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

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Public Resolution No. 113 

(Seventy-fifth Congress) 


PART 29 


MARCH 18, 19, 20, 21, 22, AND 23, 1940 

Printed for the use of the 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. KING, Senator from Utah 

WALLACE H. WHITE, JR., Senator from Maine 

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 

GARLAND S. FERGUSON, Commissioner ^ 

EWIN L. DAVIS,* Chairman 'tC3 

Representing the Federal Trade Commission IfTl 

ISADOR LUBIN, Commissioner of Labor Statistics C^ 

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 '1 ^_f%\ 

Representing the Department of the Treasury • jl jj^l 

SUMNER T. PIKE, Business Adviser to the Secretary of Commerce >\ \CO\ 

Representing the Department of Commerce 
James R. Brackbtt, Executive Secretary 
Theodore J. Kreps, Economic Adviser 








Testimony of — 

Agnew, Dr. P. G., secretary, American Standards Association, New 

York, N. Y 15987-15995 . 

Bane, Frank, executive director, Council of State Governments, Chi- 
cago, 111 15738-15756 

Banigan, Leon F., managing director. National Council of Private 
Motor Truck Owners, Inc., Washington, D. C 16058-16065 

Beesley, Thomas Quinn, president, National Council on Business Mail, 

Inc., Washington, D. C 15995-16000 

Carter, G. S., director. School, Compensating, and Severance Tax Divi- 
sions, New Mexico Bureau of Revenue, Santa Fe, New Mexico. 15937-15958 

Conner, J. L., truck driver, Akron, Ohio ' J 16053-16058 

Creighton, W. T., manager, Producers Creamery Co., Springfield, 
Mo 15911-15902 

Elliot, W. Y., Schtol of Government, Har\'ard University, Cambridge, 
Mass 16087-16115 

Freeman, Walter R., secretary, Indiana Milk and Cream Improvement 
Association, Indianapolis, Ind 15908-15911 

George, J. M., executive secretary. National Association of Direct Sell- 
ing Companies, Winona, Minn 15965-15986 

Holifield, M. B., assistant attorney general. Commonwealth of Ken- 
tucky, Frankfort, Ky 16001-16010 

Janssen, C. H., president. National Association of Margarine Manu- 
facturers, Columbus, Ohio 15842-15867 

Lawrence, John V., general manager, American Trucking Associa- 
tions, Inc., Washington, D. p 16031-16053 

Lumry, Carl, nurseryman, Shenandoah, Iowa • 15923-15935 

Martin, A. H., Jr., executive director. Marketing Laws Survey, Work 
Projects Administration, Federal Works Agency, Washington, 
D. C— ^ 15777-15818 

Melder, Dr. F. Eugene, economist, Clark University, Worcester, 
Mass 15756-15777 

Moloney, John, National Cottonseed Products Association, Memphis, 

Tenn 15823-15841 

Money, A. T., Page Milk Co., Shelbyville, Ind 15900-15903 

Ruehe, Dr. Harrison A., head of the Department of Dairy Husbandry, 

University of Illinois, Urbana, 111 15869-15892 

Salisbury, Philip, chairman, Committee on State Trade Barriers, the 
National Federation of Sales Executives, New York, N. Y 16081-16087 

Schalet, Mrs. Beatrice B., representing Consumers' Milk Committee of 
the District of Columbia, Washington, D. C 15958-15965 

Singer, Russell, general manager, American Automobile Association, 
Washington, D. C 16073-16081 

Smith, Park M., National Association of Motor Bus Operators, Wash- 
ington, D. C 16065-16072 

Strong, Floyd D., attorney director. Motor Carrier Division, Kansas 
Corporation Commission, secretary, Kansas Port-of-Entry Board, 
Topeka, Kans 16010-16024 

Taylor, Greyton H., president, the Taylor Wine Co. ; president. Finger 
Lakes Wine Growers Association, Hammondsport, N. Y 16024-16031 

Treadway, W. E., Commission on Interstate Cooperation, Indianapolis, 

Ind 15892-15900 

Van Arnum, John R., National League of Wholesale BYesh ?Yuit and 

Vegetable Distributors, Washington, D. C 15818-15823 

White, Dr. Richard P., American Association of Nurserymen, Wash- 
ington, D. C 15912-15923 

Witham, C. L., Indiana Condensed Milk Co., Indianapolis, Ind— 15903-15908 



Statement of— ^"^® 

Donoho, D. Haskell, associate attorney, Department of Agriculture, 

Washington, D. C 15735-15738 

Status of the trade-barrier question among the several states-- 15738 

General economic and social aspects of the trade-barrier question 15756 

Analysis and classification of present state laws having trade barrier 

effects 15777 

Agricultural barriers : 

Weights and measures in fresh fruits and vegetables 15818 

Domestic fats and oils 15823 

Oleomargarine and oleomargarine taxation 15842 

The dairy industry 15869 

The nursery industry , _ 15912 

Trade barriers relating to state problems of finance, highv?ay construc- 
tion and maintenance, and public safety , 15938, 16001 

The consumers' interest in trade barriers 15058 

Trade barriers in relationship to direct selling 15965 

Trade barriers in relationship to transacting business by mail 159^ 

Experiences of a New York wine producer with trade barriers 16024 

, Trade barriers in relation to motor transportation industry 16031 

Trade barriers in relation to national sales executives . 16081 

Legal appraisal, analyses, and; summary 16088 

Schedule of exhibits iv 

Monday, March 18, 1940 15735 

Tuesday, March 19, 1940 15801 

Wednesday, March 20, 1940 15869 

Thursday, March 21, 1940 15937 

Friday, March 22, 1940 16001 

Saturday, March 23, 1940 - 16073 

Appendix 16117 

Supplemental Data 16177 

Index T 


Number and -ummary of exhibits 

duced at 

on page 

2345. Letter, dated April 1, 1939, from President Franklin 

D. Roosevelt to Gov. Robert L. Cochran, president. 
Council of State Governments, expressing pleasure 
at the calling of the National Conference on Inter- 
state Trade Barriers 

2346. Statement of action of the thirtieth annual conven- 

tion of the Governors' Conference, Oklahoma City, 
Okla., Sept. 26-28 :938, authorizing Gov. Robert 
L. Cochran of Nebuiska to announce that the group 
imanimously opposed the principle of state trade 

2347. Resolution passed by the General Fourth Assembly 

of the Council of State Governments, the May- 
flower, Washington, D. C, January 18-21, 1939, 
calling for activities directed toward elimination of 
state trade barriers, and asking the Congress of the 
United States to investigate freight rates and to 
recommend an equitable freight rate for the entire 
United States 

2348. Special Committee re: Trade Barriers, CouncU of St-ate 

Governments - 

2349. Trade Barriers Committee, Public Relations: Council 

of State Governments 

2350. Resolutions adopted by the National Conference on In- 

terstate Trade Barriers, April 7, 1939, suggesting and 
approving action directed to reduction of interstate 
trade barriers; also a copy of resolution adopted at 
joint meeting of New York and Pennsylvania Com- 
missions on Interstate Cooperation, January 11, 
1940, in opposition to trade barriers and discrimi- 

2351. Chart: Michigan tax on home-grown and California 

wines, respectively 

2352. Chart: Tax and license-fee preferences of various states 

for wine manufactured wholly or in part from prod- 
ucts grown in the state 

2353. Chart: Arizona itinerant merchant law: fees paid by 

a merchant travelling through all the counties of the 
state ' .^ 

2354. Chart: Red milk in Rhode Island: inspector added 

coloring, p ccording to state law 

2355. Chart: Fall in export of cattle from Wisconsin to New 

York as result of quarantine declared by New York, 

2356. Chart: Said the Georgia hen to the Florida \en: your 

eggs can't be sold as fresh eggs in my stal ^ 

2357. Chart: Comnosite truck to meet requireme )ts of all 

states as to length, gross weight, and he ght; also 
largest combination permitted in any statu 

2358. Chart: States prohibiting the use of single-unit motor 

vehicles of 40 feet in length 

2359. Chart: States limiting length of tractor-semi-trailer 

vehicles to less than 45 feet 

2360. Chart: Motor vehicle lighting requirements of selec- 

ted States 





























Number and summary of exhibits 

duced at 

on page 

2361. Chart: Motor vehicle lighting requirements of selec- 

ted States 

2362. Chart: Preferences tb State residents, iti purchases 

by States or their subdivisions 

;?363. Chart: Summaries of State statute provisions by 
selected categories, showing" number of statutes 

governing certain businesses 

0364. Document: Comparative charts of State statutes, 
illustrating barriers to trade between the States, 
W. P. A. Marketing Laws Survey, Washington, 
1939; for sale by the Superintendent of Documents. 

2365. Document: Digest of State laws relating to the prob- 

lem of interstate trade barriers for States whose 
legislatures convene in 1940, viz., Kentucky^ Louisi- 
ana, Mississippi, Nebraska, New Jersey, New York, 
Rhode Island, South Carolina and Virginia. W. P. 
A. Marketing Laws Survey, Washington, 1940 

2366. Table: Ingredients used in margarine production, 

1936-39 :._ 

2367. Table: Farm cash income — cotton and cottonseed, 

192^39 - 

2368. Chart: Farm price, value of oil and of all cotton 

prodcuts per ton ,_ 

2369. Table: State taxation of oleomargarine as oT March 1, 


2370. Table: Revenue obtained from margarine taxes in 

selected States, year ending December 31, 1938 

2371. Table: Numbers of retail margarine dealers in States 

taxing cottonseed oil margarine, 1928 and 1938 

2372. Table: Numbers of retail margarine dealers in States 

which do not tax cottonseed oil margarine, 1928 and 

2373. Table: Lard — United States factory production, ex- 

ports, and diflference, 1929-39 

2374. Chart: Domestic supply of principal edible fats, 


2375. Table : State excise and license taxes on oleomargarine, 

years of enactment, and exceptions to excise taxes.. 
?376. Table: Retail dealers licensed to sell uncolored oleo- 
margarine: Number before State excise taxes were 
imposed compared with the number after excise 
taxes were imposed, grouped by different types of 
taxes ; in States having excise taxes on all uncolored 
oleomargarine . 

2377. Table: Numbers of licensed retail dealers of retail food 

stores in States taxing uncolored margarine, 1930-39 

2378. Table: imports of vegetable oils and oil equivalent of 

imported oil seeds, of the kind used by industry in 
the manufacture of food products, 1932-39 

2379. Table: Factory consumption of primary animal and 

vegetable fats and oils in the nanufacture of oleo- 
margarine, 1930-39 

2380. Table: Factory consumption of primary animal and 

vegetable fats and oils in food products, 1938 

2381. Document: Brief urging repeal of retail dealers' 

occupational tax — in re oleomargarine, by National 

Association of Retail Grocers 

'On file with the committee. 






































Number and summary of exhibits 

duced at 

on page 

2382. Document: What 2290 retail grocers and 1346 chain 

store managers from 1500 towns and cities say about 
margarine — analysis of replies to questionnaires 
sent out by the National Association of Margarine 
Manufacturers, by Kenneth Dameron, associate 
professor, Ohio State University 

2383. Document: The composition and food value of mar- 

garine, by J. S. Abbott, secretary and director of 
research. National Association of Margarine Manu- 
facturers, Washington, D. C, 1940 

2384. Document: An appeal to reason: being a reprint of 

articles by Charles H. Janssen, secretary-manager, 
National Association of Margarine Manufacturers, 
published during 1936 

2385. Editorial: The cotton farmer and oleomargarine, ap- 

pearing in Hoard's Dairyman, March 10, 1940 

2386. Chart: Computation of the uniform price for the New 

York metropolitan milk marketing area, Feb. 14, 
1940, as outlined in Federal order No. 27, issued by 
the Secretary of Agriculture, and New York official 
order No. 126, issued by the Commissioner of Agri- 
culture and Markets 

2387. Document: Paper prepared and delivered by G. S. 

Carter, New Mexico Bureau of Revenue, at Las 
Cruces, New Mexico, November 7, 1939, defending 
New Mexico tax and administrative system against 
the charge of being "trade barriers'.' 

2388. Document: Papex prepared by G. S. Carter, New 

Mexico Bureau of Revenue, and delivered by William 
A. Watson, representing Mr. Carter, at a conference 
on business and government at the University of 
New Mexico, December 9, 1939, defending limita- 
tion on property taxes and the use of excise taxes, 
against the charge of being a "trade barrier" 

2389. Data on Western States Trade Barrier Conference, 

held under the auspices of the Colorado State 
Chamber of Commerce, Denver, Colo., September 
28-29, 1939, showing statement by G. S. Carter, 
chairman, and reports of Committees on Trans- 
portation, Taxation and Agriculture 

2390. Papers: (1) Current Events, "The National School 

Newspaper," January 22-26, 1940, with article on 
trade barriers, "Our Nation is Divided Against 
Itself." (2) The Junior Review, "from the Capital 
to the Classroom" January 15, 1940, with article 
on trade barriers, "New 'War Between the States' 
Arouses Concern" 

2391. Memorandum: Comparative costs of construction, 

and traffic densities, Colorado highways in plains 
and mountain country; together with supporting 

2392. Letter, dated March 7,' i 940^ "from" the' Hon." John' E. ' 

Miles, Governor of New Mexico, to the Hon. Joseph 
O'Mahoney, introducing M'-. G. S. Carter, New 
Mexico Bureau of Revenue 

2393. Report of subcommittee of the Milk Consumers' 

Committee, on the effect of the Schulte bill (H. R. 
7085) on sanitary and health regulation of milk in the 
District of Columbia, and on comparison of U. S. 
Public Health Service Milk Ordinance and the 

District scoring system . 

'On file with the Committee. 


















161 '7 





Number and summary of exhibits 

duced at 

on page 

2394. Data on inspection, licensing and peddling laws in the 

States, cities and towns of the United States, operat- 
ing as trade barriers (contents summarized on p. 

2395. Clipping: "State Road Needs Held $130,000,000" re- 

port of an address by Thomas H. Cutler, Kentucky 
highway engineer before the Kentucky Association 
of Highway Contractors, March 1, 1940, describing 
the inadequacies of Kentucky highways 

2396. Chart: Road conditions of important Kentucky high- 

ways, prepared by the Kentucky Department of 
Highways, 1Q39 

2397. Statement in tabular form by 'the Knetucky Depart- 

ment of Highways, "Logs of U. S. Routes," showing 
in detail types and conditions of important highways. 

2398. Chart: Traffic Row of Kentucky, 1938, prepared by 

Kentucky Department of Highways, in cooperation 
with the Federal Works Agency, data obtained from 
State-wide highway planning survey ' 

2399. Chart: Road conditions of Kentucky highways, other 

than those shown in FJxhibit 2396 

2400. Statement by the Kentucky Department of Highways, 

"Tabulation of mileage under maintenanpe by types 
as of September 1, 1939 (not including mileage shown 
under Log of U. S. Routes)" (Exhibit No. 2397) 

2401. Clipping, dated Frankfort, Kentucky, February 15 

(1940): "Load limit on some roads cut to save fur- 
ther damage" 

2402. Table: Dated Kentucky, July 1, 1938, showing mileage 

of rural highways by surface types and widths 

2403. Table: Dated Kentucky, July 1, 1938 showing grades, 

curves, and sight distances on U. S. routes 

2404. Tables showing restricted sight distances, excessive 

grades, and excessive curves, main highways of Ken- 
tucky, 1937 

2405. Table and chart, showing substandard bridges on 

U. S. highways in Kentucky, 1939 

2406. Table: Number of trucks registered in Kentucky, by 

rated capacity, 1939 

2407. Tables: Comparison of merchandise rates of common 

carrier motor trucks between points in Kentucky 
with rates in nearby states 

2408. Summary of testimony of Greyton H. Taylor on state 

trade barriers affecting wine 

2409. Memoranda submitted by U. S. Brewers' Association, 

National Association of Alcoholic Beverage Im- 
porters, and the Legislative Reporting Service, Dis- 
tilled Spirits Institute, summarizing and asking 
reform of trade-banier legislation affecting the 
liquor industry 

2410. Chart: Maximum gross weight of permissible combina- 

tion of motor vehicles, by States 

2411. Chart: Calculation of trucking costs, Middlesboro, 

Kentucky to Chicago. Illinois, using 1 and 2 trucks 
respectively in Kentucky: example from I. C. C. 
case decided September 13, 1939 

2412. Chart: State gross weight and pay load limits for 

motor trucks 

2413. Table: Representative commercial vehicle accident 

rates (July 1937 to June 1938) 

































On file with the committee. 



Number and summary of exhibits 

2414. Table: Motor vehicle accidents per 100,000 miles trav- 

eled, in the petroleum industry, 1933-38 

2415. Table: Gross weight statutes indirectly limiting gaso- 

line truck capacities 

2416. Table: Comparative costs in operation of tank trucks 

of different capacities 

2417. Chart: Maximum length of combinations of vehicles 

permitted by the different States 

2418. Table: Varying State requirements governing lighting 

and other safety appliances on motor trucks 

2419. Table: Extent of reciprocity on motor carrier traffic 

among the States 

2420. Table: State bodies charged with handling motor car- 

rier reciprocity 

2421. Schedule of 21 different taxes which trucks pay in Vir- 

ginia: Federal, State, and local 

2422-1. Chart: Annual license fees for 2J'2-ton trucks, and gas 
tax per gallon, in the East North Central and adjoin- 
ing States 

2422-2. Chart: The census divisions of the United States, 
showing the East North Central and adjoining 


2423-1. Charts: Allowable gross weight and allowable overall 
length of vehicles or combinations, by regions in the 
United States 

2423-2. Chart: Maximum length and gross weight limits for 
tractor-semi-trailer and single-unit trucks in the 
East North Central and adjoining States 

2424. Table: Weight limitations by State laws for motor 

buses • 

2425. Chart: Motor bus weight limitations by States 

2426-1. Chart: Passenger-carrying restrictions due to weight 

limitations in the various States; Bus "B" 

2426-2. Chart: Passenger-carrying restrictions due to weight 

limitations in the various States; Bus "A" 

2427. Schedule: State law provisions regarding permissible 
lengths of vehicles 


2427-A. Summary of testimony submitted by Dr. W. Y. 
Elliott, School of Government, Harvard University, 
March 23, 1940: Legal aspects of trade barriers and 
some possible remedies; motor carriers, ports of 
entry, liquor laws, the itinerant merchant, grading 
and labelling, inspection laws; proposed legislation; 

conclusions . . 

Unnumbered. Table: Fats consumed in the U. S. per capita, 
1938-13: submitted in connection with the testimony of C. 

H . Janssen 

Unnumbered. Data submitted in connection with the testimony 
of Dr. P. G. Agnew: Trade barriers and State laws on bedding 
and upholstery: lack of uniformity, inspection and labelling 


Unnumbered. Document: Trade barriers, by Philip Tocker; 
reprint from the Texas Law Review, April, 1940 

duced at 

on page 



































> On file with the committee. 


MONDAY, MARCH 18, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10: 30 a. m. pursuant to adiourmnent on Fri- 
day, March 1, 1940, in the Caucus Room, Senate Office Building, Sen- 
ator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman) -land White; Representa-, 
tives Sumners (vice chairman), Reece, and Williams; Messrs. Lubin, 
Kades, and Pike. 

Present also: James V. Hayes, Department of Justice; W. S. 
Whitehead, Securities and Exchange Commi3sion ; D. Haskell Donoho, 
associate attorney; Dr. Frederick V. Waugh, Head of Division of 
Market Research, Department of Agriculture; and Paul T. Truitt, 
Chairman, Interdepartmental Committee on Interstate Trade Bar- 
riers, Department of Commerce. 

The Chairman. The committee will please come to order. 

We have assembled this morning to hear a presentation by the De- 
partment of Commerce on the problem of interstate-trade barriers. 
This presentation will be in charge of the Department of Commerce 
and Mr. Donoho who has been selected by the Department to conduct 
the hearing. You have an opening statement to make, Mr. Donoho? 

Mr. Donoho. Yes. 

The Chairman. Please proceed. 


Mr. Donoho. Mr. Chairman and members of the committee, I wish 
to make a statement for the purpose of indicating the background and 
the scope of these hearings. Although the general public has not until 
recently become greatly concerned over the problem of trade barriers, 
several jiears ago economists and specialists began to explore this 
field. In this connection, reference should be made to the pioneering 
-^vork of Dr. F. Eugene Melder, now of Clark University. 

In recognition of the increasing seriousness of the problem, the 
Council 01 State Governments took official cognizance of this situation 
by adopting a resolution relating to interstate-trade barriers at its 
Fourth General Assembly held in Washington, D. C, in 1938. Pur- 
suant to that resolution, a national conference on interstate-trade bar- 
riers was held at the call of the Council of State Governments in Chi- 
cago in April 1939. At this conference, attended by State and Federal 



officials, resolutions were adopted and a series of regional meetings 
were. subsequently held. In order to facilitate the deliberations of the 
Council of State Governmont3, the Department of Agriculture and 
the Marketing Laws Survey made studies and reports available for the 
use of the conference. 

Due to the widespread interest thereafter evidenced by representa- 
tives of industry, agriculture, and the puolic generalty, the Secretary 
of Commerce, Harry L. Hopkins, proposed that a committee be estab- 
lished consisting of representatives designated by the various Federal 
Departments and Agencies interested in the subject, namely: The 
Departments of State, Justice, Agriculture, Treasury, and Labor, the 
Federal Works Agency, the United States Tariff Commission, and 
the Interstate Commerce Commission. The function of this commit- 
tee is to coordinate the research of these various agencies and depart- 
ments of the Federal Government and to promote a better under- 
standing of the nature, extent, and eflfects of these legislative 

This committee is sponsoring the present hearings. 

In order to delimit the scope of these hearings, a definition of the 
term "trade barrier" is essential. Wliile there is some diversity of 
opinion as to the meaning of this term, for the purpose of these hear- 
ings, the term "trade barrier" is defined as follows: a statute, regu- 
lation or practice which operates or tends to operate to the disad- 
vantage of persons, products, or services coming from sister States, to 
the advantage of local residents, products, and enterprises. 

Examples of trade barriers are found widely distributed in substan- 
tial numbers among the laws, ordinances, rules, regulations and ad- 
ministrative orders relating to production, distribution, and general 
commercial transactions. 

Within the time allotted for these hearings, the purpose is to pre- 
sent testimony covering a comprehensive but not exhaustive treatment 
of important aspects of trade barrier laws. This presentation will 
include: the historical background of the subject, what the States 
themselves have done so far as to meet the problem, the legislative 
bases supporting trade-barrier practices, trade-barrier laws in the 
fields of agricultural products, motor transportation, and a conclud- 
ing summary and recommendations. 

As a further delimitation of the scope of these hearings, it should 
be understood that no effort will be made to analyze constitutional 
issues as applied to particular statutes or specific factual situations. 

Mr. Chairman, I wish to call the first witness. 

The Chairman. Before you call the witness, it may be appropriate 
to insert in the record at this point a letter which I received from the 
Secretary of Commerce on Saturday last. This letter was addressed 
to the Chairman of the committee and reads as follows: 

My Dear Senator O'Mahoney: Opening of hearings on interstate trade bar- 
riers by the Temporary National Economic Committee next Monday is a high 
spot in the long campaign conducted by local, State and Federal agencies. 

Much has been said and much has been written about the economic evils of 
trade barriers between the States. Because I am confident that the coming 
hearings will draw an impressing and eye-opening picture of these restrictive 
measures, I am delighted that you and your committee members are delving 
into this subject. 

During the past few years, the problem of interstate trade restrictions has 
grown to be a serious threat to the economic life and business well-being of 


Our country. It has resulted in loss of bu 'iness generally and in many cases 
has impaired the traditional American system of frep trade and enterprise. 

To centralize and coordinate research on the economic effects of state trade 
walls, the Department of Commerce sponsored the formation of the Inter- 
departmental Committee on Interstate Trade Barriers. This Federal com- 
mittee, composed of representatives from the Departments of Justice, State. 
Labor, Commerce and Agriculture, the Federal Alcohol Administration, the 
Interstate Commerce Commission, the United States Tariff Commission and 
the Federal Works Agency, a division of the Work Projects Administration, 
VFill endeavor to present the facts of the trade barrier problem. 

No state is permitted, imder our Constitution, to raise outright tariff barriers 
against the free flow of commerce coming from sister states However, many 
indirect and devious techniques have come into being with the same crippling 
effects. These spring mainly from a state's powers to raise revenue, provide' 
for the protection of health, morals, and safety, and the taxing power. The 
net result of this unhealthy development has been to stunt our economic 
progress. A labyrinth of state laws and administrative regulations has circum- 
scribed the millions of business transactions in interstate commerce, resulting 
in a slow strangulation of our trade development. 

It is necessary, therefore, that the nation ha^e before it a well-rounded record 
of trade barriers as they exist today in their effect on manufacturers, retailers, 
and consumers. I feel confident that the hearings before the Temporary Na- 
tional Economic Committee next week will create a better understanding of 
this problem. 

Very sincerely yours, 

(Signed) Haeey L. Hopkins, 

Secretary of Commerce. 

The Chairmax. If you will call the first witness. 

Senator White. Mr. Chairman, may I ask a question before the 
witness is called? 

The Chairman. Certainly. 

Senator White. Will this study cover the extent to which the 
States would have uniformity of legislation-, the subject matters 
which are covered by uniform State laws? 

Mr. DoNOHO. Yes, sir; that will be covered, I think, rather 

Senator White. You think that subject will be covered thoroughly 
so that we will have an understanding of what subjects have been 
the concern of the various States in their efforts to work out uni- 
formity of law? You think that will be covered? 

Mr. DoNOHO. Yes, sir ; I believe that at the end of the hearings we 
will have a comprehensive picture of the question, including that- to 
which you refer. 

Senator White. Will the testimony cover also the extent to which 
there have been State actions? 

Mr. DoNOHO. In the field of motor trucks it will ; yes, sir. I don't 
believe in other fields. 

Senator White. Of course that is something, Stat« compacts, which 
has been one that has interested me. I have never had opportunity 
to study it. I have found very little on the subject, but I have 
always thought it was a field of great importance and that wholly 
inadequate attention had been given to it. That is what prompted 
my question, Mr. Chairman. 

Mr. DoNOHO. There will be general remarks which will, I think, 
touch upon that subject, I don't know just how specifically. 

The Chairman. I am sure. Senator White, if there are any ques- 
tions which suggest themselves to your mind now, you might make 
note of them, and we would be very glad to present them to the repre- 
sentative of the Department of Commerce with the request that special 


attention be given to them in the remaining days of the hearing, if they 
have not already been heard. - 

Senator White. I expect until this transportation legislation is out 
of the way this is the last meeting I will be able to attend for some 

The Chairman. That will be our loss. 

Mr. DoNOHO. Mr. Bane, will you come forward, please? 

The Chairman. Mr. Bane, do you solemnly swear that the testi- 
mony you shall give in this hearing shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Bane. I do. 

The Chairman. You may be seated, Mr. Bane. 


status of the trade- barrier question among the several states 

Mr. DoNOHO. Will you state your name and address, please? 

Mr. Bane. Frank Bane, 1313 East Sixtieth Street, Chicago. 

Mr. DoNOHO. What is your official title, Mr. Bane? 

Mr. Bane. Executive director of the Council of State Governments. 

Mr. DoNOHO. You are here representing the Council of State Gov- 
ernments ? 

Mr. Bane. Yes, sir. 

Mr. DoNOHO. Mr. Chairman, Mr. Bane has a statement he wisln.-^ 
to make. 

The Vice Chairman. Mr. Bane, at this moment if you haven't some- 
thing in your program with which this will interfere, state briefly what 
this Council of State Governments is, so we can get off at a good start. 

Mr. Bane. Mr. Chairman, I have attempted to put down here in 
four short paragraphs what the Council of State Governments is, how 
it is organized, and what it attempts to do. 

The Council of State Governments is a joint governmental agency 
serving the several States. 

It is the secretariat for the Governors' Conference, the National 
Association of Attorneys General, the National Association of Secre- 
taries of State, and it acts as a clearing house and research center for 
legislators, legislative reference bureaus, and for the above national 
organizations of public officials. 

It is the medium through which many Federal-State and interstate 
problems have been resolved and a forum for the consideration of the 
increasing number of problems which overlap State boundaries : ques- 
tions of flood control, pollution, highway safety, interstate truck regu- 
lations, conflicting taxation, interstate trade barriers, liquor control, 
relief, social security, and transiency. All of these matters have been 
the subject of conferences and reports which have been beneficial to 
each of the States. 

The component parts of the Council of State Governments are the 
Commissions on Interstate Cooperation, which have boen established 
by legislative action in 44 of the 48 States. Through these Commis- 
sions the Council has demonstrated that this method of cooperation 
between the several States, and between the States and the Federal 
Government, is necessary, valuable, practical, and conducive to the 
general good. 


Hundreds of trade barriei-s are today obstructing the free flow of 
commerce among the States. Such measures, which in practice vio- 
late the spirit, if not the principle, underlying the commerce clause 
of the Constitution, are on the statute books of almost all the States. 
They are enforced generally under the State police and taxaticm 
powers, operate to benefit local producers and distributors, and tend 
to stimulate political and economic sectionalism. 

A trade barrier is the counterpart on the national scene of a tariff 
wall in international trade. It is — 

a statute, regulation, or practice which operates or tends to operate to the 
disadvantage of persons, products, or commodities coming from sister States, 
to the advantage of local residents or industries. 

It usually tends to protect the domestic market from out-of -State 
competition by restricting imports, and by so doing restricts the 
market for exports. 

This trade war among the States is not new in our country. It was 
so widespread under the Articles of Confederation that Madison 
wrote : ^ 

The practice of many States in restricting the commercial intercourse with 
other States and putting their productions and manufactures on the same foot- 
ing with those of foreign nations, though not contrary to the Federal Articles, 
Is certainly adverse t-:^ the spirit of the Union, and tends to beget retaliating 
regulations, not less expensive and vexatious to themselves than they are 
destructive of the general harmony. 

The framers of the Constitution endeavored to take precautions 
against the recurrence of such a situation when they gave to Congress 
the power — 

to regulate commerce * * * among the several States — 
and specifically stated that — 

no State shall, without the consent of the Congress, lay any imposts or duties 
on imports or exports, except what may be absolutely necessary for executing 
its Inspection laws ; and the net produce of all duties and imposts, laid by any 
State on imports or exports, shall be for the use of the Treasury of the United 
States ; and all such^ laws shall be subject to the revision and control of the 

In commenting upon these sections Chief Justice John Marshall 
stated : 

It may be doubted, whether any of- the evils proceeding from the feebleness 
of the Federal Government, contributed more to that great revolution which 
introduced the present system, than "the deep and general conviction, that com- 
merce ought to be regulated by Congress. 

And many years later, Roger Taney, also Chief Justice of the 
Supreme Court, stated: 

But further and more mature reflection has convinced me that the rule laid 
down by the Supreme Court is a just and safe one, and perhaps the best that 
could have been adopted for preserving the right of the United States on the 
one hand, and of the States on the other, and preventing collision between 

The Chairman. Perhaps it might be well to interrupt at this 
point in order to make clear that you are dealing solely with inter- 
state trade barriers, and reference to the tariff, arguments with respect 
to the effect upon the tariff contained in your statement, have, I 
assume, no relation whatsoever to the problem of trade with foreign 


Mr. Bane. None whatever, Mr. Chairman. 

The Chairman. Nor with the rule with respect to tariffs upon 
foreign imports or imports from forei^ countries. 

Mr. Bane. That is entirely correct, sir. 

A century and a half after the adoption of the Constitution, how- 
ever. State trade barriers have again assumed ominous proportions. 
They are diverting our economy from the traditional policy of un- 
hampered domestic trade, and are threatening to return us to those 
conditions which once played havoc with interstate harmony. 

In only two articles of commerce does our Federal system explicitly 
permit the States to regulate, restrict, or embargo interstate trade — 
intoxicating liquors and prison-made goods. The twenty-first 
amendment to the Constitution provides that the transportation or 
importatio>into any State of intoxicating liquors, in violation of the 
laws thereof, is prohibited, and subsequent Supreme Court inter- 
pretations have left unfettered the States' powers to regulate this 
commodity, and to indulge in discrimination and retaliation against 
out-of-State products if they so desire. The Hawes-Cooper and 
Ashurst-Sumners Acts have accomplished somewhat the same result 
for prison-made goods. In this instance, Congress has, in substance, 
loaned its power of regulation to the States in order that these goods 
may not compete in interstate commerce with the products of labor. 

Under our Constitution, the States have nq such exclusive role in 
the reflation of other articles shipped in interstate commerce. But, 
by various means, they have been able to set up trade barriers with- 
out a legal sanction comparable to that given to those affecting liquor 
and prison-made goods. These trade barriers are so numerous and 
so varied that only a few examples need be presented. 

The taxation power is one instrument used by the States to dis- 
criminate against a number of products. Half the States have 
adopted excise taxes on oleomargarine to protect local dairy indus- 
tries, and high license fees are levied on the manufacture and sale of 
this and other butter substitutes. In some States the excise tax does 
not apply if local products are used in the manufacture of oleomar- 
garine. In a similar fashion, license fees and excise taxes are levied 
on the importation of other agricultural products. 

A number of States which have adopted the sales tax for the 
raising of revenue have suppleirjented it with a use tax in order to 
cover the sales of goods imported from other States. When the law 
fails to provide that the use tax shall not be imposed on products 
which have paid a sales tax in the State of origin, it is generally 
conceded that interstate commerce is burdened more heavily than 
intrasate commerce, and that a trade-barrier results. 

Motor vehicles, especially trucks, are affectea by cumulative taxes as 
they travel through two or more States, although reciprocity agree- 
ments in license fees are being entered into by an increasing number 
of States. Special license fees on independent truckers who travel 
from State to State are alsd frequently levied. One method of enforc- 
ing these requirements and of restricting importations is by port-of- 
entry laws, some of which provide that motor vehicles must stop at 
the State border for payment of registration fees of special mileage 
and gasoline taxes as a condition precedent to entering the State. 

The police power, implemented to protect the public health and 
safety, is a second instrument for the enforcement of trade barriers. 


Ports of entr} , besides being tax-collection stations, are often used f qr 
checking equipment, weight, and insurance requirements^ of trucks, 
and so forth. The purpose is the very commendable one of insuring 
safety on the public highways or of collecting public revenues, but 
these statutes sometimes operate to obstruct the free flow of trade. 
Some of these ports of entry are established to inspect and embargo 
plants, fruits and vegetables, and in general to serve as quarantine 
stations. Quarantines are sometimes essential for the protection of 
public health, but they can and frequently do impose restrictions which 
extend beyond the minimum requirements for this objective. 

Inspection requirements are also often used to control, restrict, and 
exclude dairy products, livestock, and horticultural and agricultural 
products. Sometimes these are justified in terms of public health, at 
other times not. For example, some States require that all milk 
shipped into their markets must come from dairies inspected by their 
agents, and then fail to provide for inspection of out-of-State dairies 
except in case of market shortage. Certificates testifying that live- 
stock is pest and disease free are required in some 25 States, a tool that 
may upon occasion serve as a device to impose unnecessary discrimina- 
tions. Many other legitimate regulations such as these have,, under 
administrative ruling, developed into trade barriers. 

Lack of uniform labeling laws constitutes one of the most trouble- 
some restrictions to producers. Proper labels are necessary and im- 
perative for adequate regulation, but when a specific State law calls 
for imprinting the State of origin and other extraneous information, 
then the intent may well be simply to foster a "buy at home" move- 
ment. Other States list detailed specifications for agricultural prod- 
ucts, and six set a maximum grade for "fresh" eggs which in practice 
can only be met by domestic hens. 

Many States give preference to resident laborers and contractors, 
and to domestic products used on public works. Many specify that 
public institutions can purchase only domestic products or supplies in 
certain fields, or indirectly permit the payment of higher prices for 
State-produced commodities. 

These few examples illustrate the manner in which certain State 
powers are used to obstruct the free flow of interstate commerce. But 
it should be emphasized that their use is not subject to criticism unless 
the motivation is economic protection and the enforcement leads to 
discrimination against other States. 

The Chairman. Mr. Bane, may I interrupt you at this point to ask 
a question? Perhaps as a preliminary I should remark that having 
looked over your mimeographed statement, I find that you are dealing 
with several subjects: First, the one which you have just concluded 
has been called The Situation With Respect to Interstate Trade Bar- 
riers ; the second is The Effect of Interstate Trade Barriers ; the third, 
What Has Been Done About Interstate Trade Barriers; the fourth, 
Results of Current Efforts to Minimize Interstate Trade Barriers ; and 
fifth. What Can Be Done About the Present Situation? 

I don't find anywhere in this paper a suggestion that you are going 
to deal with the causes of interstate trade barriers. It strikes me that 
the situation which you describe must necessarily have been brought 
into existence by special conditions. Has the Council of State Govern- 
ments given any attention to that? 

124491— 41— pt. 29 2 


Mr. Bane, Yes, Mr. Chairman; we have gone into that to some 
extent and as this manuscript will indicate as we go along, we men- 
tion it by inference, but you will have another witness who will be put 
on by the Department of Commerce who will deal with background 
and causes and develop that as we go along. 

Senator White. May I ask a question there? Assuming the situa- 
tion to be precisely as you have outlined it in this first chapter of your 
statement, how suDstantial is the body of complaint which comes from 
the situation ? I ask that because I have served in Congress 20 years ; 
Mr. Sumners over there has served longer than I. I dbn't know that 
in all this 20 years of time I have had a complaint about the situation. 
Now, is it an epidemic situation, or is it something that '3 giving serious 
concern to the business life of the Nation ? 

Mr. Bane. Senator, I cannot answer that accurately beyond the 

East 2 years, but during the past 2 years this has been a matter which 
as been lamented, criticized, brought to the attention of the American 
people, by practically all newspapers, by business interests, by cham- 
bers of commerce, by the National Association of Manufacturers, by 
organizations and agencies interested in business, and by publicity 

Senator White. I have seen a great deal of publicity and I know 
it has been a subject of study by economists and other students, but I 
still stand on the statement that I never have had, I think in 20 years, 
a specific complaint by anyone about it. I don't know what the experi- 
ences of other Members of Congress have been, I am sure. And I 
wondered whether the complaint was coming from the consumers of 
the country, the business interests of the country, or whether this was. 
something that had excited the interest of governmental departments 
and of economists, and whether the whole subject matter that is now 
before us is brought before us at their initiative rather than through 
substantial complaints from either consumers or business. 

Mr. Bane. I think there has been much substantial complaint from 
both consumers and business, but I think you perhaps have not heard 
so much about it because most of the complaints to. date have gone to 
State capitols rather than to the National Capitol. 

The Chairman. How did the Council of State Governments become 
interested Jn the subject? 

Mr. Bane. The Council of State Governments first became inter- 
ested in the subject when it was raised at the Governors' Conference 
held in Oklahoma City in 1938. That was the first item on the 
agenda and because of the discussion raised by that item that was 
practically the only item, discussed at that time. , 

The Chaikman. By whom was the question raised ? 

Mr. Bane. The question was raised by Governor AUred, of Texas. 

The Vice Chairman. What was the complaint; do you recall? 

Mr, Bane, He spoke at that conference outlining and indicating 
what trade barriers were doing among the various States to restrict 
interstate commerce. 

The Vice Chairman. Do you recall any statement which he made 
with reference to what trade barriers were doing to Texas? 

Mr. Bane. I don't recall oflfhand, Judge, any statement which he 
made, but we do have in the office a copy of his address which I will 
be glad to furnish you. 

The Vice Chairman, I will take your memory of it. 


Mr, Bane. I don't recall. 

The Chairman. I am wondering if you have quite developed the 
manner in which the problem grew in the minds of those who be- 
longed to the State council. 

Mr. Bane. I might say that I think perhaps this manuscript will 
cover that. 

The Chaibman. You mean as you proceed? 

Mr. Bane. As we proceed. 

What Has Been Done About the Situation — section 3, 1 think, will 
cover that quite in detail. 

The Chairman. But am I justified in drawing the conclusion from 
your statement that your experience is and your' testimony is that 
the study of interstate trade barriers has been initiated in the States, 
and that complaints have been filed at the State capitols, and that 
it comes from the States to this forum ? 

Mr. Bane, To a very great extent ; yes. 

The Vice Chairman. Now, let's get that straight. My State hasn*t 
asked for any developments of this matter as far as I know by this 

Mr. Bane, No, sir. 

The Vice Chairman. As I understand, the development of this 
particular matter is initiated by the Federal Departments? 

Mr. Bane. Entirely true. I was referring in answering your ques- 
tion, Mr. Chairman, to the comment by the Senator made as to the 
complaints which have arisen from producers and consumers. 

The Vice Chairman. What I am trying to get clear is that this 
presentation of this subject matter to this committee is initiated and 
being developed bj the Federal departments. 

Mr. Bane. Entirely. 

The Chairman. Proceed. 

Mr. Bane. The effect on interstate commerce cannot be measured 
accurately in dollars and cents, but it can be established that interstate 
trade barriers have a decidedly restrictive influence. Some" burden 
without completely restraining trade. -Others entirely obstruct tr^de. 
The sum total of. these measures create, on a national scale, a mottled 
pattern of regulations and taxes which, by their very absence of uni- 
formity, cause unnecessary hardships and incon\ eniences to anyone 
engaging in interstate commerce. In line with accepted principles of 
economics, it is evident that restrictions on marketing limit competi- 
tion, thereby tending to raise prices and lov 3r standards of quality. 
The consumer inevitably pays the bill. And while one or two groups 
in a State may temporarily benefit, the whole citizenry ultimately 
suffers, and in many cases the law acts as a boomerang — injuring those 
whom it is designed to help 

The Vice Chairman. Would it interrupt you to ask to what de- 
gree the effect upon the citizenry of a State, tends to bring about 
its own correction in that State ? Have you been able to study that ? 

Mr. Bane. It tends to bring about its own correction to the extent 
that it levies a consumers' tax on people in the States, which every 
trade barrier does, by the retaliation which it engenders in other 
States, by trends to build up opposition perhaps to the act. 

The Vice Chairman. Builds up opposition in the States where the 
barrier is established. 

Mr. Bane. Exactly. 


The Vice Chairman. And then brings about an unhappy relation- 
ship with the State that is discriminated against. 

Mr. Bane. With sister States, yes. 

Tlie Vice Chairman. The point is whether or not you have studied 
this sufficiently, if you are not covering it further on in your state- 
ment — whether or not those results v/hich you have enimierated tend 
in themselves to work a correction of the evil out of which they grow. 

Mr. Bane. We think it does to a considerable extent tend to cor- 
rect the evil, and in this manuscript I deal with evil after evil that has 
been corrected. 

The Vice Chairman. I think I will wait and ask my questions 
after you have finished. 

Mr. Bane. One trade barrier is of little importance to the national 
economy, but one thousand are a matter of grave concern. Of most 
significance, therefore, are their cumulative aspects, pa ticularly 
when we find that a trade barrier, if successful in protecting a local 
market, may first suggest itself for adoption by other States, and sec- 
ondly lead to retaliation by all'ected States. 

This has been the history. A number of years ago a State decided 
to use only building material produced in the State in the construc- 
tion of its public buildings. Now a score of States do likewise. 

Senator White. Isn't there pending in the body of which Judge 
Sumners belongs legislation to that verv purpose now ? 

The Vice Chairman. You ask me about some of those ten thou- 
sand bills over on our side — I don't know. 

Senator White. If you don't know, I don't know anyone who 
would know. 

Mr. Bane. In order to stimulate production and to reduce un- 
employment, a State decided to use in its public institutions only 
coal mined within its boundaries. Other States immediately fol- 
lowed suit. "Buy at home" as a slogan appealed to one legislature; 
nov/ its connotation finds sympathetic response in many of our 
States. And it is well known that, increasingly, technical, and ad- 
ministrative talent in public service has little if any market save 
in its own State of residence. Trade barriers, in other words, con- 
form on the wdiole to a few simple patterns which, used by one 
political unit in an eifort to favor its own, are copied by others; 
and the more copied, the more restrictive t:he barriers become. 

Direct retaliations by affected States have followed inevitably. 
Retaliation leads to counterretaliation, and counterretaliation to still 
more stringent measures. In some instances, . States have been on 
the verge of severing relationsliips and engaging in general com- 
mercial warfare. Such was the case, for instance, when three States, 
suffering from a beer-trade barrier in another State, threatened 
to cease purchasing any liquors whatever from that State unless 
the enforcement of its law w^as relaxed, and to boycott any and 
all products which came from the State. 

The Vice Chairman. Do you state the effect of that in your 
paper ? 

Mr. Bane. Yes. 

The Vice Chairman. What happened? 

Mr. Bane. They repealed the law. 

The Vice Chairman. And }ou were going to say that in your 
paper, weren't you ? 


Mr. Bane. Yes. 

States producing cottonseed oil are definitely retaliating against 
the products of States which endeavored to limit the sale of com- 
modities made from their product. Citrus-growing States retaliate 
freely, the one against the other, and several States, in order to 
assure that their retaliation shall in all cases provide an eye for 
an eye and a tooth for a tooth, propose over-all omnibus bills which 
authorize their administrative officials to retaliate in kind against 
any and all States which enforce laws discriminating against any 
product produced within their boundaries. 

Although for a number of years the problem has been recognized 
as a serious one by various students of economics and other pei-sons 
throughout the country, it was not until recently that the general 
public became interested in and concerned with this development. 
Some 2 years ago the National Association of Commissioners, 
Secretaries, and Directors of Agriculture called attention to the great 
increase in trade barrier laws among the States. The Governors' 
Conference in 1938 departed from its 25-year-old custom of not con- 
sidering resolutions and authorized a statement condemning inter- 
state trade barriers and urging their discontinuance.^ 

In January 1939 representatives of 46 States, at the General 
Assembly of the Council of State Governments meeting in Wash- 
ington, condemned the growth of trade barriers as "detrimental to 
the economic welfare of the country" ' and instructed the Council 
to study the problem and to call a nation-wide conference for its 
the public* 

As a preliminary step, the Council organized a committee com- 
posed of competent experts to study the subject.^ It established 
a research staff to determine the extent, nature, and location of trade 
barrier laws and, in cooperation with the Department of Agricul- 
ture and the Marketing Laws Survey, which had already undertaken 
extensive research in this field, it endeavored to assemble, classify, 
and tabulate all available information. This material, from the 
Department of Agriculture, the Marketing Laws Survey, and the 
Council, was made available to all State officials and to all State 
legislatures then in session. An effective educational campaign was 
organized with the assistance of an excellent committee composed 
of a number of editors of leading daily newspapei^ and magazines, 
and by this means the assembled material was made available to 
the public* 

In April 1939 the Council of State Governments called a National 
Conference on Interstate Trade Barriers which met in Chicago. Two 
hundred and eighty-five delegates from 35 States and the Federal 
Government discussed, in conmiittee and sections meetings, exist- 
ing barriers and made plans for their elimination.^ 

Since the conference was held while a number of legislatures were 
still in session, it was possible in many instances for the conferees 
to return to their States in time to put many of the recommendations 
of the conference into effect. The 44 State Commissions on Inter- 

1 See "Exhibit No. 2346," appendix, p. 16117. 

2 See "Exhibit No. 2347," appendix, p. 16117. 
» See "Exhibit No. 2348," appendix, p. 16118. 

« See "Exhibit No. 2349," appendix, p. 16118. 
•See "Exhibit No. 2350," appendix, p. 16119. 


state Cooperation worked one with the other and through the Council 
in calling attention to trade-barrier legislation pending in the several 
States and in bringing about its defeat. 

