mr. White introduced in support of his testimony, will show that
upon a value basis the percentage of awards made by lot because of identical bids
was 12.67%. We understand that Mr. White has since corrected his testimony
to accord with this percentage. Table 1 attached hereto contains a correct
14692 CONCENTRATION OF ECONOMIC POWBH
calculation of the percentages of the figures contained in Exhibit 2231, submitted
by the Federal Trade Commission. It is noteworthy that by narrowing the
classification to "Rolling Mill Products" and to "awards to producers of rolling
miU products", Mr. White found awards of only 12.67% made by lot because of
identical bids, which is even lower than the figure of 16.5% found by United
States Steel Corporation in its original statistical analysis.
3. Awards by Numbers. — A careful count of each of the types of bids found in
the underlying records (Exhibits 2210 and 2211) will reveal no apparent basis for
Mr. White!s statement that 89.54% of awards on steel products by number, as
distinguished from value, were made by lot because of tie bids. On the basis of
the classification adopted by the Federal Trade Commission (which they indi-
cated by a symbol with respect to each item on such underlying records) , the total
number of items in each of the various classes and the corresponding percentages
are shown in Table 2, attached hereto. It may be noted that for the classification
"Awards for Rolling Mill Products to Producers of Rolling MiU Products", which
is the one which the Federal Trade Commission seems to regard as the most
significant, only 138 out of 544 awards, or 25.4%, were awards made by lot because
of tie bids. This is in contrast to the figure of 89.54% cited by Mr. White in his
testimony and shown in Exhibit 2232, submitted by the Federal Trade Commis-
sion. Awards by number made because of lower price amounted to 62.3%. It
is impossible to ascertain from the underlying records as annotated by the Federal
Trade Commission, how the percentage contained in Exhibit 2232 was obtained.
As stated in the first paragraph hereof, in the interest of accuracy we ask that
this letter and the accompanying tables be included in the record of the Temporary
National Economic Committee at the appropriate place.
Respectfully yours,
Irving S. Olds
Irving S. Olds, Chairman.
Copy to Chairman, Federal Trade Commission, Washington, D. C.
[Submitted with letter of United States Steel Corporation, dated October 4, 1940]
Table I.^Percentage analysis of the Federal Trade Commission's T. N. E. C.
exhibit 22S1
Contracts awarded to "Rolling MiUs":
(a) Rolling,jMill Products:
Awards by "lot-tie bids" 12.7%
Awards at "lower price" 85.6%
Awards at other than price ^-_.. 1-7%
(b) AU other steel products:
Awards by "lot-tie bids" 1. 6%
Awards at "lower price" 98. 3%
Awards at other than price . 1%
Contracts awarded to "Others":
(a) Rolling Mill Products:
Awards by "lot-tie bids" 1 16. 3%,
Awards at "lowef price" 83. 7%
Awards at other than price ■ 0.0%
(b) All other steel products:
'Awards by "lot-tie bids".... . 9. 6%
. Awards at "lower price" 86.4%
Awards at other than price ., 4. 0%
All Awards:
(a) Rplling Mill Products:
Awards by "lot-tie bids" 13. 4%
Awards at "lower price" 85. 2%
Awards at other than price 1-4%
(b) All other steel products:
Awards by "lot-tie bids" 2. 3%
Awards at "lower price" 97. 3%
Awards at other than price . 4%
(c) Total all steel products:
Awards by "lot-tie bids" 4.8%
Awards at "lower price" 94. 6%
Awards at other than pjice .6%
CONCENTRATION OF ECONOMIC POWER
[Submitted with letter of United States Steel Corporation, dated October 4, 1940]
14693
Table 2. — Numerical measurement of awards for rolling mill -products and all
other steel products — 19S8 and first quarter 1939
AWARDS FOR ROLLING MILL PRODUCTS
-
No. of
Bids
Percent-
age
Awards to producers of rolling mill prod-
Total ^.
544
138
339
67
189
16
165
8
733
154
604
75
100.
ucts
Tie bids..
25.4
Unlike bids How bids)
62.3
Unlike bids (other than price)
17.3
Awards to nonproducers
Total
100
Tie bids...
8.6
Unlike bids (low bids)
87.6
Unlike bids (other than price)
4.2
Total of awards of rolling mill products...
Total
100.
Tie bids....
21.01
Unlike bids flow bids)
68. 76
Unlike bids (other than price)
10.13
AWARDS FOR AfVh OTHER STEEL PRODUCTS
Total awards on all other steel products.
Total
Tie bids
Unlike bids (low bids)
Unlike bids (other than price)
100.
12.5
82.9
4.6
Note.— This table has been compiled on the same basis and from the same sources on which T. E. N. C.