This National Conference has been supplemented, during 1939 
and the early part of 1940, by regional conferences on particular 
types of barriers. 

The Chairman. Mr. Bane, I have turned to the appendix to read 
the exhibit ^ which you offered with reference to the action of the 
Governor's Conference in 1938. It strikes me that it might well be 
incorporated in the record here, so that I shall read it : 

The Governors' Conference adhered to its traditional policy of not passing 
resolutions but agreed that the chairman, Gov. Robert L. Cochran of Nebraska, 
should be authorized to announce that the group unanimously opposed the prin- 
ciple of State trade barriers and were of the opinion that such barriers between 
the States should be removed. In the words of Gov. Bibb Graves of Alabama 
"there was more unanimity of opinion op it than on any subject that I have heard 
discussed by this conference in a number of years." 

Now, may I ask whether or not Governor Cochran made such an 
announcement ? 

Mr. Bane. Yes; he made such announcement; issued it to the 
press ; that is the text there. * 

The Chairman. This is the text of Governor Cochran's announce- 
ment ? 

Mr. Bane. Yes, sir. 

The Chairman. And it was issued by way of a press conference? 
Mr. Bane. Exactly as stated. 

The Chairman. Well, did the conference at any time then or later 
take any more specific action? 

Mr. Bane. Not other than that, the Governors' conference, as that 
statement indicates, has a bylaw to the effect that it does not adopt 

The Chairman. Now, how stbout these other references that you 
have in the appendix? Do you think you would like to have them 
incorporated in the record here? 
Mr. Bane. If possible, please, sir. 

The Chairman. Or do you want to have them incorporated at the 
conclusion ? 
Mr. Bane. At the conclusion probably. 
The Chairman. Of your paper? 

Mr. Bane. Probal)ly better to have them incorporated at the con- 

The Chairman. Very well. 

Mr. Bane. Results of Current Efforts to Minimize Interstate Trade . 
Barriers. The net result of these cooperative efforts was that prac- 
tically no additional trade-barrier actsj were passed by legislatures 
in session in 1939 and a number of States repealed existing laws. 
The trend toward further economic isolation among the States has 
been stopped for the time being. 

The Vice Chairman. Mr. Bane, do you have any compilation of 
proposed legislation in the various States that did not receive favor- 
able action? 

Mr. Bane. We have such a compilation, and in this paper I list some 
dozen or 15 instances. 

1 See "Exhibit No. 2346," appendix, p. 16117. 


The Oklahoma Legislature repealed its port-of-entry law, and 
Texas dropped her proposal to establish a similar system. At the 
same time New Mexico approved legislation permitting the State to 
enter into reciprocal agreements allowing livestock growers to use 
their motor vehicles in New Mexico and neighboring States by paying 
license fees only in their place of residence. She further lowered 
restrictions on trucks bringing lumber and livestock into the State^ 
while Arizona, her neighbor, defeated a bill to prohibit the trans- 
portation of inflammable liquids in motor vehicles in quantities 
greater than 1,500 gallons. 

The strong opposition of the New York Joint Legislative Com- 
mittee on Interstate Cooperation prevented the passage of a bill 
requiring that all materials to be used in the construction of public 
buildings, which were not mined or quarried in New York State, 
must be fabricated- and finished within the State. In Ohio, a pro- 
posal to limit the purchase of coal for State institutions to that mined 
in Ohio was defeated as a result of the work of the Cooperation 
Commission. Public purchase preference bills were defeated in Con- 
necticut, Texas, and Kansas. New Hampshire refused to pass a bill 
discriminating against out-of-State salesmen. 

Oregon and Vermont lawmakers defeated bills imposing an oleo- 
margarine tax, and Iowa defeated a proposed increase of taxes on 
this product. Mississippi, during its current session, has repealed 
its oleomargarine tax. Duties or inspection fees levied on farm 
products of other States were defeated in Arkansas, California, 
Florida, and Rhode Island. The agriculture departments of the 
Western States are cooperating in a very effective effort to eliminate 
discriminatory quarantines. 

Indiana repealed her liquor port-of -entry system law which had 
been the cause of so much ill feeling on the part of her neighbors, 
and almost immediately Missouri followed with the repeal of her 
so-called antidiscriminatory liquor statute. That was the case I re- 
ferred to a few moments ago. Illinois has recently revised her admin- 
istrative practices with respect to the transportation of liquor to 
conform to those of neighboring States. 

Many other States took similar action in defeating trade-barrier 
le^slation and in repealing existing laws.^ Subsequent witnesses 
will testify much more in' detail about specific statutes in specific 

Important as are the specific trade barriers which have been turned 
aside this year, of possibly greater importance for the future is the 
spirit of cooperation which has been displayed by legislators and 
Governors of so many States during 1939 and the early part of 1940. 
A number of Governors have stated that they would veto an}' legis- 
lation tending to establish trade barriers. The Maryland General 
Assembly passed a resolution which called upon each of the States 
to discourage the erection of trade barriers, and Florida declared 
its opposition to any measure directly or indirectly establishing any 
trade oarrier between Florida and any other State. New York and 
Pennsylvania at a recent meeting adopted a policy to the effect that 
neither State would adopt any trade-barrier practice which would in 
any way discriminate against out-of-State products.^ 

» Referring to "Exhibit No. 23«6," on file with the Committee. 
• See page 4, "Exhibit No. 2360," appendix, p. 16119. 


From the above it is apparent that a beginning, and a good begin- 
ning, has been made in our common effort to reestablish a free-trade 
area throughout the United States. Because of the interest and 
cooperation of newspapers and periodicals, the radio and newsreels, 
the average citizen is acquainted with the problem. Little if any 
new legislation of this type has been adopted during the immediately 
past sessions of State legislatures, and in some instances, particularly 
obnoxious laws have been repealed — but hundreds of statutes are still 
on the books in the several States, many of which, in their enforce- 
ment, tend to limit markets, tax the- consumer, and undermine our gen- 
eral economic system. 

What can be done about the present situation? Everyone agrees 
that interstate trade barriers should be abolished. The question is 
how ? There are at least four lines of attack : 

(a) Court action. . 

(&) Congressional action. 

(c) Interstate cooperation. 

(d) Federal-State cooperation. 

The Chairman. Do you want us to take that statement literally, 
that everyone agrees that interstate barriers should b^ abolished? 

Mr. Bane. Mr. Chairman, I haven't met or discussed the matter 
with a single person, as I recall, in this country within the past 2 years, 
during which time I have talked about it a great deal, that didn't 
agree with the statement that interstate trade barriers should be 
abolished. Everybody is against interstate trade barriers, just as 
everybody is against sin. When we become particular, however, we 
then find some difference of opinion, 

(a) Court action: Experience and recent judicial pronouncements 
demonstrate the inefficacy of this particular type of action in com- 
bating the general problem and in reestablishing freedom of trade 
among the States. 

Action and decision can be had in a specific, particular, limited area 
if and when a case reaches the Supreme Court, but all too often such 
cases are not of a sufficiently general nature to enable the court to 
pass upon the broader implications involved. In two recent deci- 
sions, Justices of the Supreme Court recognized this situation and 
indicated that a general solution of the problem of interstate trade 
barriers must rest with Congress and the several States. 

(6) Congressional action: The Constitution clearly empowers the 
Congress — 
to regulate commerce * * * among the several States — 

and prohibits the states, without the consent of Congress, from 

any imposts or duties on imports or exports, except what may be absolutely 
necessary for executing its inspection laws. 

Whereas Congress has, upon many occasions, exercised this power 
to regulate interstate commerce,^ nevertheless, as pointed out in re- 
cent opinions by Justices of the Supreme Court, Congress has not 
assumed comprehensive jurisdiction in this field. It may well be 
argued that, the extent of the country being what it is with its many 

' See The Supreme Court and Interstate Barriers, by Robert H. Jackson, Jr., Attorney 
General of the.Ii. S- *" The Annals, American Academy of Political and Social Science, 
January 194Q. 


differing conditions and diverse problems, the adminis(rativ3 difficul- 
ties involved in an extensive national program designed to this end 
would be such as to defeat its general purpose. On the other hand, 
certainly interstate trade barriers have an immediate and detrimental 
effect upon the national economy and should be, therefore, a matter 
of direct interest and concern to the Congress. 

(c) Interstate cooperation: With respect to interstate trade bar- 
riers, perhaps to a greater extent than in any other field, the States 
have demonstrated, within the past 2 years, the i)racticability of 
interstate cooperation. Working throagh their central organization, 
the Council of State Governments, and with the cooperation of many 
other organizations of public officials — Federal, State, and local — 
and also with the active assistance of many business groups, such 
as the Business Ad^Hisory Council of the Department of Commerce, 
the United States Chamber of Commerce, the American Bankers' 
Association, the National Association of Manufacturers, the National 
League of Women Voters, and various consumer and labor organiza- 
tions — the State legislatures have given much time and attention, 
to the problem, repeatedly defeating measures designed to extend 
the scope of interstate trade barriers, and in many instances repealing 
those already in effect. Commissions on Interstate Coopei-ation, 
established in 44 of the 48 States and consisting of representatives 
from the State Senates, State Houses of Representatives, and Sta^te 
Administrative Departments, have had ag their No. 1 objective the 
elimination of interstate trade barriers. These Commissions have 
devoted their attention not only to the general problem but have 
been notably successful in eliminating specific difficulties that have 
existed among adjoining and neighboring States. 

The Governors of the several States have taken the lead in this 
general effort and upon a number of occasions have vetoed, or have 
announced that they would veto, any legislation which would operate 
to impede the free flow of commerce or to the detriment of sister 

Many difficulties have been encountered by the States, however, in 
this effort, not only because of the many and varied business and 
commercial interests involved, but also because of our complicated, 
sometimes inadequate, and many times conflicting tax systems — Fed- 
eral, State and local. And for these reasons, it has been generally 
realized that a comprehensive solution of the problem requires not 
only Federal participation but Federal cooperation with the States 
and the local governments. 

During the past 2 years the States have received a great deal of 
help from the Federal Government in their campaign against in- 
terstate trade barriers. Notable has been the work done and the 
assistance rendered by the State Department, the Department of 
Agriculture, the Department of Justice, the United States Marketing 
Laws Survey, the United States Public Health Service, the Federal 
Alcohol Administration, the National Resources Planning Board, 
the Department of Commerce, and the Department of Labor. All 
of these agencies have either conducted extensive research to de- 
termine the extent, nature, and the effects of trade barriers or have 
cooperated with the Council of State Governments in conferences 
and meetings designed to acquaint legislators, State officials, and the 
public generally with the problem and to develop constructive pro- 


^ams for action. This cooperative relationship and the results 
attaijied within a very limited perird of <^ime would seem to indicate 
that the extension and further development of this joint attack upon 
the problem itself, and also upon many related problems which have 
a definite bearing upon the trade barrier situation, are necessary if 
trade barriers among the several States are to be eliminated within 
a reasonable period of time. Recent opinions written by Justices 
of the Supreme Court emphasize not only the great need for further 
Federal-State cooperation in the solution of this problem but indi- 
cate also that such close cooperation is necessary, and in fact imper- 
ative, in the tax and other fields if the solution is to be just and 
equitable alike to the Nation and ^to the States. Justice Hughes, 
in McGoldrick v. Berwind-White Goal Mining Go.^ January 29, 1940, 
states : 

Doubtless much can be said as to the desiraMUtj/ of a comprehensive system 
of taxation through the cooperation of the Union OMd the states so as to avoid 
the dififerentlations which beset the application of the commerce clause and 
thus to protect both state and national gofvernments by a just and general 
scheme for raising revenue. However important such a policy may be, it is 
not a matter for this court.* 

And Justices Frankfurter, Black, and Douglas, in McGarroll v. 
Dixie Greyhound Lines, Inc.,^ February 12, 1940, state: 

Senator White. Are you quoting a minority opinion now ? 

Mr. Bane. Both dissenting opinions, Mr. Hughes in the New York 
case and Mr. Frankfurter, Justice Frankfurter, Black, and Douglas in 
the Arkansas case. 

Judicial control of national commerce — unlike legislative regulations — must 
from inherent limitations of the judicial process treat the subject by the hit 
and misi^ method of deciding single local controversies upon evidence and in- 
formation limited by the narrow rules of litigation. Spasmodic and unrelated 
instances of litigation cannot afford an adequate basis for the creation of 
integrated national rules which alone can afford that full protection for inter- 
state commerce intended by the Constitution. We toould, therefore, leave the 
questions^ raised by the Arkansas ta'fc for consideration of Congress in a nutiortr 
wide surrey of the constantly increasing harriers to trade among the states.* 
Unconflned by the "narrow scope of judicial proceedings" Congress alone can, 
in the exercise of its plenary constitutional control over interstate commerce, 
not only consider whether such a tax as now under scrutiny is consistent with 
the best ipterests of our national economy, but can also on the basis of full 
exploration of the many aspects of a complicated problem devise a national 
policy fair alike to the states and our union^ 

The Vice Chairman. Will you pardon an interruption? I don't 
know whether I quite caught your statement. I understood you to 
say, or to make reference to the constantly increasing trade barriers 
among the states. I don't quite harmonize that with your previous 
testimony that states were tending to reduce pressure barriers and 
were repealing existing laws. 

Mr. Bane. This statement, "constantly increasing b3,rriers to trade 
among the states," was a part of a quote from a Justice's opinion. 
Whether trade barriers have been increasing, or not depends upon the 
period of time considered, over a period of 10 years, without a doubt, 
they have enormously increased ; within the last year and a half or 
two years there has been practically no increase. 

1 Berwind-White Coal Mining Co. (8 U. S. Law Week 206). 

* Italics supplied. 

^ McCarroU v. Diwie Oreyhound,, Inc. (8 U, S. Law Week 299). 

* Italics supplied. 

* Italics supplied. 


The Vice Chairman. Going the other way. 

Mr. Bane. To these sentiments, the Council of State Governments 
subscribes. Effective solution can be had only by joint action of 
National and State Governments, and in order to explore this compli- 
cated problem in its many aspects and to develop "a national policy 
fair alike to the States and our Union," it is suggested that this Com- 
mittee recommend to the Congress the establishment at its present ses- 
sion of a continuing Committee on Federal-State Relations.^ Such a 
committee, it would seem, could very well follow the pattern of the 
Temporary National Economic Committee and consist of representa- 
tives from the Senate, the House of Representatives, and the Adminis- 
trative Branch of the Government. This committee, if established, 
could work in cooperation with the organization representing the 
states, namely, the Council of State Governments, and could survey the 
entire situation in all of its ramifications with the idea of presenting 
to the next Congress a comprehensive plan looking toward cooperation 
and participation by all levels of government which, it has been clearly 
demonstrated, is necessary for a practical solution of the problem of 
interstate trade barriers. 

It would be our hope that such a committee, if established, would not 
confine itself exclusively to this one problem, but, in cooperation with 
the Council of State Governments and other interested organizations, 
would explore other major questions of Federal-State Relationships,so 
pertinent to the effective operation of our government — problems aris- 
ing from conflicting and overlapping tax laws, grants-in-aid and their 
effect upon education, highways, health, and welfare, as well as ;g:eneral 
State and Federal services, the development and coordination of our 
various systems of transportation, and problems of personnel inherent 
in the Federal, State, and local cooperative government which we have 

Such a committee, of a continuing nature, concerning itself with the 
general problem of Federal-State Relationships, would constitute an 
agency through which difficult problems could be solved, and through 
which our entire Governmental machinery could be made to work more 
efficiently and economically for the common good. 

The Chairman. You refer to this as "our hope." Am I to infer 
from that that this recommepdation is the recommendation of tho 
Council on State Governments? 
Mr. Bane. Yes, sir. 

The Chairman. Do you mean that the Council has formally made 
such a recommendation? 

Mr. Bane. I mean that the Executive Committee of the Council 
of State Governments in discussing this matter has decided that it 
would be very effective and very helpful if there could be a continuing 
agency here in Washington, as indicated, through which such prob- 
lems having to do with Federal and State Relations could be 

The Chairman. I don't know how the other members of this com- 
mittee may feel, but speaking for myself I am frank to say I would 
view with alarm any extension of the duties arid responsibilities which 
I have borne as Chairman of this committee. 

* In this connection see also letter, subsequently entered, from Henry A. Wallace, 
Secretary of Agriculture, to Senator O'Mahoney, Infra, p. 16114 . 


Senator White. Speaking as another member of the committee, a 
recent one and a very humble one, I confess that I am a good deal 
more concerned with what the Federal Government is doing to all 
the States than I am by what one State is doing to another State. 
That may not be pertinent. 

The Chairman. I don't know that it may properly be said that the 
Federal Government as such is doing anything to the States, can it. 
Senator White? 

Senator White. What prompted that comment of mine was what 
I take to be this recommendation that the Federal Government should 
in some way interest itself in State and local personnel. I would 
hesitate a long while before I would see the Federal Government have 
any interest, or at least any business in the personnel employed by my 
State or by my local community. 

The Chairman. I rather imagine, if I am not mistaken, the Senator 
has been voting for just that sort of supervision in the Hatch Act. 

Kepresentative Williams. I had that very thought. 

Dr. LuBiN. Mr. Chairman, may I clarify this? I want to beg the 
witness' pardon for having come in late, but as I see it, the problem is 
that the Federal Government over a period of a generation, particu- 
jiiriy through State-aid grants and otherwise, has in a sense gotten the 
States to do certain things that otherwise would not have been done 
by those States. Through the original Wagner-Peyser Act, through 
Social Se<'urity, for many years through highway grants, the Fed- 
eral Government in a sense has been playing an active part in deter- 
mining what the State governments shall do, and as I see it, it is 
your contention — and I wish you would correct me if I am wrong — 
that by doing these things, the Federal Government has stepped 

Mr. Bane (interposing). They are in. 

Dr. LuBiN (continuing). And what you want to do is to at least 
clarify the respective positions of these branches of government so 
tliat we can get a clear picture of what function shall be reserved for 
the States and which shall be reserved for the Federal Government, 
and at the same time eliminate so far as we can any interferences 
either between the States or between the State and Federal Govern- 
ment, is that correct? 

Mr. BaNe. Entirely correct. 

Mr. Chairman, irrespective of what we may think of the situation, 
today in practically every major function of government, we have 
cooperative government with the Federal, the State and the local 
governments all doing the same thing and cooperating in the same 
project. Many years ago 

The Vice Chairman (interposing). And increasing the govern- 
mental personnel and increasing governmental expenses sometimes, 
don't they? 

Mr, Bane. Quite often governmental expenses have been enor- 
mously increased. 

The Vice Chairman. The result seems to be when Federal ana 
State governments do things together, the State winds up in being 
the "doee" in the thing. 

Mr. Bane. In highway, in welfare, and to some extent in educa- 
tion, Senator, and in agriculture, since 1911 we have gradually devel- 


oped this cooperative government whereby all three levels participate 
in the same activity. 

Senator "White. If you would call it cooperative and coercive, I 
would agree with you. 

Mr. Bane. It occurred to us that some such arrangement as this, 
whereby this cooperative approach as we have developed it and as 
we are continuing to develop it, could be worked out somewhat more 
intelligently perhaps, somewhat more smoothly, certainly, with re- 
spect to all three levels of government, such an arrangement would 
be available. 

The Vice Chairman. You could possibly, at least, come to some 
agreement whereby the Federal Government might ba6k out of some 
of the situations into which it has gone. 

Mr. Bane. That is possible. Certainly if we had some agency 
through which the States and Federal Government and local govern- 
ments could appraise some of these developing situations initially to 
see what effect a certain act, if passed, would have, what the reper- 
cussions would be in a particular State, in the localities, and so on, 
it would seem it would be someAvhat helpful. 

The Chairman. It occurs to the chairman to remark again that 
the fundamental question to be developed at these hearings, it seems 
to me, i- the cause of this manifestation which we all see, and I am 
interest((l to have you say that some of the witnesses who are to 
follow will explore that field. Personally, I have always been in- 
clined to believe that the reason for the development of these "buy- 
at-home" movements and the passage of laws intended to stimulate 
and protect local enterprise, has been the result of the development of 
the means of transportation and communication, and a result of the 
progressive concentration and growth of economic agencies by which 
the controlof economic life is frequently taken beyond the bound- 
aries of particular States. 

I have no doubt that in several of the western States people find 
themselves carrying on an economic life in competition with huge 
agencies which were brought into existence by other States, but which 
dominate a large part of our economic life, the result that the 
opportunities for local development have sometimes been limited, at 
least in relation to the entire national picture. So that from my point 
of view we are here dealing with another aspect of the problem which 
has arisen as a result of the expansion of business enterprise. 

The problem of the so-called little businessman, of small business, 
is accentuated, I think, by these various laws in various States. 

Mr. Bane. I have in my statement confined it? to the governmental 
aspects, leaving to future witnesses the economic aspects, since they 
are more competent in that field than I am. 

The Vice Chair^man. Mr. Chairman, I would like to ask this wit- 
ness, before he leaves, a few questions. 

It seems to me, Mr. Bane, it might be profitable to have in the 
record a little clearer statement with regard to this organization of 
yours, and the causes and conditions which brought it into existence. 
As I understand from your statement, it is a sort of congress of the 
States in which they meet together through some of their official per- 
sonnel to consider matters of interest to the States, and those matters 
which they seek to remedy are to be dealt with through their State 
governmental machinery. 


Mr. Bane. Yes, sir. 

The Vice Chairman. A:.d while it is obvious, it might be in the 
record, perhaps, the things that have brought these States together 
and into cooperation have been the things that were wrong and had 
to be done. 

Mr. Bane. Particularly with respect to interstate matters ; yes. 

The Vice Chairman. Problems about which something had to be 
done. I will ask you whether it isn't a fact as these States meet 
together and as governmental units work together in the solution of 
matters in which they are commonly interested, is there a tendency 
to bring the States closer together cooperatively ? 

Mr. Bane. Yes, sir. 

The Vice Chairman. So in a sense we are developing through this 
activity and through the problems in which they have a common 
interest, a sort of vitalized extraconstitutional confederacy of the 

Mr. Bane. I d^n't know, Judge, that I would go that far. We are 
certainly developing an organization and agency which endeavors 
to do one thing, primarily, and that is to make State government more 
effective as a governmental agency. 

The Vice Chairman. I am trying to put in the record what is in 
my mind, and I believe it is true, and I think it is perhaps under our 
present circumstances the most important governmental development 
in the whole governmental organization, if it is true: When these 
States meet with reference to these matters you have referred to, they 
meet as sovereigns. 

Mr. Bane. Eight. 

The Vice Chairman. And they meet, assemble formally, repre- 
sented by their agencies who have about the same authority — ^I d!on't 
want to get too academic about it. I would like to make this state- 
ment for the consideration of the country, that probably these States 
in attending to these matters in which they have a common interest 
are making as great a contribution to the preservation of our system 
of government as is being made by any organization or agency in 

Mr. Bane. Thank you, sir. 

The Vice Chairman. Because if they can preserve their sovereignty 
and take care of matters which, unless they do take care of them, will 
eventually drift here to this great Federal Government, they are mak- 
ing a great contribution. 

Mr. Bane. Certain it is that unless the States can become effective 
operating units of government, people are going to look elsewhere for 
services, and certain it is that our iob, the job to which we are devoting 
ourselves constantly, is the job or making the State an effective gov- 
ernmental unit for the purpose of fulfilling the duties and responsibili- 
ties that must be assumed by it. 

The Vice Chairman. I tnink that is all, because I would probably 
try to make a speech. 

The Chairman. It is true, is it not, Mr. Bane, that as the years go 
by, interstate commerce has tended to become constantly more and more 

Mr. Bane. Exactly, as we have developed our national economy. 

The Chairman. When the Constitution was drafted and the Union 
first founded, our economic life was much more local than it is now, 


and with the development of the railroad and the expansion of national 
enterprises and national ventures, it became necessary for the people to 
turn in greater and greater degree to the National Legislature for rules 
to govern their economic life. 

Mr. Bane. Yes, sir. 

The Chairman. So what we are dealing with here is another phase 
of the effort which is constantly going on to adjust the life of the 
individual to the national organizations by which its economic phases 
are carried on. 

Mr. Bane. And in order that that adjustment might be orderly, 
coordinated, and directed toward the greatest good, we made the 
suggestion which we did in this statement. 

The Chairman. The purpose of all of these so-called restrictive laws, 
these trade barriers, has obviously been to build up and to expand 
local enterprise. Now, I take it it was not the intention of the Council 
of State Governments in any way to discredit that purpose or to 
break-down that objective or to prevent its attainment. 

Mr. Bane. Our contention is simply that it doesn't do it. 

The Vice Chairman. And if the States dealing with the more diffi- 
cult problem resulting from these developments to which Senator 
O'Mahoney has made refe^-ence, can demonstrate their ability to deal 
with it^ they will go very far to convmce the people that the States 
are not outmoded in their system of government. 

Mr. Bane. Certainly. 

Dr. LuBiN. Mr. Bane, does your organization attempt to bring 
about any uniformity in the activities and laws of the various States! 

Mr. Bane. Our organization works very closely with the Commis- 
sion on Uniform State Laws. 

Dr. LuBiN. Let's take the case of child labor as a case in point. In 
other words, is your organization interested in seeing to it that the 
states have some uniformity so industry won't move from one state 
to another to take advantage of the more lax child-labor laws? 

Mr. Bane. Our organization is interested; yes; but our organiza,- 
tion has not attempted to promote, uniform state laws on many 

Senator White. You have stated it did not, or it did ? 

Mr. Bane. I said our organization would be interested in unifortn 
State laws but our organization has not attempted to promote uni- 
form State laws in many subjects yet. On some occasions we have. 

Mr. Donoho. Mr. Chairman, did you wish 9,T»y further identifica- 
tion of the exhibits by the witness? 

The Chairman. If you will be good enough to offer those that 
you want inserted in the record they will Be received. 

Mr. Donoho. I haven't discussed this matter previously with Mr, 
Bane and I am not sure what he would like to have in. 

Mr. Bane. Any of that material you would like. 

The Chairman. Will you be good enough to indicate the exhibits 
which you feel should be attached? 

Mr. Bane. All except perhaps the bibliography. I don't know 
whether you wish to attach that bibliograpny or not, but all the 
others I should think should be attached. 


Mr. DoNOHO. Mr. Chairman, I would like to introduce these ex- 
hibits, and I suggest each one be numbered consecutively — that is 
the lettci- from the President to Governor Cochran. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 2345" and is in- 
vluded in the appendix on p. 16117.) 

Mr. DoNOHO. The next is The Thirtieth Annual Convention of 
the GoveT-nors' Conference, Oklahoma City, Oklahoma, September 
26-28, Id'oS. 

The Chairman. It may be received. 

(The statement referred to was marked "Exhibit No. 2346" and is 
included in the ai)p€r.dix on p. 16117.) 

Mr. DoNoiTO. The next is the resolution passed by the Fourth Gen- 
eral Assembly of the Council of State Governments, The Mayflower, 
Washington,D. C, January 18-21, 1939. 

The Chairman. It may be received. 

(The resolution referred to was marked "Exhibit No. 2347" and is 
included in the appendix on p. 16117.) 

Mr. DoNOHO. The next is the list of names of the Special Com- 
mittee on Trade Barriers. 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2348" and is 
included in the appendix on p. 16118.) 

Mr. DoNOHO. The next is the list bi names of the Trade Barriers 
Committee on Public Relations. 

The Chairman. It may be received. 

(The list referred to was marked "Exhibit No. 2349" and is 
included in the appendix on p. 16118.) 

The Chairman. I see the next are the resolutions adopted by the 
National Conference on Interstate Trade Barriers. Did you define 

Mr. Bane. Yes. That was a specific conference held on this sole 
topic, arranged for general nation-wide discussion on this subject, a 
conference held in Chicago last April. 

The Chairman. The exhibit may be received. 

(The resolutions referred to were marked "Exhibit No. 2350" and 
are included in the appendix on p. 16119.) 

The Chairman. Are there any other questions to be asked of Mr. 
Bane ? 

You may be excused. 

(The witness, Mr. Frank Bane, was excused.) 

The Chairman. What is your desire now? 

Mr. DoNOHO. I would like to call Dr. Melder. 

The Chairman. Do you solemnly swear the testimony you are 
about to give at thia proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Dr. Melder. I do. 


general economic and social aspects of the trade barrier question 

Mr. DoNOHO. State your name and address, please. 
Dr. Melder. Frederick Eugene Melder, Clark University, Worces- 
ter, Mass. 


Mr. DoNOHo. Dr. Melder, you are going to testify, I believe, on the 
historical background and the economic and social significance of 
trade barriers, are you not? 

Dr. Melder. Yes. 

Mr. DoNOHO. Will you please outline briefly for the committee your 
qualifications lo discuss this subject. 

Dr. IVIelder. I received two degrees in the University of Washing- 
ton toward my higher education and then worked for a doctorate 
at the University of Wisconsin, and in the course of my preparation 
for the doctor's degree, I wrote a doctor's thesis on this particular' 
subject. That was 7 years ago, when I began to investigate the sub- 
ject. I have carried on my research and I can say that I have been 
constantly interested in it since that time. 

In the meantime, I have written a dozen or fifteen magazine ar- 
ticles and one book on this subject. This book was perhaps the first 
one that gave a general treatment of the subject that has been pub- 
lished. I might mention that I served as economic advisor for the 
National Conference on Interstate Trade Barriers which was held 
in Chicago last year, April 1939. 

Mr. DoNOHO. That was a sub-part of the Council of State Govern- 
ments ? 

Dr. Melder. I believe it was organized by the Council of State 
Governments. The States and the council put it on together. 

Mr. DoNOHO. Dr. Melder, would you please develop what in your 
opinion is the relationship between our internal trade policies and 
our national economic development? 

Dr. Melder. We in the United States have been more fortunate 
than most peoples in that \ve have had higher standards of living 
than perhaps any other country in the world. This good fortune 
is dependent, of course, upon very great per capita production, and 
that nas rested on four main foundation stones. The first of these 
is an abundance of natural resources which this country has possessed 
perhaps in greater variety than almost any other country in the 

Secondly, the industrial revolution which has been in progress since 
the founding of this country gave us an efficient industrial system 
to use these natural resources. 

Thirdly, American genius, business enterprise, labor skill, and 
engineering skill, have developed the intelligence and the ability 
to run our industrial system ;. and last, but not least, the Constitution 
of the United States established legal institutions which made it 
possible for the economic system to develop along lines which would 
promote the greatest efficiency and regional specialization, namely 
along the lines of internal free trade. ^ 

It has been said that this internal market in the United States is 
the greatest market in the world that is free from trade barriers 
or encumbrances. That is a true statement, only relatively speaking, 
inasmuch as the present situation does indicate that there has been 
some break-down of this original free market. 

This great internal market made it possible for industry to develop 
on broad lines almost from the beginning of the history of the country. 
One result, quite logically, was mass production. American industry 
was built on broad lines to utilize our wealth of natural resources 
and our labor, skilled labor and unskilled, and the intelligent leader- 
ship and engineering which we possessed. 

124491- 41- Ft .V"J 3 


The Vice Chairman. Would it interrupt you to explain what you 
mean by mass production in connection with this inquiry ? You say 
it tended, as I understood your statement, toward the development of 
mass production. Would that mean that it tended toward the pre- 
vention of production by a great number of small units? What I 
am trying to get at is, do you use mass production as distinguished 
from production by many small units ? 

Dr. Melder. Not strictly speaking. I should say that it is possible 
for a small unit of enterprise to be engaged in mass production of 
some particular specialty, as I have in mind certain manufacturers 
of automobile accessories which, in regard to size of plant, are rather 
small, and yet because they supply a product which can be produced 
in relatively large numbers in a free market, we have a small plant 
that is engaged in mass production. 

The Vice Chairman. Would you say you mean by mass production 
the production by a relatively small number of units of any given 
thing having some circulation in commerce? 

Dr. Melder. I don't think I quite understand your question. 

The Vice Chairman. I say, then, would you mean by mass pro- 
duction, production by a small unit of a large percentage of any given 

Dr. Melder. That would come within my definition; yes. 
.1 would include under mass production anything which is pro- 
duced, no matter what fraction of the market it supplies, under 
methods which enable a high degree of industrial and technological 

The Vice Chairman. Then if it is widely distributed, if it is a 
highly developed unit, so far as technology and efficiency are con- 
cerned, would that be mass production? Wliat I am trying to get 
at is what you mean by mass production. 

Dr. Melder. I suppose it is a relative term in a sense. We can say 
that any industry has, a degree of mass production if they utilize 
the most efficient methods which are available to them and carry it 
out with a certain degree of, perhaps, specialization in the division 
of labor. 

The Vice Chairman. Then what is not mass production ? 

Dr. Melder. Individual production for relatively small demand. 
To give you a good example, I might cite the instance of one par- 
ticular branch of production which is certainly not mass production, 
namely hair cutting. It is produced to an individual order, and it 
may be run 

The Vice Chairman (interposing). That is mass reduction instead 
of mass production, isn't it? 

Dr. LuBiN. Mr. Melder, I wonder, in order to clarify the idea for 
myself, if it wouldn't be more clear if we talked not so much about 
mass production but mass consumption? In other words, as I see 
it, it doesn't make much difference whether you have 1,000 firms 
making the^product or 500 firms making the product, the important 
thing is, could you have a market sufficiently -vyide and sufficiently 
large to make it possible to turn out a large ma^s of these units " 

Dr. Melder. I would agree with that 100 percent, and I think you 
have made the point better than I have made, it here. That was my 
intention to make that point. 


Dr. LuBiN. In other words, there are certain industries that just 
don't lend themselves to mass production. I am thinking of a custom 
tailor as contrasted with Hart, Schaffner & Marx. You couldn't 
have Hart, Schaflfner & Marx without a territory into which they 
could ship tailored clothes. 

Dr. MELDER.That, in general, is correct, although I don't think it 
means production for 130,000,000 people is necessary. 

Dr. LuBiN. What I am thinking of is that you have Hart, 
Schaffner & Marx* and hundreds of other small firms that may employ 
10, 15, 20, or 50 people, but the fact still remains you can have them 
all only because you can have a free market. 
Dr. Melder. That is correct. 

The Chairman. Then the essential difference in your mind is that 
which exists between custom trade and standardized trade, or pro- 
duction for custom and production according to standards for any 
consumer ? 

Dr. Melder. Yes, when the wants of the customer are sufficiently 
standardized to enable volume production, to get away from the 
word "mass," of that good, then we can develop an industry that will 
be efficient to produce for that market. 

Mr. Hates. Regardless of whether or not machinery is used neces- 
sarily, assuming that machinery has not been developed to take care 
of the volume production? 

Dr. Melder. Tl^at would be possible, yes. 

The Vice Chairman. I am not satisfied with those answers at all. 
It may be I am kind of thick-headed but we got to talking about 
hair-cutting which gets me all bothered because it gets me rattled 
and self-conscious. ' . 

Dr. Melder. I had in mind when I mentioned hair-cutting simply 
production for individual order. The better example would be the 
custom tailor which was brought up to illustrate this point. 

The Vice Chairman. Let me ask you this and I won't bother you 
any more on this particular point. As I understood your stMement, 
it meant that these restraints being absent, it made it possible for a 
great organization like one of the auto manufacturing concerns to 
develop a great plant because it could ship anywhere in the country 
and find the market, whereas if this freedom of transportation did 
not obtain, and there were State barriers, it would probably be true 
that in each of the States there would have to develop somebody to 
manufacture automobiles. 

Dr. Melder. I think I will take up that point a little later. I 
think I can organize it as well to bring it in when I mention what 
might exist under other conditions. 

The Vice Chairman. But the trouble is I have, asked the only 
bright question I will be al^le to develop, and I would like to have 
it answered. 

Dr. LuBiN. Might I interrupt, and let's talk about the question of 
oil wells. 

The Vice Chairman. Wait a minute and let's see if the Doctor can 
answer this. 

Dr. Melder. Certainly, if it were impossible or too costly to pro- 
duce automobiles in order to get them into the various States over 
trade barriers, then the States would develop their own automobile 


industries, and I have a notion that we wouldn't have, cheap auto- 

Dr. LuBiN. But that same argument applies not only to large- 
scale production like the automobile industry, but let's take the case 
of oil wells. You couldn't support the number of oil wells in Texas 
today if Texas couldn't sell oil outside of Texas. 

Dr. Melder. And you couldn't support the number in Texas, Cali- 
fornia, Oklahoma, or Kansas. 

Dr. LuBiN. And it isn't necessarily a question of size. They may 
be large owners or small owners, but it is because the market is so 
wide that you can expand and develop and give opportunity to indi- 
vidual people to develop a field and get rid of their products. 

Dr. Melder. Quite true. 

The Vice Chairman. Do you conclude that if there were some 
trade barriers that the people who don't live in States where they 
have gasoline wouldn't have any automobiles, and that if they had 
automobiles wouldn't they have to have gasoline to run them? I 
think I won't press the thing further. 

Dr. Melder. If you want to press it far enough 

The Vice Chairman (interposing). No; I think I will just back 
out of this. 

The Chairman. Suppose we get the witness' answer, and then we 
will quit. 

Dr. Melder. As a result of this condition of a free internal market, 
I would state that we have developed a high degree of regional spe- 
cialization, with the result that the Pacific Northwest supplies a very 
large proportion of our lumber, Michigan supplies a large proportion . 
of our automobiles, and so on. As goods could move freely in this 
national market, it was possible for a producer or manufacturer to lo- 
cate his plant wherever conditions were economically most favorable, 
from Maine to California, and from Florida to Washington, and thus 
we have a very highly .developed and specialized industrial system. 

The Chairman. Are you assuming that at the time this develop- 
ment took place, there were no trade barriers of any kind ? What we 
are discussing here, of course, are trade barriers that have been 
erected or alleged to have been erected by the States through the pas- 
sage of laws. - 

Dr. Melder. That is right. 

The Chairman. Were there not prior to that time trade barriers 
of a different kind imposed by commerce and industry itself? Have 
you considered, for example, the effect of the railroad rebating system 
upon the regionalization of industry? 

Dr. Melder. Exactly, and that is a very good case in point. When- 
ever an agency of transportation starts out, in its beginning it has 
been regulated. That has been the history of every great agency of 
transportation we have, and, in the course of its development, you 
get around to the point where the States have in the past stepped in 
to protect the shipping public. In due course of time — this has been 
the history of evei-y type of transportation so far — we have found 
that State regulations conflicted to such an extent that it was neces- 
sary, in order to unburden interstate commerce, to regulate that in- 
dustry so as to stand .rdize the conditions or standardize the rate?,- 
through rebates and Vhat not. - 


The Chairman. In other words, when business expanded to such a 
degree that the States themselves were no longer capable of regulating 
commerce in the public interest, because there ceased to be local com- 
merce or State commerce and it had become interstate or foreign 
commerce, then the public turned naturally to the Federal Govern- 
ment as the only agency with sufficient power and jurisdiction to 
regulate interstate commerce in the public interest. 

Dr. Melder. That has been true in a number of cases. 

The Chairman. But while that development was going on and the 
public was turning from State remedies to national remedies, were 
there not barriers of various kinds imposed by industry itself ? 

Dr. Melder. There were barriers imposed partly by industry 
through, perhaps we might say, monopolistic practices in parceling 
out markets and regulating the sale of goods in various markets, and 
also the regulations of the States which were not intended, to dis- 
criminate against interstate commerce became burdensome because of 
their lack of uniformity. That happened in the railroads in the 
1870's. The Granger laws were cases in point of that type of thing. 
Certainly, we could never have reached our present economic devel- 
opment if we hadn't had this great free trade area. We would have 
been like central Europe or some other areas. 

Mr. DoNOHO. Would you develop that? What has happened in 
other parts of the world? 

Dr. Melder. For example, take the case of central Europe, which 
before the first World War was dominated by two countries, Ger- 
many and Austria. These countries were relatively prosperous at 
that time. As a unit they were relatively well balanced, and together 
they almost succeeded in winning the greatest war the world had ever 
seen up until that time. 

However^ in the final defeat, Austria was divided up into several 
parts and these parts became independent political entities, with the 
result that economic unity and prosperity in central Europe was 
broken down. 

Competent observers believe that the major cause of the economic 
downfall of Europe, and democratic Europe, in the 1930's was due 
to the weakened economic conditions as the result of attempts to fence 
off one another from their various markets, and they also believe 
that, had there not been so much intense building of trade walls in 
that part of the world, it is possible that the growth of dictatorships 
could have been checked in time and we might have saved a lot of the 
trouble that has gone on since. 

Instead, of course, we know very well that the world has been 
involved in an economic war since 1929 or 1930, and most of the 
nations have been striving to become more self-sufficient in order to 
cut themselves off from depending upon what is done in other coun- 
tries for their economic prosperity. In the process of this, they 
have built tariffs, established trade quotas, and blocked currencies 
and exchange controls, and many other devices, some new and some 
old, by which they have endeavored to protect their home industry 
and to keep the unwanted goods of neighbors out of the country. In 
some cases they have followed these policies in order to build up 
industries for war-making purposes. 

These economic weapons have only recently been overshadowed, of 
course, by the military war now going on. The reason I meniioned 


this economic struggle of the past 10 years was to show how it set 
the stage for the war on the military front that is now going on. I 
don't want to pass over it. 

The Vice Chairman. Doctor, may I understand you, if you please? 
Is it your statement that trade barriers among the small central 
European nations have had a direct responsibility as far as this war 
is concerned? 

Dr. Melder. Yes; I should be glad to cite a few examples. I 
wouldn't like to pass over, however, the ancient hatreds and national- 
ism that existed amongst those peoples as minority groups under the 
rule of one or another political government. They no doubt had 
some part in contributing to the extremes of self-sufficiency that those 
little nations tried to go to. 

Now if you would like I should be glad to give some examples. 
The Vice Chairman. I think that would take you too far afield, I 
guess ; it is a very interesting statement ; I hadn't thought that these 
small nations had done any fighting among themselves very much. 

Mr. DoNOHO. Perhaps an illustration would be helpful, Dr. Melder. 
I know you have some interesting ones in mind. 

Dr. Melder. Well, I am indebted to Dr. Joseph Herbert Furth, of 
Lincoln-University, Pa.,^ for a number of examples which he actually 
experienced or has records of, and I should be glad to cite some of 
these ; for instance, before the World War the central European textile 
industry had been a prosperous business with its weaving mills in 
Bohemia — Czechoslovakia became Bohemia after the war — and its 
spinning mills in Austria. This division of labor seemed intolerable 
to the governments that were created after the war, with the result 
that Bohemia had to set up spinning mills and Austria had to obtain 
weaving mills, but the population couldn't consume the product of two 
sets of mills, where one had existed before. 

The result was that there was a crash. Now, deeply involved in the 
textile industry of central Europe were several big Austrian banks, 
and the crisis m 1931, in the Austrian banking system, which spread 
from Europe throughout the world, was in part due to heavy invest- 
ments in the textile industry, and the failure to realize on those invest- 
ments during the post-war period. 

The Vice Chairman. I see I am taking you too far afield by that 

Dr. Melder. 1 would be glad to cite one or two cases of specific 
industries and their development to show — I think there is really a 

good parallel to draw there between the central Europe 

The Chairman (interposing). I think it is evident that the witness 
desires to draw these parallels because it seems t<f me that he is devel- 
oping the argument that self-sufficiency is either not desirable or not 
attainable, and that the attempt to develop self-sufficiency among the 
smaller States in Europe brought about the deplorable conditions of 
the present day, and I assume that you intend to draw a parallel and 
say that any effort by law to develop self-sufficiency among the States 
of the Federal Union might have very undesirable effects here? 
Dr. Melder. That is my thesis in general, Mr. Chairman. 

' Or. Melder subsequently requested the committee, In this connection, to state the 
sources from which Dr. Furth tools his figures. They are : Reports of the Austrian 
Institute of Business Cycle Research ; additional information was received from Dr. F. 
Machlup and Dr. O. Morgenstern. 


The Chairman. It occurs to me to suggest that the instance which 
you gave a moment ago about the developmen of mills in Bohemia and 
in Austria to duplicate the various phases of the textile industry which 
each of these nations separately had before the war, and your con- 
clusion that that was an undesirable and unfortunate development, 
may overlook the fact that to restrict the textile trade to the facilities 
that existed before the war would mean only to gear production to the 
lower level of consumption. Does it not occur to you that the purpose 
of the governments, the Government of Czechoslovakia, was perhaps to 
increase the consuming power of the people of Czechoslovakia, and isn't 
it worthy of consideration at least that the continuous development of 
technology, increasing our power to produce constantly, makes neces- 
sary the development of consuming ability, and that without that de- 
velopment we are not going to get very far in the solution of our 

Dr. Melder. I a^ree with that 100 percent, and I would only add 
that if we are gomg to get that greater consuming ability then 
regional specialization and efficient production must lower the cost of 
these goods to the point where they do become cheap enough for 
consumption. I might cite another case in central Europe, to show 
how that worked out : Hungary had been the granary of the Austro- 
Hungarian Empire before the World War, After the World War, 
of course, Hungary became a separate nation. Austria had supplied, 
among other industrial products, paper for the whole central Euro- 
pean region. Hungary, after the war, decided that, in order to build 
up home industry and help build a self-sufficient nation, they should 
have paper mills, although they didn't have pulp wood supplies or 
cheap sources of power. 

Austria found itself with a very curtailed market for paper; several 
paper mills were moved to Hungary and they developed new sources 
of power and had to use very expensive pulpvood, which was 
imported from outside the country. The result was that Austria 
began to have to use its more or less mountainous regions for 'trying 
to grew wheat instead of pulp wood, and Hungary was trying to 
produce paper in a country that really had no natural resources that 
were well adapted to producing paper, and the cost of pap-r went 
much higher and there was a smaller amount of paper produced, a 
good deal smaller. 

The Austrian paper industry fell off to whefe it was only pro- 
ducing 11 percent of the value of paper it had produced in the pre- 
war years. The extremes of this might be shown in another case 
in central Europe — namely, the oil industry. Rumania possesses the 
only sizable oil reserves in the central part of Europe and, naturally, 
became a point where the oil of eastern Europe was refined and 
shipped, but that, of course, was immediately seized upon by some 
of these other small nations as a thing that was dangerous to the 
welfare of the country. 

They must have their own oil refineries, with the result that legis- 
lation was passed to make it difficult to import the crude oil into 
the other countries. 

Mr. Pike. You mean to import refined oil, don't you ? 

Dr. Melder. To import refined oil; thank you. Following that, 
oil refineries were built in some of these othei countries and in 
Hungary, which is more or less between Rumania and some of the 


other countries that were markets for this oil. They set up refineries 
to produce what they called Kunstol,' or artificial oil, which was 
neither refined nor crude. It was in between. That way they could 
get through these trade restrictions which prevented the shipment 
of refined oil. 

Well, one producer, or one enterpriser, in Hungary saw the pos- 
sibilities here of getting his oil into western markets on even more 
favorable terms than the Kunstol and so he set up a plant to turn 
this semirefined Kunstol back into crude oil. Rumania, I should 
explain, had put restrictions upon the export of unrefined oil, so, 
in order to meet all of these restrictions here, they were turning it 
into a semirefined product, turning it back into a crude product, and 
finally turning it back into a refined product for consumption, with 
very serious results. 

Among other factors or reasons for the backwardness of trans- 
portation, in that part of the world, that Dr. Furth reports, are the 
very serious restrictions that were put on motor transportation in 
that part of Europe for the purpose of protecting railways. Some of 
them stayed on. The result was that in some cases commercial haulers 
who were hauling their own products couldn't afford to transport 
their products even short distances by motortruck. This kept the 
motor-trucking industry down, but it helped at least to keep the 
country in a state of depression so that there was really not an awful 
lot, of goods to transport for any industry^ including the railroad 

If I had time, I could draw some parallels in our own history, as 
well as in central Europe, but I should 'just like to draw this con- 
clusion, that the chairman has already suggested, and that is that 
self-sufficiency, at least on the part of nations which don't possess 
most of the essential raw materials and resources for efficient pro- 
duction of the consumer goods of life, never works. It hasn't worked, 
and so far as I can see in the future, it will not work. 

The Chairman. Well, the United States, of course, is a nation which 
does possess the necessary resources for an economy of self-sufficiency, 
is it not? 

Dr. Melder. We possess a great many of the resources, and cbme 
nearer to possessing all of them than perhaps any other country on 
earth, but we don't possess all of them, as is evidenced by our shortage 
of nonf errous metals, for example ; also tropical products which can't 
be produced in the United States, and for which we haven't developed 
adequate substances or wouldn't be willing to accept substitutes, such 
as coffee, bananas, and rubber, and products of that kind. So, 
even the United States, I don't think, would be a successful self-' 
sufficient economy. 

The Chaikman. There has been tremendous progress in the de- 
velopment of substitutes, particularly through the chemical industry ; . 
isn't that true? 

Dr. Melder. That is true, without any doubt, but I still think that 
some of the essential raw materials such as manganese in steel — as 
I understand it, it would be impossible for us to run our steel industry 
at present without this particular raw material, which is not obtain- 
able within our borders. 

The Chairman. Have you considered the reports which come from 
Europe now of the alleged success of the German Reich in developing 


self-sufficiency, a success which has been carried to such a point that 
many observers believe that the task of the Allies, Great Britain 
and France, has become most difficult? 

Dr. Melder. That is a success from a different angle than raising 
a standard of living. That is a success from the angle of producing 
the essentials of war at all costs, or whatever the cost may be. It is 
true that Germany has achieved a certain degree of self-sufficiency, 
even for gasoline and motor oil, producing it from coal instead of 
from petroleum, but the difference in cost, if one begins to figure 
that, makes it prohibitive in cost for any but a dictatorship, where 
the labor can be drafted to produce. 

The Chairman. And have you any information on the standard of 
living in Germany under this economy? 

Dr. IVIelder. I have to confess I don't know what the standard of 
living is in Germany today. Such reports as have been available I 
think were subject to a good deal of possible misinterpretation. My 
point is this, that 

Dr. LuBiN (interposing). Dr. Melder, may^ I interrupt at that point ?. 
Isn't some portion of Germany's self-sumciency today not neces-' 
sarily the result of her producing these things, but for having stored 
up, over a period of 5 years, a huge supply of things she has not 
yet found a substitute for — copper, manganese, and other things of 
that sort? In other words, she has huge resources which she bought 
elsewhere and set aside for just such emergency as the present. 

Dr. Melder. I think that is unquestionably true. 

Mr. Pike. In some instances, I am quite sure she has prevailed 
upon subsidiaries of British firms to build up for Germany their 
own stores of war materials. I refer particularly to smelting firms 
which have had to keep an increasing amount of copper and lead on 
hand for the last 3 or 4 years; a little painful for the British boys 
to have to do that. 

Mr. Hayes. Dr. Melder, you said you were mentioning the parallel 
of central Europe to make the point that where basic resources are 
not readily available the building up of a self-sufficient economy is 
too costly. Do I state correctly the point? It seems to me there 
might be a further point involved, and I want to know if you have 
this in mind, which possibly more or less clarifies that, and that is 
this, that where you had an krea of free trade, free from internal 
trade barriers, even though all of the necessary sources for self- 
sufficiency are not present, you do have cheaper production if those 
that are present are developed free from trade barriers ? 

Dr. Melder. That is perfectly correct, in my opinion. 

Mr. Hates. I was wondering if that was part of your thesis as 

Dr. Melder. Yes; I would certainly extend it to include even those 
articles that you have mentioned which the country does not have 
as resources. 

Mr. Hayes. It seemed to me there was a parallel there between the 
old Austro-Hungarian Empire, which was economically a unit to 
a degree before the nations that were born at Versailles came into 
being, and the United States. 
Dr. Melder. That is right. 

Mr. Hates. Thank you. 


The Chairman. It is now 12:30. Would this be a convenient 
place to interrupt the proceedings? 

Mr. DoNOHO. Yes ; I think it would. 

The Chairman. Then, Dr. Melder, when the committee recesses 
it will recess until 2 : 30, when you may come back. Before we recess 
I desire to state that the Securities and Exchange Commission has 
called my attention to an error appearing in "Exhibit No. 2344" 
which was presented during the hearings on insurance.^ This was a 
schedule entitled "Net cost policy surrendered end of twentieth year," 
introduced in connection with the testimony of Mr. Ernest Howe. 
A new schedule has been prepared eliminating the errors contained 
in the previous exhibit and this schedule is submitted at the request 
of the Commission in substitution for the exhibit originally intro- 
duced. This substitution will require a slight change in Mr. Howe's 
testimony on page 196 of the verbatim transcript for February 29, 
1940, immediately under the heading "Historical net cost." The 
first two paragraphs of this discussion should be amended as follows : 

A general impression of what the comparison reveals may be had by com- 
paring the net cost policy surrendered end of 20th year for Whole Life Policies 
at age 35. This data on the 1939 scale appears on page 286 of the Exhibit. 
The historical net cost in the case of the Mutual is $76.50 or 57.12 per cent of 
the net cost derived from 1939 scale. On the historical scale the Mutual Life 
ranks 13th instead of 23rd on the 1939 scale. 

In the case of other companies the historical net cost varies from 66.85 
percent of 1939 net cost in the case of the Northwestern. Mutual Life Insur- 
ance Company to 111.61 per cent for the John Hancocfc Life Insurance Com- 
pany and 164.44 per cent for the Pacific Mutual. 

(Whereupon, at 12 : 35 p. m. a recess was taken until 2 : 30 p. m. 
of the same day.) 


The hearing was resumed at 2 : 30 p. m. upon the expiration of the 
recess, Representative Sumners, the vice chairman, presiding. 

The Vice Chairman. The committee will please come to order. 

Mr. DoNOHO. Dr. Melder, will you come forward, please? 

Dr. Melder, when we recessed this morning you were discussing 
the barriers to trade and the restrictions on trade in small European 
nations. ' From there the discussion went into questions of self- 
sufficiency of large nations, including this nation. Now, as you 
know, we are concerned primarily in this hearing with questions of 
internal restrictions on trade in the United States, and getting back 
to that subject, as I understand it, your thesis is that restrictions on 
internal trade are bad. Is that a universal proposition or are there 
exceptions to that proposition? 

Dr. Melder. I should say that there are exceptions, but the only 
exceptions that are warranted are those which protect the public 
health, public safety, and public morals, for example, and they are not 
justified because they increase the prosperity of the country. They 
are justified on other grounds. They don't increase the prosperity; 
in fact they may decrease it to some slight extent, it is conceivable. 
Their benefits, however, in preventing disease and injury outweigh 
their harm as trade barriers if they should have any harm, and all 
of the other barriers are the ones that I am speaking against, that 

1 See Hearings, Part 28, appendix, p. 15421. 


is, all barriers to interstate or intercommunity trade which have no 
basis in, you might say, the public health and welfare. 

Mr. DoNOHO. Yet, as I understand it, you say that in recent years 
many States have passed many laws which go beyond these legiti- 
mate purposes. 

Dr. Melder. Yes ; that is true. Up until a year ago, approximately, 
these statutes have been on the increase. 

Mr. DoNOHO. Speaking generally. Dr. Melder, how do you ac- 
count for this trend ? 

Dr. Melder. Well, usually this trade barrier legislation has been 
enacted as a reaction to the demands of those that are hard pressed, 
either by competition or by depression or by changes in methods of 
doing business. Most of these laws represent an attempt to achieve 
greater economic security on the part of some home groups in the 
race of some of these new forms of competition or changes in busi- 
ness conditions. Some obstructions arise from the fact of, for ex- 
ample, as was brought out this morning, the changes in forms of 
transportation and then a lag in changing of State laws so as to 
standardize them in order to get the benefit of this new form of 
transportation. I mentioned that in the case of railroads this morn- 

And then we have no doubt barrier laws which are simply devices 

of one or another small special interest group to get protection in 
their home market. On the other hand, in some cases, no doubt, 
I think there is a tendency to call any kind of law that they don't 
like a barrier law. I think that that is hardly legitimate. Prob- 
ably some of the propaganda about barrier laws may be simply at- 
tempts to get out from under regulation of economic activities. 

I would say that that, in general, without being too specific about 
it, is the way these barrier laws come to be. 

Mr. DoNOHO. Mr. Melder, would you be more specific in describ- 
ing some of these forces that you think account for this trend ? 

Dr. Melder. Certainly. Three factors, or forces^ have been influ- 
ential in producing the main forms of internal barriers in the United 
States. The first, and perhaps most important of these, is the 
world economic crisis and depression of the past decade. This has 
been felt by most businesses, in a reduced volume of business or 
reduced income. It also has severely crippled state and local gov- 
ernments by reducing their revenues at the very time that their 
problems and functions were increasing. 

A second force is represented by changes in the forms of market- 
ing and transportation and handling or produce, or the threat of 
new competition due to such changes. This factor I think can be 
exemplified best by the growth of Nation-wide distributors, for one 
illustration, which use mass distribution methods, and they short- 
cut older marketing channels, performing, we will say, wholesaling 
and retailing functions all in one organization. Or they stream- 
line the marketing services that they perform and thus reduce the 
costs of distribution simply by reducing the number of services in 
some cases. Examples of this might be direct selling or chain-store 
merchandising or the super markets that have only come in in the 
past few years. 

The Vice Chairman. Doctor, pardon me; are you now discussing 
one of the subheads? 


Dr. Melder. I was giving an illustration just now to make my 
point clear as to one of the forces that have worked toward cre- 
ating trade barriers. When a new form of competition comes in 
which short-cuts the established channels, then very often there 
will be an attempt on the part of people who fear this competition 
to try to prevent rapid spread of this new form of distribution. 

The VicR Chaikman. Doesn't it more or less group itself — I 
haven't studied it sufficiently, but it seems to me — into three heads? 
One would be the necessary and proper protection of food, sup- 
plied to the big communities; health, restrictions such as inspec- 
tion, and so forth ; and then influential- groups in a state which 
want to hold the local market for themselves. Then legislation 
that is in retaliation for similar legislation which has adversely 
affected the citizen of the community, who is responsible for the 
retaliatory legislation. What other classess could there be? 

Dr. Melder. Well, th(»e classes have been worked out and I 
wasn't trying to classify the type of trade barriers at this point. 
I think later witnesses will go into a rather thorough classification. 
1 was answering a question as to what are some of the specific forces 
that cause groups to ask for protective legislation. 

The Vice Chairman. Regardless of the cause they are trying to 
hold as much of the local market as possible for themselves. 

Dr. Melder. In this case ; yes. 

The Vice Chairman. In any case where the people doing business 
in the State are instrumental in having a trade barrier established 
against outside competition. 

Dr. Melder. They are trying to hold the business in their home 
market; yes. 

The Vice Chairman. They want to hold the home market. 

Dr. Melder. But in one case we will say they are motivated be- 
cause of depression. 

The Vice Chairman. But if they are losing the market, the cause, 
if they can prevent its operation, doesn't make such difference, does 
it? In other words, it doesn't make very much difference if I have 
got a business and I think I am being pressed pretty hard by outside 
competition which I can prevent, as to what it is that is causing me 
to be in that condition, does it? 

Dr. Melder. From your standpoint I should say not; that is, if 
you are in the position you describe, but I was merely trying to 
make clear what were the conditions that would cause people to ask 
for protective legislation, and I have mentioned two. 

Then I was going to add under new forms of competition such 
things as technological changes, which are not chain stores— those 
are in the field of marketing, but in the case of technological changes, 
such, for instance, as mechanical refrigeration or refrigerated tank 
cars. Those things have expanded the possible sources of food- 
stuffs in the great food markets of the country, with the result that 
new areas become competitive that weren't competitive before. Then 
that causes an extreme competition and then the people in the es- 
tablished market ask for protection against these new competitors 
who couldn't compete without a new technological contrivance that 
makes it possible for them to compete. 

One more I might add, and this is of a little different sort, the factor 
that stimulated trade barrier legislation in one special field that was 
mentioned this morning, and will be brought out later; namely, the 


field of liquor trade barriers was, of course, due to the interpretation 
placed upon the twenty-first amendment, which gave to the States 
the power to regulate the liquor industry at the time the eighteenth 
amendment was repealed. That was interpreted in the States and 
^sed by some local groups to get protective legislation so as to give 
them a favored position in the State liquor market. 

The Vice Chairman. A good many people thought that the in- 
terpretation of that amendment of the Constitution was quite differ- 
ent from the interpretation of the fourteenth amendment, which was 
first construed — I don't suppose that would help us, either, so I will 
skip that. 

Dr. Melder. I will just summarize here by saying that it is very 
easy to understand how trade barriers come to be when people are 
pushed by these various forces, whether it be business depression or 
changes in marketing channels or what it be, and so I think we can 
explain their existence even though once in existence they tend to 
hamper a maximum production of goods, and perhaps full prosperity. 

The Vice Ch/^ibman. Doctor, from your examination of this gen- 
eral question, is there any considerable support of the notion that the 
people in a State have a right to be protected with reference to their 
local market as against what is to them destructive outside 
pompetion ? 

Dr. Melder. I don't understand what you mean by the people in 
the State. You mean special groups in the State or the people as 
a whole ? 

The Vice Chairman. I think I mean the people as a whole. 

Dr. Melder. Well, I don't think that the people as a whole gen- 
erally have very much to say about the trade barriers. 

The Vice Chairman. I mean then the ones that are talking 

Dr. Melder. Well, those who work for trade barriers within the 
State are usually grotps that are directly affected through possible 
loss of market. 

The Vice Chairman. Well, now the consuming public, do they 
s^em to take much interest in the matter within the States? 

Dr. Melder. Up until the last year, I don't. think so. I think in 
fact that they knew very little about these. Most of the consuming 
public wasn't informed. Now I think they are more informed 
today; they are beginning to have some opinions on the matter, 
and I certainly know in specific cases in the past where they have 
been asked to express an opinion I think they have expressed an 
opinion against trade barriers. If I may cite one example, the 
question has come up in referendum in o-egard to a certain type of 
excise tax on margarine in a number of States, and in such cases it 
has been — the restrictive measure has been voted down on referendum 
measures. That is one way of indicating. 

The Vice Chairman. In the contest which has been waged hereto- 
fore until comparatively recently, then, the debate in contest has 
been among those interested in selling in a given market primarily, 
you think ? 

Dr. Melder. I think so. 

The Vice Chairman. Now you think that probably the people who 
buy are becoming interested in the subject? 

Dr. Melder. Well, whenever it is made a clear-cut issue to them, 
they become interested in the subject, but most of the time I don't 
think it has been a clear-cut issue. 


The Vice Chairman. Do the differences in prices concern them? 

I am afraid that isn't a good question, but I will let that rest, or 
do they know about the difference in prices ? 

Dr. Melder. I don't think they know about the difference in prices. 
That is, if law is changed, for instance, a State liquor law permits pro- 
tection of the home producer for liquor, I don't think the consuming 
public who purchases that product knows whether they are paying 
more or less. , 

Mr. Pike. If you had a lot of shrubs come in and had to go to 
a control station for inspection and they didn't come to you for a 
week later, and were dead, that consumer would know about it. 
That is a fairly typical thing in some of these inspection areas, isn't it? 

Dr. Melder. Yes; that consumer would know about it, but the 
general public wouldn't. 

Mr. Pike. Garden clubs have a way of spreading their information, 
as I remember. 

The Vice Chairman. I think you are now discussing the thing 
that is of perhaps more interest to the members of the committee, 
maybe. I am not at all underestimating the value of what you have 
been saying, the various motives and conditions that bring this ques- 
tion to the fore, but we are interested in what is to be done about 
it, and what we may hope the States will do about it. 

Dr. Melder. Yes. 

The Vice Chairman. Now then, I am trying to find out for tJie 
benefit of the committee just what we may expect from this disposi- 
tion or inclination or tendency of the people who are buying to 
become vocal and effective in determining State policy. 

Dr. Melder. I don't think that consumers have historically ever 
really gotten together often enough to express a very strong opinion 
on legislation, whether it be State or Federal. Occasionally, that 
has happened, but it is rare, and therefore I don't think we can wait 
until the consumers become really vocal about a problem. As a 
matter of fact, I think that most of the vocalizations will come from 
the excluded competitors, because they feel its effects directly right 
here and now, and the consumer, if hQ pays ten percent more for 
an article than he would have to otherwise, can't trace it down to a 
trade barrier, very likely. 

The Vice Chairman. How would the excluding protect the com- 
petitor, influence the policy of the State in which he has no vote, and 
presumably no direct influence, and yet somebody seems to be 'affect- 
ing State policy. 

Dr. Melder. Well, the excluded groups can only affect a State 
policy by bringing public attention to their cause and trying to get 
support, a favorable public opinion, support for their views to 
defeat the legislation or to repeal it, and then again through reprisal, 
sometimes a State threatens a reprisal and this is a good illustration 
of that point: The past year, just about a year ago at this time, a 
California legislator introduced a bill in the Legislature of California 
to prohibit the State officials from buying any products of the State 
of Michigan, including automobiles, for State use, and it created con- 
siderable alarm in Michigan because Michigan happened to have a 
tax law that was offensive to the wine industry in California. 

The bill was killed in California, but the threat was there, and, 
of course,, that would bring pretty quick response, even though the 


response didn't happen to be a favorable one in this case. That is, 
the Michigan people became alarmed, or at least the legislature be- 
came alarmed enough to debate the issue awhile but it was killed 
finally because the protected group, I assume, mustered enough power 
to keep their law. 

The Vice Chairman, Your discussion this morning of what had 
resulted among the small nations of Central Europe, would seem to 
indicate that there is probably a natural law operating against the 
policy of state barriers among states that could otherwise have free 
commerce among themselves. Do you think that is true or don't you ? 

Dr. IMelder. I am afraid I don't quite understand what you mean 
by a natural law. I understand your question, but I should say if 
you want to consider a law of ultimate or maximum eflficiency in 
operation, maybe there is such a law. I wouldn't think of it as being 
a natural law. I would think of it more or less as a general prin- 
ciple that the greatest volume of wealth can be produced when you 
have a relatively free market to enable reasonable specialization and 
most efficient production methods, and efficient distribution. 

The Vice Chairman. I understood it was your opinion, as indi- 
cated this morning, that bad conditions, generally bad economic con- 
ditions, was the reasonable and probable result, and in that case was 
the actual result of that policy. 

Dr. Melder. Yes; that is quite correct. 

The Vice Chairman. And, of course, that didn't happen by acci- 
dent. It happened as a result of a policy. 

Dr. Melder. That is correct. 

The Vice Chairman. And it is your notion, I believe, that to what- 
ever degree -the policy which you think was a mistake for Central 
Europe is adopted among the States, it will prove to be bad for the 
States generally. 

Dr. Melder. It will prove to be bad for the States generally, ex- 
cepting with the public health and safety laws that I mentioned here 
in response to Mr. Donoho's question. 

The Vice Chairman. Let's stay with this awhile. This is pretty 
important. Are your views pretty generally . accepted by students 
of this problem ? 

Dr. Melder. I think I can say yes. I have run across no one who 
didn't agree with me in 95 percent of my opinions on this problem. 
There may be a few exceptions where people disagree with me on 
perhaps 5 percent of this problem. 

The Vice Chairman. If I knew how you could work that out, I 
would like to get it. 

As a practical proposition, considering whether or not there ought 
to be federal legislation, of course it is 'important that the people 
are agreeing in this field, tremendously important from the stand- 
point of necessity or nonnecessity of national legislation. I believe 
public opinion is recognized as the supreme law in a country such as 
we have. 

Dr. Melder. Yes, sir. 

The Vice Chairman. I think that develops that phase of the. 
matter. Doctor; thank you, sir. 

Dr. Melder. I should like to make one brief addition to what I 
said about how these laws come into existence, in order to clarify a 
point in that connection. Sometimes these barriers arise not out of 


any deliberate attempts on the part of a State to harm the economic 
activities of people outside their borders, but simply out of failures 
to accommodate the State's legislation to social and economic change. 
Let me explain how that comes about. When a State maintains a 
unique grading law, we will say, or a unique container law which 
sets up special specifications for sale of goods in that State, and we 
reach a condition where we have a common set of standards for 
that same commodity throughout most of the rest of the country, 
then that unique grading law by its failure to be brought in line 
with the other States becomes a very serious restriction on the sale 
of goods for that particular commodity. 

The Vice Chairman, From your observation. Dr. Melder, does 
that provision for an unusual container result as the matter of design 
or from a failure to properly appreciate what would be the result ? 

Dr. Melder. I think it is just a failure to consider the results very 
seriously. Sometimes, however, it may not be. Here I can't go into 
motives because 1 haven't talked to the people who passed the law 
and gotten their opinions. 

Representative Reece. In your studies. Dr. Melder, have you ob- 
served any tendencies on the part of the States to undertake to adopt 
uniform laws or laws with respect to container and grading, and 
similar subjects, so as not to interfere with trade or cause incon- 
venience to the producers in other States ? 

Dr. Melder. On this particular subject I. should like to say that I 
think many States have standardized their laws by bringing them 
under, by standardizing them within a standard that has been set 
up as a model by the Federal Government. For instance, on many 
types of grades and containers we do have a Federal law that sets 
what is called a Federal standard, and the States have in many cases 
enacted legislation that sets those up as the State standards as well. 

Representative Reece. That is in line with my observation, and it 
seemed to me as if that tendency was increasing. In a way, that is 
demonstrated by various types of Pure Food and Drug legislation 
which has been enacted by the States, where I think pretty generally, 
in. addition to taking the certain standards that are set up by the 
Federal Government in its legislation, the various States have also 
tried to adopt the standardizing grading provisions so as to make 
them uniform. 

Dr. Melder. I think in general that has been true in this particular 
field of legislation. 

And when States lag m standardizing their container acts, or other 
requirements, then I say that tends tO' be a hindrance to trada- in that 

Representative Reece. If the trade barriers which you have observed 
are existing, has it been a tendency for them to result from any effort 
on the part of the States to set up trade barriers, or have they arisen 
out of the effort of the State to protect or promote some interest within 
the State? 

Dr. Melder. Well, as I made the point a while ago, we have certain 
forces that have tended to cause the States to protect home industry 
through changes in marketing channels or depression conditions or 
things of that sort, and then we have these laws that I would say 
simply result from a State lagging behind in bringing its legislation 
up to conform to standards that are in common existence throughout 


the country. Now, I don't know if I quite understand your question 
in relation to those two statements of mine. 

Representative Reece. Well, you answered it whether you under- 
stood it or not. Thank you. 

Mr. DoNOHO. Dr. Melder, generally speaking you have been con- 
cerned, or your testimony this morning has been concerned, with the 
historical background of this whole problem. Now, before other 
witnesses bring out more specifically certain specific aspects of the 
problem, I would like for you to make, as a student of this problem, 
another general summary of what, in yoip- opinion, are the main social 
and economic significances of the general trade-barrier problem. 

Dr. Melder. Well, if I were going to discuss this in one paragraph 
I would say, briefly, that it is a dangerous trend toward a state of 
affairs in which we might cause a break-down that would have very 
serious consequences for the country. Now, as a general statement I 
would make that, in which case, if we had a serious economic break- 
down such as occurred in central Europe, I would say our democratic 
institutions are seriously, imperiled. That doesn't mean that I am 
predicting — in fact I would be an alarmist and just running off at the 
mouth here if I were to lead you to think that that is going to happen. 
I don't think it is going to happen. But I simply want to point out 
that it is really a form of what I would call economic dry rot. It is a 
dangerous tendency. 

Now, it is too early to say that it has already reached the stage 
where the union is about to break up into 48 sovereign States. That is 
simply foolish. However, as a general statement, that would be my 

More specifically I would have to point out some other consequences. 

Mr. DoNOHO. Just how serious do you consider this problem. Dr. 
Melder? As a student of the problem, is it really serious? 

Dr. Melder. That is a matter of degree, what is really serious. 
As I have just pointed out, it doesn't mean that the Union is about 
to break up, but I would say this, that every case is a separate case, 
and to study the economic effects of each trade barrier is almost an 
impossible task, if not absolutely impossible. However, since it is 
impossible to measure by statistics or any other exact measurement 
the consequences, the cost to business and the cost to consumers of 
these trade barriers, I do think we are justified in making certain 
conclusions about them, economic conclusions, and along that line I 
would say it is certain that these trade barriers tend to prevent a 
maximum utilization of our economic resources and to prevent goods 
from moving freely between the producer and the consumer without 
any, or with the least possible, friction. 

Insofar as the existing trade-barrier laws tend to prevent the maxi- 
mum utilization of mass production methods and mass distribution 
methods, and prevent full regional specialization, they are deter- 
rents to a maximum national pr perity as well as factors in checking 
a rise in the standards of livmjr of the American people. However, 
their economic effects are not always uniform. Sometimes they 
boomerang and hurt the very groups that they are intended to help 
and then, instead of aiding a group temporarily, at least, it may 
actually hurt the group. 

I might illustrate that by taking the case of a very high wine tax 
that was placed upon wine imported from sister States into, the State 

124491— 41— pt. 29 i 


of Michigan abqut 4 years ago. It was intended to stimulate the wine 
industry in Michigan, and the result of that has been twofold as a 
harm to the industry. First, the industry began to expand its grape 
acreage and this expansion of grape acreage and also two or three 
good crops they had in the meantime resulted in simply forcing on 
the ma^:ket so many wine ^apes that they have to take a protected 
market, $55 a ton, for their wine groups, for those that went into 
^ine, and the rest have simply been dumped on the market at about 
$10 or $12 a ton, so it didn't help the industry out an awful lot there. 

The second thing is that the statistics of consumption as shown by 
the figures of the Federal Alcohol Control Administration, which 
cover all the States in the country, show that for Michigan there has 
been 8i degline, year by year, ever since that law was passed, in the 
per capita consumption of wine in Michigan, and they are apparently 
turning to hard liquors in Michigan, so there you can see the economic 
or social significance of trade barriers. 

Mr. Pike. Is that a gain or a loss? 

Dr. Melder. I don't want to pass any opinions on how people 
consume their wealth or what kind of wealth they consume. I 
should simply say that this, as a protection to a local industry, really 
has failed as a long-run protective law. 

Mr. Pike. One thing you didn't mention I should think seems to 
be fairly obvious, that this thing has generated a good deal of legis- 
lative heat from one State to another. It hasn't added to interstate 
friendship, particularly, as I believe when California was going to 
keep out Texas grapefruit and oranges the Texas boys decided they 
would keep out California movies, so each decided they had better, 
call it all off. That sort of thing is no help to interstate friendship, 
although it is not a tangible thing. 

Dr. Melder. I would say that on this one point, the significance 
of these barriers is uniform, or the results, and while we can't meas- 
ure the economic r'esuljts in those cases, when we can measure them 
sometimes they help a protected group and sometimes they don't 
help them, even though they may think they are being helped; I 
think it is safe to say that whenever one of these trade barriers is 
discovered, you can be almost dead certain that it is not going to 
help interstate relations any. 

Mr. Pike. It is a distinct loss there, anyway. 

Dr. Melder. It is a distinct loss 'there, and on this point there 
was one study that was published last year; it was the result of an 
investigation by the Bureau of Agricultural Economics in the De- 
partment of Agriculture, and a study of the press reports for about 
5 years — 1932 to '37 as I recall it — gave a record there of some 13 
disputes involving from 2 to 9 States over highway regulations, and 
one of these disputes ran throughout the whole 5 years of the period 
that they studied, and every year it would bob up again, and here 
wer^ 5 Middle Western States stopping each other's trucks at the 
State line, arresting drivers, and going through all kinds of contro- 
versy in aTi attempt to get reciprocity or to get better treatment for 
their drivers than their drivers were getting, and so on. 

Mr. Pike. You are pretty safe in talking about Middle Western 
States this afternoon. Our two Senators from the Western States 
aren't here. 

Mr. Melder. I am not sure that they come from those States. 


Mr. DoNOHo. Thank you, Dr. Melder. 

Mr. Chairman, I have no more questions to ask. 

The Vice CnAraMAN. Doctor, we understand it to be the effect 
of your testimony that these trade barriers have reached such propor- 
tions as not only to justify but to demand the serious consideration 
«f the people of the country generally, first, and, second, that the 
trade barriers, in their total effect, are very hurtful; and, third it 
seems to be the effect that there is a growing consciousness among the 
people of the States that trade barriers are bad. Those three points 
seem to be pretty clear from your testimony. 

Dr. Melder. Those three points I would say are all intended, or 
were intended, to be made by my testimony, and I also wanted to 
make the point that these barriers are simply incompatible with our 
democratic institutions as they have existed throughout at least the 
period of our constitutional history. 

The Vice Chairman. Yes; I think you made that very clear, too, 
and we are very much obliged to you, Doctor. 

Representative Williams. Just one question. Do I understand 
from your testimony that there is a tendency away from these trade 
barriers, or is there a tendency to erect more of them at the time? 

Dr. Melder. I don't remember that I made a statement about that 
specific point, buc as my opinion I would say that I think the growth 
of them has been checked in the past year as a result of a lot of 
educational publicity that grew out of the work of the Council 
of State Governments, and various State commissions on .interstate 
cooperation. I think they have definitely checked the tendency for 
them to grow and increase, but those that are on the statute books 
can't be repealed very readily, and it is a whole lot harder to repeal 
existing legislation of that type than it is to k^ep any more from 
being put en the statute books, and the repeal movemtot iias not 
borne very much fruit to date. 

Representative Williams. The States have made' progress along 
that line? 

Dr. Melder. Yes; I think so. 

Representative^ Williams. There have been some laws repealed, and 
there has been a decided halt m the tendency to erect trade barriers 
by reason of State association. Are there, any State compacts along 
that line? 

Dr. Meij)er. There are no interstate compacts that I know of in 
this field. They certainly have halted the tendency, as you say, to 
inci^ease the legislation. As far as repeal movements gv'>, there have 
been relatively few successful repeals. 

Representative Williams. "WHiat is tlie fundamental barrier in the 
v^ay of States handling this problem by themselves without the inter- 
v^ention of the Federal Government. Why can't they do that ? 

Dr. Melder. Perhaps the fundamental barrier is that however 
enlightened people are about an issue, unless they have an extreme 
willingness to get together and submerge the interests of individ- 
uals, it is almost impossible to get anywhere constructively. In the 
international picture I should just mention the League of Nations 
as a post-war phenomenon in purpose in which the nations tried to 
get togetiier to set up some kind of interiiational machinery to assure 
peace, but because of the special demand of this and that small 
group naturally it failed. 


Kepresentative Williams. As a matter of fact, of course the States 
cannot regulate interstate commerce. 

Dr. Mm-DER. They cannot regulate interstate commerce according 
to the decisions of the Supreme Court if that regulation is a direct 
burden on interstate commerce. But most of these, perhaps, are 
indirect burdens. 

Representative Williams. And they cannot levy a duty on imports 
or exports between the States, under the Constitution. 

Dr. Melder. But these are what the New York Times editorially, 
on May 11, 1932, called the "other ways of skinning the cat." 

Representative Williams. And the State can exercise its police 
power in the interest of health, safety, and morals. 

Dr. Melder. Yes. It is only when that police power is abused and 
goes beyond regulations for health, morals, and safety that we say 
it becomes a trade barrier. 

•Representative Williams. But that would be simply the failure 
of the State to appreciate its obligations to its citizens and to the 
country, if it enacted unwise health and moral legislation. 

Dr. Melder. If it deliberately enacted such laws, then I should say 
that I agree with you. As I have mentioned many times before, I 
don't think that this question of the States' rights, which is really 
involved here, can be simply put in a vacuum of States' rights versus 
Federal Government, or Federal powers, because States don't operate 
in vacuums, nor does anyone live in a vacuum. That is, it is always 
the States' right to do something that is involved, and when you get 
down to that, the States themselves are simply legal entities that 
represent the people, and it means the States' right to do something 
for groups of people, and really the conflict over the States' rights' 
versus the Federal power is, I think, for the most part, a case of 
conflict of group interests. It has always been, as far as I can see. 
In essence, there is no conflict in the interest as far as the welfare of 
the people of the United States is concerned between the States and 
the Federal Government. It is always the welfare of this group 
against that group. 

Representative Williams. Would it be your idea that because a 
State failed to enact police legislation which in the opinion of the 
Federal Government was unwise, for them to compel the enactment 
of legislation along Federal lines or along their ideas ? 

Dr. Melder. Do I understand you to say police legislation ? 

Representative Williams. I mean legislation involving the police 
powers of the State in the interest of public health and morals, 
safety. Perhaps if a State enacts legislation which from the view- 
point of somebody else is unwise, would it be your idea that the 
Federal Government should correct that legislation ? 

Dr. Melder. Well, I should say that if this use of the State's police 
power was such as to obviously infringe upon the commerce power 
and have no justification in protecting the public health, we will say, 
that some Federal action to limit it would be justified, and I think 
there is a Federal power in the Constitution which would justify it. 

Mr. Kades. As I understood your definition. Dr. Melder, of the 
trade barrier laws, you excluded laws that were actually intended 
as health or safety measures, but by that did you mean that laws 
requiring honest description of goods and labeling might be con- 
sidered trade barriers? In other words, wouldn't you want to 


modify your definition of trade barrier laws to exclude those laws 
which require honest labeling^ and intelligent grading from the cate- 
gory of a trade barrier law ? 

Dr. Melder. I wouldn't include those in trade barriers unless they 
operated as such because of their peculiar form. For instance, when 
the State of Maine sets up a peculiar dimension requirement for a 
standard barrel and a person complies with that law, that in itself 
is certainly not a barrier to conmierce so long as you restrict it to the 
State of Maine. But when you have a standard barrel set up by com- 
mon practice, we will say, in 40 States, and we have a Federal definition 
of a standard barrel, and then this State requires or sets up or con- 
tinues to have its peculiar standard, thus preventing anyone from 
selling a barrel of goods within the State's borders without having to 
repack or have special containers for it, I would say that while the 
law isn't intended to harm the interstate sale of goods, it does in fact 
do so. 

As far as honesty in labeling is concerned, there are some very fine 
points there and very technical points, and I think perhaps some of the 
other witnesses will bring out those points more fully, but if it requires 
merely honesty in labeling, I don't think it could be interpreted as a 
trade barrier, but if it goes beyond that and, we will say, requires 
some peculiar fact to be put on the label that has no bearing with 
regard to what kind of a product it is, or the purity of the product, it 
might tend to be a restrictive law. 

The Vice Chairman. We are very much obliged to you. You have 
given us a very informative and interesting study. Thank you very 

(The witness. Dr. Melder, was excused.) 

Mr. DoNOHO. Mr. Chairman, since quite a number of the committee 
were not present this morning, I wonder if it would be a good idea 
to read again the definition of a trade barrier, given this morning? 

The Vice Chairman. I don't care to have it read. 

Mr. Martin, 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 tfuth, so help -you, God? 

Mr. Martin. I do. 


analysis and classification or present state laws having trade 
barrier effects 

Mr. DoNOHO. Will you give your name and address, please? 

Mr. Martin. A. H. Martin, Jr., director of the United States Mar- 
keting Laws Survey. 

Mr. DoNOHO. What is your purpose in presenting the testimony 
here ? 

Mr. Martin. As a director of the Marketing Laws Survey my pur- 
pose is to present an analysis of the results of a research study by the 
legal staff of the Survey of those State laws which, on their face, or in, 
operation and effect, tend to obstruct the marketing of goods in inter- 
state trade. 


Mr. DoNOHO. Mr. Martin, the trade barrier problem is only one 
aspect of the larger marketing problem. As a background, would 
you tell us the scope and objective of the Marketing Laws Survey 
as a whole, just what this survey is? 

Mr. Martin. As you have stated, it is only one aspect in the entire 
marketing problem. Therefore I will tell you how the survey hap- 
pened to be organized. The survey was organized in 1938 as a Works 
Progress Admmistration research project. Its primary purpose is to 
compile, review, and analyze all of the State laws in the field of 
marketing and the judicial decisions interpreting them. 

The Vice Chairman. What are you reading now? We have a 
statement that purports to be your contemplated testimony, but 1 
don't find it in this memorandum I have. Are you following this? 
Mr. Martin. Practically entirely; yes, sir; except for questions. 
Evidently your statement is not complete, Mr. Chairman; from here 
I see it isn't. 

In addition, the orders, rules, and regulations of administrative 
agencies in the marketing field and municipal marketing ordinances 
will be collected and analyzed. 

Mr. DoNOHO. Are there similar compilations of marketing laws in 
operation now available? 

Mr. Martin. No such master volume of comparative marketing 
laws has ever been attempted. Yet the need for it is generally recog- 
nized. The 48 State legislatures have produced an avalanche of laws 
affecting marketing from the point of production to the point of 
consumption. These laws have steadily increased in number, scope, 
and variety of subjects covered. 

The search for State marketing laws presents a formidable task 
and an analysis of the maze of laws after they are located shows that 
compliance with them is similar to the problem of complying with the 
conflicting laws of 48 foreign countries. There are about 508 vol- 
umes of State statute books, supplements, and session laws. Each 
year about 12,000 new State laws are passed. Through this maze the 
business executive, the lawyer, the government official and the re- 
search student would have to grope his way to find the marketing 

Mr. DoNOHO. How much of this field has your staff covered ? 
Mr., Martin. The survey has completed the initial task of reading 
about 375,000 pages of statutory materials, from which the market- 
ing laws were selected. We have had the services of a staff of ap- 
proximately 300 relief attorneys in "3 regional offices and supervisory 
review attorneys in Washington. To assure the technical validity 

of the work 

Representative Reece. Is it necessary to read all the statutes in 
order to determine or ascertain what changes might have been made 
in the marketing laws in the States? I see here you speak about 
the large number of pages which the research staff has read, 375,000 
of statutory materials. 

Mr. Martin. I am covering the over-all study of the Survey, 
rather than just the trade barrier aspects of it, as I will indicate 
later on. We didn't get into the trade barrier aspects of the study 
until last spring, at the invitation of the Council of State Govern- 
ments, and in order to locate all of the laws that affect the sale of 


services, commodities, and so on, it is necessary to make that search, 
I am advised by my legal staff. 

The Vice Chairman. Make a search of what? I am pretty in- 
terested in that myself. What did they read to find out what the 
marketing laws are? 
Mr. Mabtin. They searched all the codes. State codes. 
The Vice Chairman. You mean they read the codes from be- 
ginning to end, all of them ? 

Mr, Martin. They did not read them all, but they searched 
through them to find any laws that affected the marketing of godds 
or services. 

The Vice Chairman. Wasn't there somebody in each of the States, 
the secretary of agriculture of the States or somebody in the States 
that could indicate to them what the marketing laws of the States 
are, without having all these people reading all the laws in all the 

Mr. Martin. At the time we started the survey we were advised 
both by State officials and Federal officials that there was no one 
place or no several places that a lawyer or a Government official or 
student could go to locate all the laws that affected marketing in all 
the 48 States. To assure the technical validity of the work (I want 
to mention here that I, myself, am not a lawyer) I have had the 
assistance of an advisory council consisting of the following law 
professors specializing in the field of trade regulation: S. Chester- 
field Oppenheim, chairman, George Washington University; Ralph 
F. Fuchs, Washington University; Frank E. Horack, Indiana Uni- 
versity; Breck P. McAJlister, University of Washington; James 
A. McLaughlin, Harvard University; Frank R. Strong, Ohio State 

In addition to the present trade barrier study, two other studies 
have been completed by the survey and will be published soon — 
one on State Antitrust Laws and another on State Price Control 
Legislation. Other volumes will be published in the following addi- 
tional fields: Entry into business or market; sales-promotion devices; 
transportation, storage, and warehousing; financing and security; 
marketing organization and commodity exchanges; cooperatives; 
government purchasing and distribution; and taxes directly affect- 
ing the marketing of goods. 

Mr. DoNOHo. Mr. Martin, how did the Survey get interested in 
the trade-barrier problem and what was the specific purpose in this 
connection ? 

Mr. Martin. In April 1939 the Survey was requested to prepare 
a compilation of trade-barrier laws for the use of the National Con- 
ference on Interstate Trade Barriers held at the call of the Council 
of State Governments in Chicago. 

No attempt was made to present an exhaustive compilation. The 
statutes were assembled for the purpose of furnishing typical ex- 
amples of State barrier laws. Those examples were extracted from 
the State statutes within the categories designated by the Council 
of State Governments, namely: Liquor; motor vehicles; itinerant 
trucker ; ports of entry ; margarines ; dairy products ; livestock, poul- 
try and general foods; nursery stock; use taxes; and general prefer- 
ences for State products and labor. 


In meeting the request of the Council of State Governments, the 
Survey felt that it was fulfilling the primary objective for which it 
was established, namely, to function as a fact finder. 

That same purpose governs the presentation of testimony which 
the Survey is now making before this committee. What to do in 
the face of the record of State laws is not for us to propose. The 
Survey hopes that the data which it has compiled and analyzed will 
advance cooperati8n and coordination between the States and the 
Federal Government. 

Mr. DoNOHO. Mr. Martin, this morning a definition of the term 
"trade barrier" was given which I understand is in accord with that 
used by your Survey. What criteria did the Survey use in arriving 
at that definition? 

Mr. Martin. At the outset of its study the Survey was confronted 
with the problem of. defining an interstate-trade barrier. The posi- 
tion was taken that any State stattite or regulation which, on its face, 
or in practical effect, tended to operate to the disadvantage of per- 
sons, products, or services coming from sister States, to the advantage 
of local residents, products, and business, is a trade barrier. This 
is the realistic approach. The problem could only be viewed from 
the standpoint of the State's efforts to achieve the end of prohibiting 
or limiting the influx of persons, commodities, and services which are 
in competition with the domestic supply of the State. Dr. Melder 
elaborated upon the economic and social effects of this legislation 
before the committee this morning. 

Mr. DoNOHO. As you have described barriers, they break down into 
barriers on the face of statutes and regulations and barriers in prac- 
tical effect. Now, do these barriers break down into further cate- 
gories ? 

Mr. Martin. On the basis of this approach, our study revealed that 
the trade-barrier devices fall into four principal classes. In the first 
group are these statutes which, on their face, manifest a discrimina- 
tory or retaliatory purpose directed against out-of-State competition. 
Obviously, this direct and gross form of barrier statute is sharply 
limited in number. If the Survey had defined a trade barrier to 
include only legislation of this type, it would have made a super- 
ficial and unrealistic study. 

A second group of statutes consists of those which are nondis- 
criminatory on their face but are discriminatory in operation. 

Many trade barriers are found in a third category of statutes, 
namely, those which, on their face, are equal in application to resi- 
dents and nonresidents but which, in practical operation, burden out- 
of-State business. It is the cumulative effect of the diversity of these 
laws which creates a trade barrier. Some of the objections. to the 
discriminatory provisions do not apply to these statutes. But some 
of the effects of burdening or impeding interstate trade arise from 
the nondiscriminatory diversity of the statutory provisions in the 
several States. Such laws become tariff walls or embargoes in sub- 
stance, regardless of their form. 

Mr. DoNOHO. Is it not difficult to isolate some of these barrier 
effects, Mr. Martin? 

Mr. Martin. The Survey frankly concedes that the identification 
of some of this legislation as trade barriers is difficult. But this 
should not foreclose a scrutiny of the statutes in the light of their 

concentration' OF ECONOMIC POWER 15781 

impact upon commerce between the States. In some instances, nu- 
merous disguises are empSyed to give the statutes an appearance of 
nondiscriminatory treatment or to mask its burdensome or deterrent 
effect upon interstate commei 

Mr. DoNOHO. You suggest thu. <^he cumulative effect of diversity 
often creates a trade barrier. Isn l . nch diversity often essential to 
the welfare of the country? 