Exhibit 2232, introduced by the Federal Trade Commission, purports to have been cempiled.
The following letter is included at this point in connection with
testimony supra.
November 29, 1940.
Mr. Irving S. Olds,
Chairman of the Board, United States Steel Corporation,
71 Broadway, New York City, New York.
Dear Sir: A copy of your letter of October 4 to Senator O'Mahoney (as
revised by you October 28) was sent to and received by Chairmaa Davis of the
Federal Trade Commission and was then referred to me for attention. Earlier
reply has not been made because of the pressure of other urgent Blatters and the
difficult task under existing circumstances in Washington of relating your basic
data ("Exhibits Nos. 2210 and 2211") to various departmental records.
First, however, let me say that the erroneous references in the testimony to
"Exhibit No. 2231" had been discovered and corrected before receipt of your
letter. The percentage errors contained in "Exhibit No. 2232" and described in
your letter have since been corrected in accordance therewith. Cross-reference
notations of these corrections have also been made in the record where necessary
to present the exact facts. These corrections and cross-references together with
the tables submitted with your letter should clear the record factually for your
contentions with respect to the statement appearing on page 34 * of "Exhibit
No. 1418."
"Exhibits Nos. 2231 and 2232" were prepared for the purpose of ascertaining
the extent to which departures as of a certain period were being made from the
basing point system in the sale of steel products to governmental agencies.
Referring to your criticism of the classification of bidders which was used in those
exhibits and your inability to see "any good reason for restricting such awards
only to those for rolling mill products", there was a segregation rather than a
restriction. Such segregation was made upon the theory that the reference in
"Exhibit No. 1418" to governmental awards of $10,550,000 was logically relevant
only to the issue of the identity of bids of steel rolling mills on their steel products
usually sold under the basing point system and not to the subsequent sale of such
products by independent jobbers nor to the sale of subsequently fabricated
products.-
> Of the original document.
14694 CONCi.iVTRATION OF ECONOMIC POWER
A re-examination of your underlying data contained in "Exhibits Nos. 2210
and 2211" has been made in view of your statement that the awards for "steel
products" approximated $10,000,000, as contrasted with our approximation of
"rolling mill products" of $4,500,000 and our approximation of $17,000,000 for
"other steel products" exclusive of rolling mill forms. Because of this wide
disparity and the seeming inclusion by you in the category of "steel products" of
a very large amount of "other steel products," we have included the details of our
classification of "rolling mill products" and "other steel products" in a supplement
to "Exhibit No. 2242." This supplement constitutes a breakdown of "Exhibit
No. 2231." We understand that a page proof of the supplement was sent you
by the T. N. E. C.
Although your abbreviations are not clear in some instances most rolling mill
products are readily recognizable. Unless and until it is known, however, just
which items (other than those shown in supplement to "Exhibit No. 2242") were
included in your approximation of $10,000,000 of "steel products" and whether
they were in fact rolling mill products, there seems to be no basis for comparison
between that total and our total which aggregated $17,000,000. In this connec-
tion it may be said that in the limited examination of source data (as suggested at
page 388 of the verbatim record) many of the doubtful items which we put into
the category of "other steel products" are now disclosed as not being steel products
at all. To that extent our approximation of $17,000,000 of "other steel products"
was too large.
In our view of the matter, however, all these things are but incidental details
of a check made to ascertain to what extent the basing point system was working
in the limited instances cited on page 34 of "Exhibit No. 1418." We think the
mechanics of the basing point system as such is not a subject of dispute. Your
Mr. Fairless admitted that it works 24 hours a day and that when it functions
perfectly it automatically produces a definite mathematical result, i. e., identical
destination prices. The statement in "Exhibit No. 1418,"' page 34, to which our
analysis of your basic data on governmental awards was directed, was evidently
intended to substantiate the obvious fact contained in the paragraph immediately
preceding it, to the effect that in times of low demand price cutting is frequent.
During that process, as it was there correctly said, "a lower general level of prices
may be established." During such periods of price cutting it is altogether prob-
able that destination prices would not be completely identical. Yet the frame-
work of the system would be preserved and in time producers would, as you cor-
rectly say, "again quote identical delivered prices" (page 34).
The paragraph referred to and the evidence cited in support thereof suggest a
failure to understand the economic implications which are inherent in the basing
point system. The departures from the system "in times of low demand" when
the pressure of surpluses is difficult to resist are not peculiar to the steel industry.
The statement that such departures occur or even an extended statistical showing
of that fact does not seem to constitute any logical defense of the system itself.