Mr. Martin. It is important tO' bear in mind that the Survey was 
at all times extremely careful to avoid br nding as a "trade bar- 
rier" the legitimate exercise of State powers lOr ends clearly within 
the sphere of State action. We recognized also that diversity of 
State laws is often essential to meet the varying economic conditions 
of particular States. What fits the needs of an agricultural State 
may be entirely out of place in an industrial State. Uniformity of 
State legislation may or may not be a desirable end and it was not 
the purpose of the Survey to pass judgment upon the need for uni- 
formity and the methods of securing uniformity. Indeed, the Sur- 
vey was not concerned with any of the proposed solutions in the 
broad field of Federal-State intergovernmental relations. 

Mr. DoNOHO. As I understand it, Mr. Martin, any statute or regu 
lation may be administered in such a way as to create a trade barrier? 

Mr. Martin. That is right. Fourth, and finally, it should be said 
that the source of barrier practices is frequently found in discrimina- 
tory and burdensome administration of State statutes. This is attrib- 
utable to the fact that numerous administrative agencies are vested 
with broad discretionary authority to frame rules and regulations 
which permit them to employ various types of "police" regulatory 
legislation as instruments to restrict trade between the States. Un- 
fortunately, the data concerning such administrative action is not 
readily available, and no attempt was made to include any adminis- 
tration not specifically set forth in the statute. 

Mr. DoNOHO. It was stated this morning that no effort would 
be made to analyze the constitutional issues as applied to specific 
instances or specific statutes. However, I think it is pertinent for 
you to discuss general constitutional issues, the general constitutional 
setting of the trade-barrier problem. 

Representative Reece. Before you ask that question, would you 
permit me to ask a question, Mr. Chairman, if you please ? In these 
studies which you and your associate have made, did you undertake 
to catalog the various State statutes which you felt were discrimina- 
tory and analyze the effect of the different statutes? 

Mr. Martin. We have, and I would like to ask later on to submit 
for the record a copy of a book known as Comparative Charts of 
State Statutes,^ illustrating barriers of trade between States. On 
the over-all study all of our compilations are cross-indexed by State 
and by type of law. 

Representative Reece. So that you do have the statutes listed? 

Mr. Martin. That is correct, up to January 1940. 

Mr. DoNOHO. To repeat, Mr. Martin, I said that we are interested 
in the general constitutional setting of the trade-barrier problem. 
Can you tell us under what powers the States have enacted trade- 
barrier laws? 

I "Exhibit ^o. 2364," on file with the committee. 


Mr. Martin. It is evident that any discussion of trade-barrier 
laws, must take into consideration the constitutional framework 
within which these laws were passed. An analysis of the compila- 
tion prepared by the Survey will disclose that these statutes have 
been enacted under four categories of powers traditionally delegated 
and reserved to the States under our constitution: First, the power 
of taxation; second, the State's "police" power in the protection of 
health and sanitation, including inspection and quarantine; third, 
licensing and general regulatory powers; fourth, the sovereign pro- 
prietary powers in regard to conservation of natural resources and 
ownership of public works and property. 

Mr. DoNOHO. The powers you mention, Mr. Martin, are obviously 
within the purview of the States. Upon what basis then have the 
laws enacted pursuant to these powers been , challenged as trade 
barriers ? 

Mr. Martin. There is no intent to criticize the exertion of State 
powers to promote "police" ends, to produce necessary revenue, and 
to protect State resources and property. The dangers lie in the 
abuse of these powers to achieve interstate market restrictions by 
masquerading serious impediments to free trade in the garb of tra- 
ditional powers. As Attorney General Jackson has suggested, the 
courts and the Federal Government are naturally disinclined to im- 
pute improper purposes to the State where the statute is appar- 
ently nondiscriminatory.^ This is especially true when the State 
openly asserts that it is acting to protect an imperative local need. 
However, the duty of examining these statutes in their interrelations 
to ascertain their practical effect upon the channels of interstate com- 
merce is one which the Survey could not with propriety evade. As 
was recently said in a Supreme Court opinion : ^ 

Maintenance of open channels of trade between the States was not only of 
paramount importance when our Constitution was framed ; it remains today a 
complex problem calling for national vigilance and regulation. 

Mr. DoNOHO. Coming back to the constitutional background, Mr. 
Martin, did the Survey legal staff inquire into the extent to which bar- 
rier laws are constitutional, and if so would you like to explain that, 

Mr. Martin. The constitutionality of particular barrier statutes is 
outside the bounds of the Survey's testimony. 

The Vice Chairman. I think you are right about that. The fact is 
that we are not interested in having witnesses develop questions of 

Mr. DoNOHO. I don't think, Mr. Chairman, it is the intent to do that 
at all ; it is a very general statement, as I understand it. 

Mr. Martin. Indeed my legal staff advises me they have studied 
the decisions of the United States Supreme Court or; interstate bar- 
riers. But, as this committee knows, the constitutionality of a particu- 
lar law is often a matter of great doubt. Each case must be considered 
on its facts. 

The Vice Chairman. I think you might skip the discussion of con- 
stitutional matters. I believe my colleagues agree with me. 

1 The Supreme Court and Interstate Barriers, Annals of the American Academy of 
Political and Social Science, January 1940, p. 77. 

2 Dissenting opinion of Justices Black, Frankfurter, and Douglas in McGarroll v. Diwie 
Greyhound Unea, Inc. (U. S. Sup. Ct. decided Fab. 12,- 1940). 


Mr. DoNOHO. The witness intended to make only a general state- 
ment with respect to the constitutionality of the problem. Of course, 
Mr. Chairman, it is true that the Stales must always bear in mind the 
constitutional limitations in passing laws which may or may not be 
trade-barrier laws. 

The Vice Chairman. I think the committee will take cognizance 
of that fact, if you will permit me to make an observation. I am 
just trying to hurry, withm reason. 

Mr. Martin. My legal staff advises me that, in the absence of con- 
gressional action, most of the laws analyzed by the Survey as creat- 
ing barriers to interstate trade are probably constitutional within the 
decisions of the United States Supreme Court. A highly technical 
and complicated analysis of these decisions would only serve to divert 
attention from the primary purpose of the testimony, namely, to 
present the structure of State legislation embodying techniques and 
devices that create or implement trade barriers as a matter of prac- 
tical fact. As Mr. Donoho explained in his opening statement, other 
witnesses will show how these laws have actually operated by giving, 
specific examples of what their businesses had to contend with in the 
everyday world of interstate commerce. 

Whether the problems raised can be met by cooperation between 
the States or by action of the Congress is not within the province of 
the Survey to determine. The problem was defined from the stand- 
point of national policy in the dissenting opinion of the United 
States Supreme Court in the recent Arkansas tax case ^ where it was 
pointed out that the questions raised by that case are "for considera- 
tion of Congress in a nation-wide survey of the constantly increasing 
barriers to trade among the States." The dissenting Justices said : 

Unconfined by "the narrow scope of judicial proceedings" Congress alone can. 
in the exercise of its plenary constitutional control over interstate commerce, 
not only consider whether such a tax as now under scrutiny is consistent with 
the best interests of our national economy, but can also on the basis of full 
exploration of the many aspects of a complicated problem devise a national 
policy fair alike to the States and our Union. Diverse and interacting state 
laws may well have created avoidable hardships. See, Comparative Charts of 
State Statutes illustrating Barriers to Trade between States, Works Progress 
Administration, May 1939; Proceedings, The National Conference on Interstate 
Trade Barriers, The Council of State Governments, 1939. But the remedy, if 
any is called for, we think is within the ample reach of Congress. 

Of course, constitutional limitations upon State legislation must 
always be considered. From what I have said it should not be in- 
ferred that the United States Supreme Court has failed to enunciate 
certain applicable principles or has not issued warnings to State 
legislatures. On the contrary, the Supreme Court has made pro- 
r.ouncements of general significance which can be summarized with- 
out the legal entanglements mvolved in analysis of specific decisions. 
It is recognized that generalities do not solve specific cases. Accord- 
ingly the CouH's propositions for the most part pose the problems 
rather than furnish definite guides for particular factual situations. 
However, since they bear directly upon the technique of interpreta- 
tion of the barrier statutes and Federal-State relationships the fol- 
lowing constitutional principles may be of interest to this committee : 

1. In the exercise of their general "police" powers in the fields of 
taxation and regulation the State cannot impose burdens on inter- 
state commerce which are direct and substantial. 


2. The power of Congress over interstate commerce is plenary. 
Until Congress occupies the field the regulation of the States might 
affect interstate commerce in an indirect and insubstantial manner. 
But once Congress has spoken the State laws must give way to the 
Federal legislation as bemg in conflict with the supreme law of the 
land. For example, Federal motor-vehicle legislation may occupy 
the field to the exclusion or diminution of regulations by individual 

3. Wliere the discrimination against interstate or foreign commerce 
is obvious on the face of the statute, it will not be upheld, as exem- 
plified by the recent Florida foreign cement inspection fee case.* 

4. The courts will look into the facts of each case to determine the 
extent to which the statutory provision in question operates to bur- 
den interstate commerce. The courts will go behind the face of the 
statute to its practical operation. This is exactly what the United 
States Supreme Court did in the latest trade barrier decision in the 
Arkansas tax case where the court went into arithmetical calcula- 
tions to show the mischief of the statute. 

5. Nowhere are the general principles stated with greater eloquence 
and clarity than in the words of Mr. Justice Cardozo in Baldwin v. 
Seelig.^ Among other things he said: 

What is ultimate is the principle that one State in its dealings with another 
may not place itself in a position of economic isolation. Formulas and catch- 
words are subordinate to this overmastering requirement. Neither the power 
to tax nor the police power may be used by the state of destination with the 
aim and effect of establishing an economic barrier against competition with 
the products of another state or the labor of its residents. Restrictions so 
contrived are an unreasonable clog upon the mobility of commerce. They set 
up what is equivalent to a rampart of customs duties designed to neutralize 
advantages belonging to the place of origin. They are thus hostile in con- 
ception as well as burdensome in result.' 

These few constitutional limitations illustrate the difficulties of 
approaching the trade-barrier problem from the standpoint of the 
refinements of constitutional law. The problem of a harmonious and 
integrated body of State laws, to end what Mr. Justice Cardozo char- 
acterized as neutralizing the economic consequences of free trade 
among the States, still remains as the basic problem. From this 
standpoint the statutes themselves must be analyzed. 

Mr. DoNOHO. Mr. Martin, you spoke of t\ i four types of power 
under which the States have enacted trade-barrier legislation. The 
first power you mentioned was the taxing power. Would you explain 
how this power is used to restrict trade between the States? 

Mr. Martin. By means of their taxing power the States have 
erected barriers to interstate trade. The barrier types of taxes may 
be divided roughly into three main groups: (1) Taxes which aim to 
exclude a competitive commodity in favor of the home products; (2) 
those which are aimed against a competitive type of tnerchandising ; 
(3) those which operate as barriers because of their multiplicity, 
diversity, and cumulative burden on interstate commerce. 

Mr. DoNOHo. Go ahead and explain about the laws that exclude 
competitive commodities coming from other States in favor of local 

Mr. Martin. It is in the field of margarines and liquor that we 
find this first type of taxation. The classic example of this group 
iSj of course, the battle which has been waged between butter and 


the margarines. In the field of liquor we have the recent avalanche 
of legislation which followed repeal and the Supreme Court's inter- 
pretation of the twenty-first amendment giving the States complete 
freedom to deal with this product. 

Mr, DoNOHO. Develop your thought with respect to margarines. 

Mr. Martin. Tax legislation in the field of margarines indicates 
that the dairy States have sought to exclude margarine by practi- 
cally taxing it out of existence, while the southern nondairy States 
have sought to protect their margarine industry by taxing any com- 
petitive products not made from their own home-grown crops. With 
the conflict between butter and margarine in the same State we are 
not concerned. But when a dairy State seeks to protect its butter 
against margarines coming from another State, the law takes on the 
aspects of an interstate barrier. As for the form which these taxes 
take, they are usually either a license or excise tax. 

Mr. DoNOHo. To what extent are license fees opposed in the 
market ? 

Mr. Martin. Sixteen States require licenses to engage in the manu- 
facture, distribution, sale, or servicing of this product, and fees for 
such licenses range from $1 to $1,000 per year. Pennsylvania, Wis- 
consin, and Montana are in the highest bracket. North Carolina 
had a $1,000 license fee for manufacturers which were repealed by the 
1939 legislature so that North Carolina has now joined the more or 
less "solid" South front in the margarine-butter war. 

Mr. DoNOHO. As to excise taxes, Mr. Martin, to what extent have 
they been imposed on marketing? 

Mr. Martin. Twenty-three States have adopted excise taxes, rang- 
ing in scope from 5 cents a pound on uncolored margarines to 15 
cents a pound on all margarines. The Cotton Belt States, except 
Mississippi, Oklahoma, and Tennessee, have levied a 10-cent-a-pound 
tax on all margarines except those containing cottonseed oil, corn 
oil, peanut oil, soybean oil, margarine oil, and stearine from cattle, 
and certain other animal fats and oils. 

Kepresentative Reece. Do you know if there is a Federal tax on 
oleomargarine ? 

Mr. Martin. Yes, sir. 

Representative Reece. ^Miat is the purpose underlying the Federal 
tax, and is it different from the purpose underlying the State taxes, 
or do you have any opinion on that as the result of your study ? 

Mr. Martin. The Federal tax, of course, is a uniform tax through- 
out, as I will show as I go on with my testimony here. 

Representative Reece. Yes ; that is true ; and in that respect it 
might differ from the State taxes, but was the oleomargarine tax 
levied by the Federal Government put orf only as a revenue measure, 
or was there some other objective that was coupled with the revenue 

Mr. Martin. I am not prepared to answer that definitely, but it 
is my understanding that the Federal tax originally was enacted 
purely as a revenue measure. 

Representative Reece. The dairymen were very energetic, as I. 
recall, in advocacy of this tax, and 1 didn't know whether their 
interest arose altogether out of the desire on the part of the dairymen 
for the Federal Government to gain additional revenue and they 
thought that was the easiest source throu tJi wh.ich to obtain it. 


Mr. Martin. I am not prepared to express an opinion on that. 

The Vice Chairman, I think it was ptirely an interest in the 
Federal revenue. 

Mr. Martin. North Carolina also had a $l,O00 license fee for 
manufacturers which was repealed by the 1939 legislature. 

Mr. DoNOHO. With respect to the taxing matter, Mr. Martin, you 
spoke about the impact of this power upon liquor, as creating barriers 
for liquor sales. Will you explain that, please ? 

Mr. Martin. In the field of liquor, the Marketing Laws Survey has 
found that several tax devices have been resorted to for the purpose of 
stimulating domestic products and crops used in liquor manufacturing, 
or to build up the State liquor industry generally. No less than 26 
States have passed preference laws by levying lower license fees or 
excise taxes on liquor when State-grown ingredients are used. For ex- 
ample, Alabama taxes manufacturers of alcoholic beverages $1,000 an- 
nually for each place of manufacture, but wine makers using 75 per- 
cent or more of 'Alabama raw materials in their wineries pay only 
$25. In Oregon the regular winery license is $250, accompanied by 
a minimum bond of $1,000, but a farmer who niakes wine from his 
own grown grapes or other fruits pays an annual feet of $25 and is 
subject to a $500 bond. Then there are the gallonage taxes. 

Mr. DoNOHO. These discriminatory taxes are also calculated in terms 
of gallons ? 

Mr. Martin. That is correct. As all example of. that, in Michigan, 
the tax per gallon on wine made from grapes or fruit not grown in 
Michigan is 50 cents, but wine made in the State from products, 75 
percent or more of which have been grown in the State, is taxed only 
4 cents a gallon. In Arkansas, the 50-cent-per-gallon tax on wine 
does not apply to wine made in Arkansas from raw products produced 
in the State. 

At this point I can best show this situation with a chart which I have 

Mr. DoNOHO. Will you identify the chart ? 

Mr. Martin. This is known as our chart No. 1, showing the Michigan 
wine tax on home-grown grape wine as compared with out-of-State 
grape wine. You will note the tax is only 4 cents per gallon on the 
Michigan wine, whereas it is 50 cents per gallon on out-of-State or 
California wine. 

Mr. DoNOHO. What is the source of the chart?. 

Mr. Martin. It is from the research studies of the Marketing Laws 

Mr. DoNOHO. I offer a copy of the chart. 

The Vice Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2351" and is in- 
cluded in the appendix on p. 16121.) 

Eepresentative Reece. Would you mind saying if this law or laws 
similar to it have been tested in the Federal courts ? 

Mr. Martin. Not in connection with liquor, I believe. You see, the 
twenty-first amendment, together with the Supreme Court decision, 
more or less said that is a power of the sovereign States. We include 
liquor here because there are barriers in liquor, and as I have previously 
indicated, we feel perhaps 90 percent are constitutional, nevertheless 
they are bad from an economic standpoint. 


The Vice Chairman. May I ask, is it considered by the gentlemen 
who made the study that this matter of discrimination under the 
twenty-first amendment is within the regulatory powers of the Federal 
Government ? 

Mr. Martin, As interpreted up to the present time by the Supreme 

The Vice Chairman. I am not myself familiar with the case in 
which the Supreme Court held, as I understand, that any State can 
pass legislation in regard to import duties, and so, forth, on liquor. 
The question I am asking is whether or not this discrimination to 
which the witness is now referring falls within federal jurisdiction. 

Mr. DoNOHO. Your position, Mr. Martin, as I. understand it, is that 
discriminatory laws in liquor may be validly imposed by the States. 

Mr. Martin. That is correct. 

Mr. DoNOHO. Under the Constitution as interpreted. 

Representative Sumners. Let's make tljat clear tlren. What is 
contended can be done about this matter by the Federal Govern- 
ment, if in fact it is understood to be an evil thing and that some- 
thing ought to be done about it? 

Mr. Martin. In view of the fact that the courts have taken the 
position that the power lies with the State, undoubtedly it is going to 
be a matter of entering into State compacts or State agreements, 
working it out together. 

The Vice Chairman. I thought it well to make that clear in the 

Mr. Martin. I would like at this time to present another chart 
that will give you a little more of .the national picture in connection 
with liquor. . This chart shows a small number £>f the States showing 
"Preferences in Wine Manufactured Wliolly or in Part from Prod- 
ucts Grown. in State." We show in the top bar the cost of an out- 
of-State manufacturer's license and compare it with the small fee 
charged the residents of the State. In the second column we com- 
pare relative differences between, the tax assessed to out-of-State 
product to the tax lipon home-grown wine. If those figures are not 
plain to the committee I will read them. 

The Vice CHAiRMAiij. Yes, sir ; we can see them. 

Mr. DoNOHO. What ia the source of that ? 

Mr. Martin: That is also from the research study made by the 
Marketing Law Survey. 

Mr. DoNOHO. Is this the chart you describe ? 

Mr. IVIartin. Yes. 

Mr. DoNOHO. Mr. Chairman, I offer it as an exhibit. 

The Vice Chairman. It may be received. 

_ (The chart referred to was marked '^Exhibit No. 2352" and is 
included in the appendix on p. 16122.) 

Representative Reece. Would you mind my asking you if statutes 
of this type have been tested in the Federal court so that it has been 
ascertained that they are on sound legal basis? 

Mr. DoxOHO. Mr. Reece, I cannot speak from a first-hand knowl- 
edge of the cases, but it is my understanding, through discussion . 
with persons who have read the decisions, that there is no federal 
power now to regulate the interstate movement of liquors. 


Mr Martin I have the citation here on the case that I mentioned, 
^vhich is the State Board of Equalization of Calif orma versus Young 
Market 299 U. S. 51. There are two or three other cases I can cite 

Kepresentative Keece. Does that decision relate only to liquors? 

Mr Martin Only to liquors. , . , 

Representative Reece. It doesn't have the same relation to other 

^^The^ViCE Chairman. It is under the twenty-first amendment. 
Mr DoNOHO. As I understand, you pointed out m your early 

testimony that liquor has a unique status m that discriminatory 

action is sanctioned by the Constitution, that is discriminatory 

action as between one state and another. 

The Vice Chairman. Proceed, Mr. Martin. ^ , ^, , , ,• , 

Mr. DoNOHO. Have you finished explaining the chart, Mr. Martin i 

Mr. Martin. Yes, sir. v ^ j ^ 

Mr DoNOHO. You have spoken of statutes which are directed at 

manufacturers of products used in the manufacture of liquor. What 

did the Survey find as to restrictions imposed on importers of 

Mr M'VRTiN. We found it is more common to impose restrictions 
on the importers and occasionally on the foreign manufacturers than 
on the import itself. At least seven states charge a higher or addi- 
tional fee for importing into the state than is charged for whole- 
saling or distributing the local product. In Nevada the wholesalers' 
wine, beer, and liquor lie ise is $150, but the importer must pay 
$350 for the same type lice ise. 

Massachusetts charges solicitors for foreign manufacturers of 
alcoholic beverages a fee of $100 to $300 for their annual licenses as 
against $10 for state residents soliciting for domestic manufacturers. 
Louisiana requires that dealers who maintain a regularly established 
place of business in the state pay a $1,000 annual fee, but failure to 
maintain such place subjects the dealer to a $10,000 fee. 

Mr. DoNOHO. Mr. Martin, to what extent is it true that some bar- 
rier laws are passed as retaliatory laws ? 

Mr. Martin. Eight states have enacted retaliatory legislation 
against beverages from other States. 

Typical of such liquor retaliatory measures is the Rhode Island 
statute which provides that the Department of Business Regulation 
be authorized to assess the products of any state discriminating 
against Rhode Island products in such amounts as would equalize 
the taxes and other charges. If this does not remove the discrimina- 
tion, the Department may assess such additional charges as it may 
deem necessary to remove such discrimination against Rhode Island 
products. Michigan empowers the State liquor commission to estab- 
lish an embargo against beer of any State levying a discriminatory 
tax against a Michigan-produced beer. 

Mr. DoNOHO. You referred to a second group of tax laws aimed 
against competitive types of businesses. Would you develop that, 
please, Mr. Martin? 

Mr. Martin. Taxes which are aimed against a competitive type 
of merchandising are widely used against the so-called itinerant 
trucker. With the increased use of motor trucks, the old laws against 
transient merchants and peddlers have been revived. While most 
of the itinerant-peddler laws, on their face, do not discriminate 


against the out-of-State vendor, the Louisiana and Wisconsin stat- 
utes are so defined as to strike directly at nonresidents. The Louisi- 
ana law declares that nonresidents importing for sale certain poultry, 
fruits, and vegetables in trucks, must pay a license fee of $200, and 
does not mention the resident trucker. The Wisconsin law defines a 
merchant-trucker as one who transports produce not grown in the 
State in a truck or other vehicle from a point within or without the 
State and who sells the same direct from such vehicle to retail mer- 
chants without advance order. Such trucker is required to pay a 
fee of $40 before he can sell his produce. It is interesting to note, 
however, that the Arkansas and Georgia laws specifically encourage 
truckers to come into their States to buy but not to sell. Arkansas 
provides for certain registration exemptions for truckers who come 
to purchase. Georgia declares that truckers hauling agricultural 
products grown in Georgia may take .10 free trips into the State 
per month, while others may make only two free trips per month. 

Arizona, Montana, Nebraska, and West Virginia are some of the 
States which require itinerant merchants to pay license fees of a 
special nature. 

I should like to give an example of this type of discriminatory tax 
operating to make impossible the sale of pT-oducts from farm to farm 
doors. The instance cornes from Arizoni. Here is a situation 
graphically presented. The truck in this cha't is traced on a route 
through each of the counties of the State of Arizona. Note that the 
total fees would amount to $4,400 in addition to the $5,000 bond. 

Although the Arizona law "was declared unconStiutional but a 
few months ago, it provided that a retail merchant -trucker pay $200 
per year in every county in \^ich he operates, pliis $25 additional for 
each assistant. A wholesale peddler, not marketing his own ^prod- 
uct's, was required to pay a license fee of $500 in each county witi. a 
population of 100,000 or more in which he operates, $300 in all other 
counties, and post a surety bond of $5,000 from a surety licensed 
within the State of Arizona. 

Mr. DoNOHO. What is the source ©f your chart, Mr. Martin ? 

Mr. Martin. That is also from the Marketing Laws Survey-Trade 
Barrier Study.^ 
. Mr. DoNOHO. I offer this, Mr. Chairman, as Exhibit No. 2353, 

(The chart referred to was marked "Exhibit No. 2353" and is 
included in the appendix on p. 16123.) 

The Vice Chairman. Mr. Donoho, when I suggested a while ago 
that the committee would not be interested in the discussion of the 
constitutional phase, I didn't mean a rejection of reading into the 
record the conclusions of the witness. 

Mr. DoNOHO. You say t^e Arizona law was declared unconstitu- 
tional. What is your purpose, then, in reporting it ? 

Mr. Martin. Although it it no longer in effect, I cite this statute 
to indicate the extent to which States have gone in exercising their 
taxing p6wers. In Montana a merchant-trucker must pay a $100 
license fee for one truck and $50 for each additional truck. 

Mr. DoxoHO. You mentioned a third type of tax law as a trade 
barrier, that which is cumulative in effect. Would you develop thjit. 

I "Exhibit No. 2364," on file with the Committee. 
124491 — 41— pt. 29 5 


Mr. Martin. Differentiated from those which are discriminatory, 
the tax laws which operate as barriers because of their multiplicity, 
diversity, and cumulative burden on interstate commerce are found 
in the fields of motor vehicles and nursery stock. 

Mr. DoNOHO. Could you illustrate from the field of motor vehicles ? 

Mr. Martin. In the field of motor vehicles, while it is true that 
these laws on their face do not discriminate against out-of -State 
vehicles, they do operate as a cumulative burden on vehicles which 
'must pass through several States, paying fees in each. Such bur- 
dens may be justified, perhaps, as compensation for use of the high- 
ways, but when pyramided against a single vehicle may constitute 
a real handicap and burden to motor transportation. There are 
registration fees, gross-receipts taxes, mileage taxes, and other mis- 
cellaneous taxes too many and too complicated for detailed analysis 
in my statement. 

Each State requires motor trucks using its highways to register 
and pay a fee therefor. These fees are often quite heavy and usually 
increase sharply with the size of the truck. They vary from $30 
on a 5-ton truck in Idaho to $400 in Alabama. As an example of 
the cost to an interstate trucker, it is interesting to note that a 
trucker traveling from Alabama to South Carolina, ignoring the 
extra fees if a trailer is involved, would be required to pay $400 in 
Alabama, $400 in Georgia, and $300 in South Carolina on a 5- to 6-ton 
truck, making a total of $1,100 from Alabama to Georgia to South 

Mr. Hates. Are these fees that are assessed only against out-of- 
State trucks? 

Mr. Martin. They are both State and out-of-State. 

Mr. Hayes. There is no discrimination as to the rate? 

Mr. Martin. No ; it is merely the cumulative burden. 

In Mississippi the fees for private commercial carriers range from 
$132 for vehicles not exceeding 5 tons to $498 for vehicles not exceed- 
ing 10 tons. As to carriers for hire, the fees range from $198 for 
trucks not exceeding 5 tons to $792 for trucks not exceeding 10 tons. 

In North Dakota, the fees to be paid range frorn $400 on a 5-ton 
truck to $1,500 for a 10-ton truck, with a 10-percent reduction each 
year from ,the previous year's fee until it equals one-half of the 
original fee. 

Mr. Hayes. May I ask a question there? On this reduction, is 
that per truck or per owner of a truck? 

Mr. Martin. Per truck. 

Mr. Hayes. It must be the same truck itself, not the same operator? 

Mr. Martin. That is right; it is due to the depreciation of the 

Mr. DoNOHO. Are there any reciprocal agreements in effect between 
the States with respect to the operation of motor vehicles ? 

Mr. Martin. Yes. 

Mr. DoNOHO. How effective are these agreements? 

Mr. Martin. While it is true that reciprocity, in one form or an- 
other, is provided for in the laws of some 41 States, only 9 States 
grant complete reciprocity as to all fees. The laws of Nebraska 
present a typical example of the effect of such reciprocal arrange- 
ments. They provide that the State is to extend full reciprocity on 
license fees to trucks from other States provided that the States in 


which such trucks are domiciled extend similar privileges to trucks 
from Nebraska. Similar provision is made for the "ton-mile" tax, 
license plates, and other special taxes. 

Only 18 States are cooperating with Nebraska to such an extent 
that trucks from these States may pass through Nebraska without 
purchasing a license. As for trucks from the other 30 States, the 
requirements imposed by Nebraska upon such trucks vary with the 
requirements which each State imposes upon Nebraska trucks. Four 
States — Arizona, California, Mississippi, and New Mexico — require, 
all out-of-State trucks operating for any purpose to register therein, 
with the result that Nebraska requires all trucks coming from these 
States to comply with its registration provisions. Other States — for 
example, Kentucky, Minnesota, Montana, Oregon. Texas, and Wash- 
ington — require out-of-State trucks that operate tor hire to purchase 
a license. Therefore, for-hire trucks from those States must pur- 
chase a license in Nebraska. Florida requires a Florida license on 
all trucks operating for hire except trucks transporting uncrated 
household goods, store and office fixtures. Nebraska, therefore, re- 
quires all Florida for-hire trucks except those transporting uncrated 
household goods, store, and office fixtures to comply with its licensing 
provisions. . 

The Vice Chairman. Mr. Martin, is there any claim that this 
charge against these trucks is in part compensation for the right of 
using the public highways and injury to the public highways by 
reason of their use? 

Mr. Martin. As I previously indicated, I think the bulk of the 
legislation — the original legislation in the States — was for that pur- 
pose. However, when you «ross threje or four States the cumulative 
burden becomes enormous, particularly where a truck only makes one 
or two trips a year. 

The Vice .Chairman. Do you know whether or not competitive in- 
strumentalities of transportation had anything to do with it« 

Mr. Martin. I am not qualified 

The Vice Chairman (interposing).' I ought not to ask that. I will 
withdraw the question. 

Representative Reece. Do you know whether the Motor Carrier 
Division of the Interstate Commerce Commission has made any eflFort 
to bring about reciprocal arrangements among the States with respect 
to trucks? 

Mr. Martin. The Interstate Commerce Commission controls cer- 
tain classes of carriers that operate over regular routes. Insofar as 
I know, they have never done anything toward the individual truck 
owner. I am not qualified to say that they have not, but insofar as 
I know they have not. 

Representative Reece, But these licensing provisions to which you 
refer would apply to the regular carrier the same as to the individual 
truck operator, would they not? 

Mr. Martin. That is correct, sir, on the licensing requirements, 

Mr. Donoho. Mr. Martin, do any States permit out-of-State trucks 
to operate within the State w'ithout making proper registration and 
paying the proper fees? 

Mr. Martin. A few States permit certain types of truck operations 
by out-of-State trucks for a short period of time or for a limited 
number ot trips without payment of the regular fees or upon pay- 


ment of a fraction thereof. Frequently, however, such permission 
is extended to only a limited type of truck operator; for example, 
the Arizona law, which extends the privilege of special 30-, 60-, or 
90-day permits only to private truckers transporting their own prop- 
erty. Alabama issues special-trip permits only to carriers transport- 
ing their own property or to those transporting property for others 
to a ' destination within the State and which do not operate over 
regular routes. 

Mr. DoNOHO. Do you have an illustration of other forms of tax 
laws directed against the motor carriers in the several States ? 

Mr. Martin. Yes. Some 20 States have enacted mileage taxes of 
one form or another. These taxes are calculated either on the basis 
of ton-miles traveled within the State or on a graduated fee per mile 
for trucks of varying weights, and range from 1 mill per mile on a 
5-ton truck in Michigan to 2 cents per mile on the same truck in 

In some States, for example, Colorado, Iowa, Kansas, Michigan, 
South Carolina, and Tennessee, the tax is levied alike on all trucks 
of the class subject to the tax, whether resident or nonresident. In 
others, such as North Dakota and Minnesota, the mileage tax is 
levied only upon out-of-State trucks which are permitted to pay this 
tax in lieu of the regular registration fees. 

The Vice Chairman. At that point, would they be permitted to 
pay the regular registration fee instead of the tax ? 

Mr. Martin. That is correct. They have the choice of the two 
alternatives in that particular case, in North Dakota and in Min- 

Representative Williams. Well, have we States there where there is 
such a limitation on the size and weight of the truck, that they 
cannot operate at all in some adjoining State ? 

Mr. Martin. We have, and I expect to get into that in just a 

Representative Williams. I wondered what they did where that 
situation existed. Do they unload at the boundary? 

Mr. Martin. They unload at the boundary ; that is correct. 

There are also gross-receipts taxes. These taxes have been en- 
acted by some 12 States: Arizona, California, Idaho, Indiana, Lou- 
isiana, Mississippi, Montana, West Virginia, North Carolina, Oregon, 
Pennsylvania, and Virginia. In thfe case of interstate transporta- 
tion, .these taxes are ordinarily assessed against the gross receipts 
in proportions which the mileage traveled within the State bears 
to the total mileage traveled in interstate commerce, and range from 
one-half of 1 percent in Montana to 6 percent in North Carolina. 

A more recent type of levy has come into being in the form of a 
caravan tax levied on motor caravans or motor convoys. California, 
Idaho, Ohio, Oklahoma, and Texas are States which have enacted 
such laws. The California law prohibits the transportation of any 
vehicle, whether originated within or without the State, for the 
purpose of sale, without securing a special permit for each vehicle 
so transported. It also provides for the payment of two license 
fees, one of 97.o0 to reimburse the State for the expense of admin- 
istering its police regulations, and the other for $7.50 for the priv- 
ilege of using the highways. The Idaho law levies a fee of $5 per 
caravaned auto transported from without the State on its own 


wheels or in tow of another vehicle into or through the State, for 
the purpose of sale. 

Mr. DoNOHO. Mr. Martin, you indicated a few minutes ago that 
nursery stock as well as motor transportation illustrated a cumula- 
tive type of barrier. Would you discuss the nursery stock aspect 
of this problem? 

Mr. Martin. What is true of the cumulative burden on motor 
transportation may apply in lesser degree to the nursery-stock busi- 
ness. We shall deal with this subject more specifically under the 
inspection and quarantine powers of the State. 

Mr. DoNOHO. Wliile we are still on the subject of transportation, 
did the survey inquire into the much-discussed "use tax," and to 
what extent it operates as a barrier to interstate trade? 

Mr. Martin. Yes. Not only can States burden specific industries 
by means of cumulative taxation, but a new device has recently been 
utilized in the form of a use tax whereby States can tax all pur- 
chases of interstate products. The use tax was enacted by the States 
as an equalizing tax upon interstate transactions not subject to the 
State sales taxes levied upon intrastate transactions. When the en- 
acting State allows a deduction for sales, use, or similar taxes in 
the State of origin it is called a "compensatory use tax," and the 
burden against business from other States may be no greater than 
on domestic business. 

As of January 1, 1940, 15 States had enacted general-use taxes, 
but of these only 9 are compensatory in character. In the 6 remain- 
ing States the imposition of the use tax may operate as an import 
duty burdening products from sister States and resulting in prefer- 
ential treatment to domestic industries. These preferences are ex- 
pressly set out in certain use-tax statutes. For example, Oklahoma 
and Wyoming exempt products of their farms; California exempts 
gold bullion ; and Utah and Wyoming products of their mines. 

Mr. DoNOHo. Following the classifications of power which you set 
out earlier in your testimony, would you tell us briefly about inspec- 
tion and quarantine? 

Mr. Martin. In addition to using their taxing power as a means 
of excluding out-of -State products, the States also invoke their power 
of inspection. 

The fields in which these inspection laws operate are many, but 
they have their greatest effect as trade barriers in the dairy, nursery, 
livestock, and liquor industries. 

Mr. Donoho. Taking the subjects in the order named, what did 
the survey find in the milk and dairy industry? 

Mr. Martin. Of foremost importance are those restrictions placed 
on milk and cream by numerous States. 

Except in the case of an acute milk shortage, Rhode Island requires 
that any milk sold in the State must be produced on a dairy farm 
registered by the State Department of Agriculture and Conservation, 
and such registration is not granted until inspection has been made 
by the Department and the Department is satisfied that the farm 
meets all of the sanitary requirements and will be operated in a clean 
and sanitary niiinner. It specifically provides that milk produced 
out of the state must meet these requirements. 

In that connection I would like to introduce a chart, and that was 
actually enforced. As we indicate on this chart, 5,000 quarts of milk- 


coming from Bellows Falls, Vt., were actually stained red by inspec- 
tors of the State of Khode Island under a provision in the state 
statutes that if any provision of the section is violated the inspector 
may color the milk with vegetable matt:er. 

The same State provides that all milk to be pasteurized must be 
pasteurized and inspected in the State unless within tlie local milk 
shed area, and defines the "local milkshed" as that local area within 
which milk is being produced and delivered daily by truck to a local 

Connecticut, Massachusetts, New Jersey, Pennsylvania, New York, 
Virginia, and Florida also require that milk; and in some cases 
cream, must be licensed or inspected by the officials of the importing 
State. In Connecticut, although out-or-State dairies must secure per- 
mits and submit to inspection, the Dairy and Food Commissioner is 
prohibited, by statute, from inspecting beyond the present milk- 
shed area of the State except in case of a milk shortage or emergency. 

Mr. DoNOHO. Mr. Martin, what is the source of the chart, please, 
which you just described? 

Mr. Martin. That is from the Marketing Laws Survey-Trade Bar- 
rier Study.^ 

(The. chart referred to was marked "Exhibit No. 2354" and is 
included in the appendix on p. 16124.) 

Incidentally, the Federal Trade Commission, in reporting on the 
sale and distribution of milk to the Seventytfifth Congress, first ses- 
sion, House Document No. 95, clearly showed the extent of the cost 
of such duplication of health inspection through an incident involv- 
ing dairies supplying a milk plant at Ardmore, Pa., operated by the 
Dairyman's League Cooperative Association, Inc. The farms sup- 
plying the plant are regularly inspected by inspectors of the health 
departments of New York and Newark, New Jersey, and by inspec- 
tors in the regular employ of the Dairymen's League. The league 
was advised that before the out-of-State plant could be given a 
permit to supply the district, all dairies servmg the plant would have 
to be inspected by district representatives, the cost of which would 
be chargeable to the Dairymen's League. It was estimated that the 
cost of putting the out-of-State plant and its five feeders in condition 
to meet the Ardmore requirements would exceed $50,000. 

Mr. DoNOHO. In addition to the Federal regulation and the State 
laws on this subject, Mr. Martin, how do municipal ordinances affect 
the milk industry ? 

Mr. Martin. While not included in the purview of the study, it 
is well known that through enabling legislation, cities are frequently 
given the power to impose additional health restrictions. Maryland, 
for instance, declares it unlawful .to import into that State milk not 
produced, handled, or shipped according to standards applicable in 
the State and in the municipalities into which it is shipped. 

Representative WniiiAMS. In that connection, is there any kind of 
a standardized ^stem between the various inspections of the States? 
Are they all different? I mean by that, does milk inspected in one 
State which goes into another and is inspected there, not pass? Is 
there no uniformity in the system of inspection at all ? 

1 "Exhibit No. 2364," on file ■with the.Committoe. 


Mr. Martin. In many, many instances there is not, and as I will 
show here a little later on, there is the widest divergence in inspec- 
tion requirements. Another danger, of course, arises through the 
administrative agency enforcing tne statute, through its issuance of 
bulletins, regulations, and orders. 

Representative Williams. Do you mean by that that they interpret 
it in such a way as to actually discriminate against the foreign milk ? 

Mr. Martin, That is correct. 

Mr. DoNOHo. Do State regulations, Mr. Martin, affect only milk, or 
are they equally applicable to milk products? 

Mr. Martin. In addition to the inspection of milk and cream, there 
now appears to be a movement among the States to include all dairy 

Products within that field. Pennsylvania, Minnesota, Louisiana, and 
ew Jersey forbid the importation of any ice-cream products unless 
they are registered, and the manufacturer is licensed by the State 
Denartment of Agriculture. 

J?^r. DoNOHO. Tlie purpose of these laws that you have been describ- 
ing requiring inspections, I suppose, is that they are designed to sa^fe- 
guard the health of the citizen? How, then, do such laws tend to 
create trade barriers, Mr. Martin? 

Mr. Martin. Well, in addition to these sanitary and health require- 
ments, statutes have recently been enacted known as the Milk Control 
Acts, which regulate price and marketing practices. Today there are 
21 such acts in existerxe. 

In most of these States a milk control board is created. In several, 
the powers are vested in existing State departments, while four States 
make provision for local boards which may exercise limited juris- 
diction within certain restricted areas, subject to the supervision of 
the State authority. 

The general powers vested in these boards by all such milk-control 
acts are the supervision and regulation of the entire dairy industry 
of the State, which include production, transportation, manufacturing, 
processing, handling, storage, and sale. 

The powers of investigation vested in such boards are sweeping. 
This power includes the right to subpoena and examine witnesses, take 
depositions, and examine books, records, and accounts of persons in 
the industry. It rlso includes the right of entry by members of the 
board or its employees for any and all purposes as the board may deem 

The boards are also given the authority to fix prices for milk and milk 
products and to desi^ate and define milkshed and marketing areas. 

Although price-fixing applies generally to intrastate milk, it has a 
deterrent effect on interstate shipments at the instant that such prod- 
uct ceases to be transported in interstate commerce and becomes a 
subject of regulation under the "police" power of the State. 

The milk boards are also empowered to issue licenses or permits to 
persons engaged in the milk industry which may be refused or revoked 
for various and diverse reasons such as participation in practices tend- 
ing to demoralize the market, violation of sanitary regulations, and 
failure to keep the required records. 

Finally, the boards, in administering these acts, are empowered to 
promulgate such orders, rules, and regulations as, in their discretion, 
are deemed necessary and essential for the protection of the industry. 


In these broad discretionary powers lies the greatest danger of bur- 
dens and hindrances to interstate commerce. 

Mr. DoNOHO. As to your last point, Mr. Martin, is it that the inter- 
ference to interstate commerce arises not so much from the laws them- 
selves, as from the manner in which these laws are administered ? 
Mr. Martin. Yes; that is. correct. 

Mr. DoNOHO. Mr. Martin, what about other industries, how are 
they affected by inspection and quarantine types of legislation ? You 
stated that the nursery stock people were affected in this respect, I 

Mr. Martin, That is correct. The power of exclusion, through 
inspection, is by no means limited to dairy products. Horticultural 
products are almost entirely controlled, restricted, excluded, or de- 
stroyed by the importing State through this method. 

Although these quarantines are very effective in preventing the 
spread of animal and plant diseases and of insect pests, and have 
prevented enormous losses to agriculture, yet, because of their direct 
and often drastic effect upon trade, quarantines when unnecessarily 
applied, can do great harm to the exchange of products between 
different parts of the United States. 

The Survey found th:it 47 States have statutory inspection require- 
ments for imported nursery stock. Twenty-eight States require state- 
of-origin certificates certifying to the pest-free or disease-free con- 
dition of the stock. In addition, practically 'all of the States require 
further inspections after the stock has reached it^ destination. 

Every State gives to its department of agi-iculture or a similar 
agency, some power to declare quarantined. Many of them are also 
given the authority to confiscate and destroy the stock. 

The great mass of regulation, however, is not in the statutory en- 
actments, but in the regulations promulgated by the State agencies. 

Only 11 plant diseases and insect pests are the subject of the 1 '"d- 
eral domestic plant quarantines, but the States, as of January 15, 
1939, had in effect approximately 239 quarantines. 

Representative Williams. Do these same States that require these 
quarantine inspections require a domestic inspection of the nursery 
stock? Do they require the products that are raised within their 
States to submit to that same inspection? 

Mr. Martin. Sometimes they do and sometimes, I am informed, 
that the inspection is a retaliatory inspection. 

Representative Williams. In other words, they don't require any 
inspection at all of their home product? 

Mr. Martin. Oh, I didn't understand the question correctly. 
Representative Williams. That was the question, 
Mr. Martin. Both ways. In many instances they do and- many 
instances they don't. 

Representative Williams. Let's see if I understand you. Do you 
mean to say there are states that impose an inspection fee and the 
exclusion, we will say, of nursery stocks from another State, that 
don't require any inspection at all of the products that are raised and 
sold within the State? 

Mr. Martin. I didn't understand your question. JNo, most of the 
States do. I am not sure whether all of them do, but most of them 


Mr. DoNOHO. A witness for the dairy industry will go into that 
matter later on. 

The Vice Chairman. Of course, it may be observed that trans- 
portation of nursery stock from a distance also increases the prob- 
ability of bringing in an infection, because if it is already in the 
State, you can't bring it in. 

That is hardly an exact statement. You can't bring it in for the 
first time, I'll put it that way, if it is already in. 

Mr. Martin. Of course, many people are not acquainted with State 
lines, and very often you find local quarantines within the State. 
However, in some cases they are not subject to the same taxes that 
an out-of-State nursery would be subject to, the cumulative taxes 
and inspections. 

A brief survey of the State quarantine regulations from a pam- 
phlet compiled by the New York Department of Agriculture and 
Markets indicated that, as of December 1938, there were only thre^ 
States which had no quarantine regulations. That answers your 
question, Mr. Williams. 

In a report by the Bureau of Agricultural Economics of the United 
States Department of Agriculture^ it has been said: 

According to an analysis made by the Federal Bureau of Entomology and 
Plant Quarantine, on Decembe- 30. 19S7, quarantines to prevent the spread of 
the alfalfa weevil into their respective territories had been imposed by 27 
States. Of these only 8 had regulations that were uniform. Seventeen States 
differed among themselves as to the area quarantined against. With regard 
to the articles under regulation (for instance, hay, alfalfa meal, used machinery, 
household goods) 8 States agreed on one list of such articles, 6 on another, 2 
on a third, and each of the remaining 9 States had a list of its own. The 
difficulties of such a situation for shippers and transportation companies are 

Mr. DoNOHo. Mr. Martin, as in the case of motor vehicles, are 
there any reciprocal arrangements between the States in this field of 
inspection and quarantine? 

Mr. Martin. Yes; the Marketing Laws Survey found that only 
six States make provisions in their statutes for reciprocal agree- 
ments in the plant industry. But such reciprocal legislation can 
be double-edged, being stated in terms of retaliation. For instance, 
Louisiana, in 1938, enacted a provision which made it unlawful to 
ship into the State, sell, or handle in any manner within the State, 
any agricultural plant or plant product from any State, Territory, 
or foreign country which prohibits the shipment from Louisiana of 
any such agricultural or horticultural plant or plant products by 
reason of quarantine or embargo of any kind or nature. 

Mr. DoNOHO. Mr. Martin, can you sum up in a few words the 
difficulties which exist in the field of nursery stocks? 

Mr. Martin. The Bureau of Agricultural Economics of the United 
States Department of Agriculture has summarized the flaws which 
exist in the field of quarantines and have a detrimental effect on the 
movement of agricultural products by reason of unnecessary red 
tape, annoyance, delay, and expense ; improper definition of the quar- 
antined areas, resulting in the restrictions upon shipments from areas 
where the disease or pest quarantined against does not exist; lack 

1 "Barriers to Internal Trade in Farm Products," by Taylor, Burtis, Waugh, U. S. 
Department of Agriculture, Bureau of Agricultural Economicb, 1939, pp. 89, 90. 


of a real biological basis for the quarantine ; and serious nonuni- 
formity of regulations. 

Mr. DoNOHO. What about the situation with respect to inspection 
and quarantine in the livestock field ? 

Mr. Martin. The same situation prevails in the livestock industry. 
Thirty-three States require health certificates showing freedom from 
infectious and contagious diseases; other, tuberculin test charts, per- 
mits, and notices, in advance of importation. In addition to these 
conditions precedent to importation, the livestock is subject to further 
dual inspections when it reaches the State of destination. 

Mr. DoNOHO. Specifically, how do these laws operate as trade 

Mr. Martin. A specific example of a quarantine in operation will 
serve to show the effectiveness of such measures in creating trade 
barriers. On October 1, 1932, the State of New York's commis- 
sioner of agriculture and markets established a Bang's disease quaran- 
tine on dairy cattle. It forbade the shipment into the State of all 
cattle, even if free from Bang's disease themselves, unless they came 
from herds that had been certified as being completely free from 
the disease after three successive negative tests within a year previous 
to their arrival in New York. At the time the quarantine order 
was issued less than 1,500 herds in the United States could meet 
these standards and according to public sources none of these were 
New York herds. It practically forced milk producers to rely on 
up-State New York herds for their milk cows, even though such 
cattle might be inferior or more costly than western cows. Previ- 
ous to the order, the herds of Wisconsin had been among the leading 
out-of-State sources of supply, having sold on an average of over 
7,500 milk cows per year to New ,York milk producers during the 
preceding years. Although Wisconsin probably now has more 
herds — approximately 23,971 — which meet New York requirements 
than the rest of the United States combined, the market thus lost has 
never been recovered. 

Representative W114.IAMS. While you are on that page you have 
just been reading from, at the top of page 17 is a very remarkable 
statement, to me. I don't believe you read that, about holding 
healthy cattle for 60 days and not permitting them to be sold. 

Mr. Martin. Yes, sir. 

Representative Williams. Well, what kind of theory is that? 

Mr. Martin. I can give you — I wouldn't want to go into the 
theory of it. 

Representative Williams, I was just wondering. It seems to me 
there isn't any reason in that. Does that mean after the inspection, 
after they have been inspected and passed as healthy cattle they can 
still be held for 60 days? 

Mr. Martin. Well, of course, I believe it is generally agreed that 
there are certain diseases that they can't get reaction from within a 
limited time. Now, I am not qualified to state whether it would be 
30 days, 60 days, or what. 

Mr. Pike. Some diseases might be in process of incubation. 

The Vice Chairman. Then the language should be changed, quali- 
fied to some degree, because that assumes that the cattle being held 
are healthy cattle. You mean cattle whose state of health is not 


Mr. Maktin. That is the supposition ; yes, sir. 

Mr. Pike. Apparently healthy cattle. 

Mr, Martin. Apparently healthy cattle. 

The Vice Chairman, Cattle being held to find out whether they 
are healthy or not. That seems to cover all phases of the case. 

Mr. Martin, At the time this quarantine was put into effect, which 
was in 1932,^ 9,553 head of cattle were shipped from Wisconsin to 
New York on the basis of the United States Department of Agri- 
culture. The average price for the year in 1932, the New York mar- 
ket, represented approximately $362,024 to the farmers of Wisconsin. 
After, the quarantine was imposed in 1933 New York bought only 
516 head of cattle. Taking the United States Agriculture Depart- 
ment's average price for the year 1933, these cattle represented only 
$20,634 (a loss in a single year of $340,000 to the producers in Wis- 
consin. The loss in the market has run around $300,000 a year ever 
since 1932, or a total in 6 years of about $1,800,000. 

Mr, DoNOHO. The source of this chart is the marketing laws sur- 
vey ? - 

Mr, Martin, And the records of the Department of Agriculture, 
Bureau oi Entomology, Exhibit No. 2355. 

(The chart referred to was marked "Exhibit No. 2355" and is 
included in the appendix on p. 16125.) 

Mr, DoNOHO, Are there other commodities affected by the State's 
power to quarantine? 

Mr, Martin, There are many. The powers of embargo are not 
limited to plants and animals, however. Three statutes authorize 
the establishment of embargoes on fruits and vegetables. Georgia, 
for example, provides that the Commissioner of Agriculture may 
declare an empargo on fruits, vegetables, and truck crops coming 
into the State if domestic products are sufficient for home markets. 
Louisiana has a retaliatory statute which forbids the sale in Louisi- 
ana of products from a State which prohibits the importation of 
such products from Louisiana. 

The Vice Chairman. We had better stop at this point. The com- 
mittee will stand in recess until 10:30 tomorrow morning. 

(Whereupon at 4:40 p. m. a recess was taken until Tuesday, 
March 19, 1940, at 10 : 30 a. m.)' 

1 Quoting from "Exhibit No. 2355," appendix, p. 16125. 
» "Exhibit No. 2364," on file with the committee. 


TUESDAY, MARCH 19, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10 : 35 a. m., pursuant to adjournment on 
Monday, March 18, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman). Representatives Sum- 
ners (vice chairman), and Williams; Messrs. Pike and Kades. 

Present also : W. S. Whitehead, Securities and Exchange Commis- 
sion; Frank H. Elmore, Jr., Department of Justice; Dr. Ben D. 
Dorfman, United States Tariff Commission; D. Haskell Donoho, 
associate attorney; Dr. Frederick V. Waugh, head of Division of 
Market Research, Department of Agriculture; and Paul T. Truitt, 
Chairman, Interdepartmental Committee on Interstate Trade Bar- 
riers, Department of Commerce. 

The Chairman. The committee- will please come to order. 

Mr. DoNOHo. I would like to sum up wha£ was done yesterday 
and what we ^re going to try to do today. 

The Vice Chairman. Did you finish with the witness yesterday? 

Mr. DoNOHO. No, sir. 


The Vice Chairman, Do you want a summation now before you 
proceed ? 

Mr. Donoho. I thought it might be well, very briefly. Mr. Chair- 
man and members of the committee, yesterday the testimony of wit- 
nesses was confined principally to an exposition of the general 
problem occasioned by barriers to trade between the States. This 
morning this general exposition will be continued by Mr. Martin, 
who is presenting a picture of the legal bases supporting trade-bar- 
rier practices. 

At the conclusion of Mr. Martin's statement the. character of the 
testimony presented before the committee will change. The trade- 
barrier problem will be discussed in its more specific aspects. In 
other words, witnesses will show how trade bTirriers are affecting 
specific industries and how they are affecting farmers and consumers 
in particular situations. 

In this coimection, witnesses today will presefit testimony with 
respect to the trade-barrier problem in the margarine and dairy- 
products industries. Mr. Martin, will you come forward, please? 

15801 , 


Mr. Martin, yesterday you enumerated four types of powers under 
which States anact trade-barrier legislation. These you said are 
the power of taxation, the power of inspection and quarantine, the 
police power, and the power resulting to the State through its pro- 
prietary interests in its natural resources. You discussed in some 
detail the first two, that is, the power of taxation and the power of 
inspection and quarantine. Will you please tell the committee how 
laws enacted pursuant to the police power of the States operate to 
interfere with interstate commerce? 

Mr. Martin. Regulatory laws which operate as trade barriers 
though enacted under the State's power to protect public morals 
and safety have been found in the fields of liquor, insurance, mar- 
garines, general foods (such as fruits, , vegetables, and eggs), com- 
mercial fertilizer, itinerant merchants, and motor vehicles. 

Mr. DoNOHO. Taking them up in the order you named, what did 
the survey find with respect to liquor? 

Mr. Martin. In the field of liquor, it has already been pointed 
out how the States, through the exercise of their powers of taxation 
and exclusion through inspection, have succeeded in favoring home 
State liquor manufacturers, wholesalers, and farmers who produce 
the crops used in the manufacture of wine and beer. 

The same effect is achieved by laws passed in the exercise of the 
State's power to protect public morals. This is achieved by several 
different devices. At least four States, Colorado, Pennsylvania, 
Washington, and Wyoming, provide that licenses will be granted 
only to persons who are residents of the State or corporations author- 
ized to do business in the State. Others, such as Ohio, South Dakota, 
Texas, and Wisconsin, will grant licenses only to persons who have 
resided in the State for a specified number of years. Massachusetts 
g7 ants a license to import or wholesale alcoholic beverages only to 
individuals who are residents of the State, or to partnerships com- 
]>osed of such individuals, or to Massachusetts corporations, a 
majority of whose directors reside in the State. 

Mr. DoNOHO You mentioned barriers in the field oJ insurance, Mr. 
Martin. Will you please explain that? 

Mr. Martin. In the field of insurance, except for the provisions 
which are generally discriminatory against foreign corporations, the 
restrictive aspects lie in the cumulative effects of the laws in each 
State requiring the deposit of bonds and other securities issued by 
local companies, compliance with other capital requirements, and the 
payment of heavy license fees and other taxes in each State. 

Although, in some instances, these provisions are equally applicable 
to resident companies, yet the type of measure such as the "differ- 
ential gross premium tax" as adopted in the State of Texas is em- 
ployed to prevent foreign insurance companies from competing with 
local institutions. 

Restrictions are also made applicable to agents of foreign corpo- 
rations. The most usual requirement is that the agent must be a 
resident or is required to deal through a local resident of that State. 

Mr. DoNOHO. You mentioned barriers against margarines. How 
do the general regulatory powers of the State affect this? 

Mr. Martin. In this case, the States in exercising their power to 
protect public motals, have enacted an amazing mass of mandatory 
labeling laws which operate to penalize the sale or serving of mar- 


garines in competition with butter. These labeling provisions pre- 
sent a confusing picture. Some States require containers to be 
marked, branded, or labeled, top, side, and bottom ; others, top only ; 
others, top and side ; and still others, two sides directly opposite each 
other, and so on. Then, too, there is a variation in the size of type 
to be used, ranging from i/4 to 1 inch, and larger; and in the style 
of letters to be used such as Roman, Gothic, plain, or bold face. 

California requires that a retail customer be handed a statement 
setting out all ingredients and the percentage of each contained in 
such product. In Minnesota a similar statement is required, which 
must also state from what animal or vegetable such ingredient was 

Nearly all the States have requirements concerning the serving or 
use of such product in hotels, restaurants, and^ other public eating 
places. They require either the bill of fare or signs posted in con- 
spicuous places about the dining room to give the name of the sub- 
stance served. The requirements as to the size, color, and type of 
these signs vary considerably. California requires that the patron 
be handed a statement similar to that which stpres must hand cus- 
tomers and also that he be verbally informed that the product 
^rved is margarine or a butter substitute, while Missouri and Ar- 
kansas require that the plate or vessel in which margarine is served 
be marked indelibly as to such fact. 

Approximately 20 States prohibit the use of margarine, or butter 
substitutes in the institutions. This will probably be covered bj^ a 
later witness. 

Mr. DoNOHO. Mr. Martin, what barriers have been enacted with 
respect to general foods ? 

Mr. Martin. What the States have done under their police power 
in the battle between margarines and butter, they have also done in 
reference to general foods, especially fruits, and vegetables, and eggs. 

The power of a State to set grades, require labeling of products, 
and prescribe standard containers, is conceded and such regulations 
can have great value in facilitating trade, preserving the condition 
of the merchandise, protecting the buyers from deception, and pre- 
venting unfair competition. But the cumulative effect of the lack of 
uniformity in standardization requirements of various states may 
constitute, in itself, a serious hindrance to interstate trading. More- 
over, such grading legislation may be used to place out-of-State 
products at a disadvantage by setting up requirements for the highest 

§rade or grades which can be met only by produce raised within the 

Standards are set for some 117 or more types of fresh fruits, vege- 
tables, and nuts throughout the United States. The United States 
Government sets standards for 64 such types. California forbids the 
sale of some two dozen kinds of fruits and vegetables unless they 
meet rigid grades, classifications, and standardization requirements 
fixed by the State authority. Colorado has similar leofislation aflFect- 
ing a dozen agricultural products, and Montana specifically controls 
almost that many. South Dakota has a rigid law for potatoes; Kan- 
sas, for apples. 

Further trade barriers are erected by laws controlling inferior 
grades of products. Montana, for instance, requires all fruits and 
vegetables not conforming to Montana grades to be marked "Culls" 


or "Unclassified" before they can be sold in the State. California 
has enacted similar provisions. Although in some instances these 
measures are related to the "police" power, nevertheless, standards 
set unusually high prevent large classes of persons in the lower income 
brackets from buying such goods. These statutes, through operation 
and effect, tend to interfere with interstate commerce, especially when 
such laws prohibit the shipment of produce of inferior grades into 
a given State, but permit local producers within the same State to 
sell such inferior grades. When so used, these measures are strictly 
discriminatory in nature and become a device to close the markets 
of the State to outside producers. 

Not only are .standards and labeling requirements set out in stat- 
utes, but in 8 States the director of markets or a similar State official, 
is empowered by law to establish the standards. In many cases the 
officers are authorized to promulgate rules and regulations without 
public hearing or notice before the grades or revisions of grades are 
established and become effective. 

Mr. DoNOHO. Mr. Martin, you stated the Federal Government had 
established standards. Just how do these standards affect those pre- 
scribed by the States? 

Mr. Martin. The Federal Government has also been active in the 
field of standards, but even when States accept such Federal stand- 
ards they do not always w cept them in toto for all products, or all 
grades for any one prodi it, but m'aintain special grades of their 
own in addition thereto. Montana went so far as to refuse to admit 
produce from neighboring States even when accompanied by Federal 
certificates, until it had made its own inspection. 

Mr. DoNOHO. Would yoii care to go into detail? What did the 
Survey find with respect to Federal standards, with respect to 
weights, containers, and so forth ? 

Mr. Marten. Standard regulations of containers for fruits and 
vegetables are likewise in a state of confusion. The Federal Stand- 
ard Barrel Act of 1912 and the Federal Standard Container Act of 
1928 are based on the weights-and-measures power of Congress and 
therefore apply to intrastate as well as interstate transaction. As 
crates and boxes remain as yet undefined by Federal action there is, 
in this field, an amazing lack of uniformity. There are 15 different 
sizes of canteloupe crates and seven kinds of apple boxes. Oregon's 
standard berry boxes were declared illegal for the sale of berries 
within California. 

A diversity of regulations with respect to the definitions of bushels 
exist in the several States. A bushel of onions is 50 pounds in Wis- 
consin, but it is 57 pounds in Idaho. A bushel of sweet potatoes is 
50 pounds in Texas, but it is 56 pounds in Florida. A bushel of 
apples is 44 pounds in Maine, and 50 pounds in Minnesota. A bushel' 
of greens (mustard, spinach, turnip tops) varies from 10 pounds in 
North Carolina to 30 pounds in Alabama and Tennessee. The Penn- 
sylvania and Ohio bushel laws as well as those in other States are 
also in conflict, because in some States the bushel is defined in terms 
of dry measure and in others in terms of weight. 

Mr. DoNOHO. Mr. Martin, has there been any decision passed with 
respect to eggs, and if so, would you tell us about that too? 


Mr, Martin. A number of interesting statutes also exist in con- 
nection with the standardization and labeling of eggs. Seven States 
set a maximum grade which can be met only by domestic egg"?. 
Georgia, Florida, and Arizona provide that "fresh eggs" are only 
those which have been laid within the State. 

Other State's require that out-of-State eggs be labeled "foreign" 
or "shipped." 

At this point I would like to introduce a chart that will tell that 
story graphically. The chart is entitled "Said the Georgia Hen to 
the Florida Hen." It is part of our study. 

Mr. DoNOHO. Do you want to introduce that chart into the record ? 

Mr. Martin. I would like to. 

Mr. DoNOHO. Is this the chart to which you refer ? 

Mr. Martin. Yes. 

Mr. Donoho. I offer this chart, Mr. Chairman. 

The Chairivian. The chart may be received. 

(The chart referred to was marked "Exhibit No. 2356" and is in- 
cluded in the appendix on p. 16126.) 

Mr. Martin. I might say at this time other States also require that 
ont-of- State eggs be labeled "foreign" or "shipped." 

]\Ir. DoNOHO. Has the Survey found other laws dealing with gen- 
eral foods? 

Mr. Martin. Yes; hundreds of others, but we have selected for our 
testimony before this committee some outstanding examples, 

Mr. DoNOHO. "What about commercial fertilizers? 

Mr. Martin. The trade barrier walls erected against the interstate 
shipment of commercial fertilizer are not of recent origin; the foun- 
dation was laid in the early, years of this country. The purpose at 
the time of enactment of these acts was the prevention of fraud and 
<:he keeping of spurious products off the market. Today" the lack of 
uniformity of State laws, and the failure to accept State-of-origin 
inspection and analysis is a very serious impediment to interstate 
shipments of this product. 

The seller (resident and nonresident) must submit samples of the 
product for Stat£ analysis, which product must conform to the stand- 
ards established by the State, and secure a permit for the sale of his 
product. These standards are diverse and many. As an example, 
Louisiana sets up two grades, "high grade" and "standard," and 
establishes what the percentage of ingredients must be for the prod- 
uct to be classified as such and be so labeled. Any product not failing 
within one of these classes must be marked "low grade" ; these words 
must be printed on the container in lettere of not less than 2 inches in 
height. Tiie neighboring State, Mississippi, does not establish grades 
for this product but merely requires submission of a certificate to the 
State Conmiissioner of Agricultui e by the manufacturer, setting out 
the ingredients and analysis prescribed by law. 

The Vice Chairman, Just at that point, if you won't mind an 
interruption, there are two States dealing with feitili^er in a dilTerent 
way. Is there anything to indicate that they are dealing with fer- 
tilizer in the way in which they are dealing in it, in order to favor 
local producers? 

Mr. Martin. Your State liaws vary. 

124491— 41— pt. 29 6 


The Vice Chairman. I know, but I am speaking with regard to the 
specific instance which you have just mentioned, Louisiana and Mis- 
sissippi, I believe. 

Mr. Martin. I am not in position to give the intent. Neverthe- 
less, if one manufacturer in Mississippi is required to ship his fer- 
tilizer into the State of Arkansas and mark it "low grade," he is put 
at a disadvantage, although the chemical analysis as determined 
upon by the officials in Mississippi state that the fertilizer is all 
right, but if it doesn't coincide with the analysis set up by the State 
of Arkansas, it does form a barrier, or it is supposed to. 

The Vice Chairman. Yes; I understand that- but I don't know 
that Mississippi absolutely compares with the judgment of Arkansas 
as to what they ought to require for fertilizer in their communities, 
but I was wondering if there was any evidence discovered by you 
as to discrimination in favor of local production. 

Mr. Martin. Well, we don't go into that phase of it. 

The Vice Chairman. I thought that is what you were largely 
going into. 

Mr. Martin. We are merely comparing the statutes, the rules and 
regulations, where we get into them, for the purpose of showing 
where discrimination can exist. Insofar as I know there is no 
particular evidence. 

Mr. Donoho. Your position, Mr. Martin, as I understand it, is 
that you just don't feel you can comment on the motion that occasions 
these laws. 

The Vice Chairman. But you have commented freely on the fact; 
for instance certain regulations obtain with reference to domestic 
production and certain regulations with regard to importations, I 
take it. I was just wondering in this particular case whether you 
had any evidence of that fact. 

Mr. Martin. No. The diversity of tolerance allowance of any 
ingredient is likewise . confusing, since these tolerances range from 
one-fourth of one percent to 5 percent. 

Furthermore, the interstate shipper, after ascertaining all of the 
statutory requirements necessary before he can enter the market in a 
certain State, must also ascertain what must be done under the rules 
and regulations promulgated bv the State officer whose department 
administers such statutory enactment. 

The Vice Chairman. Are you goifig to develop what the influence 
upon uniformity has been, as the result of Federal legislation ? I am 
afraid I was called away at the moment you were probably develop- 
ing that. Is that already in the record? 

Mr. Martin. As I stated earlier in the statement yesterday we 
do not take the position that uniformity in all cases is desirablel I 
pointed out at that time 

The Vice Chairman (interposing). You misunderstood me. As I 
recall, there has been Federal legislation attempting to establish a 
uniform container for certain fruits in interstate commerce; probably 
intrastate commerce, too. 

Mr. Martin. Yes, sir. 

The Vice Chairman Now, what I was inquiring about was as to 
what has been the effect of that legislation. Has it been the effect 
of that legislation that uniform containers are being used, complying 
with Federal re^quirement? 


Mr. Martin. In many States it has, but, in other States, there are 
different requirements. You see there is only, as I understand it, 
certain Federal container sizes, weight sizes, and so on, that are 
required. The others are suggested sizes that have been worked out 
by the Federal Goverimient. 

The Vice Chairman. I don't know whether, Mr. Donoho, you are 
going to develop it or not, and I have never examined the question, 
but as I recall the establishment of uniform containers is under the 
provision of the Constitution, general provision of the Constitution. 

Mr. DoNOHO. Yes, sir. 

The Vice Chairman. Weights and Measures. What I am trying 
to find out, are they binding upon, the discretion of the States ? 

Mr. DoNOHO. As I recall Mr. Martin's testimony, he stated that the 
Federal Government hadn't occupied the entire field. 

The Vice Chairman. I am not talking about that; I am talking 
about what has been the effect in the field in which the Federal 
Government has attempted to occupy and if it hasn't resulted in the 
adoption of the uniform container in compliance with Federal law, 
why has that not resulted? 

Mr. Martin. Well, as I understand it, there are only certain of 
these that are requiremeijts. 

The Vice Chairman. What I am trying to find out, how effective 
has been the Federal requirement? If anybody else could answer, it 
would be a very good idea to do it right now. 

Dr. Waugh. My understanding of it is that the standard con- 
tainers on fruits and vegetables that have been adopted by the 
Department are in almpst universal use. There is some dificulty 
in particular cases where States still ti-y to enforce sale-by-weight 
laws, and there are certain times when you can't get' into a standard 
bushel, as defined by the Federal Government, as many pounds as 
some States used to require, but I think those sale-by-weight laws are 
gradually going out of existence in common use. Almost every- 
body is actually using the standard containers which they are really 
required to use under the Standard Container Act. 

The Vice Chairman. I thought I discovered an increase in the 
disposition to sell fruits by weight at retail. 

Dr. Waugh. Yes. 

The Vice Chairman. Why? 

Dr. Waugh. Federal standards do not apply after, the package 
has been broken, I understand. 

The Vice Chairman. I know that, but if the trade development 
is in the direction of sale by weight, then it would seem probably a 
more workable and valuable standard; I see where I am getting 
into difficulty because you <ire getting into shipping units then. 

Dr. Waugh. I don't think the tren,d is toward sale by weight; 
I think the trend is away from that and the sale by weight becomes 
rather impractical on fruits and vegetables. As a matter of fact 
the weight of a bushel changes between the time the fruits and vege- 
tables leave the farm until the time it is sold; very difficult to 

The Vice Chairman. That is right. I can see that; thank you 
very much. 

Representative Williams. Let me ask you this : In the field where 
the Federal Government has entered and within the limits pre- 


scribed by it, it is binding on the States, is it not, and enforceable? 
They cannot violate that provision, can they? 

Dr. Waugh. Well, I am not a lawyer, but that is my understand- 
ing of it. Occasionally some State or city does attempt to enforce 
the old sale-by- weight law, but I think that is going out. 

Representative Williams. I would think that under the Constitu- 
tion, the Federal Government having the- right to fix the standards, 
{Lat it would be absolutely binding to that extent upon the State. 

Dr. Waugh. I think you. are absolutely correct, sir. 

The Vice Chairman. The only diflBculty of it, if the Federal 
Government established a uniform box or capacity which it desig- 
nated as a bushel, I suppose the enforcement of any contract com- 
pliance with the Federal requirement would be sufficient, but you 
say now that if, for instance, they should swing from the sale by 
measure to sale by weight, then the Federal standard of measure- 
ment would not be important in that situation. Maybe that is very 

Dr. Waugh. I think I meant to say only that you can't do both. 
That is, you must have either a standard by volume or standard by 
weight. Otherwise you always get into difficulty if you try to en- 
force the double standard. 

The Vice Chairman. I think that clears up something; I think 
it helps at this point. 

Mr. Donoho. Mr. Martin, you were discussing the effect of regu- 
latory laws on general products. Now with respect to merchandis- 
ing, would you tell us something about the impact of these laws 
upon the operation of itinerant merchants? 

Mr. Martin. The itinerant merchant, in addition to the burdens' 
placed upon him by heavy license fees levied under the tajxing power 
of the State is often faced with the requirement that such merchants 
or peddlers post bonds, a requirement imposed under the "police" 
power to protect growers, retailers, and consumers. Arizona, for 
example, requires a wholesale peddler who is not marketing products 
grown by himself to post a bond of $5,000 from a surety licensed 
within the State. 

Mr. Donoho. Will you discuss the findings of the survey, Mr. 
Martin, with -respect to regulatory measures upon the operation of 
motor vehicles ? 

Mr. Marti>[. In the field of motor-vehicles, the States, in the exer- 
cise of their "police" power, have imposed additional burdens upon 
commercial motor trucks operating in interstate commerce. Under 
the power they have subjected them to regulation by public service 
commissions. Aside from special license or certificate fees and spe- 
cial taxes collected by these agencies under the States' taxing power, 
are the requirements that such commercial motor carriers must post 
bondg and insurance, file rate schedules, and be subjected to general 
regulation by such commissions. Nearly all of the States impose one 
or niore of such requirements upon cormnercial niDtor trucks. It 
is, however, the exercise of their power presumably to protect the 
pubbc safety that has most often resulted in legislation burdensome 
and Restrictive upon interstate trade. The trucker moving in inter- 
state • commerce finds himself faced with myriad requirements, vary- 
ing from State to State as to the maximum permissible width, 
length, height, weight, and equipment of his vehicle. 


The Vice Chairman. May I ask at that point, does the stability 
of the road, thickness of the base of their roads, have anything to 
do with the difference in the weight allowed in these States? 

Mr. Martin. As a personal opinion, after conversation with some 
of the Bureau of Public Roads, Department -of Agriculture, officials 
I think originally it did. However, the Bureau of Public Roads 
now has certain specifications for Federal highways, depending on 
whether they are secondary, farm-to-market, and so on, and at some 
place there is a happy medium and recommendations have been made 
by the Bureau of Public Roads for all these classifications of highways. 

Mr. Pike. Most of these main highways are built partly with 
Federal money, aren't they? Wouldn't you guess? 

Mr. Martin. Most of them are Federal-aid highways. 

Mr. Pike. It would be pretty easy to bring these boys into line, 

Mr. Martin. Yes; the Federal Government has very much of a 
stake in these trade barriers; they have very much of a monetary 
stake over and above the economic effects. 

Mr. Pike. In this one the real power, the power of withdrawal of 
subsidy, could be used to bring them into line pretty quickly? 

Mr. Martin. The Federal Government has certain provisions under 
which it makes these Federal-aid funds available to States for the 
building of highways, and to my mind, I see no reason why one State 
with the same specification road should take advantage of funds 
coming from all the States through the Federal government to place 
embargoes, and so on. 

Mr. P*iKE. That is what I had in mind. 

Mr. Kades. Mr. Martin, do you mean aside from barriers that have a 
detrimental effect on interstate commerce, as a whole there is a mone- 
tary loss sustained by the Government as a Government? 

Mr> Martin. I think that very definitely there is a monetary loss. 
A better example on that is where we are engaged in^ construction of 
Federal buildings or where we are making grants to public works, the 
Works Progress Administration, to aid in the construction. You have 
such laws as preference laws that I will cover later, that permit the 
State to accept bids 5 percent higher when home products go into the 
construction of them. Of course, part of that 5 percent is whatever 
Federal grant is put into the construction. I think the Federal Gov- 
ernment has a monetary stake in this. 

Representative Williams. What about the power of the Interstate 
Commerce Commission to regulate the size, weight, length, and height 
of trucks engaged in interstate commerce? 

Mr. Martin. I don't believe the Interstate Commerce Commission 
has that power, sir. I think their power comes in the regulations as 
to equipment mainly. You see, your sovereign States control that. 

Representative Williams. It seems to me that they might be very 
easily given that power under the commerce laws. I am talking about 
trucks engaged in interstate commerce. 

Mr. Martin. I think a later witness will develop that more fully, 
if it is permissible for me to drop it. 

The Vice Chairman. Has any suggestion been made that the Fed- 
eral Government attach its condition to the Federal grants, the right 
to control the capacity of weight and capacity of trucks on these 


Mr. Martin. Not that I know of, sir. 

Mr. Kades. Mr. Chairman, it may interest you to know that the 
Supreme Court suggested that State regulatory power here could be 
made to yield to the national regulatory power m discussing a case . 
involving some South Carolina statute regulating the width of trucks, 
and the weight of trucks. 

The Chairman. That is very interesting. Will you put that cita- 
tion in the record ? 

Mr. Kades. I can do that now : South Carolina Highxoay Depart- 
ment against Barnwell Brothers (303 U. S. p. 177). 

Mr. Martin. At this point I would like to introduce a chart which 
I think will give you a more graphic example of what is moving in 
interstate trade and what it has to contend with. This chart is in two 
sections : The first section being a composite vehicle combination that 
would meet the requi^ments of all States as to length, gross weight, 
and height. I would like to point out that the trailer on this truck is 
not in proportion. The trailer should be about half the length that 
is shown on that graph. 

A composite vehicle, to meet the requirements of all the States as 
to length, height, weight, and wheel equipment, would have to meet 
the following specifications as indicated by the chart : The maximum 
length would be determined by Kentucky which limits a single unit 
to 261/^ feet and a tractor and trailer unit to 30 feet. 

The maximum weight could not exceed a gross of 18,000 pounds in 
Kentucky or a net of 7,000 in Texas. The maximum height permitted 
in several States is ll^ feet. The wheel equipment would require a 
6- wheel tractor, and a 4-wheel semitrailer.' This obviously would be 
a strange-looking vehicle. 

The amazing variations in motor laws illustrated by this vehicle 
at the bottom of the chart, show the largest combination permitted 
anywhere in the United States. Three States have no limit as to 
length. Rhode Island permits 120,000 pounds of weight, and there 
are no height limitations in the States as indicated. 

Mr. DoNOHO. Mr. Chairman, I offer this chart which has been 

(Representative Sumners assumed the Chair.) 
(The chart referred to was marked "Exhibit No. 2357" and is 
included in the appendix on p. 16127.) 

Mr. DoNOHO. Mr. Martin, the source of this chart is the Marketing 
Laws Survey,^ and this is the chart I have been describing? 
Mr. Martin. That is correct. 

Mr. DoNOHO. Mr. Chairman, I would like to introduce another 
chart at this time. The title is "Single-Unit Motor Vehicles, Maxi- 
mum Length 40 feet." 

(The chart referred to was marked "Exhibit No. 2358" and is 
included in the appendix on p. 16127.) 

Mr. Martin. This chart tells even a more dramatic story, I think. 
The map tells the story. The shaded areas are the 36 States in the 
Union which prohibit interstate commerce to single-unit motor ve- 
hicles if they are 40 feet in length. 

1 "Exhibit No. 2364," on file with the committee. 


Take Maine, for example.; the owner of a 40- foot single-unit motor 
vehicle is locked in. He can't go south ; he can't go east. The whole 
eastern seaboard is closed. 

The entire Mississippi Valley is blocked out to the owner of a 40- 
fcot vehicle in Minnesota. The great grain States to the West bar 
his passage. 

Tlie situation is not much better when you consider combination 
motor vehicles consisting of a tractor and semitrailer if the maximum 
. length is 45 feet or more. 

I would like to introduce another chart. 

Mr. DoNOHO. This is the chart to which you are referring? 

Mr. Martin. Yes. 

Mr. DoNOHO. I offer this chart. 

The Vice Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2359" and is 
included in the appendix on p. 16128.) 

Mr. Martin. Here again the shaded States are those which pro- 
hibit such vehicles. The eastern seaboard is open except for Con- 
necticut and Massachusetts, which form a very effective bat*. Note 
that Michigan, Wisconsin, and Iowa are barred southward in the 
Mississippi Valley. That travel is closed off. The States to the west 
in the bread basket of America are all barred to such traffic. It is 
curious to note that the Mountain States, California, and the South- 
west permit such length vehicles to operate around the rim of the 
black-out in the Wheat and Corn Belte. 

I would like now to introduce two charts showing the variations 
in identifying and clearance lights in motor vehicles in contiguous 

Mr. DoNOHo. These are the charts to which you refer? 

Mr. Martin. Those are the charts. 

Mr. DoNOHO. Mr. Chairman, I would like to offer these charts for 
the record. 

The Vice Chairman. They may be received. 

(The chart referred to was marked "Exhibit No. 2360" and is 
included in the appendix on p. 16129.) 

(The chart referred to was marked "Exhibit No. 2361" and is 
included in the appendix on p. 16130.) 

Mr. Martin. The title of these charts is "Motor Vehicle Lighting 
Requirements of Selected States." On this chart ^ we show the plain 
and fancy lighting effects required in the States of South Dakota, 
Iowa, Illinois, and Michigan. They are contiguous States, if you will 
note. The column at the left illustrates the requirements for the 
front of the vehicle. The column at the right pictures the identify- 
ing and cLarance lights required at the rear of the vehicle. 

The green front lights in South Dakota are illegal the moment 
the driver crosses the line into Iowa. In that State he must have 
white, yellow, and amber lights at the top of the vehicle. Instead 
of the one white clearance light required at the left front in South 
Dakota, a combination white, yellow, and amber light for the right 
front clearance and two red clearance lights on the rear are required 
in Iowa. If he crosses into Illinois, the driver must go back to green 

' Spc "Exhibit No. 2360," appendix, p. 16129. 


lights at the top of the vehicle, but in Michigan the identifying lights 
in front must be located over the windshield. 

On this chart ^ the story of the lights on the highway is continued 
with respect to Arkansas and Kansas, Louisiana, and Mississippi. 
Clearance lights you will notice change from green to amber and 
back to green again. These variations continue from State to State 
throughout the country. 

Mr. DoNOHO. Mr. Martin, would you care to discuss for the com- 
mittee what you consider the significance of port-of-entry laws in 
some of the States? 

Mr. Martin. Some States have erected or authorized the erection 
of tangible barriers in the form of ports of entry at the State borders, 
or by means of highway checking stations. 

Motor- vehicle ports of entry provisions can be classified as follows : 
The first class includes States having statutes which specifically au- 
thorize ports of entry. Kansas, Nebraska, Nevada, and New Mexico^ 
are of this type. California, Missouri, and Tennessee also have such' 
specific legislation, but at present are not operating ports of entry. 
Delaware makes specific provision for ports of entry, but provides 
that the law shall not become operative until similar laws are enacted 
by at least two bordering States. 

The second class includes those States which set up ports of entry 
under authority of provisions governing highway police or other 
enforcing agencies. These States include Colorado, Idaho, Montana, 
South Dakota, Texas, and Oregon. 

Kansas and New Mexico are good examples of States which have 
actual ports of entry in operation by virtue of direct statutory au- 
thority. The Kansas law, first of such laws to be enacted, requires 
all trucks to enter the State on designated highways and stop at the 
port-of-entfy stations. There they receive clearance certificates after 
mspection of equipment, payment of ton-mile tax levied by the State, 
and after meeting certain insurance requirements. The New Mexico 
law requires every motor carrier, common, contract, or otherwise, 
to register at some port of entry, to be inspected, and to secure 
permission before entering the State. Clearance certificates are 
issued only after the truck's size, weight, and equipment are ap- 
proved, all taxes are paid, and evidence is given that sufficient lia- 
bility insurance is carried with a registered New Mexico company. 

These ports of entry and checking stations constitute a significant 
exercise of the State's police powers, since here and out-of-State 
vehicle is compelled to stop and be subjected to a rigid inspection in 
order to insure full compliance with the State's laws concerning regis- 
tration, payment of taxes, size and weight restrictions, equipment 
requirements, and any other regulations that may be imposed -by the 

Important, also, is the fact that the powers of exclusion have led 
the States to use the established ports of entry as a method of enforc- 
ing their inspection ^nd quarantine laws. 

California provides for quarantine stations at its borders for the 
purpose of agricultural and personal-baggage inspections and em- 
powers the State bodrd of equalization to require liquor shipments in 
interstate commerce to be checked in and out of the State, while 

>See "Exhibit No. 2361," appenaix, p. 16130. 


Kansas requires that all liquor entering the State in motor vehicles 
must enter and exit through an established port of entry or exit. 

Mr. DoNOHO. Mr. Martin, you have discussed trade barriers enacted 
pursuant to the taxing power of the State, the State's power to enact 
quarantines and inspection laws, and the State's police power. You 
mentioned as a fourth the proprietary power of the State to enact 
trade barriers. Would you please discuss the exercise of this power? 

Mr. Martin. In connection with the exercise by the States of their 
proprietary powers, we find the most important interstate trade- 
barrier legislation to be the preferences which the State, as purchaser, 
extends to its residents and its products. These laws are of two 
kinds — those in favor of persons and those in favor of products. 

A selective survey of the legislation of the 48 States produced some 
113 examples of preferences by States to its citizens or its products. 
These include not only preferences by State officers. State depart- 
ments, and State institutions, but preferences of all other political 
subdivisions of the State such as cities, counties, townships, irrigation 
districts, school districts, and all other similar authorities. 

At this time I would like to introduce a chart entitled "Preference 
to State Residents." 

Mr. DoNOHO. This is the chart to which you refer, Mr. Martin? 

Mr. Martin. That is correct. 

Mr. DoNOHO. Mr. Chairman, I offer this. 

The Vice Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2362" and is 
included in the appendix on p. 16131.) 

Mr. Martin. This chart in the main is self-explanatory, showing 
in graphic summary the reference to State preferences. The applica- 
tion of these preferences varies a great deal. Some of the laws are 
passed in connection with the construction of a specific bridge, high- 
way, or building; others limit purchases for institutions; still others 
govern the officials of local political subdivisions. 

Mr. DoNOHO. Mr. Martin, you also refer to preferences as to prod- 
ucts. Would you explain that please? 

Mr. Martin, One group of these laws is stated in terms of prefer- 
ences to persons by providing for general preferences to all bidders 
and specific preferences to laborers, printers, and contractors. 

The statutes of Arizona, Arkansas, Florida, Illinois, Maine, Mis- 
souri, New Hampshire, North Dakota, Oregon, South Dakota, and 
Virginia are phrased in terms of preferences to bidders or to residents 
generally. The Oregon Act, passed in 1915, provides that Oregon 
concerns must be given contracts for public works if the contract 
price does not exceed a 5-percent differential. The usual type of 
provision is similar to that of Arkansas which provides that firms 
doing business in the State are preferred for furnishing supplies to 
State institutions. Missouri, New Hampshire, and North Dakota 
each direct their State purchasing agents to give preference to their 
respective States when the quality and price of products are approxi- 
mately the same. South Dakota provides for preferences to persons 
having a permanent place of business in the State and to "materials, 
products, and supplies found or produced by persons in the State of 
South Dakota." 


Twenty-eight ^tates have provrsions similar to the one in Delaware 
which provides that in the construction of all public works preference 
in employment of laborers, wor-kmen, or mechanics shall be given to 
bona fide legal residents of Delaware. In some States a residence 
requirement, varying from 3 months to 2 years, must be met. South 
Carolina applies the citizenship restriction to only 90 percent of the 
laborers on highway construction. Several other States use the 80 

Another special class of persons favored by these statutes are the 
printers. Eighteen States direct that all public printing must be 
done within the State. Five States— Georgia, Mississippi, North 
Carolina, South Dakota, and West Virginia — direct that preference 
shall be given to local residents. Louisiana sets out in the statute 
that those from whom printing is purchased must have paid taxes, 
must have been licensed, and must maintain plants or stores in 

Three States consider the contractor specifically. New Mexico 
provides that contracts for public buildings must be awarded to New 
Mexico contractors except where it can be shown that the bidding 
firm is attempting to create a monopoly or fix prices. Texas requires 
that preference be given to local contractors on all public works. 
North Dakota provides that, for the construction of State highways, 
preference shall be given to bona fide State contractors. 

Mr. DoNOHO. Mr. Martin, you also refer to preferences as to prod- 
ucts. Would you explain that, please? 

Mr. Martin. The same general results are accomplished by the type 
of statute which is directed at products rather than persons. Twenty- 
three States have provisions which give preferences to local products, 
generally. A law in Arkansas, for instance, states that products 
raised, grown, or manufactured in the State are preferred for State 
institutions. In. Colorado, the State purchasing agent must give a 
5 percent differential preference to Colorado supplies and materials. 
In 1939 Maryland enacted a law which directs the State director of 
the budget and procurement to give preference to products manufac- 
tured or produced in Maryland except when, in the judgment of the 
director, such purchases would "operate to the disadvantage of the 
State." The Michigan provision states that "all things being equal" 
preference shall be given to Michigan products. 

In addition to these general preferences at least 15 States have 
legislation naming specific commodities, Colorado, Illinois, Indiana, 
Michigan, Missouri, and North Dakota specify that State institutions 
must use coal mined in their respective States. In Iowa, State pur- 
chasing agents must purchase coal produced in Iowa by producers 
complying with the workmen's compensation and the mining laws 
of the State. Stationery, blank books, and office supplies, when man- 
ufactured in the State, are preferred by the States oi Florida, Lou- 
isiana, Michigan, and Oregon. Other products specifically preferred 
are limestone in Indiana, green marble in Maryland, soft winter- 
wheat flour in Virgi'nia and fuel in Washington. Missouri prefers 
products of its own "mines, forests, and quarries"; and Oklahoma, 
the materials "mined, quarried, or manufactured" in the State. 
Nebraska prohibits the use of margarine in State institutions and 
requires the use of "Nebraska-produced butter." 


Retaliation sometimes results from the imposition of requirements 
(hat States, when acting as purchasers must give preference to local 
residents and local products. Wisconsin, in 1928, prohibited all de- 
partments from furnishing any plans for the erection of public 
buildings to various building exchanges in Minnesota until Minne- 
sota repealed all of its laws discriminating against the labor and 
materials of Wisconsin. In 1933 Minnesota repealed such preference 

Mr. DoNOHo. Does that conclude your statement with respect to 
preferences ? 

Mr. Martin. It does. 

Mr. DoNOHO. In conclusion, Mr. Martin, would you care to sum- 
marize the scope and variety of the barrier statutes that you have 
covered in your testimony? 

Mr. Martin. I would. It will be very difficult to do in words, but 
I would like to offer at this time a chart which graphically pictures 
in summary form the field covered by the various statutes in selected 
categories. It is titled "Summaries of State Statute Provisions by 
Selected Categories." 

Mr. DoNOHo. It is a compilation by your Survey ? 

Mr. Martin. Yes. 

Mr. DoNOHO. Is that the chart to which you refer ? 

Mr. Martin. Yes. 

Mr. DoNOHO. I offer that chart. 

The Vice Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2363" and is in- 
cluded in the appendix on p. 16132.) • 

Mr. Kades.' Would you say that the summary of State statutes 
indicates the wisdom of the framers of the Constitution in placing 
interstate commerce under the plenary jurisdiction of Congress? 

Mr. Martin. My personal feeling is that they do. 

The Vice Chairman. Mr. Martin, you have a total of 301 State 
statutes ^ regulating motor vehicles ? 

Mr. Martin. That is correct. 

The Vice Chairman. And does that mean all the internal regula- 
tions of motor vehicles determining their operation in the various 
communities or State laws of general State application? 

Mr. Martin. Just State law-s. It does not cover the thousands of 
rules and regulations issued by the various commissioners of motor 
vehicles or the equivalent in various States. 

The Vice Chairman. Those 301 laws are the total of the laws in 
the 48 States? 

Mr. Martin. Governing the operation of motor vehicles; yes, sir. 

The Vice Chairman. Do you know how many of those laws have 
to do with the weights, structure, of these vehicles? 

Mr. Martin. I cannot give you that information. 

The Vice Chairman. Let me ask you this question then. Do you 
know how many of those laws affect the question of State barriers? 

Mr. Martin. I cannot give you that information. We could tabu- 
late it in a very short time and give it to you. 

The Vice Chairman. We are talking about State barriers and then 
you have a big list of laws, and what I was trying to find out is how 

' Reading from "Exhibit No. 2363," appendix, p. 16132. 


many of those laws indicated by that chart have a bearing upon the 
subject which the committee is now examining. 

Mr. Martin. In my statement, I have previously indicated the 
most, I wouldn't say vicious, but the most detrimental type of bar- 
riers, such as weight, length, height, lighting requirements, brake re- 
quirements, and so on. 

The Vice Chairman. What I am trying to do is to find out why 
this particular chart ^ has a place in this record. 

Mr. Martin. Those laws were determined by us as being either 
trade barriers or capable of being trade barriers through their ad- 

The Vice Chairman. That is what I am trying to get at. Now 
this survey that you have made — you refer to it in your introductory 
statement and also in the conclusion. How long were you engaged 
in making the survey ? 

Mr. Martin. The original survey, which is this publication here, 
was made in 6 weeks from the statutory materials we had already 
accumulated, and was made at the request of the Coimcil of State 
Governments prior to their National Conference on Interstate Trade 
Barriers last spring. 

The Vice Chairman. Was it during that time that these 508 vol- 
umes of State statutes, laws, and so on, were examined, or was it 
before that time? 

Mr. Martin. No; the State statutes have been examined and are 
in our place being catalogued and cross-indexed by State and type 
of statute. For the purpose of this study we extracted those statutes 
that had trade-barrier aspects. 

The Vice Chairman. How long were you engaged in making the 
original investigation which constituted the basis for this report ? 

Mr. Martin. We are still engaged in it. 

The Vice Ch4irman. How long have you been working on it? 

Mr. Martin. Since August 1938. We are making a compilation of 
all the laws that affect marketing in any way, shape, or form, and 
cross-indexing it by State and by commodity. 

The Vice Chairman. Will you be finished within two years from 
the time you began, by this next August? 