Very truly yours,
[S] Walter B. Wooden,
Assistant Chief Counsel, Federal Trade Commisnon
WBW:MC
INDEX
Page
Adams, Avery C 14157-14229, 14234-14262, 14321
American Can Co 14197, 14202, 14206
American Iron and Steel Institute 14160,
14222, 14230, 14231-14232, 14234, 14236, 14247, 14290-14293,
14300, 14302, 14315, 14321, 14323.
American Iron and Steel Institute Code Authority. See National Recovery
Administration Code Authority.
American Rolling Mill Co ^ 14227
American Sheet & Tin Plate Co 14261-14262
American Sheet Steel Co 14261
American Tin Plate Co 14262
Andrews, A. K 14192, 14280-14281
Andrews Steel Co 14192
Becht, Arno C 14158
Bethlehem Steel Corporation.... 14196-14197, 14198-14200, 14292-14293, 14317
Boston i- Maine Raih-oad 14290
Butler, E. T 14292
Carnegie-Illinois Steel Corporation 14136, 14159,
14195, 14217, 14219, 14243, 14245, 14251, 14259, 14263, 14280
Cement case 14285-142S6
Chicago & Eastern Illinois Railroad 14292
Clark, J. M., Columbia University 14132
Clayton Act 14328
Colorado Fuel & Iron Co 14324
Continental Can Co ' 14202
Continental Steel Corporation 14249, 14283-14284
Custer, A. B . . 14307-14312
de Chazeau, Melvin G 14130-14149, 14307
Devine, H. C 14290
Dickinson, Edward T., Jr 14158
Dorenbusch, A. A 14279-14288
Ezekiel, Mordecai 14150-14156
Fairless, Benajmin F 14157-14230, 14232-14278, 14291, 14320
Flora, Neil 14281, 14283-14284, 14287-14288
Gantt, W. H 14292
General Fireproofing Co 14160, 14221
Grace, Eugene 14197, 14317
Great Lakes Steel Corporation 14259
Hackett, S. E . -14291
Inland Steel Co 14282, 14287
International Harvester Co 14304
Interstate Commerce, Senate Committee on ." 14171, 14188, 14289
Irvin, W A - 14250,14289,14317
Keas, R. K : 14290-14291
Lockhart Iron & Steel Co 14290-14291
Lukens Steel Co - 14290, 14292
McKown, J. H 14217-14218
Michigan Hardwood case : 14285-14286
National Association of Flat Rolled Steel Manufacturers 14281, 14285
National Industrial Recovery Act.__- . 14180, 14214, 14244, 14293
National Recovery Administration 14131-14132,
14134, 14172, 14174, 14178, 14187, 14188, 14213-14214, 14244,
14284, 14293, 14314, 14317, 14320.
National Recovery Administration Steel Code 14173, 14179-14180, 14207,
14212, 14232, 14236, 14239, 14254, 14258, 14288, 14320, 14323
II INDEX
I'age
National Recovery Administration Steel Code Authority 14160,
14173, 14179-14180
National Tube Co 14211, 14256, 14265, 14293
Newport Rolling Mill Co 14192, 14279-14280
Niles Rolling Mills 14249
Olds, Irving S 14158, 14212, 14257, 14288
Pacific Coast Fabricators Association 14326
Palmer Supply Co 14309
Pittsburgh Plus case 14252-14253, 14262-14263, 14293, 14304, 14313-14314
Pittsburgh Plus System .-. 14256, 14261-14262, 14267-14268, 14272
Public Works Administration . 14289
Reading Iron Co 14292
Republic Steel Corporation 14160, 14192, 14216-14217, 14220, 14258
Rimmer, J. W 14290
Robinson- Patman Act 14328
St. Louis-Southwestern Railway Lines 14290
Schectercase -• 14180,14232, 14284, 14288
Smith, Bradford 14159
Sugar Institute case 14285
Tennessee Coal, Iron & Railroad Co ■ 14196
Tower, Walter S 14231
United States Steel Corporation 14131,
14136, 14138, 14155-14162, 14171-14173, 14175, 14187-14188,
14190-14197, 14202, 14205-14211, 14215, 14217, 14221, 14224,
14227, 14236-14240, 14242, 14248, 14250-14253, 14258-14259,
14262-14265, 14271, 14276, 14288-14289, 14294-14297, 14299-
14300, 14304, 14306, 14312-14317, 14321-14324, 14326-14329.
Weirton Steel Co 14282, 14287
Wheatland Tube Co . J 14309
White, Hu ,h E 14231, 14293-14307
Widmann, Edward T 14289-14293
Wiese, J. Frederic 14290
Wooden, Walter B 14313-14329
Worcester, Edward. 14265
Youngstown Sheet Company 14293
Yntema, Theodore Otto 14129, 14149, 14150-14155, 14159
O
947 ^
3 9999
06351
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