Mr. MXrtin. The statutory materials have all been gathered, some 
of the administrative agency materials have been gathered, but the 
review and analysis which has to be done by a group of supervisors — 
it is a W. P. A. project — cannot exceed 10 percent of the total number 
of employees. That means that I have somewhat of a bottleneck 
here, and it will probably be another year before the entire compila- 
tion is completed. We have two volumes on the press at the present 

The Vice Chairman. If you don't hurry up, a lot of the laws will 
be repealed before you can get them indexed. 

Mr. Martin. It is the thought that some agency will keep them up 
through the issuance of supplements after they are once indexed. 

The Vice Chairman. Who pays for this? 

Mr. Martin. This is a Works Progress project. 

The Vice Chairman. The whole thing ? 

Mr. Martin. The whole thing ; yes. 

1 Ibid., appendix, p. 16132. 


The Vice Chairman. They had these 300 men on that project for 
how long? 

Mr. Martin. It varies. They were all relief attorneys with the 
exception of a small supervisory staff, and it has run any place from 
175 to 350; 300 is probably a good average for the 2 years. 

The Vice Chairman. Three hundred men on the job for an average 
of 2 years — about 300 is an average for 2 years? 

Mr. Martin. That is correct. In addition to the statutory materials 
we have already started drawing on the administrative agency rules 
and regulations in several of the states, and we are going to do some- 
thing m the way of cross-indexing those and tabulating them the 
same way to make them available to the Federal Government, to the 
States, business men, and so on. 

The Vice Chairman. How many volumes will you have? 

Mr. Martin. The statutory materials w^e think will run some place 
between 12 and 15 volumes. 

The Vice Chairman. The average law book size? 

Mr. Martin. They run from 800 pages to 1,700 pages. 

The Vice Chairman. What is this project going to cost? 

Mr. -Martin. The total cost to date I think runs in the neighborhood 
of $260,000. 

The Vice Chairman. You seem to have been doing a good deal of 
reading: 375,000 pages. 

Mr. Martin. It requires a great deal of reading to determine 
whether some of these statutes do affect the marketing of commodities. 

The Vice Chairman. It seems to me that if the statute had any 
uncertainty about it, it wouldn't ha;Ve been important enough to bother 
much about it. 

Mr. Martin. A great many times it is a combination 

The Vice .Chairman (interposing). I am not criticizing the work, 
but this is a rather interesting phase of this whole thing and I thought 
we might as well get it in the record now. 

Mr. Martin. A great many times a single statute in itself appar- 
ently does not have much effect on marketing, but when you take a 
combination of two or three statutes, it does have considerable effect 
on marketing. 

The Vice Chairman, Are there any further questions of Mr. Mar- 
tin ? You have donf a very comprehensive job. 

Mr. Martin. I would like to state at this time in connection with 
the administration agency worS:, within the last 2 weeks I received 
a bundle that weighed 282 pounds, which consists of nothing but the 
regulations from 10 administrative agencies in the State of Illinois, 

The Vice Chairman. You are not going to bring them in here, are 
you ? [Laughter.] 

Mr. Martin. In connection with any of this testimony, we have 
the citations for any of it, and before closing, I would like to offer, 
to be filed with the record, the complete compilation of the trade 
barriers charts. 

Mr. DoNOHO. I offer thi^ for the files of the committee, not for the 

The Vice Chairman. It may be received. 

(The document referred to was marked "Exhibit No. 2364" and is 
on file with the committee.) 


Mr. DoNOHO. I believe Mr. Martin would also like to include this 
study as well for the files of- the committee. 

The Vice Chairman. It may be received. 

(The document referred to was marked "Exhibit No. 2365" and is 
on file with the committee.) . 

The Vice Chairman. I have a memorandum suggesting that Mr. 
Herr take the stand. 

Mr. DoNOHO. I believe Mr. Herr has requested that Mr. Van Arnum 
present that testimony. 

The Vice Chairman. Do you think it would be a good idea to put 
something in the record? 

Mr. Donoho. Yes ; I think it would be a splendid idea. 

Mr. Van Arnum, will you come forward, please? 

The Vice Chairman. Do you solemnly swear the testimony which 
you are about to give will be the truth, the whole truth, and nothing 
but the truth, so help you God ? 

Mr. Van Arntjm. I do. 


agricultural barriers — ^weights akd measures in fresh fruits and 

vegetables ^ 

Mr. Donoho. Will you state your name and address, please ? 

Mr. Van Arnum. John R. Van Arnum, 512 F Street NW., Wash- 
ington, D. C. 

Mr. Donoho. Are you connectea with the National Ijeague of 
Wholesale Fresh Fruit and Vegetable Distributors ? 

Mr. Van Arnum. I am, as transportation chairman. 

Mr. Donoho. I believe the chairman has some questions he would 
like to ask with respect to standards. 

The Vice Chairman. Did you hea)r the questions which were 
asked of the la^t witness with regard to Federal standards and the 
effect that those Federal standards have generally in the country ? 

Mr. Van Arnum. No, sir ; I did not. 

The Vice Chairman. I think we can make the questions very brief 
and the testimony brief. When the Federal Government standardizes 
a container, is that standardization respected by the States generally ? 

Mr. Van Arnum. Yes, sir; it is. The Federal Government has 
made standards for a certain number of containers, including among 
others baskets, hampers, barrels, and certain other number of minor 
containers. Those standards are respected by thf I^tates generally, 
but not necessarily, by the shippers or the railroads who use the con- 
tainers and transport them. 

The Vice Chapman. That is what I am talking about. The State 
wouldn't have much to do with it. What would the State have to 
do with it? 

Mr. Van Arnum. The State would only have to do with it insofar 
as thej policed the packing of those commodities, but so far as con- 
struction goes, the State has nothing to do with it. 

The Vice Chairman. And transportation ? 

* For previous testimony on this subject, see Hearings, Part 8. 


Mr. Van Arnusi. In transportation, the Interstate Commerce 
Commission could probably exercise a certain amount of jurisdiction, 
but to date they have been unable to dp it successfully, although 
they have recently completed a very lengthy proceeding in an effort 
to require the proper use of containers. 

The Vice Chaikman. Have the railroads successfully resisted the 
effort to compel the use of uniform containers ? 

Mr. Van Arnum. No, sir. 

The Vice Chairman. Is the fact that they are not generally used 
due to a lack of government power, or lack of enforcement, or what, 
if you know ? 

Mr. Van Arnum. Partly to a lack of policing as to those contain- 
ers which are regulated by the Federal Government, which are the 
baskets and hampers and barrels. The size of the container is almost 
universally observed, but it is in the packing of the container that 
the violation and the abuses occur. 

The Vice- Chairman. The common carrier wouldn't or couldn't 
have any responsibility for the details of the packing of the basket, 
could it? 

Mr. Van Arnum. Yes, sir; they have responsibility for it. 

The Vice Chairman. They couldn't open the container to see 
whether it had been packed properly, could they ? 

Mr. Van Arnum. Oh, yes. The railroads maintain two separate 
organizations, both under the jurisdiction of the Association of 
American Railroads, one the Freight Container Bureau whose duty 
it is to prescribe the dimensions, specifications, packing, and loading 
rules for all containers. 

The Vice Chairman. Now, wait a minute. Is that the loading of 
the container- insofar as its contents is concerned, or the loading of 
the container insofar as its arrangement in the car is concerned ? 

Mr. Van Arnum. Both. 

The Vice Chairman. I don't see how they could regulate it. 

Mr. Van Arnum. Well, they do it. The railroads have three 
freight tariffs in effect on file with the Interstate Commerce Com- 
mission prescribing the details of specifications and packing of the 
container itself, and where the abuse comes in is, for example, in the 
the case of the one-bushel basket which has a capacity of 2150:42 
cubic inches, which is prescribed by an act of Congress; the abuse 
comes in in packing that basket probably 10, 15, to as much as 25 
percent above the capacity. Contrary to the usual belief, there is 
little or no question of underpacking ; it is generally a case of over- 
packing. That is what I meant by the abuse of the container. In 
other words, that Federal standard is only as to the capacity of the 
basket, and is very seldom observed so far as the contents of that 
basket are concerned. 

The Vice Chairman. Now, the commodity that is packed, would 
it be sold just by the basket unit or be sold by weight? 

Mr. Van Arnum. That will vary, depending on the commodity. 
In a great majority of cases it is my belief, from quite comprehensive 
study, that it would be sold by the container. 

The Vice Chaikmax. Then why would the shipper want to put 
more in his basket than would be necessary to comply wit^- the stat- 
utory requirements? ■- 


Mr. Van Arnum, Those are commercial considerations that in- 
fluence that, Congressman. 

The Vice Chairman. I thought that would be your answer. 

Mr. Van Arnum. In other words, competition between buyers who 
will go to 1 packer and will offer to buy a carload or 5 carloads or 
10 carloads if he will pack 4 dozen bunches of beets in a basket in- 
stead of the 3 dozen bunches that the basket normally would hold. 
It is a rather diffcult question to answer clearly. 

The Vice Chairman. I think you have done mighty well. You 
haven't any charts or anything; you just tell it to me. You are 
pretty good. What can be done about it ? 

Mr. Van Arnum. If I may take about 3 minutes I might possibly 
clear up the point so that you can ask further questions. We have 
had before the Interstate Commerce Commission during the past year 
a proceeding involving the estimated weights on all of the packages 
of every kind and description, including those that are not subject 
to Federal standardization, throughout the United States, with the 
exception of northern territory. 

While it did not come up in connection with that Interstate Com- 
merce investigation, the results of that investigation — I am not going 
to give you any charts. 

The Vice Chairman. Just tell us. 

Mr. Van Arnum. The results of that investigation showed that 
there were approximately 388 containers authorized for use by the 
railroads in the southern and western section of the country. In 
connection with that and in the course of a study which I made and 
presented to the Interstate Commerce Commission, we believe that' 
probably one-half of those containers are utterly useless or uneco- 
nomical and impose a burden on the commerce and commodities 
which they carry, and could very easily be eliminated without any 
difficulty to the trade, without any hardship, and would simplify dis- 
tribution at a considerable economy in cost. 

The Vice Chairman. You mean would you- ship in bulk ? 

Mr. Van Arnum. No ; cut down the number of the containers which 
are used, which are now about 388 in just those two territories that 
I have enumerated. 

The Vice Chairman. You mean cut down the number of kinds of 
containers ? 

Mr. Van Arnum. Containers carrying names from the profane to 
ridiculous; they call some "gyp," some "ponies," and by various 
names, and they are manufactured generally or sometimes as a sales 
offer to the shippers- sometimes they are manufactured by request 
of the shippers, but there is an entirely unnecessarily large number. 
Where that comes into the question of trade barriers I am not pre- 
pared to say. I am merely trying to answer your question. 

Now, in that connection there is a bill before the House of Repre- 
sentatives, introduced by Congressman Somers, of New York, 
which I believe bears the title of H. R. 5530, which would accom- 
plish that purpose in part, but I may bring in here one incident of 
a State trade barrier which would be corrected by this particular 
bill. I am talking entirely memory. 

The Vice Chairman. Keep talking that way. 

Mr. Van Arnum. About 90 percent of the citrus fruit from Florida, 
Texas, and California — and I believe that is a conservative esti- 


mate — I will say is shipped in a container which in Florida and 
Texas is 1% bushels. From California that container has a capacity 
of approximately 1% bushels. From California that container is 
established by law. In Texas and Florida it is established by an 
edict of the citrus commissions of those respective States. Under the 
present standard container acts governing baskets and hampers and 
under the proposal in H. R. 5530 which would require boxes and 
crates to be of the same capacities as are now provided for basketc 
and hampers, either one of those containers, that is the Florida, 
Texas standard, 1%, or the California, 1%, would conform to any 
present standards. 

There are now nine different capacities provided by law for the 
.basket and those different capacities under H. R.. 5530 would apply to 
all of the boxes and crates that are presently used. Now, I don't be- 
lieve I have entirely completed that. The point of that is that we have 
a California law and a commission edict in those three States which 
forces a container which is not standard by any present standards 
and which varies in itself. 

Now, whether that could be termed a trade barrier I am not pre- 
pared to say. I can't see the significance of it being a trade barrier. 
That is merely a question of arbitrary prescription of a trade con- 
tainer by, in one case, a State legislature and, in the other case, 
State-accredited commissions. 

The Vice Chairman. Now, getting back to the observation which 
you made, that transportation companies have people whose business 
it is to examine with regard to the contents of these containers,' how 
would they go about determining whether or not a given container 
had too many carrots in it ? 

Mr. Van AiSnum. They already do it. 

The Vice Chairman. How do you dp it? 

Mr. Van Arnum. They first do it through the 

The Vice Chairman (interposing). In the first place, how do you 
know how many there ought to be in it ? 

Mr. Van Arnum. Because there are four organizations known as 
Weig:hing and Inspection Bureaus, the Southern Weighing and In- 
spection Bureau, the Western Weighing and Inspection Bureau, the 
Transcontinental Weighing and Inspection Bureau ; there is the Illi- 
nois Weighing and Inspection Bureau, the Central Weighing and In- 
spection Bureau, all of which have, presumably, weU-trained inspec- 
tors whose duty it is to visit the packing houses and systematically 
weigh these containers to see how much they weigh for the purpose 
of maintaining a record on which to base the estimated billing 
weights, and also to inspect to determine whether these containers 
are properly loaded. That is, that they are not loaded beyond capac- 
ity or that they are loaded properly so as not to increase the hazard 
to the railroad, which, of course, increases the railroad's liability for 

On the basis of their recommendations and on the basis of the 
studies and the field studies of representatives and agents of the 
freight container bureau of the American Association of Railroads, 
who a,re continually in the field, they are also continually checking 
on the loading methods of these containers, the way the lid is nailed 
down or strapped on or wired down, and they are continually chang- 
ing their tariffs as to loading requirerhents and specifications. 

. 124491— 41— pt. 29 7 


The Vice Chairman. Then they find out, too, when they are look- 
ing around as to how much ought to be put in a given basket? 

Mr. Van Arnum. That is right; yes, sir. The difficulty is that 
those organizations, like every one of us, are subject to practical in- 
fluences having to do with the amount of business they are going to 
get and it is one of the frailties of human nature that when they find 
certain abuses which if they undertook to correct arbitrarily would 
cost them some business to the trucks, they are inclined to let things 
ride for a while, and see if it doesn't work itself out. That is the 
plain explanation, as plain an explanation as I can give you. 

The Vice Chairman. I don't think you could beat it. 

Mr. DoNOHO. Mr. Chairman, might I put one question to relate the 
testimony in some slight way to the trade-barrier problem. As I 
understand it, California will not accept boxes for berries which are 
in common usage in other parts of the country. Do you have any 
information on that? 

Mr. Van Arnum. I don't have any information along that line. 

Mr. DoNOHO. On that type of thing I think it would definitely tie 

this in. ' f ■ J. • 

Mr. Van Arnum. California won't accept boxes for citrus fruit 
which are used in other sections of the country because the other 
sections use a different size box and California prescribes their size 

Mr. DoNOHO. That gives an illustration I was trying to point out. 

The Vice Chairman. California is not awfully keen about the ship- 
ment of Texas citrus fruit into California anyway. I won't ask 
you that; I know myself about it. . 

Mr. Van Arnum. Mr. Chairman, just as a matter of personal in- 
terest, do you mind if I make one observation on an entirely different 

The Vice Chairman. Make two if you like. 

Mr. Van Arnum. Xou asked the previous witness, Mr. Martin — 
and I am not going into this in detail because I understand the 
American Trucking Association is going into it in very great detail — 
I merely want to make an observation with respect to the perishable 
industry concerning the trade barriers as they relate to truck-weight 
laws of various kinds. I think Mr. Martin indicated that he had no 
specific information as to which of those 301 State laws relating to 
motor transportation constituted a specific obstacle to free commerce 
between the States. 

I would like to call attention to the fact that one of the most 
flagrant of those and one that we meet with constantly is the State 
weight law of Kentucky, as an illustration, where the maximum load 
limit, is 18,000 pounds. Just last week the Senate of Kentucky turned 
down a bill to increase that weight limit to 32,000 pounds. The 
effect of that law in Kentucky means almost the complete elimina- 
tion of the economic flexible truck transportation of these commodi- 
ties from States south of Kentucky into Central Freight Associa- 
tion territory. That is, the Central States of Ohio, Indiana, Illinois, 
and Michigan. Because they can't get through Kentucky on a 
18,000-pound gross weight because the truck weighs about 10,000 
and 8,000 pounds is not an economical load limit. 

The result is that the railroads have maintained very much higher 
relative rates into those States of Ohio, Indiana, Illinois, and Mich- 


igan than to the States to the east, where the load limits are higher 
and permit truck competition. Whether that is a good thing or a had, 
I am not saying ; I merely indicate that is a specific and definite trade 
barrier in the form of a maximum-weight law. 

Another State is your own State of Texas^, which you are prob- 
ably familiar with, which has a law limiting pay loads to 7,000 
pounds by truck unless th^ truck is going to the first direct railroad 
station, when they can haul 14,000 pounds. Now, I understand that 
that law is violated almost without exception; that is by various de- 
vices the shippers generally ignore the law, although the railroads, ■ 
I understand, try, to encourage and induce the State highway offi- 
cials to enforce it. I merely want to mention that because many of 
our members have indicated to us that there would be a very sub- 
stantial increase in the more economical, more flexible, and quicker 
truck transportation with improved truck facilities including refrig- 
eration, if it were not for the fact that the economical gross limit 
of a truck is approximately 40,000 pounds. 

On those long hauls where they have to have two men, the greater 
capacity of the truck is not reflected in the operating cost by direct 
ratio. We have had members who have told me that it is that 
Kentucky law as just an illustration. There are others but that is 
one of the most significant; that is constantly a direct barrier to 
interstate commerce. I didn't know whether the American Truck- 
ing Association people would put in that part about the fruit and 
vegetable industry or not. 

The Vice Chairman, We will adjourn until 2 : 30. 

(Whereupon at 12 noon the committee recessed until 2:30 p. m.) 


The hearing was resumed at 2 : 40 p. m., upon the expiration of the 
recess, Senator O'Mahoney (chairman) presiding. 

The Chairman. The committee will please come to order. Proceed, 
Mr. Donoho. 

Mr. DoNOHO. Thank you. 

Mr. Moloney, will you come forward please? 

The Chairman. Do you solemnly swear the testimony you are 
about to give in these proceedings shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Moloney. I do. 



Mr. DoNOHO. Will you state your full name and address, please? 

Mr. Moloney. John F. Moloney, Memphis, Tenn. 

Mr. DoNOHo. Whom do you represent, Mr. Moloney? 

Mr. Moloney. I am representing several organizations, namely, the 
American Cotton Cooperative Association, the Association of South- 
ern Commissioners of Agriculture, the Mid-South Cotton Growers 
Association, the National Cotton Council, and the National Cottonseed 
Products Association. 


Mr. DoNOHO. Would you please describe briefly the nature and pur- 
pose's of the organizations you are representing? 

Mr. Moloney. Yes; the American Cotton Cooperative Association 
i*s a federation of the 16 State or regional cooperative marketing 
associations located throughout the South. It furnishes such services 
as financing, insurance, and transportation in the marketing, coopera- 
tive marketing, of cotton. 

The Association of Southern Commissioners of Agriculture is, as 
its name implies, an organization of the commissioners or secretaries 
and directors of agriculture in 13 of the cotton-growing States. 

The Mid-South Cotton Growers Association is a cooperative mar- 
keting association of approximately 25,000 members, covering the 
States of Tennessee, Missouri, and Arkansas. 

The National Cotton Council is an organization composed of the 
five major raw-cotton interests ; namely, the producer, the ginner, the 
crusher, the warehouseman, and the merchant. 

The National Cottonseed Products Association is the trade associa- 
tion of the cottonseed-crushing industry, having as members approxi- 
mately 80 percent by number and volume of that industry. 

Mr. DoNOHO. Do you hold a position with one or more of these 
organizations, Mr. Moloney? 

Mr. Moloney. Yes; with one. My position is that of economist 
jvith the National Cottonseed Products Association. 

Mr. DoNOHO. And are you familiar with the general field of trade 
barriers as it relates to your industry? 

Mr. Moloney. Yes; I feel that I am, having done work off and on 
in that field for the past 2 or 3 years. 

Mr. DoNOHO. Mr. Moloney, just what interest do the groups you 
represent have in the subject of trade barriers? 

Mr. Moloney. We are interested in the restrictions which are im- 
posed Upon the manufacture and sale of oleomargarine. 

Mr. Donoho. What is the relationship between the cotton or cotton- 
seed and oleomargarine? 

Mr. Moloney. Margarine provides a market for cottonseed oil. 

Mr. Donoho. Just how important is this market? 

Mr. Moloney. During recent years it has absorbed from 8 to 10 
percent of the entire production of the cottonseed oil. 

Mr. DoNOHO. Is cottonseed oil the chief ingredient used in the 
manufacture of margarine? - 

Mr. Moloney. Yes; it is. In that connection I have here a table 
which shows the ingredients used in margarine production over the 
past 4 fiscal years. This table is made from data published by the 
Commissioner of Internal Revenue. 

Mr. Donoho. Is this the chart to which you refer, Mr. Moloney? 

Mr. Moloney. That is correct. 

Mr. Donoho. I wish to offer this. 

The Chairman. The chart may be received. 

(The table referred to was marked "Exhibit No. 2366" and is 
included in the appendix on p. 16133.) 

Mr. Moloney. On this table you will note all of the materials 
which are used in the production of margarine by the entire indus- 
try. You will note that in each of the years shown, ending with 
June 30, 1939, cottonseed oil is a major ingredient and in each of 
the last 3 years it has been the most important. Down at the lower 


part of that table I have set forth the importance of cottonseed oil 
as a percentage of all of the oils used in this product of margarine, 
and also as a percentage of the total margarine produced. 

The first ranges from 30 to 52 percent of all the oils used, and 
amounts to between 25 and 42 percent of the total margarine pro- 

Mr. DoNOHO. Are there other American farm products in mar- 
garine ? 

Mr. Moloney. Yes. Referring to this same table you will note 
such American farm products as milk, soybean oil, the beef fats, 
corn oil, and peanut oil. 

Mr. DoNOHO. Can you give the committee an idea of the composi- 
tion of margarine made from cottonseed oil? 

Mr. Moloney. Generally the formula for margarine is four parts 
of oil to one of milk, with salt added. A number of the margarines 
on the market also contain vitamins A and D. 

Mr. DoNOHO. Mr. Moloney, just how important is cotton oil to the 
cotton-growing States. 

Mr. Moloney. Let me put it this way first. Cottonseed is the 
third most important cash crop in the South, exceeded only by cotton 
lint and by tobacco. I have here a table which shows the farm cash 
income from cotton and cottonseed. This table is made up of data 
published by the United States Department of Agriculture. 

Mr. DoNOHO. Is tliis the chart to which you refer, Mr, Moloney? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Mr. Chairman, I offer this chart. 

Acting Chairman Pike. It may be admitted. 

(The table referred to was marked "Exhibit No. 2367" and is 
included in the appendix on p. 16133.) 

Mr. Moloney. This table to which I have just referred is broken 
down into four columns, showing the farm cash income from cotton 
lint, from cottonseed, the total, and finally the percentage of that 
total income which is accounted for by cottonseed, and you will note 
that over the past 5 or 6 years cottonseed has accounted for between 
12 and 15 percent of the total income from the cotton crop. 

Mr. DcTNOHO. In other words, Mr. Moloney, as I understand it 
during the last 6 years cash income from cottonseed alone has beeri 
from between 12 and 15 percent of the total farm income, from the. 
entire cotton crop? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Is oil the principal product of cottonseed? 

Mr. Moloney. Yes; oil accounts for approximately 55 percent of 
the value of the seed. 

Mr. DoNOHo. What effect does the price of cottonseed oil have 
upon the farm price of cottonseed? 

Mr. Moloney. "Well, changes in the price of oil either upward or 
downward generally bring about similar changes in the farm price 
of seed. To illustrate thac, I have prepared a chart. You will 
notice (the enlargement is on the stand there) that it slfows 
farm price of cottonseed and the value of oil and the value of all 
products per ton of seed. This chart has been drawn from data 
P'u'olished by the United States Department of Agriculture. 

Mr. DoNOHO. Is this the chart to which you refer? 

Mr Moloney. That is right. 


Mr. DoNOHO. Mr. Chairman, I oflfer this chart as an exhibit. 
Acting Chairman Pike. It may be received. 

(The chart referred to was marked '"Exhibit No. 2368" and is 
included in the appendix on p. 16134.) 

Mr. Moloney. If you will look at this chart, you will notice the 
close relationship in the upward and downward swings of both oil 
and the farm price of seed, I might point out that, of course, the 
farm price is determined first of all by the value of all products, 
but since oil accounts for 55 percent of that total value, it naturally 
has a "Very strong influence upon the farm price. 

Acting Chairman Pike. There are two points here, Mr. Moloney. 
You said that the product margarine used about 8 percent of all the 
cottonseed oil produced? 

Mr. Moloney. I said approximately 8 or 10 percent is used for 
this particular product, margarine. 

Mr. DoNOHO. You have shown £hat the price of the oil pretty well 
governs the farm price which the farmer gets for his seed, or the 
two go very closely together. 

Mr. Moloney. Certainly, by far the major factor in determining 
that price. 

Acting Chairman Pike. I think you also mentioned in your mem- 
orandum that the price the farmer gets for his seed is much more 
to him than it vrould look, in that it comes to him as cash? 

Mr. Moloney. Yes; that is correct. I deferred here previously 
to the fact that seed accounted for say 12 to 15 percent of the total 
farm income from the crop, but actually seed is nearer 100 percent 
in importance to the actual cotton grower because of the fact that 
the great majority of growers during the growing season mortgage 
their crop in order to cover production costs. By picking time, most 
growers have very little equity left in the cotton lint, so that when 
uiey take their cotton to the gin, after paying ginning costs, seed 
money is really the major, if not tne only supply of cash, which they 

(Senator O'Mahoney resumed the chair.) 

; Mr. Pike. And the seed is not usually included in that mortgage ? 

Mr. Moloney. The seed is not, and the importance of seed money 

might well be illustrated by a little cartoon which appears in a 

number of our southern papers, known as Hambone's Meditation, 

Hambone being an old darky. 

This particular cartoon some time back showed Hambone leaning 
against a tree scratching his head and putting forth the rather 
homely philosophy, "I wish de white folks would hurry up and get 
dey lint off my seed." 

Mr. PiKB. That makes the point. 

Mr. DoNOHO. Mr. Moloney, you have indicated the relationship 
between the cotton economy and margarine. What are the types 
of laws to which you object, which to you constitute barriers to 
interstate trade, in margarine? 

Mr. MoloneyI I think for convenience I would divide them into 
tax barriers and a sort of general classification of nontax barriers. 
In other words, it is convenient to treat them, I believe, in those 
two groups. 
• Mr. DoNOHO. Do you have available a resume of the State law^s 
relating to taxes on margarine? 


Mr. Moloney. Yes; I have here a table entitled "State Taxation 

of Oleomargarine," which has been brought up to the present date. 

This table is based upon several sources, principally a publication 

of the United States Department of Agriculture. 

Mr. DoNOHO. Is this the table to which you refer, Mr. Moloney? 

Mr. Moloney. That is correct. 

Mr. Don OHO. Mr. Chairman, I offer this table as an exhibit. 
The Chaikman. It may be received. 

(The table referred to was marked "Exhibit No. 2369" and is 
included in the appendix on p. 16135.) 

Mr. Moloney. You will note that in this table there are set forth, 
by States the various taxes, and those are divided into excise taxes, 
that is a tax which is imposed per pound of product, and annual 
license taxes, which are imposed upon manufacturers, wholesalers, 
retailers and other agencies of distribution. Those taxes range from 
5 to 15 cents a pound in the excise tax column. They range from $1 
to $1,000 in the license tax column. 

I might refer there just briefly to the State of Wisconsin, which. has 
a 15 cents per pound tax on margarine and licenses ranging from 
$1,000 all the way down to $1. That $1 is a consumer'? license. In 
other words, it works this way : If the consumer goes to the store and 
buys a product through a retail channel, she would pay 15 cents a 
pound. However, if the consumer is enterprising enough to order his 
or her margarine outside the State, and have it shipped in, in what I 
presume would be called interstate commerce, then he or she would 
have to pay a dollar license tax plus 6 cents a pound tax to the State. 
How they collect a tax of that sort I haven't any idea, but I think that 
will give you a pretty good picture of the various taxes which are 
imposed on this product. 

Mr. DoNOHO. You are referring to your chart now as giving that 
picture ? 
Mr, Moloney. That is right. I have, through the courtesy of the 

Marketing Laws Survey 

The Chairman (interposing). Does this chart give the whole pic- 
ture? Does this exhibit^ which you have just put in give the whole 
picture with respect to taxes? 

Mr. Moloney. Yes, it does, and it wasn't my intention to introduce 
this for the purposes of the record at /ill, but simply that perhaps it 

shows a little bit better than a text wouid 

The Chairman (interposing). I am referring to the table just 
presented, which covers only ten States. 

Mr. Moloney. I think, Senator, the table that I have just presented 
is numbered up in the upper right-hand corner, and it is entitled, 

"State Taxation of Oleomargarine," and it shows far more than 

The Chairman (interposing). Yes; I was looking at the wrong 
exhibit. How many States have these taxes? 

Mr. Moloney. Altogether there are about — I haven't counted them 
there, nor do I have them in mind — about 25 States. 

I would like at this point, however, to indicate a distinction which 
was brought out by some of the previous witnesses in these taxes. 
For example, the first State here ^ is Alabama, which has a tax of 10 

' Spp "Exhibit No. 2369," appendix, p. 16135. 
» Ibid. 


cents per pound, but which exempts from that tax margarine made 
of domestic oils, in other words, cottonseed oils or beef fats and 
various other domestic products, and I would like to say right there 
also that in the rest of my testimony, when I am referring to taxes 
that are blocking our markets, I do not refer to that type of tax, but 
solely to the tax which applies to the product regardless of what it 
is made of, and we recognize that every one of these taxes — at least I 
feel that they are trade barriers, but there is this difference, that some 
of them block the market completely and others are more or less of a 
compromise measure which at least permit the sale of a domestic 

The Chairman. Do you wish to be understood as saying that all 
of these taxes are trade barriers? 

Mr. Moloney. I thi^nk they are. Senator, under the definition of 
a trade barrier, and I might say liere that the reason those taxes were 
imposed was the fact that the movement to tax this product right out 
of the market — at least that is the way I look at it — was just sweeping 
the country. 

The Chairman. Do you want to say that the taxes have no other* 
Mr. Moloney. Pardon? 

The Chairman. Do you wish to be understood as saying that the 
taxes have no other justification? 

Mr. Moloney. I think I can bring that out; yes; a little later on 
in my testimony. 

The Chairman. That is your contention ? 
-Mr. Moloney. That is generally my position. 
The Chairman. In other words, you are making a sweeping' de- 
nunciation of all of these taxes ? 
Mr. Moloney. That is correct. 

Mr. Pike. You are not so much against the ones that keep coconut 
oil out of the market, though, are you ? 

Mr. Moloney. Our position is that, as I say 

Mr. Pike (interposing). That would be an imported base. 
Mr. Moloney. ^That's right. 

Mr. Pike. So that the Alabama law would tax coconut margarine, 
but that doesn't bother the cotton growers much. 

Mr. Moloney. No. Of course in a sense it gives an advantage to 
cotton oil, but as I say, the real purpose behind those laws was not 
to give an exclusive advantage to our cotton oil or any particulai' oil 
so much as it was to prevent the taxing of all of them right off the 
market. One of the principal arguments advanced for "the imposi- 
tion of a tax on margarine in the various States was that this product 
is made of imported oils. Our position was this, "If you are after 
imported oils, certainly don't tax cottonseed oil, soy-bean oil, don't 
tax your beef fats, which are products of domestic farms. If you 
want to go ahead and tax these other things, we frankly don't think 
it is wise, but we are naturally not as opposed to it as we would 
be to taxing our own product." 

Mr. Dorfman. Mr. Moloney, do I understand that you don't even 
have any objection to foreign cottonseed oil entering and competing 
on the same basis as domestic cottonseed oil ? 

Mr. Moloney. Well, sir, foreign cottonseed oil, to enter, pays a 
3 cent tariff, and I think after that we should certainly be satisfied 
with the situation. 


Mr. DoRTMAN. You wouldn't want any State to discriminate fur- 
ther against the imported product then, as compared with the 
domestic ? 

Mr. Moloney. I don't think that would be possible. I don't know, 
of course, not being a lawyer, but I doubt if you could write a law 
that could distinguish between imported or domestic oil, the same oil. 
It might be possible. 

Mr. DoRFMAN. Not the same oil, but they have in a number of 
instances distinguished between the class of foreign and the class of 
domestic. I didn't have in mind differentiating between the foreign 
and domestic cottonseed oil. 

Mr, Moloney. I misunderstood you then. Once the foreign cot- 
tonseed oil pays the 3 cents a pound tax, you would have to compete 
on the same basis as domestic cottonseed oil. That is right. 

Mr. DoRFMAN. And you wouldn't have any State impose a higher 
tax on any imported oil, or any oil made domestically of imported 
material,. than you could on the domestic oil? 

Mr. Moloney. That is right, that is our position. 

Mr. Kades. Do }tou think the tax on coconut oil coming from the 
Philippines or Guam, and other islands in the southern Pacific, is 
uneconomic ? 

Mr. Moloney. Well, I think that would take us pretty far off into 
another subject. I don't know what you mean, exactly, by uneco- 

Mr. ELades. That which constitutes a trade barrier and raises the 
price to the consumer. 

Mr. Moloney. I think you can say that any tariff imposed upon a 
product brought into a country, if that product continues to come in, 
the chances are you have raised your price to the consumer. Or you 
might even do it if you kept the thing out entirely. 

Mr. Kades. I wasn't thinking of the tariff on goods coming from 
a foreign country, but I was thinking of goods coming from the Phil- 
ippines, for example. 

Mr. Moloney. Well, with the status of the Philippines as it now is, 
I am not sure whether they are an actual part of this country. Are 
they not in the process of becoming an independent country? 

Mr. Kades. Is it your position that higher price to consumers 
is justified in the event that the goods are being imported from a 
foreign country, but that they are not justified in any other event? 
I am trying to get at the basis of your position. As I understood 
you, you opposed punitive taxes or other artificial barriers which in- 
creased price of palatable goods to the consumer. I wondered to what 
extent you were insisting upon that position. Is that simply your po- 
sition in relation to cottonseed oil, or is that a general pasition? 

Mr. Moloney. Well, I would say that is our position with respect 
to internal trade. I am not authorized to discuss for the various 
organizations the question of your tariff system, because there is a 
tremendous amount of difference of opinion on that. 

Mr. Kades. Does the National Cottonseed Products Association 
take any position in relation to taxes on coconut oil? 

Mr. Moloney. The association has supported that tax. Is that 
what you want? I can say that for my own association, but I 
couldn't for the other groups. 


Mr. Kades. I didn't want you to speak for other associations. 
Mr. Moloney. Because as I say, I am authorized to speak for them 
on this particular subject, but I do think that there we are getting 
into another subject. I may be wrong. I may not be following your 
question correctly. 

Mr. Kades. I don't wai^t to prolong the discussion, but it does 
seem to me inconsistent at least on its face to oppose a tax on cotton- 
seed products, but to support a tax on coconut-oil products. 

Mr. Moloney. I would like to get that straight because I didn't 
take that position. I didn't mean to give that impression. 

Mr. Pike. It is a very different thing, opposing internal trade 
barriers and opposing customs tariff. 

Mr. Moloney. I think it is, and what I tried to say was this, that 
we don't feel that any of these taxes — or we feel that all of them are 
to an extent internal trade barriers. One group of them, that is 
what we know as domestic-fat laws, which exempt from the tax 
margarine made of certain domestic materials, were, as I said, im- 
posed as a means of stopping, preventing, the general movement of 
taxing this product margarine completely off the market. 

The Chairman. Well, you are dealing with the question of 

Mr. Moloney. Surpluses. 

The Chairman. Yes; the whole problem here is one of surpluses 
in the last analysis, is it not ? 

Mr. Moloney. Yes ; and I think a little later I hope to be able to 
bring that out. 

The Chairman. Suppose that there were none of these taxes which 
you call trade barriers at all, what would be the effect ? 

Mr. Moloney. I think, as I hope to bring out later on, you would 
have a considerably increased trade in this particular product market. 
You would have a considerably increased market for cottonseed oil, 
and as I will bring out a little later. Senator, that has, I think, great 
ramifying effects in a number of fields. 

The Chairman. Would that have any disadvantageous effect upon 
any other product? 

Mr. Moloney. I doubt it. Very generally, it is claimed that it 
would, but I feel that because of numerous points which I hope to 
bring up later 

The Chairman (interposing). I won't interrupt you now. Pro- 
ceed with your statement. 

Mr. Donoho. Mr. Moloney, I would like to get clarified for the 
record your position on taxes which apply to all margarine and taxes 
which apply to margarines made of domestic fats. Your position is 
that you think both are trade barriers? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. And you favor the latter only because you favor half 
an evil more tiian a whole evil? 

Mr. Moloney. That is right. That is exactly the point that I was 
trying to make, and I don't think I succeeded in making it very well 
for this gentleman over here. 

The Chairman. Perhaps there wcsuld be some who wouldn't use 
the word "evil" at all. 

Mr. Donoho. I just wanted to know if that was his position, air. 

The Chairman. Proceed. 


Mr. DoNOHO. Mr. Moloney, in general then you would say that tax 
laws on margarine may be divided into two classes, license taxes on 
dealers and manufacturers, and excise taxes on the product? 

Mr. Moloney. That is right and (referring again to "Exhibit No. 
2369") you will note that some States have one, some have the other 
type, and some have them both. 

Mr. DoNOHO. How do these taxes, ranging from 5 to 15 cents a 
pound, compare with the retail price of margarine? 

Mr. Moloney. The retail price, of course, will vary from time to 
time. It will also vary from manufacturer to manufacturer, but 
these taxes range between 25 and 150 percent of the retail price of 
the product. 

Mr. DoNOHO. Mr. Moloney, what is the stated purpose of these ex- 
cise and license taxes on margarine? 

Mr. Moloney. The stated purpose I believe in all cases is revenue. 

Mr. DoNOHO. Do these taxes actually produce revenue? 

Mr. Moloney. Very little. In some instances none. I have here a 
table showing the revenue obtained from margarine taxes in selected 
States, and tnis was obtained from data published by the Institute 
of Margarine Manufacturers, who in turn obtained it by inquiries 
addressed to the States in question. 

Mr. DoNOHO. Is this the table to which you refer ? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Mr. Chairman, I offer this table as an exhibit. 

The C'lAiRMAN. It may be received. 

(The table referred to was marked "Exhibit No. 2370'' and is in- 
cluded in the appendix on p. 16135.) 

Mr. Moloney. You will note this table shows 3 States having an 
excise tax of 5 cents a pound, 4 States having a tax of 10 cents a 
pound, 2 States with 15 cents a pound, and 1 State with a $400 retail 
license tax. The final column on the right shows the total revenue 
collected from these taxes, and with 1 or 2 exceptions you will note 
that the revenue in all instances is small. Two States apparently 
collect nothing at all from these taxes. 

If data on collection costs were available, the net revenue would, 
1 am sure, be considerably less than the revenue shown in this table. 

Mr. DoNOHO. Your general conclusion is, I gather that these taxes 
get very little revenue? 

Mr. Moloney. That is correct. 

Mr. Kades. Does low^a collect more than any other State, as ap- 
pears from these tables? 

Mr. Moloney. The question came up the other day and I inad- 
vertently omitted one State here which should be on. In other words, 
Pennsylvania, I believe', collects the greatest amount of revenue. 

Mr. DoNOHO. Do you know how much that is? 

Mr. Moloney. The last figures I saw were between three and four 
hundred thousand. 

Mr. Pike. That is a license revenue? 

Mr. Moloney. That is solely from a $100 retail license tax. There 
is no tax per pound on the product. 

I might say there that they have had that law for about forty 
years, which may account for the number of retailers having o-rown 
in spite of this tax. Of course, I think perhaps one point should be 
made here, and that is that a tax of that ^ort falls hardest upon the 



small retailer. In other words, your larger retailer who does a big 
volume of business can afford to pay that license tax and cover it in 
his volume of business, but the small retailer iust can't do it, with 
the result that he doesn't carry the product at all. 

Mr. Elmore. Mr. Moloney, the States listed on "Exhibit No. 2370" 
appear to be taken from those which do not exempt cottonseed oil 

in any form. . ^ , ^ . . ^ . 

Mr. Moloney. That is correct, and that is what I had in mmd in 
making up this table. In other words, these are the laws to which 
we are primarily opposed. 

Mr. Elmore. Do you have any figures showing the amounts of 
revenue produced by the taxes in the States which do exempt cotton- 
seed oil? 1 . 1 

Mr. Moloney. Yes; I have some here. I can say that in almost 
all instances there is no revenue. If you would like, I can check it 
up for you. 

Mr. Elmore. No; that answers it quite adequately. The tax then 
really is ineffective, is that true? 

Mr. Moloney. AVell, insofar as a producer of revenue, it is inef- 

Mr. Elmore. It is effective in any other way ? 

Mr. Moloney. I don't know the extent of enforcement in these 
States. We have no knowledge of it, but I presume that it may very 
well be having the effect of limiting or preventing the sale of coconut- 
oil margarine, let us say, in those States. At least I would assume 
that would be the result. 

Mr. DoNOHO. You stated, Mr. Moloney, that these taxes fail in 
their stated purpose, generally speaking. What then, would you say 
is the principal effect of these taxes ? 

Mr. Moloney. The actual effect has been the drastically reduced 
sale of margarine and a consequently reduced market for cottonseed 
oil, and, of course, your other domestic fats and oils would be included 
where I refer to cottonseed oil, but I am speaking now just simply 
for the cotton groups. 

(Mr. Pike assumed the Chair.) 

Mr. DoNOHO. Have you completed that answer ? 

Mr. Moloney. Yes ; I pointed out it had greatly reduced the sale of 
margarine and also the market for cottonseed-oil products. 

Mr. DoNOHO. In your opinion, has anyone benefited from these 
taxes, Mr. Moloney? 

Mr. Moloney. In my opinion, no. I think it is obvious that the 
consumer doesn't benefit from a tax of that sort. The effect upon 
the consumer is either to make him pay a higher price for an article 
of food, or to make the price so high that it is just not available to 

Acting Chairman Pike. I don't know whether this is the right 
place to ask this question, but I would like to know — nobody has 
mentioned it but I think we pretty well know the dairy industry is 
responsible for these taxes, both their imposition and their continu- 
ance. If there is any dispute about that point, I will yield very 
gladly but I think that is a fairly realistic approach. 

I would like to know on what basis these taxes are put in and 
continued. Is there any question as to whether margarine is a proper 
and full substitute for butter? Is there anything unwholesome about 


it? Is there anything disgraceful about it? Why is it that the 
person who can afford to buy fat at 10 or 12 cents a pound has to have 
that item put up in a class with butter, where let's say he can afford 
to buy only half as much. Is there in your mind any sound basis 
rather than pure and unadulterated competition? 

Mr. Moloney. Well, I think certainly that these laws were passed 
with the hope that they would aid the dairying industry, or aid in 
improving the price of butter, but I have seen no evidence to indicate 
that that has happened. Am I answering, your question? 

Acting Chairman Pike. You are answering a part of it. I would 
be interested to know what, beside the political influence of the dairy 
farmer which we admit to be very substantial, what evidence w^as 
there ever offered it was inferior food or if it was or is an inferior 
food, in what way is it an inferior product? 

Mr. Moloney. Well, it has frequently been stated that the product 
was inferior. 

Acting Chairman Pike. Any special cases given ? 

Mr. Moloney. Usually they were pretty general statements. I am 
not qualified to speak as an expert on nutrition, but from everything 
that I have been able to read, there is absolutely no basis for those 
statements, and whether or not the product is equal to butter, and 
from my own experience with it I would say that in some instances 
it was, and even a little better than some of the butter we get in our 
part of the country, I think that there is nothing to substantiate 
those statements. 

Acting Chairman Pike. Well, possibly some day we will get re- 

Mr. Moloney. And I am sure that any member of, shall we say, 
experts on that subject — I have seen statements in fact — that the 
product is perfectly pure and if you, as they have now, add vitamins 
to it, which gives you a uniform vitamin content the year round, I 
would say now that I question whether there is any basis on which it 
could be classed as inferior. 

Acting Chairman Pike. That is your point of view. Thanks very 

Mr. Moloney. That is right. 

Mr. DoNOHO. Mr. Moloney, I would like to just clear up one point. 
Is it your position that if margarine is a wholesome and pure food, 
whether or not it is inferior or superior to butter is immaterial with 
respect to its rights to move in commerce?' 

Mr. Moloney. I would say that generally that had nothing to do . 
with the question of whether it should be permitted to move. I think 
that any product should sell on its merits. Whether one is better 
than the other I don't think makes any difference. 

Mr DoNOHO. Mr. Moloney, how has the imposition of these taxes 
which you have been describing affected the number of retail mar- 
garine dealers? 

Mr. Moloney. It has brought about a considerable decrease in the 
number of dealers in the States imposing taxes and in that connec- 
tion I have here a table showing the retail dealers in States taxing 
cottonseed oil margarine. In 2 years, 1920 

Mr. DoNOHo (interposing). What is the source of this chart, please? 

Mr. MoLONFY. The table was taken from the reports of the Bureau 
of Internal Revenue. 


Mr. DoNOHO. Is this the chart to which you refer ? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Mr. Chairman. I offer this as an exhibit. 

Acting Chairman PiitE. It may be received. 

(The table referred to was marked "Exhibit No. 2371" and is in- 
cluded in the appendix on p. 16136.) 

Mr. Moloney. The chart shows the number of dealers in 1928 and 
in 1938 and '28 was chosen because it preceded the enactment of these 
tax laws ; '38 was chosen as the most recent year, available at the time 
this table was prepared. It shows a 70 percent decrease in the num- 
ber of retail outlets in these 14 States. 

Mr. DoNOHO. Mr. Moloney, what about retail dealers in States not 
taxing cottonseed oil margarine? 

Mr. Moloney. There you have just the reverse situation. You 
have an increase in the number of retail dealers. In that connection 
I have here a table entitled "Retail Margarine Dealers in States Which 
do not Tax Cottonseed Oil Margarine," taken also from the Bureau 
of Internal Revenue reports. 

Mr. DoNOHO. Is this the chart to which you refer, Mr. Moloney? 

Mr. Moloney. That is correct. 

Mr. DoNOHo. Mr. Chairman, I offer this chart as an exhibit. 

Acting Chairman Pike. It may be received. 

(The table referred to was marked "Exhibit No. 2372" and is 
included in the appendix on p. 16136.) 

Mr. Moloney. In this gi mp of States the number of retail dealers 
over the same 10-year pei.od has increased by about 27 or 28 per- 
cent, while the number in the States which impose these taxes was 
declining by 70 percent. 

Mr. DoHOHO. What are the conclusions that you draw from the 
figures given in these two charts? 

Mr. Moloney. Well, my conclusion would be that the taxes are 
responsible for a drastic decline in the number of retail outlets 
through which this product must be sold. 

Mr. Donoho. Have you any estimate as to how this loss of oppor- 
tunity to sell has resulted in decreased sales of margarine?. 

Mr. Moloney. I have made an estimate of that, which indicates 
that the decrease in 14 States shown in this table ^ is between seventy- 
five and eighty million pounds a year, and that estimate I feel is very 
conservative. In other words that it did not take account of the fact 
that the retailers in nontaxing States had increased. It simply as- 
sumed that you had the same number of retailers in those States in 
the taxing States today that you had 10 years ago. In other words, 
it didn't allow for any growth. - 

Mr. DoNOHO. What would this seventy -five to eighty million pounds 
of margarine mean in terms of cottonseed oil ? 

Mr. Moloney. Well, on the basis of cotton oil used in the mar- 
garine oyer the past feAv years it would amount to twenty-eight or 
thirty million pounds. 

Mr. DoNOHO. Just to complete the picture, what would this mean 
in terms of cotton and of cotton acreage? 

Mr. Moloney. You might reduce that to about what would be the 
equivalent of about 200,000 bales of cotton and about 450,000 acres. 

1 "Exhibit No. 2371." See appendix, p. 16136. 


Mr. DoRFMAN. I wonder if I may ask a question. Do you m£an 
to suggest that if these taxes were lifted on margarine tliere would 
be such an increase in the sale of cottonseed oil as would necessitate a 
larger production of cottonseed, which could be produced only by 
increasing cotton production? 

Mr. A:fcLONEY. No; I wouldn't say that that would occur at all. 
In fact, I think we can agree that the production of cvitton is not 
going to be increased. Certainly we have the present legislation, 
except insofar as the yield per acre may be increased. 

Mr. DoRFMAN. About all the cottonseed producer, then, would 
stand a chance of gaining would be an increase in price per pound 
of what he sold ? 

Mr. Moloney. I think that is correct. Of course, whether an 
increased sale of margarine increased proportionately the use of 
cotton oil, or whether it drew on otlier oils, you would still have a 
stimulating effect upon price. 

Mr. DoRFMAN. To what extent, if any, do you think that would be 
offset by the decline in consumption of those preparations, mayon- 
naise, and salad dressing, into which cottonseed oil enters? 

Mr. Moloney. Well, that would take me pretty far into the field 
of prediction and while I have had some ideas along that line, I 
certainlj^ wouldn't want to predict* what the prices would he under 
certain situations, or what the demand for such products as you 
mention, mayonnaise and others, what effect that would have. Of 
course, you have in a product like mayonnaise, I believe, about 30 or 
35 percent oil, if I am not mistaken, so that the effect upon the retail 
price of that I don't believe would be tremendous, even though there 
were some increase in the price of cotton oil. 

Now, we are not expecting any hundred or 200 percent increase in 
the price of oil, although it is today extremely low. In other words, 
the wholesale price index last year I believe was about 77. Well, 
now cotton oil for the year was only 59. In other words, it is con- 
siderably below the general price level. 

Mr. DoRFMAN. In other words, you wouldn't expect that even the 
lifting of these taxes would appreciably increase the income of cotton 
producers ? 

Mr. Moloney. The income of what? 

Mr. DoRFMAN, Of cotton producers, cotton. growers. 

Mr. Moloney. Well, as I say, I wouldn't want to say how much 
that increase might be, or whether it would be large or small, but 
certainly I think this, that the opening up of a market for any 
product, a market which is now closed, would certainly be helpful 
to the price of the product, and to the producers of it. 

Mr. DoRFMAN. I think you suggested earlier that about 14 percent 
of the cotton growers' income was from the seed. Is that right? 

Mr. Moloney. That is correct. 

Mr. DoRFMAN. And about half of the value of the seed is the oil? 

Mr. Moloney. That is right. 

Mr. DoRFMAN. The only interest of producing more cotton, if we 
were permitted to, would be to get 7 percent, something more than 
7 percent, of his production? 

Mr. Moloney. I am afraid it is not quite that simple. You can, 
of course, make a great many, calculations of that sort, but as I ex- 


plained previously, this 15 percent which you mentioned is nearer 
equivalent to 100 percent of the growers net income.^ 

Mr. DoRFMAN. I understand that, but I think that is princijpally 
because the grower has mortgaged the crop to the hilt and that is 
all that remains? 

Mr. Moloney. That is correct. 

Mr. DoRFMAN. Is it your impression that the per capita con- 
sumption of fats and oils in the form of lard, butter, or raargarine 
v/ould increase if you were to eliminate these taxes, that it would 
increase the consumption of margarine you would expect to follow, 
would result in a greater per capita consumption of fats and oils in 
general ? 

Mr. Moloney. It is my feeling that it would, my belief that it 

Mr. DoRFMAN. You don't think people" would cut down by a cer- 
tain amount their consumption of other things? 

Mr. Moloney. No ; I doi^'t. ^ 

Mr. DoNOHO. Mr. Moloney, you have previously referred to nontax 
barriers against the sale of margarine. Of what do such nontax 
barriers consist? 

Mr. Moloney. There are several types; first, State prohibition 
against the use of margarine in State institutions; secondly, color 
prohibitions; and, finally, the labeling and packaging laws of the 
various States. 

Mr. DoNOHO. Taking your categories in the order named, what 
States prohibit the u^e of margarine in their institutions? 

Mr. Moloney. I have a list of those States. They are California, 
Connecticut, Idaho, Iowa, Illinois, Kansas, Kentucky, Michigan, Min- 
nesota, Montana, New Hampshire, Nebraska, New York, North Da- 
kota, Ohio, Oklahoma, Pennsylvania, Tennessee, Washington, and 
Wisconsin. This list was mado up from publications of the United 
States Department of Agriculture. 

Mr. Kades. Mr. Moloney, do you happen to know whether any of 
those States prohibit the use of other products of cottonseed oil, 
such as salad oil ? 

Mr. Moloney. So far as we know, not, and I think we would know 
about it, unless — sometimes you run across a situation where they 
draw the specifications for the purchasing of products so that it 
would exclude certain products in favor of others, and of course it 
might be that such arrangements exist, but I don't know of any. 
We have had experience with that in the past, but I don't know of 
any today. 

Mr. DoNOHO. What would you say was the principal effect of 
barring margarine from public institutions ? 

Mr. Moloney. I feel the principal effect is that it gives the product 
a bad name. It does, of course, to some extent limit the sale. How 
much sales to these instit tions would be I don't know, but certainly 
if a consumer knows that a product is barred from the public insti- 
tutions of her State or his State, they begin to think, well, there must 
be something the matter with it. 

Mr. DoNOHO. In other words, you think a bad name discourages 
sales elsewhere? 

Mr. Moloney. Yes; I think that is the major effect of those pro- 


Mr. DoNOHO. Mr. Moloney, you mentioned that trade barriers are 
found in laws prohibiting the sale of colored margarine. Do you 
know which States maintain such prohibition ? 

Mr. Moloney. Yes; I have a list of those States, made up also 
from publications of the Department of Agriculture. There are 31 
such States — namely, Alabama, California, Colorado, Connecticut, 
Delaware, Florida, Illinois, Iowa, Maine, Maryland, ^Massachusetts, 
Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jer- 
sey, New York, North Carolina, North Dakota, Ohio, Oklahoma, 
Oregon, Pennsylvania, South Carolina, South Dakota, Vermont," 
Washington, West Virginia, Wisconsin, and Wyoming. 

Mr. DoNOHO. Mr. Moloney, don't these laws have a legitimate pur- 
pose behind them? After aU, aren't they designed to prevent the 
sale of margarine as butter? 

Mr. Moloney. That is frequently the. reason given for their enact- 
ment. But I doubt whether it applies today, for the reason that you 
have your Federal Food and Drug Law, and I believe each of your 
States has a food and drug law, and' if it is possible to prevent fraud 
in every other food produced or sold by tTiese food and drug laws, 
I fail to see why it is not possible to administer those laws effectively 
with respect to margarine. 

Mr. DoNOHO. What significajice -do these color restrictions by the 
States have? 

Mr. Moloney. Insofai as sales are concerned, I fieel that their 
effect today is very small; that is, by themselves. It should be re- 
membered, however, that the Federal Government places a tax of 
10 cents a pound on the color ; that is, on colored margarine. Well, 
the effect of that 10-cent tax, together with these prohibitions, is 
such that it practically prohibits the sale of the colored product. In 
other words, almost all of the product — all of the product^sold today 
is white. 

Mr. DoNOHO. You believe, however, Mr. Moloney, do you not, that 
were the prohibition against color margarine by the States and the 
tax by the Federal Government removed, that the sale of margarine 
woula increase materially? 

Mr. Moloney. Yes; I feel certain that it would. It is simply a 
case first of convenience and secondly of preference. In other words, 
none of us likes to go out and buy a white table fat. That in itself, 
I think, prejudices a person against the product. Secondly, if we 
don't have that color preference we just don't want to be bothered 
with going out and purchasing this product, taking it home and 
mixing in color, and then repacking it, and I think that therefore 
the removal of those restrictions would undoubtedly increase the sale 
of the product materially. 

Mr. DoNOHO. Have you any idea just how -materially? 

Mr. Moloney. Well, it is difficult to say but we d.o know that in 
European countries they consume far rr.ore of it than we do here. 
For instance, the United Kingdom consumes about 9 pounds per 
capita, and it runs up much higher in some of the other European 

Mr. Donoho. If the per capita consumption of margarine were 
9 pounds in this country, what would that mean to the producers 
of cottonseed oil? 

124491 — 41— pt. 29 S 


Mr. Moloney. Well, it would approximately triple the amount of 
these various fats and oils now used in margarine, and consequently 
cottonseed oil would benefit in the opening up of this market. 

Mr. DoNOHO. Would you estimate the amount of the increase with 
respect to cottonseed oil ? 

Mr. Moloney. If cottonseed oil were used in this increased pro- 
duction of margarine to the same extent it is today, you might have 
three or four hundred million pounds' market for it. 

Mr. DoNOHO. Mr. Moloney, would not such an increase in the use 
of margarine bring* about a corresponding decrease in the use of 

Mr. Moloney. I don't feel that it would, for the reason that your 
margarine is consumed primarily by your lower-income groups, and 
I think that would still hold true even if you had the color restriction 
removed, and there is this fact. There is room for a considerable 
increase in the consumption of these fats, especially among the lower- 
income groups, so that my feeling is that the result would be a total 
increase in consumption of these products, rather than an increase 
of one at the expense of the other. 

Mr. Kades. Mr. Moloney, would it be fair to state, on the basis of 
your testimony, that part of the reason for the necessity of loans to 
producers of cotton is due to the subsidizing of dairy industries 
through the imposition of a tax on margarine supplies? 

Mr. Moloney. That part of it-^ 

Mr. Kades (interposing). In other words, the necessity for a cer- 
tain form of subsidy to cotton producers is brought about by sub- 
sidies to- the dairy industry through making it difficult for margarine 
to colnpete. 

Mr. Moloney. I would like to be able to say that, possibly, but 
there are so many other factors that enter into this cotton situation 
that I think I would hesitate to say that you could directly trace 
the responsibility. 

Acting Chairman Pike. That is stretching it pretty thin, really. 

Mr. Moloney. I am afraid so. 

Mr. Kades. What is the conclusion that you would have us draw 
from your testimony? 

Mr. MoloisTey. My conclusion is that the opening up of a new 
market, a market which is now closed to these commodities, not only 
to cotton oil but to other oils that might be used, is now forcing 
these various fats and oils into a narrow range, and that if this 
market in margarine which I have referred to were not restricted, 
we would certainly have a better opportunity to market this product 
at a price level which would bring some greater remuneration to the 
cotton grower. 

Mr. DoNOHO. And your position, Mr. Moloney, as I understand 
it, might be further stated to be that this increased outlet for your 
products would not in any way be detrimental to producers of the 
principal competing product, that is, butter ? 

Mr. Moloney. My feeling is that the danger, as it has been called, 
of permitting this product to be sold is not nearly as great as it 
has been claimed. But let's assume that it is. After all, aren't we 
attempting to operate this country, this economy of ours, on the idea 
of competition? Maybe it is an illusion, but I think that is what 
we are trying to do, and we have to compete. We have to compete 


with all kinds of producers. Then why shouldn't everybody else 
compete ? 

Mr. Kades. All you ask is an opportunity to compete, is that 
correct ? 

Mr. Moloney. That is right. 

Mr. DoNOHO. You mentioned labeling and packaging laws -as con- 
stituting barriers to margarine. Would you elaborate on this briefly ? 

Mr. Moloney. I just wanted to refer to those briefly as another 
instance of the cumulative restrictions which are piled onto this 
product to prevent it from getting to market. There are all kinds' 
of those things with respect to the kind of package, the kind of type 
that you have to have on it. They required restaurants to mark 
the plants if the product is sold in a restaurant, and added to all 
these other obstacles, it practically stifles the chance of selling the 

The chart up here will give you just briefly a sample of the dif- 
ferent kinds and sizes of type which are required by various States. 
Well, let's assume that a manufacturer might be doing business in 
several States, he has simply got to make up practically a carton 
for every State he goes into. 

Acting Chairman Pike, How is he going to get that upper one on 
the pound package? 

Mr. Moloney. I don't think that is meant to refer to the pound 
package ; that probably is for the ten-pound carton. 

Mr. DoRFMAN. Mr. Moloney, do you happen to know whether or 
not national distributors of margarine frequently find it disadvan- 
tageous to use fats and oils which are taxed at very high rates in 
some States in producing for their national market? That is, the 
tax might be very low in state A, but high in state B, but since 
• this distributor sells in both States he doesn't find it worth while 
to make up. two batches, and therefore must comply with the most 
rigid requirements. Do you happen to know whether that is the 

Mr. Moloney, I am sorry, but I don't have that information. The 
manufacturers, of course, would know it, and I understand that a 
witness who will follow me represents the manufacturers. Perhaps 
he can enlighten you on that, I can't, 

Mr, DoNOHO. I have only a few more questions to ask you, Mr, 
Moloney, and I would appreciate it if you would just answer them 
briefly, please. 

What are the principal markets of cottonseed oil at the present 

Mr. Moloney. Principally shortening, salad oil, salad dressing, and 

Mr. DoNOHo. If the potential market in margarine were opened 
up by the removal of the various restrictions, would not this simply 
mean transferring cottonseed oil from shortening to margarine ? 

Mr. Moloney, Very probably it would, but we believe that some 
such sort of a transference is going to be forced on us so far as the 
shortening market is concerned because of the large increase which has 
taken place in the production of lard during the past several years, 
plus the fact that with that increase in production, we have not 
recovered our export market. The result is that the volume of lard 
available for domestic consumption is increasing. 


I have here a table which will show that, and shows that the 
volume available for domestic consumption is at a point approxi- 
mately equal to that which it was at the worst of the depression in 
'32 and '33. 

This table was^made up from data published by the Bureau of 
the Census. 

Mr. EloNOHO. And it is entitled "Lard, Factory Production, Ex- 
ports, and Difference." 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Is this the table to which you refer ? 

Mr. Moloney. That is right. 

Mr. DoNOHO. Mr. Chairman, I offer this table as an exhibit. 

Acting Chairman Pike. It may be received. 

(The table referred to was marked "Exhibit No. 2373" and is in- 
cluded in the appendix on p. 16137.) 

Mr. Moloney. Another factor is the tremendous increase which 
has taken place in the field of soy-bean oil. Ten years ago we 
produced about eleven million pounds of that commodity in this coun- 
try. Last year production was 450 million pounds, an increase of 
about four thousand percent. 

Soybean oil is being increasingly used in shortening. Thus cot- 
tonseed oil finds itself meeting with competition with soy-bean oil for 
the shortening market, then as much of it as does get into shorten- 
ing competes with this huge volume of lard, and the result is a con- 
siderable lowering of prices as I mentioned before, to a point quite 
a bit below the general price level. 

Mr. DoNOHo. You have evidence' I believe, to show this increase 
in the supply of domestic edible oils. 

Mr. Moloney. Yes ; I have here a chart showing the supply of four 
of the more important edible oils : cottonseed, lard, soy-bean oil, and 
peanut oil, and an enlargement of that chart is shown up here. 

You can readily' see. that the total supply of these commodities is 
constantly going up. In other words, it indicates very definitely 
the need for this market which I have previously referred to. This 
chart entitled "Domestic Supply of Principal Edible Fats" was pre- 
pared from data published by the Department of Agriculture. 

Mr. DoNOHO. Is this a copy of the chart that you have described ? 

Mr. Moloney. That is correct. 

Mr. DoNOHO. Mr. Chairman, I offer this chart for the record. 

Acting Chairman Pike. It may be received. 

(The chart referred to was marked "Exhibit No. 2374"" and is in- 
cluded in the appendix on p. 16137.) 

Acting Chairman Pike. I notice you have left out butter as one 
of the edible fats. 

Mr. Moloney. I might say that was not an intentional slight. 
The chart would have looked practically the same had it been in- 
cluded, for the reason that the production of butter, or the supply 
of butter, has been almost constant. There has been some variation, 
but very little. It has ranged around 1,700,000,000. 

Mr. Kades. Is it your position that the trade-barrier laws relating 
to mar-garine products hamper the national market for all the do- 
mestic 641Sy not only cottonseed oil? 

Mr. IVfoLONEY. Oh, I think unquestionably that this has its effect 
upon the soy-bean producer, it has its effect upon the hog producer 


through lard, and upon the producer of these other groups — cattle 
producers so far as beef fats enter into the picture. It affects prac- 
tically your entire agricultural economy in tnese particular products. 
Mr. DoNOHO. With respect to the present situation among edible 
oils, your position is, is it not, that your present primary market 
is likely to deteriorate, and that a most logical and desirable market 
is closed to you through the imposition of discriminatory taxes and 
other barriers to the sale of margarine ? 
Mr. Moloney. That is correct. 

Mr. DoNOHO. Mr. Moloney, what significance would the removal 
of these restrictions have to the people of this country other than 
those producing and processing the materials for oleomargarine? 

Mr. Moloney. I think, as I mentioned before, it would make avail- 
able to consumers, and particularly your lower-income consumers, 
a pure and wholesome food. I feel, also, that the need for that 
has been indicated by the studies that have been made in the con- 
sumption of this type of food among various income groups. For 
example, one study conducted by the Bureau of Home Economics 
and the Bureau of Labor Statistics showed that as income went up, 
your consumption of these products also went up very rapidly. For . 
instance, where the expenditure per person for food was $1.24 to 
$1.87 per week, those people consumed 20 pounds of butter and 
margarine a year, 12 pounds of b&tter and 8 pounds of margarine. 
However, when you got up to the point where your consumer ex- 
penditures were $3.75 to $4.37 those people consumed 40 pounds of 
butter a week. In other words, you just double the fat. 

Mr. DoNOHO. You mean 40 pounds a year. 

Mr. Moloney. Yes; I beg your pardon. 

In other words, your total consumption of fats was doubled. I 
think also that any of these barriers which can be removed, which 
will result in an increased volume of trade, will materially benefit all 
the people of this country. In other words, the thing is not confined 
to any particular interest. What most of us want, I think, is to see 
larger volume of trade, and I think that this is one of' the things 
that could be done, perhaps small in the whole picture, but important, 
of course, to the groups that are affected by it, to bring about better 
trade conditions. 

Mr. DoNOHO. Mr. Chairman, I have no further questions to ask 
the witness. 

Acting Chairman Pike. Any further questions' from the com- 
mittee? If not, thank you very much, Mr. Moloney. 

(Mr. Moloney was excused.) 

Acting Chairman Pike. What are your plans for the rest of the 

Mr. DoNOHO. I would like to have Mr. Janssen, representing the 
margarine manufacturers, on the stand. 

Acting Chairman Pike. Have you any idea about time? I am 
under orders from the Chair to go along as far as anybody's patience 
will last. 

Mr. DoNOHO. I don't believe we can finish with Mr. Janssen this 
afternoon, but it. might be advisable to put him on for a while. 

Mr. Janssen, will you come forward, please? 


Acting Chairman Pike. Do you solemnly swear the evidence yo'i 
shall give in this proceeding shall be the truth, the whole truth and 
nothing but the truth, so help you God ? 

Mr. Janssen. I do. 

Acting Chairman Pike. I know we interrupt largely from this side 
of the table, but we will try to make the best use of this time as we 
can and make as much progress as we can. 

Mr. DoNOHO. Yes, sir; and I am sure Mr. Janssen will cooperate 
as much as possible toward that end. 



Mr. DoNOHO. Will you state your name and address, please? 

Mr. Janssen. Charles H. Janssen, 85 East Gay Street, Columbus, 

Mr. DoNOHO. What is your official title, Mr. Janssen, and whom do 
you represent? 

Mr. Janssen. My official title is president of the National Asso- 
ciation of Margarine Manufacturers. 

Mr. DoNOHO. Will you briefly give the salient facts regarding the 
nature of your organization? 

Mr. Janssen. The National Association of Margarine Manufac- 
turers, Mr. Chairman, is a trade association. It is a nonprofit or- 
ganization organized under the laws of the State of Illinois in 
1936, and it serves the margarine industry and principally its mem- 
bers in the ordinary capacity and function of a trade association. 
If you would be interested in its active members, it is a small or- 
ganization, I would be very glad to give the active members of that 

Mr. DoNOHO. Proceed. 

Mr. Janssen. The Capital City Products Co., Columbus, Ohio; 
Durkee Famous Foods, Inc., Chicago, 111. ; The Chumgold Corpora- 
tion, Cincinnati, Ohio ; J. H. Filbert, Inc., Baltimore, Md. ; Miami 
Butterine Co., Cincinnati, Ohio; B. S. Pearsall Butter Co., Elgin, 
111.; Shedd Products Co., Detroit, Mich.; Southern States Foods, 
Inc., Dallas, Tex.; Standard Nut Margarine Co., Indianapolis, Ind. 

Those are the 9 companies operating 12 plants. 

Acting Chairman Pike. Mr. Janssen, what percentage of 
United States production of margarine does this Association include, 
about ? 

Mr. Janssen. Approximately 53 or 54 percent. 

Acting Chairman Pike. A little over half? - 
. Mr. Janssen. Yes. 

Acting Chairman Pike. Are any of these companies subsidiaries 
of other companies, or all of them independent? 

Mr. Janssen. They are all independent companies, Mr. Chairman. 

Mr. PoNOHO. As president of this association, Mr. Janssen, are you 
familiar with the problem of your industry generally? 

Mr. Janssen. I think so. 

Mr. DoNOHO. Including those relating to trade' barriers^ 

31r. Janssen. Yes ; I believe so. 


Mr. DoNOHO. Mr. Janssen, what are the principal objectives of 
your organization? 

Mr. Janssen. The principal objective, of course, is to serve our 
members in the rather complicated set-up under which we are forced 
to do business. 

Mr. DoNOHO. More generally, Mr. Janssen, what are the more gen- 
eral purposes and objectives of the association? 

Mr. Janssen. We do have a general objective, sort of a long-range 
objective in our organization, like any trade association has, neces- 
sarily. Our long-range program is to gain for this industry and for 
the product this industry manufactures the same equality of oppor- 
tunity which is open to every other food product manufacturing 
industry and to every other food product, so that the margarine man- 
ufacturer may serve the economic needs of our people, enter the 
avenues of commerce like any other food manufacturer does, without 
any of these various restrictions that are imposed on us particularly. 

Mr. DoNOHO. Is this the reason, Mr. Janssen, why your association 
is interested in the subject of trade barriers? 

Mr. Janssen. Really that is the reason ; yes. 

The subject of trade barriers between States naturally takes cog- 
nizance of the laws and regulations which restrict opportunity nor- 
mally open to any food product manufacturer. We cannot reconcile 
those laws being imposed on margarine and the margarine industry 
with the liberal attitude that is usually accorded to commerce in 
foods, and we have given formal expression to that attitude or posi- 
tion with respect to that particular phase of the subject in our decla- 
ration of policy. If I may quote a brief paragraph here, I would 
like to read that into the record. We say in our declaration of 
policy : 

The laying of arbitrary selective excise or license taxes on any one whole- 
some food product or on the privilege of handling the same, with the purpose 
or the eflfect of raising its price to the consumer or of restricting its sale or 
use, is a harmful and whoUy unjustified use of the taxing power. 

No food product which, in respect to the wholesomeness and purity of its 
ingredients, complies with applicable state and federal food laws, should be 
burdened with special taxes, special licenses, or regulation, other than are 
strictly necessary in the public interest for the protection of the consumer. 

I might say that is our statement of policy with respect to this par- 
ticular situation. It is upon this that we predicate our case against 
those laws and regulations imposed on this industry and its product 
which operate as oarriers against them in their legitimate right to 
equal opportunity in domestic commerce. 

Mr. DoNOHO. Mr. Janssen, as a general thing laws are enacted in 
response to causes and conditions. They have a reason. What in 
your opinion originally prompted this legislation? 

Mr. Janssen. Mr. Chairman, I don't think many of our laws have 
any reason at all. You may also be of that same opinion with respect 
to many laws that are passed, yet nevertheless we do have those laws. 

Now, oleomargarine is a distinctive food product which had its 
rise in the 1870's. The first of these state laws in the seventies and 
eighties, as those enacted subsequently but prior to the enactment of 
our general food. control laws, met with strong and deserving public 
support because they were offered as measures to curb -ISie then 
widespread fraudulent adulteration of foods, ihcluding but by no 
means confined to dairy products. 


Our oleomargarine laws that we have today are a legacy of thai 
period when adulteration, misrepresentation, and fraudulent prac- 
tices in the production and sale of food products were widespread 
and common, and flourished in the absence of regulatory and con- 
trolling laws to prevent it. An understanding of the historic back- 
ground of that type of legislation against oleomargarine is impor- 
tant in light of the claim that such laws no longer are necessary and 
no longer serve any good purpose and that the corrective and regu- 
latory function of the original oleomargarine laws has been taken 
over and is more effectively performed by other laws that have been 
enacted since that time. 

Mr. DoNOHO, In other words, Mr. Janssen, it is your opinion that 
the early margarine laws were a part of a general attempt to combat 
widespread food adulteration? 

Mr. Janssen. Exactly. Mr. Chairman, may I make clear that 
almost every defense of the present oleomargarine laws is based on 
the false assumption or assertion that they are necessary to protect 
the public and the dairy industry against fraud. There exists wide- 
spread belief to that effect. We don't deny that. That is true. A 
brief recital of the historic background of this .legislation should 
therefore make clear, and I will make it very brief, why these olemar- 
garine laws becamecommonly accepted as of that character. 

It is difficult today, after more than 30 years' experience under our 
' comprehensive Federal food-control laws, w-hich by the way are the 
best in the world, and the state laws enacted in conformity there- 
with, to realize how general was the adulteration of food prior to 
the passage of these acts. There can be no doubt, however, that prior 
to and durihg the eighties and nineties the adulteration of food prod- 
ucts was very general indeed. 

I know something about that. Back in 1890 I was working in a 
little old grocery store in Nebraska. I have been in the grocery 
business all my life. The adulteration of milk and milk products, 
while extensive and subtle, was only a special phase of the then very 
prevalent adulteration of food products in general. In dairy prod- 
ucts adulteration was comparatively simple and for obvious reasons 
was more glaring than in other foods. 

Mr. Kades. Mr. Janssen, how do you account for the fact that 
margarine was singled out? 

Mr. Janssen. I am coming to that in a minute, if you will permit 
me. I have a quotation here from John Mullaly, who wrote a little 
book on the milk trade in New York and vicinity, and he says among 
other things : 

The first adulteration of dairy products that assumed the proportions of a 
social problem in America occurred al?out 1840 in the production of milk for 
fresh consumption in cities. New York State passed laws in 1862 with amend- 
ments in '64, '65, '78 and '82 for the purpose of stopping adulteration. Yet — 

he continues — 

the adulteration of milk remained a menacing evil until 1884, when the office 
of Dairy Commissioner was established. 

A very adequate presentation of the extent of adulteration of food 
products in general was given by a very eminent conmiissioner of 
agriculture, Mr. H. C. Adams, in his report as dairy and food com- 
missioner in Wisconsin in 1902. In that report, the commissioner 
refers to — ^you may get a smile out of this ; it has its humorous side — 


The clumsey wooden nutmeg of Connecticut, that even a policeman might de- 
tect. * • • wheat flour is adulterated with corn flour; buckwheat with 
wheat middlings. Vermont maple syrup is made that never saw Vermont, and 
Is made from the sap of trees that grow in the heart of Chicago. A good 
portion of the strained honey of commerce never produced any strain upon 
the bees. Milk is robbed of its cream, filled with lard and sent all over the 
world to ruin the reputation of American cheese. 

Further evidence on this is found in the records of the Division of 
Chemistry of the U. S. Department of Agriculture, which accumu- 
lated evidence on that subject long before they were given power to 
enforce the pure-food law. It was incorporated in a series of pub- 
lications which were entitled "Extent and Character of Food and 
Drug Adulteration." I have a brief quotation from that. I want to 
make a point here. This comes right to your question. 

Most of these adulterations were harmless. They were the substitution of the 
cheaper for dearer materials in the manufacture or preparation of such things 
as butter, cheese, milk, tea, coffee, cocoa, and a hundred other commodities in 
every day use. A. J. Wedderburn, who compiled the reports, estimated that 
15 percent of the foods used in the country were adulterated. 

Some of you gentlemen weren't bom during those days. 
Acting Cnairman Pike. I remember that most of our sardine man- 
ufacturers in Maine were Frenchmen up until 1906. 
Mr. Janssen. He continues and says: 

That adulteration is general is proved ♦ * * as is also the fact that jio 
kind of food, drugs, or liquors is free from the finishing touches of the manipu- 
lators. It may be therefore concluded that the practice is general and the 
character principally fraudulent, with but occasional criminal additions, the 
latter, however, too frequently causing loss of life and health. 

Dairy products were the first commodities to be considered for 
effective control, not because adulteration was more prevalent in that 
group than in any other, but because dairy products, principally 
milk, were peculiarly essential in the diet and because organized dairy 
farmers saw the real threat to their industry in that condition. 

I think the dairy farmers of that time, as well as the dairy famuers 
of today, ought to be congratulated on having such a splendid organ- 
ization that takes care of their industry. However, the first of our 
oleomargarine unfortunately came into this world at a time when 
adulteration of many commercial products was considered smart 

"Let the Buyer Beware" was still the current maxim of business. 
The new product lent itself easily to fraudulent use, being an im- 
provement on lard, which had been used extensively as an adulterant 
of certain dairy products. 

Mr. DoNOHO. Mr. Janssen, do you consider that the legitimate 
purpose, which, as you say, occasioned the enactment of the original 
oleomargarine laws, still obtains at the present time? 

Mr. Janssen. No; I do not. Mr. Chairman; not at all. 

Mr. DoNOHO. Upon what do you base vour opinion, Mr. Janssen? 

Mr. Janssen. Among other provisions, Mr. Chairman, it has long 
been recognized that effective jfood control and effective food regula- 
tion in the public interest have been achieved through regulatory law 
and that it is not necessary to tax a product in order to prevent adul- 
teration and fraud in its manufacture or its sale. Because of this, in 
the Federal field we have the Food, Drug, and Cosmetic Act, a monu- 
ment to Senator Wagner and Members of the Congre3s at that time, 


and we have the Trade Commission Act and we have other laws, and 
in the States we have highly effective food and trade-practice control 
laws. The great purpose of that body of law is to protect the con- 
suming public from health injury and the purchasing public from 
economic injury. 

Oleomargarine is not excluded in any way, shape, or manner from 
the effective jurisdiction of that body of law. 

Mr. DoNOHO. What, in your opinion, then, Mr. Janssen, are the 
reason^ sustaining the enactment of the latter-type margarine laws, 
or supporting the intention of this type of legislation ? 

Mr. Janssen. The opposition to the repeal or modification of these 
special oleomargarine laws and the continued demand for new and 
more drastic legislation — that is, since the enactment of our general 
food-control laws — in my opinion must be considered an expression of 
an economic motive of opposing groups or interests, a motive which 
purposes the suppression of commerce in that product. 

Now, here is a significant fact. While legislation to prevent fraud 
and adulteration in all other foods gradually assumed the form of 
general food-control law and finally shaped the Federal Food and 
Drug Act in 1906 — that is, without excise- and license-tax features — 
the oleomargarine laws containing the tax features remained and 
have constantly increased in number and severity, and that again 
strongly indicates the presence of an economic motive and a planned 
purpose to restrict or to destroy commerce in this article of food for 
reasons other than the prevention of fraud or in the public interest. 
As I pointed out before, oleomargarine, in common with all food 
products, long ago became subject to Federal and State regulatory law 
under which fraud and deception are effectively prevented. 

The assertion which is often made, frequently advanced, in support 
of these laws, to the effect that the retention and further strengthening 
of the oleomargarine laws, with their excise- and licensing-tax features 
and restraining regulations, as necessary to protect the dairy industry 
and the public against fraud and deception, is therefore no longer 
tenable, yet any attempt to modify or repeal these laws is vigorously 
opposed, and again I say that it is in this opposition that we see the 
economic motive and the motivating influence that supports it. 

Mr. DoNOHO. Do you kno\^ of any public interest or support for 
these laws? 

Mr. Janssen. No; I do not. On the contrary. I think I could 
sustain that very well with adequate proof. The opposition to the 
repeal of such laws does not come from the consuming public. The 
consuming public invariably condemns such laws in unmistakable 
terms at the polls when it is given an opportunity to express itself, 
which in my opinion would indicate first, that there is no public 
demand for such laws, and second that the public favors the repeal 
of such laws, and the record on which I base that is just simply 
this : 

On nine occasions restrictive laws on oleomargarine have gone to 
the people for decision through referendum. 

The people of Oregon have four times overwhelmingly rejected 
such laws by their votes; in November 1920, by 119,000 against 
67,000; in November 1924, by 157,000 against 91,000; in November 
1932, by 200,000 against 131,000; in November 1933, by 144,000 
against 66,000. 


The people of Michigan repealed such a law on November 8, 1932. 

California voters have twice rejected such a law through refer- 
endum, once on November 2, 1926, and again on November 3, 1936, 
by the overwhelming vote of 1,359,000 against 345,000. 

The people of Washington rejected such a law on November 4, 

Acting Chairman Pike. That makes eight, Mr. Janssen. Do you 
remember the ninth ? 

Mr. Janssen. I must have missed one, Mr. Chairman. I venture 
to say, though, it must be there, because I couldn't have got that figure 
of nine without having a basis for it. 

Acting Chairman Pike. I didn't know but that once you missed 
one, one that got by. 

Mr. Janssen. I know of no instance where consumer groups, wel- 
fare and social agencies, or charitable organizations have gone to the 
defense of such laws. On the contrary, such bodies invariably protest 
the enactment of such legislation. 

Mr. Ivades. You have given us an explanation of the presence on. 
the statute books of the various States of the laws in question, but 
3-ou have just mentioned that on November 3, 1936, California re- 
jected such a law. What were the reasons urged for the passage of 
the law at this time? 

Mr. Janssen. What are the reasons urged ? They are many. The 
principal reason urged in California, I believe, was that it was neces- 
sary to protect the dairy industry as a whole against the competition 
of a producer asserted to be inferior and there were many other rea- 
sons urged. The literature used in that campaign is full of it. 

Mr. Kades. Has the reason shifted from prevention of adultera- 
tion of food products to the prevention of competition? 

Mr. Janssen. No; I wouldn't say entirely. Frankly, I am not pre- 
pared to answer that specifically, but the reasons that are being urged 
in behalf of such legislation are quite uniform throughout the coun- 
try. It is principally an economic reason, and with that a good deal 
of propaganda, if I may call it that, which tries to arouse an antag- 
onism to the product, when they say it isn't worth eating, it is un- 
wholesome, that rats have died of it, and so on, and so forth. 

Acting Chairman Pike. Just so I can get through my head, Mr. 
Janssen, what the saving would be, can you give me an instance 
of comparative retail prices of a good grade butter and margarine 
in some community where there is no tax on either. I would like 
to know what the saving to the buyer would be. 

Mr. Janssen. I would say, Mr. Chairman, that oleomargarine, 
speaking generally, runs from 40 to 50 percent of the average price 
of butter. 

Acting Chairman Pike. What would be an ordinary retail price? 

Mr. Janssen, Well, if butter would be selling at 35 cents, oleo- 
margarine would be retailing about 17 or 18 or 19 cents. 

Mr. Kades. I don't understand, Mr. Janssen, why the price of 
oleomargarine is necessarily related to the price of butter. 

Mr. Janssen. It is not. 

Mr. Kades. I thought you said, if butter 

Mr. Janssen (interposing). I just cited that as an example. 

Mr. Kades. Butter might be selling at 20 or 50 cents, there is no 


Mr. Janssen. No. The economics back of that, in my opinion, 
are that fat prices, oil prices, usually are sympathetic to each other, 
and that when one oil price rises, the other rises. When butter 
rises, all oil fats usually rise. 

Acting Chairman Pike. They are necessarily interrelated. They 
can frequently be used as a matter of choice for one use or another. 

Mr. Janssen. That is right. 

Mr. Elmore. Mr. Janssen, who are the principal proponents of 
legislation directed against margarine ? 

Mr. Janssen. Should I answer that? 

Mr. Elmore. I would like to know. They have appeared before 
State legislative committees, haven't they? 

Mr. Janssen. Yes. 

Mr. Elmore. It is a matter of public record then? 

Mr. Janssen. It is a matter of public record, and, if the chair- 
man wishes, I shall be very glad to speak on that subject. 

Acting Chairman Pike. I don't know 

Mr. Kades (interposing). I suggest we might ask counsel. 

Acting Chairman Pike. If it embarrasses the witness 

Mr. Janssen (interposing). It wouldn't embarrass me at all. 

Mr. DoNOHO. Mr. Janssen is here under oath, and as an expert; 
I feel sure he would be willing to give his opinion. 

Acting Chairman Pike. Then I think you should answer the 

Mr. Kades. If representatives who support this legislation are to 
appear before this committee, it might be more appropriate for them 
to answer. 

Mr. Elmore. I would be very glad to withdraw the question, if 
that is the case. 

Acting Chairman Pike. We all know what the answer is, I think. 

Mr. Janssen. I have some definite proof as to who may be respon- 
sible for a great deal of this. I would rather have it come from 
the other side. 

Acting Chairman Pike. I will leave it to counsel whether he pre- 
fers that it should be brought up now. 

Mr. DoNOHO. I think Mr. Kades' suggestion is probably pertinent. 

Mr. Elmore. That is all right with me. 

Acting Chairman Pike. We will leave it to rebuttal. 

Mr. DoNOHo. In what way, broadly speaking, Mr. Janssen, have 
these restrictive laws on margarine affected the margarine user? 

Mr. Janssen. Mr. Chairman, I think that question could be 
answered quite easily. What I have said heretofore indicates that 
the trade barrier character of these laws is clearly proven in what 
they have accomplished, in what they have done. Let me summarize 
that, and what I say is a tribute to those laws, in what I think is 
their intended purpose. They have effectively prevented a normal 
expansion of trade in oleomargarine ; they have set up effective trade 
boundaries against this wholesome food product and destroyed mar- 
ket opportunities for it and, of course, for the constituent agricul- 
tural ingredients of the product. They have set up unfair dis- 
ariminatory advantages for a product made of one formula as 
against another formula; they have brought about a highly con- 
centrated condition in the manufacture and distribution of the prod- 
uct ; they have proven destructive of free competitive enterprises ; . 


they have arbitrarily closed the avenues of commerce against a 
legitimate industry engaged in the production and sale of a whole- 
some, economical food, and have exercised a restraint of trade in 
utter disregard of consumers' interests. 

Mr. DoNOHO. More specifically, Mr. Janssen, what in your opin- 
ion are the principal restrictive laws on margarine which you con- 
sider constitute trade barriers against the sale and distribution of 
the product? 

Mr. Janssen. Practically every feature of the laws. That includes 
provisions against color, the excise-tax features, the license taxes, the 
prohibition against the purchase and use of this product in State 
institutions and private institutions which are supported wholly or 
in part by public funds, and then there are the conflicting and 
unfairly burdensome requirements with respect to labeling and arbi- 
trary restrictive administrative regulations. 

Mr. DoNOHO. To what extent has the legislation yoii have described 
been enacted by the States ? 

Mr. Janssen. In comiection with that answer, I would like to point 
to what I have in the way of an exhibit here, which shows the picture 
pretty well. It doesn't make a very pretty picture, but it is 

comprehensive. Let me point out here to you 

Acting Chairman Pike (interposing). Perhaps we had better have 
that admitted as an exhibit. 

Mr. DoNOHO. Would you describe your chart, please ? 
Mr. Janssen. The chart is a table of State excise and license taxes 
on oleomargarine, showing the year of enactment of the law and 
exceptions to such. 

Mr. DoNOHO. And what is the source of this chart? 
Mr. Janssen. The source of this chart — it is a chart compiled by 
my office — and the source is the document called "State and Federal 
Legislations and Decisions Relating to Oleomargarine," issued by the 
United States Department of Agriculture, Bureau of Home 
Mr. DoNOHO. Is this the chart to which you refer ? 
Mr. Janssen. This is the chart, Mr. Donoho ; yes. 
Mr. DoNOHO. Mr. Chairman, I offer this chart for the record. 
Acting Chairman Pike. It may be admitted. 

(The chart referred to was marked "'Exhibit No. 2375" and is 
included in the appendix on p. 16138.) 

Mr. Janssen. You will notice here that we have two , States — for 
instance, there is Wisconsin and Washington, both having'^a tax of 15 
cents a pound on the product, an excise tax of 15 cents a pound. 
Well, for good measure, Wisconsin puts on some additional provi- 
sions, and nearly all of these States have not been skimpy, in fact, 
they have been vei*y liberal in putting taxes on this product. 
South Dakota, Tennessee, North Dakota, and Oklahoma have 10 
cents per pound on all oleomargarine; Idaho, Iowa, and Utah have 5 
cents a pound on all oleomargarine. 1 think there are 9 States that 
have 15, 10, or 5 cents a pound on all oleomargarine. Nebraska has 15 
cents a pound, but with certain qualifications; that is, on oleomar- . 
garine which contains fats and oils other than those that are specifi- 
cally named in the law. Louisiana has a tax of 12 cents per pound 
ir the same type of law. That was enacted in 1934. Alabama, 
-.t\.rkansas, Colorado, Florida. Georgia, Kansas, Maine, Minnesota, 


New Mexico, North Carolina, South Carolina, and Texas have a 10 
cents per pound on all oleomargarine but exempting products made 
from certain types of fats and oils. In Colorado, Kansas, Minnesota, 
oleomargarine containing soy-bean oil is not exempted from the 
application of the tax, so that soy-bean oil, which originates in many 
of the contiguous States, doesn't find a market in margarine in those 
States, and these laws include, here,^ for instance — these are the 
exceptions that I have just mentioned. 

Then we have the various license taxes on retailers in those States, 
enacted in 25 States. There is only one license tax that goes back 
any period of years, and that is the one in Pennsylvania, which goes 
back to 1899. There are license taxes on wholesalers and on manu- 
facturers, restaurants, boarding houses, and also on consumers, so 
we have quite a complete listing of all types of license and excise 
taxes on the product. 

The States imposing license taxes on the sale, you can see there. 
Certain States have no license tax, and others have license taxes but 
do not have excise taxes, so that it is quite a complicated picture. 

Mr. DoNOHO. Mr. Jaiissen, do you consider restrictions against the 
use of color in margarine as constituting a trade barrier to your 
product ? 

Mr. Janssen. Well, I would answer that yes and no. Consumers 
generally prefer some tin of yellow in their table fat. I suppose 
that has good reason in h' toric custom and so forth. Also, for some 
cooking and baking purposes. Oleomargarine now is usually sold 
white and purchased white, but it is extensively colored in the home. 
The process of coloring in the light of modern food product prac- 
tices is really a factory process, and with few exceptions is so recog- 
nized in all general food-control laws. There are some exceptions. 
For instance, in Illinois now it is prohibited to use color in vinegar, 
and there are a few States in which macaroni and egg noodles, and 
so on, may not be colored to resemble egg yolk color. There is no 
reason, however, in my opinion, why consumers of oleomargarine 
should be denied that service, providing the manufacturer conforms 
with Federal and State laws and properly declares the presence of 
coloring in his labeling. 

Mr. DoNOHO. How do you account for the extensive prohibition 
against colored margarine? 

Mr, Janssen. That goes back to what I said a while ago. That is, 
in my opinion, a strictly economic motive. Now let me explain that 
this way. The mark or the identification of a yellow color, or the 
mark of a yellow color it is probably proper to say, as a distinction 
which is naturally acquired in a food product or added to it by arti- 
ficial coloring, appears to have been vested in butter as an exclusive 
monopoly against any other fatty food which closely resembles it in 
basic ingredients or is adapted to similar use. 

Mr. Kades. Mr. Janssen, is it true that it would be easier to pass 
ofi" oleomargarine for butter if it were colored yellow ? 

Mr. Janssen. Well, yes; I think it might be much easier: might 
be resorted to. I doubt if it would be resorted to any more, though, 
than is the case in other food products wherein the law is being 
violated today. 

1 Referring to "Exhibit No. 2375," see appendix, p. 16138. 


Mr. Kades. Isn't it an easy way of enforcing the prohibition for 
the adulteration of butter? 

Mr. Janssen. If you believe that the best way to enforce a law and 
to bring about respect for the law is to prevent and absolutely pro- 
hibit the manufacture or sale of a product; yes. 

Mr. Kades. Well, I didn't go so far as that. I merely was speak- 
ing of the justification for the prohibition against coloring, I 
wasn't addressing myself to these other prohibitory provisions. 

Mr. Janssen. That reminds me here, when I came into this room 
yesterday and again today I see three or four "No Smoking"' signs. 
Pretty soon somebody starts smoking in one part of the room, and 
everybody does the same thing. It is identically the same in every 
other human activity, I presume; people follow their self-interest 
and we will have violations with respect to butter^ with respect to 
margarine, just as we have a large number of violations now in 
butter alone with respect to its lat content. Thousands of con- 
demnation procedures are on record annually with respect to butter, 
and so forth, and you will have the same thing with respect to 
oleomargarine, but we do have very efficient and very effective food 
administrative laws now that are general in character and specific 
in purpose, and which we did not have at the time when these laws 
apparently were deemed necessary. 

Recently, for instance, the Federal Food, Drug, and Cosmetic Act 
(sec. 403K) expressly exempt butter from the application of the 
act prohibiting the use of artificial coloring or declaring its presence 
on its labeling. The Federal Oleomargarine Act, of March 4, 1931, 
places an excise tax of 10 cents per pound on the colored product 
and provides that: 

Oleomargarine shall be held to be yellow in color when it has a tint of 
shade containing more than one and six-tenths degrees of yellow, or of yellow 
and red collectively, but with an excess of yellow over red, measured in the 
terms of the Lovibond tintometer scale or its equivalent. 

That tells you how much color we can put in oleomargarine. 

Acting Chairman Pike. Wliat does it mean when you are all 
through ? 

Mr. Janssen. It means it has to be white. This Federal tax on 
colored oleomargarine practically destroyed the commercial market 
for colored goods- -and I do think that you will grant me that the 
Federal oleomargarine tax is a revenue measure and ostensibly an act 
to produce revenue. It might have worked out, might have been 
responsible for considerable revenue to the Federal Government and 
have carried out its stated purpose, but 32 States completely prohibit 
the manufacture and sale of oleomargarine w^hen so colored, thus 
effectively preventing manufacturers of 'oleomargarine from giving 
their product the benefit of suitable color, a privilege not denied to 
any other food producers. 

Artificial coloring is used extensively in butter and as the butter 
industry assiduously fosters the idea that oleomargarine is a com- 
petitor of butter, or an imitation product, and include that assertion 
in their support of tax legislation against it, oleomargarine ought 
to be permitted the same privilege. Being denied that privilege 
it certainly cannot be the competitor that it is described to be, and 
if it is a competitor I think every fair-minded man would say it 
ought to be entitled to compete lairly on an even basis with its 
compe'titive article. 


Now, here again I say there is the economic motive apparently 
behind that. Another fact is that you may not have as good reason 
as some other product, but the relationship between the natural color 
of butter and its natural vitamin A content is importantly stressed by 
the dairy industry as a measure of its corrective food value, confirmed 
by citation of scientific authority, and I do not question that, and 
larly if that artificial coloring apparently enhances the claimed value 
of that particular product. I make no exception of oleomargarine on 
that point because I say the same thing for any other food product, 
in the product placed there to accentuate its value ought to be pro- 
hibited, because it condones deception, which any effective food control 
should forbid in the public interest. 

That applies to butter and applies to any other food product in my 

Mr. Kades. Mr. Janssen, I don't entirely understand you. Do I 
understand that your position is laot that coloring of oleomargarine 
should be prohibited, but that no coloring should he permitted of any 
food product? 

Mr. Janssen. Oh, no ; I don't mean that ; but it should be declared 
if there is an artificial coloring added ; it should be declared, particu- 
larly if that artificial coloring apparently enhances the claimed value 
of that particular product. I make no exception of oleomargarine on 
that point because I say the same thing for any other food product, 
but I am showing this because it tends to confirm my opinion that 
this whole thing, all this legislation against oleomargarine, rests on 
a competitive commercial motive, rather than the public good or the 
public health, or anything else. 

Mr. DoNOHO. With respect to excise taxes, Mr. Janssen, what effect 
have they had on your industry ? 

Mr. Janssen. There are 24 States in which excise taxes are levied 
on the product. The resulting effect of these excise taxes in States 
taxing the product without exception, that is States in which they 
have an excise tax on all types of the product, is 'seen ii\the diminishing 
sales of the product. As I say, there is a good point there; it is a 
graphic example of the regulatory and fraud-preventing powers of that 
type of legislation. It kills the product, drives it out of commerce. If 
that is what we need to prevent fraud there are a lot of other products 
we ought to get rid of. Promoted as revenue measures, they have 
effectively reduced commerce in the article taxed. We have another 
chart here I would like to submit, which shows the retail dealers which 
were licensed to sell uncolored oleomargarine before the State excise 
taxes were imposed, compared with the number continuing, after the 
excise taxes were imposed, grouped by different types of tax and to 
show the percentage of decline in dealers after the enactment of the 
laws. This is taken from State and Federal legislation and decisions 
relating to oleomargarine. Bureau of Agricultural Economics, United 
States Department of Agriculture. 

Mr. DoNOHO. Is tliis the table to which you refer ? 

Mr. Janssen. That is it. 

Mr. DoNOHO. Mr. Chairman, I offer this table as an exhibit. 

Acting Chairman Pike. It may be admitted. 

(The table referred to was marked "Exhibit No. 2376" and is 
included in the appendix on p. 16139.) 


Mr. Janssen. Mr. Chairman, we have here, for instance, three 
States — Idaho, Iowa, and Utah. Prior to the enactment of the law 
wliich imposed a 5-cent-per-pound excise tax on the product there 
were 699 retail dealers in that product. Well, the result was that that 
law eliminated 99.1 percent of those dealers in Idaho. In Iowa the 
5-cent excise tax eliminated 46.1 percent of all the dealers handling it 
on the market ; Utah, after the enactment of that 5-cent tax, there were 
01 percent of the dealers eliminated. With the 10-cent tax in North 
Dakota we eliminated 100 percent very effectively; it was a clean. 
South Dakota eliminated 96.8 percent. Tennessee eliminated 86.5' 
percent. Oklahoma eliminated 90.2 percent. Washington, where we 
have a 15-cent-per-pound excise tax, eliminated 99.7 percent, and in 
Wisconsin 99.9 percent. 

So that the effect of those laws with respect to the effectiveness of 
what in my opinion they were intended to do, was quite remarkable. 

Mr. Elmore. Mr. Janssen, for the purposes of that chart, how did 
you consider chain stoi'es? 

Mr. Janssen. This chart, I may say, was lifted from a Government 
publication, the Bureau of Economics, United States Department of 
Agriculture, but I presume that the chain stores were all handled on 
an individual basis because the tax applies to the individual units; 
tliis tax applied to the pound, of course, but I imagine that it was used 
on that basis, individual units. I have a further chart here in a few 
minutes that will point to that a little bit more specifically. I carry 
that down to the report of the internal-revenue collector for the fiscal 
year ending June 30, 1939, and find that the process toward complete 
elimination there is even made more clear in the next exhibit. 

Mr. DoNOHO. Will you ide»tif y this exhibit, please, Mr. Janssen ? 

Mr. Janssen. This is a chart showing the licensed 'retail dealers in 
•oleomargarine for the years 1930, 1932, 1933, 1935, and 1939, and lifted 
from the reports of the collector of internal revenue for the year 
ending June 30 of each year. 

Mr. Donoho. This is the chart to which you refer ? 

Mr. Janssen. That is the chart. 

Mr. DoNOHo. Mr. Chairman, I offer this chart as an exhibit. 

Acting Chairman Pike. It may be received. 

(The chart referred to was marked "Exhibit No. 2377" and is in- 
cluded in the appendix on p. 16139.) 

Mr. Janssen. Going a little bit further in 1939, for instance, we 
find that dealers were completely eliminated out of Washington and 
Wisconsin. There remained but one dealer in the State of North 
Dakota, there was complete elimination in Idaho, and in these nine 
States that have this excise tax on all products there were a total of 
3,303 licensed retail oleomargarine dealers reported during the fiscal 
year of 1939, ending June 30, and in those same States the total number 
of retail food stores which are potential dealers in oleomargarine 
numbered 51,719, so that we have in those States, if we should take out 
Iowa, where there were still 2,302 retail dealers despite that 5-cent tax, 
we would have approximately only 1,000 retail dealers in oleomarga- 
rine out of something like forty-two or forty-three thousand potential 
dealers in that product. 

Now it seems to me that any State that should pass laws, any 
State passing laws with respect to a wholesome — I say this ad- 
visedly — pure and economical food product, which I believe is abso- 

124491 — 41— Dt. 29 9 


lutely essential and necesary to a tremendously large proportion of 
our people who are in the lower income class, so burdensome that 
not a single retail food store in the State will attempt to handle the 
product, hardly seems in line with that concept of social responsi- 
bility which, motivates so much of our legislative activity today. 

Acting Chairman Pike. You don't think, then, there is any reality 
behind the claim that these laws are for the purposes of revenue? 

Mr. Janssen, I do not. 

Acting Chairman Pike. I think that is fair enough ; I don't think 
anybody else does. 

Mr. Janssen. Miy I say that sometime ago I read a statement, made 
by a very eminent tax commissioner of one of our States, T think it 
was Massachusetts, in which he spoke about the objective of taxation. 
He said it seemed to him thi.' some of our tax laws, while they are 
ostensibly enacted for revenue purposes, tended to drive out or dry up 
the very commerce which they taxed. Well, I think that is the case 
here. Those laws were enacted to dry up the commerce taxed. 

Acting Chairman Pike. There are many laws like that. Our 
legal member will remember the State banknote law, which is prob- 
ably the outstanding one of the 1860's. 

Mr. DoNOHO. Mr. Janssen, you have shown the effect of general 
excise taxes on all»types of margarine. Would you care to discuss 
their effect with respect to the other types which I believe you re- 
ferred to earlier in your testimony? 

Mr. Janssen. If you will recall the first exhibit that I had 
there,^ it showed that there were oleomargarine laws in a lot of the 
Southern States and in some of the Northern States, for instance, 
Alabama and Arkansas, Colorado, Florida, Georgia, Kansas, Maine, 
New Mexico, North Carolina, South Carolina, and Texas. Those 
laws are all identical and all drawn out of the same hopper, identical 
in principle, identical in phraseology, and I think identical in pur- 

They are referred to in the olemargarine industry as domestic fats 
laws. J think that designation is erroneous, it is misleading. They 
are not, strictly speaking, domestic fats laws. Let me read one of 
those laws. The Alabama law provides — an ingenious law by the 
way, ingenious phraseology: 

An excise tax of 10 cents per pound on all olemargarine sold, offered or 
exposed for sale, or exchanged in the State of Alabama, containing any fat 
and/or oil ingredient other than any of the following fats and/or oils : cotton- 
seed oil, peanut oil, corn oil, soy bean oil, oleo oil from cattle, oleo stock from 
cattle, oleo stearine from cattle, neutral lard from hogs, or milk fat. 

In Kansas, soybean oil is not among the exemptions, nor is it in 
Colorado or Minnesota. The Georgia law adds pecan oil to the 
Alabama exemptions, and Florida and New Mexico add sheep fat. 
I said a little while ago they were identical in phraseology. With 
these exceptions that is true. 

The principal argument advanced for that particular legislation 
was that it would be prohibitive of the use of imported or foreign 
oils and fats in the product, and therein benefit the American farmer. 
Yet, these laws contain no provision that burdens imported oils and 
fats in the product except certain specified types which if present in 

1 Referring to "Exhibit No. 2375." See appendix, p. 16138. 


the product make it liable to a 10 cents per pound tax and thereby 
virtually bar such imported oils from that market. 

Even the Division of Statistical and Historical Research of the 
Bureau of Agricultural Economics of the United States Department 
of Agriculture in its publication, State and Federal Legislation and 
Decisions Relating to Oleomargarine, lists these States as "having 
excise taxes on oleomargarine containing imported oils," although the 
exempted oils are named in a footnote, but it shows to what extent 
this erroneous conception of these laws has gained ground. 

In short, we believe that these laws were promoted to destroy com- 
merce in oleomargarine containing coconut, babassu oil, and palm 
kernel oil, although these same and other foreign oils are permitted 
to be freely sold in these States as other food products without special 
le^slation or regulation or restrictive tax, and this again strongly 
evidences the presence of an economic motive behind this type of leg- 
islation as heretofore pointed out. 

Mr. DoRFMAN. Do you feel the higher tax imposed on these marga- 
rines containing coconut, palm, palm kernel, and the like has seriously 
restricted the consumption of those fats and oils in margarines ? 

Mr. Janssen. It has in oleomargarine; yes. 

Mr. DoRFMAN. To the extent that it has discriminated against those 
in relation to domestically produced fats and oils, do you feel that 
the greater consumption of domestic fats and oils has been appreci- 
able; that is, has cottonseed oil, for example, benefited from the 
discrimination or greater discrimination against coconut oil, palm 
kernel, and the like? 

Mr. Janssen. It is doubtful, very doubtful, for this reason: Tre- 
mendous quantities of these oils are imported into the United States 
and they come into this market here. A good many manufacturers 
• of oleomargarine also manufacture other food products. Some larger 
manufacturers of oleomargarine manufacture mayonnaise, salad dress- 
ing, and many other food products in which imported oils are used, 
or in which all these oils are used. Now, the total amount used in 
oleomargarine out of the grand total of fats and oils consumed in this 
country is relatively small, and what little there is, in view of the fact 
that they are interchangeable in use I think it would be very diflBcult 
indeed to say definitely that the prohibition against those oils in 
oleomargarine had definitely been a benefit to these other fats and oils 
which we designate as being domestic. 

Mr. DoRFMAN. Are they in fact interchangeable in use in view of 
the higher tax that applies to margarines made from some of these 
oils? For example, a manufacturer having a choice of coconut oil 
or cottonseed oil misrht be tempted to use the cottonseed to avoid the 
higher tuA. 

Mr. Janssen. That is true, but that, also would lead me to a dis- 
cussion of fats and oils prices which run quite uniform, maybe an 
eighth or a quarter or a half — sometimes as much as a half differen- 
tial. But I believe I will answer your question fn just a few moments 
if you will permit me, if I may continue. 

The essence of our complaint against this type of law — I am 
speaking for the industry, the manufacturing industry — is that 
they unfairly discriminate against the margarine industry by denying 
to this industry the same freedom of choice in the selection of ingi^- 
dients exercised and enjoyed by other food-product manufacturers. 


This country annually imports hundreds of millions of pounds of 
many kinds of fats and oils, and I would like to offer an exhibit 
which shows imports of vegetable oils and oil equivalent of imported 
oil seeds, of the kind used by industry in the manufacture of food 
products — not just in the manufacture of oleomargarine but in the 
manufacture of food products. First I have the vegetable oils. 

Mr. DoNOHO. Would you identify this chart, please? 

Mr. Janssen. This is secured from Fats and Oils Trade of the 
United States in 1939, Foodstuffs Division, United States Depart- 
ment of Commerce, February 1940. 

Mr. DoNOHO. Is this the chart to which you refer ? 

Mr. Janssen. That is the chart, LJr. Donoho. 

Mr. DoNOHO. Mr. Chairman, I offer this chart. 

Acting Chairman Pike. It may be received. 

(The chart referred to was marked "Exhibit No. 2378" and is in- 
cluded in the appendix on p. 16140.) 

Mr. Janssen. In connection with that, may I also offer another 
chart, because they support each other, which is a table chart show- 
ing factory consumption of primary animal and vegetable fats and 
oils in the manufacture of oleomargarine, 1930 to 1939, inclusive^ 
compiled by ourselves, and the source is publications of the Depart- 
ment of Commerce, Bureau of the Census. 

Mr. DoNOHO. Is this the chart to which you refer ? 

Mr. Janssen. That is the chart. 

Mr. DoNOHO. Mr. Chairman, I offer this chart as an exhibit. 

Acting Chairman Pike. It may be received. 

(The chart referred to was marked "Exhibit No. 2379" and is 
included in the appendix on p. 16140.) 

Mr. Janssen. For instance, Mr. Chairman, importations of oils, 
oils that are used in food products, the same oils which are also used 
in oleomargarine, we have here ^ the average importation, the average 
annual importatioii fqr 5 years, from 1932 to 1937, and it includes 
coconut, palm, palm kernel, babassu, cottonseed, peanut, soybean, corn, 
sesame, olive oil, rapeseed, and other vegetable oils. The total annual 
for the 5-year average period was 1,499,742,421 pounds; in 1938, 
1,281,151,483 pounds; in 1939 it was 1,183,638,942 pounds. 

We have in addition the same for animal and marine fats and oils : ^ 
87,000,000 average 5-year annual, 6,000,000 in 1938 ; 6,000,000 in 1939. 

Those same fats and oils are not exclusively used in margarine but 
are also used in other food products. First let me show the oils that 
are used in the manufacture of oleomargarine,^ and this shows the 
trend of oils that were being used, or the trend of the total used in 
oleomargarine. This information was obtained from the Department 
of Commerce, Bureau of the Census. 

We have here ^ as used in oleomargarine cottonseed oil, peanut oil, 
coconut oil, corn oil, soybean oil, palm-kernel oil, palm oil, sesame 
oil, lard, edible animal stearine, oleo oil, and back in 1930 we also 
used some butter, I think, for experimental purposes, but in 1938 
there was no rapeseed oil used, no palm oil, very little babassu oil, 
and those are the only three oils that were not used in 1938 and 1939. 

Now may I also present at this time 

1 See "Exhibit No. 2378," appendix, > 16140. 

2 See "Exhibit No. 2379," appendix, p. 16140. 


Mr. DoRFMAN (interposing). I wonder if I might ask a question 
concerning that table ^ before you take it away. I Qotice that the 
quantity of cottonseed oil which entered into the manufacture of 
margarine increased irregularly up through 1938 and then declined 
somewhat in 1939, whereas the reverse was true with respect to coco- 
nut oil. Did not the great penalty apply to the use of coconut oil 
when used in manufacturing margarine have some bearing on this? 

Mr. Janssen. No; I hardly think so. I hardly think that penalty 
would have any bearing on that. 

Mr. DoKFMAN. To what do you ascribe it? 

Mr. Janssen. Well, there are a number of factors that would have 
to be taken into consideration if we were to explain that, I think. 
May I say this also in connection with that, that the process of 
refining has been perfected more and more so that as new oils were 
being brought to that stage through the development in refining 
processes, they have become available for this as well as other food 
products. Cottonseed oil was not extensively used in oleomargarine 
until 1916, 1 think it was. It was thought impossible to make oleomar- 
garine out of cottonseed oil. Prior to that time we used a large 
proportion of animal fats. However, the rise of soy-bean oil I think 
has had something to do with the decrease in the uSe of cottonseed 
oil, possibly also with the decrease in the use of coconut oil. 

Mr. DoRFiiAN. I think cottonseed oil has increased except for that 
period 1939. 

Mr. Janssen, In 1939 the total production of oleomargarine de- 
creased about 90,000,000 pounds from the previous year. 

Mr. DoRFMAN. But you don't think that a manufacturer having 
tlie choice of cottonseed oil which would not be subject, say, to the 
10- or 15-cent tax in the manufactured product, would prefer to use 
it rather than the coconut oil which would be subject to that high 

Mr. Janssen. Naturally, the matter of price is a determining influ- 

Mr. DoRFMAN. That would argue in favor of the manufacturer's 
avoiding the use of the higher tax oil, such as coconut oil, and using 
the untaxed oils or the lower taxed oils such as cottonseed oil, would 
it not? 

Mr. Janssen. Yes; but the price of coconut oil and the price of 
cottonseed oil, the price of soybean oil, vary and run very closely 

Mr. Dorfman. I understand that the cost of the oils moves for the 
manufacturer, but the cost of the margarine to the ultimate consumer 
would be much higher if, say, coconut oil were used rather than cot- 
tonseed oil. Some of these States apply the higher tax to the mar- 
garine containing coconut oil but not to the margarine containing 
cottonseed oil. 

Mr. Janssen. I believe I begin to see the point. The fact is, in 
that case the coconut-oil margarine disappears from the market. 

Mr. Dorfman. That is precisely the point I was trying to get at. 

Mr. Janssen. The coconut-oil margarine disappears from the mar- 
ket when a tax is imposed on that type or that formula. 



Mr. DoRFMAN. That has this further bearing. Is it not conceiv- 
able that cotton farmers would fare worse if all of these taxes were 
eliminated than they now fare, because certain of these oils which 
have been discriminated against to the extent that coconut oil has, for 
example, would enter into margarine in larger quantities, and is it not 
conceivable that there would be a smaller aggregate of domestic cot- 
tonseed oil used with the taxes eliminated than is now consumed ? 

Mr. Janssen. It is possible that that might have some effect, but 
conditions have changed very materially in the last few years. I 
think the rise of soybean oil in this country has had a considerable 
influence in that respect. 

Mr. DoRFMAN. But if the tax of 15 cents a pound were eliminated 
from margarine made of coconut oil, might you not have coconut oil 
entering in much larger consumption than now, and even competing 
more seriously than how with domestic soybean oil, as well as these 
other domestic oils ? 

Mr. Janssen. Only — may I answer that this way — as coconut oil 
might come into this country so cheap that it would undersell, and 
that the manufacturer of coconut oil would have a price advantage. 

Mr. DoRFMAN. I am not considering at the moment the price which 
the manufacturer has to pay for the various fats and oils. Pre- 
sumably these move together and are very close to one another in 
tax paid. I am considering only the terms on which the manufac- 
turer could sell his finished product if thef State taxes margarine 
made of coconut oil at 15 cents a pound, and margarine made of 
cottonseed oil at 10 cents a pound, and you eliminate all of these 
taxes ; is it not conceivable that coconut oil would get a much larger 
proportion of the market than it now gets, and some such oil as 
cottonseed a smaller proportion? 

Mr. Janssen. It is conceivable; yes. 

Mr. DoRFMAN. Do you think it likely? 

Mr. Janssen. I don't think it would be likely. 

Mr. DoRFMAN. Why not? 

Mr. Janssen. Because, as I have pointed out before, the refining 
processes and the competition of soybean oil and the improved proc- 
esses of handling cottonseed oil do not make coconut oil the same 
effective competitor that it was some years ago. 

Mr. DoRFMAN. Granting that, but with a differential of 5 cents 
in the retail price of margarines made of, say, cottonseed oil and 
coconut oil, any technical disadvantage could easily be overcome 
by a 5-cent differential in sales price. 

Mr. Janssen. I will grant you that, yes; but let's go a little bit 
deeper than that. Why should margarine be singled out for that 
specific treatment when there are tremendously greater quantities 
of food products available for consumption of that type of oil than 
margarine could ever hope to use ? 

Mr. DoRFMAN. I think this committee is trying to find out why 
certain of these products should be singled out. I am simply asking 
whether, if these taxes were eliminated the domestic producers of 
fats and oils would get as large a share of the market as they now 
get, or whether they might get a smaller share. 

Mr. Janssen. They just would not enter into a State where there 
was a 10-cent tax against them on a competitive article, that is, in 
the same general class. No manufacturer would. It couldn't be 


done. He couldn't sell the goods in competition with a product, 
with a margarine, made of another formula of oil that did not bear 
that 10-cent tax. It simply eliminates it. 

Mr. DoRTMAN. That suggests that the untaxed domestic oils and 
those domestic oils taxed at lower rates than the imported oils going 
into margarine would be adversely affected in consequence of elim- 
inating these taxes? 

Mr. Janssen. It is possible; yes. It is conceivable. I wouldn't 
say definitely. 

Mr. DoKFMAN. They would operate in that direction, would they? 

Mr. Janssen. That I cannot answer definitely either. I believe that 
there is more likelihood, that it is more probable with present condi- 
tions and with the experience that has been developed with respect 
to cottonseed oil and soybean oil that the urge to go back to coconut 
oil is not nearly as strong as it was some years ago, when we just 
could not handle it on that basis. 

Mr. DoRFMAN. The fact that under existing conditions both the 
coconut and the cottonseed oils do enter int9 margarine would sug- 
gest that if the taxes on the higher product were eliminated, it would 
have a larger share of the market than it now has. 

Mr. Janssen. It would have a market; yes. 

May I present another exhibit here, showing the factory consump- 
tion of primary animal and vegetable fats and oils in food products 
for the calendar year 1938, from Factory Consumption of Animal 
and Vegetable Fats and Oils by Classes of Products for 1938, from 
the Department of Commerce, Bureau of the Census, preliminary 
report of March 18, 1939. 

Mr. DoNOHO. Is this the table to which you refer? 

Mr. Janssen. That is the table, Mr. Donoho ; yes. 

Mr. DoNOHO. Mr. Chairman, I offer this table as an exhibit. 

Acting Chairman Pike. It may be received. 

(The table referred to was marked "Exhibit No. 2380" and is 
included in the appendix on p. 16141.) 

Mr. Janssen. I just want to point out, Mr. Chairman, that in fac- 
tory consumption of these primary animal and vegetable fats and oils 
in food products, and to the extent that these oils and fats and oils 
are interchangeable, they are used in oleomargarine, they are largely 
used in shortening, and they are also used in other edible products. 
There are some type^ of oils used in shortening as well as in other 
edible products that have not been going into oleomargarine. I can't 
explain why that is, but it just shows the interchangeability of these 
fats and oils in oleomargarine, shortening mayonnaise, salad dressing, 
and so forth. 

In brief, the negative effect of these laws has been to curtail, m our 
opinion, the freedom of the industry in its choice of material and to 
kill the sale of coconut oil, babassu oil, and palm-kernel oil when 
incorporated in oleomargarine, although the same and other foreign 
oils, as components of shortening, mayonnaise, salad dressing, and 
other edible products may be freely sold without such restriction. 

The positive effect of these laws has been that the manufacturers 
of oleomargarine doing business in these States have gone to what- 
ever oil was permitted to find a market in those States. These laws 
undoubtedly were a factor in bringing about the phenomenal rise of 
soybean oil as a constituent of oleomargarine. Improvements in re- 


fining processes effected within the last 10 years have made this pos- 
sible. But the net effect of these laws as' a means of benefiting Ameri- 
can agriculture, in behalf of which these laws were ostensibly 
enacted, has, in our opinion, been insignificant, even though the 
quantities of various oils consumed in oleomargarine have undergone 
marked changes. 

Mr. DoNOHO. Have the so-called domestic fats laws, Mr. Janssen, 
had any detrimental effect on your industry in discouraging sales or 
discouraging dealer distribution? 

Mr. Janssen. No ; they have not, Mr. Chairman. Such laws have 
not exerted any detrimental effect on the number of dealers, they 
have not exerted any detrimental effect in cutting down total tonnage 
sales in those States, and the product concerned in those States con- 
forms to the law. It does not include those oils or fats which would 
incur a 10-cent per pound tax. 

Mr. DoNOHO. Mr. Janssen, would you care to discuss licensing 
taxes ? In what manner do these taxes operate as a trade barrier ? 

Mr. Janssen. Mr. Chairman, as shown in this exhibit,^ the State 
laws impose license taxes on manufacturer, wholesale dealer, retail 
dealer, and so forth. The effect of such laws in, eliminating com- 
petition, in manufacturing and concentrating production in a smaller 
number of manufacturing plants is shown in the fact that the num- 
ber of such plants has decreased from seventy-seven in 1930 to forty 
in 1939. 

The number of wholesale dealers in the product has also suffered 
a severe decline, dropping from 2,107 in 1930 to 965 in 1933, but 
recovering to 1,636 in 1939. 

As set forth in that exhibit,^ 9 States impose a license tax on the 
manufacturer ; 16 States impose a license tax on the wholesale dealer ; 
13 on the retail dealer; 6 impose a State license tax for use and/or 
serving the product in restaurants or boarding houses, and 1 State, 
Wisconsin, exacts a license tax at the cost of $1 from the housewife 
who may purchase it within the State or by mail order in interstate 

In addition to this tax of $1 they have also got to declare their 
purchase and pay a 6-cent per pound tax on any oleomargarine which 
may have been purchased by them in interstate commerce. 

Mr. DoNOHO. Can you measure the restrictive influence of these 
license taxes, Mr. Janssen, when combined with excise taxes? 

Mr. Janssen. Well, it is rather difficult to measure the restrictive 
influence of those taxes; that is, in those States where there is an 
excise tax as well as a license tax. We might refer to some of the 
States where they only have the license tax on the dealer. It must 
be borne in mind, of course, that the State license tax is superim- 
posed on the Federal tax, which in the case of the retail dealer is $6. 
This, of course, is uniform everywhere. The influence of such license 
tax is to restrict the market. It may, however, be seen in States 
where there is no excise tax. 

Now, for instance, Connecticut has no excise tax, but does impose 
a $6 retail dealers' license tax. Out of the 7,193 or more total retail 
food outlets in the State which are potential dealers in the product, 
only 812 took out a license in 1939. 

1 "Exhibit No. 2375." See appendix, p. 16138. 
» Ibid. 


Mississippi has no excise tax. It did have a license tax on the 
sale of all oleomarjjarine, effective until its modification a few weeks 
ago, when it Avas amended to a domestic base. That is, tlie hiw down 
there now applies only to the retail or wholesale dealers who sell 
only margarine made out of cottonseed oil and other named oils. It 
was effective all of 1939. Out of its 7,197 or more total retail food 
outlets which are potential dealers in the product, only 66G took out a 
license in 1939. 

And so on down the line. We also have Montana. Montana — 
well, let's say Montana is a horrible example. It only takes $400 
per store for a retail dealers' license to sell oleomargarine, which ef- 
fectively prohibits retail dealers from handling the product, and out 
of its 2,057 retail food outlets, in 1935 only 18 took out a license, and 
in 1939 there were 32. That must mean something. I don't know 
exactly what it means, but it must mean, when 32 dealers can take 
out a license at $400 and sell oleomargarine and make it pay, that 
there is something of social significance present in that State which 
would bear study. I don't know what it is, but I would like to get 
into that and study it. 

Mr. Kades. Is that $400 a year ? 

Mr. Janssen. Four hundred dollars a year ; yes. 

Pennsylvania has had a license tax since 1899. Its retail-dealer 
license tax is $100 per year, and out of its more than 40,401 retail fo.od 
stores which are potential dealers in the product — and that elimi- 
nates the retail dairy stores, the fish markets; it eliminates the con- 
fectionery stores ancl other stores, but there are 40,401 retail food 
stores and other stores which are potential dealers in the product — 
only 4.332 took out a license in 1939. Out of this number, out of this 
4,332, approximately 65 percent are large chain units or supermarkets. 
That is, they do business in sufficiently large volume to make it pay. 
The conclusion is obviously that, out of its more than 33,000 inde- 
pendent retail food stores, more than 30,000 considered this tax con- 
fiscatory of any possible profit. 

I have with me here a statement from the National Association of 
Eetail Grocers. There is no organization that in my opinion has 
better authority to speak for the retail grocers and food dealers of 
this country or to voice a protest against the license tax feature of 
these laws, of to say to what extent such tax discourages the han- 
dling of this product by retailers, than the National Association of 
Retail Grocers, and I would like to quote very briefly from the docu- 
ment which that association recently filed with the Treasury De- 
partment, and thereafter I want to offer this complete brief just for 
your files, not for inclusion in the record, but for your files. It 
would be a little bit burdensome to put it in the record. But they 
say this : 

We do not wish to be understood as complaining only against the increased 
price of oleomargarine necessitated by this tax. We also urge that this tax 
effectively prevents many thousands of retail grocers from selling this product 
who would otherwise do so and thereby denies to a large proportion of the 
consuming public the privilege of purchasing it. This condition should not be 
permitted to continue. Everyone will agree that fraud in the sale of oleo- 
margarine or the use of deleterious ingredients in its manufacture should 
be prevented, but it should be allowed to sell on its merits. To this much 
the consumer is entitled. He should have the right to choose freely between 
butter and oleomargarine. This tax on retail dealers tends to concentrate 


and promote a monopoly in the sale of oleomargarine in the super-markets 
and chain stores and keeps the small independent dealer out of this business. 
By way of summary, we respectfully urge that the retail dealers' occupational 
tax on the sale of oleomargarine be repealed for the following reasons : 

1. It bears no reasonable relation to the public health. 

2. It is not justified as a revenue measure. 

3. It is an unjustified, unnecessary and antiquated device originally designed 
10 protect the dairy industry against competition. 

4. It operates injuriously against the independent retail grocer because 

(a) it increases his overhead and diminishes his profits; 

(b) it is particularly onerous to the small merchant in that it gives a com- 
petitive advantage to the large and wealthier corporate chains. 

5. It operates to the injury of the poorer class of consumers by increasing 
the price of an essential food item and, in many cases, even denies him the 
privilege of purchasing the product. 

Mr. DoNOHO. Is this the statement you wish introduced for the 

file? ... ^ 

Mr. Janssen. This statement entitled "Occupational Tax — In Re 
Oleomargarine," by the National Association of Retail Grocers. That 
is the statement. The committee may accept that for its files. 

Mr. DoNOHO. I offer that for the files, Mr. Chairman, 

(The document referred to was marked "Exhibit N^T. 2381," and 
is on file with the committee.) 

Mr. Janssen. So I say that on the whole, every other legitimate, 
wholesome food product, particularly those products in which the 
basic constituents of oleomargarine such as milk or skim milk and 
pure vegetable oils or animal fats are present, may be freely offered 
for sale through nearly 500,000 retail food establishments without 
special product restrictions such as pertain to oleomargarine, and that 
this same opportunity is denied oleomargarine is proof sufficient that 
these laws are in fact effective trade barriers. 

Mr. Kades. Mr. Janssen, suppose the State laws w^ere repealed. 
What effect, in your opinion, would that have on the consumption of 
margarine ? 

Mr. Janssen. I am inclined to think that it would increase the sale 
and consumption of oleomargarine. Furthermore, if I may continue, 
I would say that that effect would be a fine and splendid contribution 
to the diet of the American people. 

Acting Chairman Pike. That is your opinion. 

Mr. Janssen. That is my opinion. 

Mr. Kades. Have you any 

Mr. Janssen (interposing). For this reason. I don't think there 
are enough fats consumed in this country, when we comp^ire our con- 
sumption with the record of fats consumed in all other countries with 
which we may compare ourselves with respect to the essential factors 
that enter into it. 

Mr. Kades. Have you any estimates concerning what income groups 
would purchase margarine if it were available at lower prices? 

Mr. Janssen. Yes; I think I have, and in answer to that question, 
and for the committee's file, not for the record but for its file, which 
might be helpful in answering that question, may I ask you to accept 
the result of a study ^ which my office made in 1937, but which was 
turned over to Mr. Kenneth Damoron, associate professor of business 
organization of the Ohio State University, who tabulated, analyzed, 
and interpreted signed statements from thousands of licensed retail - 

1 "Exhibit No. 2382," on file with the committee. 


margarine dealers. In his report thereon, which I think definitely 
answers your question as to just where this margarine is consumed, 
what type of people consume it, and so forth 

Mr. DoNOHO (interposing). Would you care to summarize those 
findings, Mr. Janssen, very oriefly ? 

Mr, Janssen. First, he says the summary definitely shows that 
sales of margarine are greatest to families of low income, including 
laborers and farmers. 

Second, that grocers^ in small towns report substantial sales of mar- 
garine to farmers; grocers in cities report sales of margarine are heavy 
to laborers and other low-income groups. 

Third, families using margarine are reported to buy it regularly 
without sales pressure. Low income cannot be the sole factor in con- 
sumption of margarine, he therefore concludes. 

Fourth, that the majority of replies state that the sale of margarine 
does not decrease the sale of butter. The extent to which margarine 
may possibly affect sale and use of butter is apparently largely deter- 
mined by the factor of consumer income. 

Fifth, that the tax on margarine is a burden on consumers who can 
least afford it is reported emphatically and extensively. 

Sixth, the fact that so many farmers buy margarine would seem 
to indicate that, if left to individual determination, they would not 
favor a discriminatory tax on margarine. They must recognize i\ot 
only the value of the product itself but also that the margarine indus- 
try is a great consumer of farm products. 

I would like to offer that for the committee. 

Mr. DoNOHO. I offer this for the files. 

Acting Chairman Pike. It may be received. / 

(The document referred to was marked "Exhibit No. 2382" and is 
on file with the committee.) 

Mr. Janssen. In connection with that, as supporting material, I 
would like to offer also' for the files of the committee 

Mr. DoNOHO (interposing). Are you looking for the statement on 
"The Composition and Food Value of Margarine"? 

Mr. Janssen. That is it. I thought I had retained that copy. 

I would also like to offer for the files of the committee, partly as 
supporting the answer to your question just a moment ago, this docu- 
ment. The title is, "The Cornposition and Food Value of Marga- 
rine," by Dr. J. S. Abbott, secretary and director of research for our 

Mr. Kades. Is it a correct inference, Mr. Janssen, from your testi- 
mony, that in the event this prohibitory legislation is removed from 
the statute books, oleomargarine would be available to persons in 
the low-income groups who perhaps now are unable to afford butter? 

Mr. Janssen. Let me answer that. You know, it would be unfair 
if I just made a short answer to that, because that involves a rather 
complicated reply. However, I will try to answer it briefly. 

Oleomargarine, like butter and like lard, is an energy food. People 
need fat ; they need a certain amount of fat in order to keep them- 
selves lubricated physically properly. Even the ladies, who sort of 
abhor the idea of eating fat because it might make them fat and 
put on weight, nevertheless have to have a certain amount of fat. 
They can't get along without it. 

(The d6cument referred to was marked "Exhibit No. 2383" and is 
on file with the committee.) 


Mr, Janssen. I have here, and would like to also insert this in 
the files and not for the record, a table ^ from the International 
Labor Office, Geneva, Switzerland, a departmental activity of the 
League of Nations, series B (social and economic condition) No. 23, 
entitled "Workers' Nutrition and Social Policy," and call attention 
to table XIII of the publication, which classifies the need for varying 
amounts of calories and fats for different types of physical activi- 
ties and shows that very heavy muscular work, such as that engaged 
in by agricultural workers, miners, quarrymen, metalworkers (heavy 
metal trades), tanners, porters, stonecutters, and so forth, requires a 
great deal more fat or a greater count of caloric intake than those 
of more sedentary occupations, and I think that is generally known 
and accepted. Oleomargarine is one of the foods that is an energy 
food. It is fat. 

I am not qualified to speak either as a chemist, or as a nutritionist, 
or as a dietitian. I wish that you might hear Dr. Abbott on that, 
because he is qualified to do so. The time being short, let me say, 
if you would figure out the 38 pounds of fat, the total of fats that 
we consume in this country per capita per year, and figure out for 
yourself just how many ounces per day that is, or if you want to 
take butter and figure out that even with a top peak production of 
2,500,000,000 pounds of butter per year in this country, that you still 
would have only about three-fourths of an ounce per day per capita 
in this country, or less than one-quarter of an ounce per meal. 

Mr. DoNOHO. Mr. Janssen, I believe you wanted to introduce that 
file for the committee. 

Mr. Janssen. This is a publication called "An Appeal to Reason," 
which I would like to file with the committee. 

Mr. DoNOHO. A publication of your organization? 

Mr. Janssen. A publication of our organization. 

(The document referred to was marked "Exhibit No. 2384" and is 
■on file with the committee.) 

Mr. Dorfman. Is it your view, Mr. Janssen, that the per capita 
consumption of fats of all varieties would increase if the taxes on 
oleomargarine were lifted? 

Mr. Janssen. It is. 

Mr. DoKFMAN. By roughly the amount that it increased consump- 
tion of margarine? 

Mr. Janssen. By 

Mr. DoRFMAN. By, roughly, the amount of the increased consump- 
tion of margarine. That is you would sell more margarine but not 
less of any of the other fats in the aggregate. 

Mr. Janssen. I believe that the natural result would be an increase 
in the consumption of other fats as well because people as a rule 
don't stick continuously lo one type of fat. For instance today this 
family may use lard, tomorrow it may use shortening; there is an 
interchangeable process going on all the time, but I do believe that 
we can stand a greater consumption of fats and particularly table 
fat in this country. 

Mr. Dorfman. The shifting itself wouldn't increase the per capita 
consumption, would it? 

Mr. Janssen. I don't think so ; no. 

J Subsequently entered as part of "Exhibit No. 2384." 


Mr. DoRFMAN. Then it would just be the people you think would 
cat more fat, not only margarine, but other varieties if these taxes 
were lifted? 

Mr. Janssen. Well, for instance, there is back of that a very well 
known commercial principle. If I can once introduce a new product 
into a family that has not used that product before, why temporarily 
at least that will increase mv sales to that extent, but I have no assur- 
ance that I am going to hold that particular customer. Now tomor- 
row that particular customer, by reason of having been initiated into 
the use of a new product, may switch to something that has already 
been on the market a long time, and which may indeed be competitive 
with mine. 

Mr. DoRFMAN. A table which has come to my attention, taken from 
the National Provisioner,^ indicates that the per capita consumption 
of all fats and oils in the United States, that is lard, butter, mar- 
garine, compoimds, and the like, has ranged between about 40 pounds 
and 43 pounds since 1914, and of course we have had great variations 
in price of the various fats and oils during that interval. It oc- 
curred to me that there might be some explanation for that, other 
than what has been given here. Perhaps we just eat a certain 
timount of fat on the average and vary the form in which we 
consume it. 

Mr. Janssen. Well, in that table you will notice that the total for 
1938 is 43.2 pounds; that is per capita, including lard, butter, mar- 
garine, compounds, and vegetable fats. 

Mr. Dorfman. The lowest, I believe, is around 40. 

Mr. Janssen. Yes. I am not in a position here to substantiate my 
assumption.. I think that we could very well consume in this country 
over 50 pounds per capita per annum. 

Mr. Dorfman. I was interested not so much in the amount con- 
sumed, as whether or not that amount varies much from year to year. 

Mr. Janssen. Well, I am not in a position to explain the variations 
which occur in this table here. For instance, sometimes the decrease in 
lard, such as we have between 1936 and 1934, which was 11 and 12 and 
dropped down to 9.6 in 1935, may be due to an existing shortage, and 
there may be other factors that enter into the variations that occur 
here. Butter, we seem to have very stable anual per capita consump- 
tion, but it ranges from 16.3 or 14.8 up to 16 or 17, 18.3. There is that 
pound and a half and 2-pound, variation there in 3 years. Still, in 
1938, 16.9, is only 0.3 percent higher than it was in 1913. I am not in 
a position here to explain why those variations occurred. 

Mr. DoNOHO. Mr. Janssen, the chairman has referred to the lateness 
of the hour, and I think it perhaps appropriate for me at this time to 
request you to outline in a summary forni the rest of your testimony. 

Mr. Janssen. I will be very happy to do so. We have, of course, a 
matter I have not referred to — the various restrictive laws with respect 
to the use of oleomargarine in state institutions, but that may have 
been covered before. 

And the effect of those, not only with respect to the loss of that 
business but also the indirect effect on the general regard for the prod-. 

1 Included in supplemental data. See appendix, p. 16193. 


uct, is already indicated. There are, of course, a great number of 
restrictive and burdensome • requirements to which I do not need to 
refer, but which have been very aptly and ably described by Mr. 
Oppenheim, chairman of the advisory council, Marketing Laws Sur- 
A-ey, in his address at the National Conference on Interstate Trade 
Barriers, in Chicago, last April, which has also indirectly, and to some 
extent directly, gone into the record. 

If you will give me 3 minutes, I think I can give you a sort of 

Mr. DoNOHO. Proceed, Mr. Janssen. 

Mr. Janssen. I have had in mind, not unless the Chair or the com- 
mittee had invited me to do so, to inject into this discussion or presen- 
tation that element of commercial competition, and I tried to steer 
away from it and keep away from it, except as to show it as a possible 

Acting Chairman Pike. It is pretty hard to stay away from it ; it 
really bulks to fair size in the problem. 

Mr. Janssen. I think, Mr. Chairman, and the committee, you will 
recognize that the historic policy of our Government has always 
been to invite and to encourage competition. The taxing power of 
our Government has more frequently been- resorted to to encourage 
new enterprise and new products and to maintain competition rather 
than to destroy it. The contrary in fact is foreign to our con- 
cept of government. Nor is there ariy basis in our fundamental law, 
in reason or in common sense, on which we can condone or justify 
any legislative act that would close our highways of commerce to 
one product of American agriculture, in order to benefit another for 
we have believed in an ordered equality of opportunity in com- 
merce for all. 

Just one point that I would like to bring out. It is already being 
said that these oleomargarine laws and these taxes, and so forth, do 
not constitute trade barriers. An editorial recently in Hoards' 
Dairyman, a widely read dairy publication published in Fort Atkin- 
son, Wis., in its issue of March 10, 1940, volume 85, No. 5, says, 
in part : 

We hold no brief for trade barriers between states, but we do hold that 
the state oleo taxes do not constitute such trade barriers. 

Now the editorial, which I will leave for the committee's file, justi- 
fies this inconsistency on the ground that the farmers who produce 
vegetable oil seeds enjoy the patronage of farmers who produce 
milk, or animal fat, or other commodities in greater dollar volume 
than that represented in oleomargarine. Now that in my opinion is 
just a plain attempt to camouflage the issue ; the fact that Wisconsin 
sets up a trade barrier against one article of commerce out of many 
does not make that obstruction a mirage. 

Mr. DoNOHo. I offer this editorial. 

Acting Chairman Pike. It may be received for the file. 

Mr. DoNOHo. Yes ; for filing with the committee. 

(The editorial referred to was marked "Exhibit No. 2385" and is 
on file with the committee.) 

Mr. Janssen. Such laws I think are effective trade barriers. I 
want to thank you, Mr. Donoho, and the chairman, and the commit- 
tee, for your very kind treatment and consideration. 


Acting Chairman Pike. Thank you very much, Mr. Janssen; wo 
regret keeping you, but it is better to have this in one piece. 

We will adjourn until 10: 30 tomorrow morning. 

(Whereupon at 6:50 p. m. a recess was taken until Wednesday, 
March 20, at 10:30 a.m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:45 a, m., pursuant to adjournment on 
Tuesday, March 19, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representatives Wil- 
liams and Reece ; and Mr. Pike. 

Present also: Senator Tom Stewart, of Tennessee; W. S. White- 
head, Securities and Exchange Commission; Frank H. Elmore, Jr., 
Department of Justice; Dr. Ben D. Dorfman, United States Tariff 
Commission; D. Haskell Donoho, associate attorney. Department of 
Agriculture; and Paul T. Truitt, chairman. Interdepartmental Com- 
mittee on Interstate Trade Barriers, Department of Commerce. 

The Chairman. The committee will please come to order. Are 
you ready to proceed, Mr. Donoho ? 

Mr. Donoho. Yes, sir. Mr. Chairman, yesterday, this committee 
heard the testimony of witnesses with respect to trade-barrier restric- 
tions in the margarine industry. Today we will continue to examine 
the manner in which the trade barriers are affecting specific indus- 
tries. To this end representatives of the dairy industry will present 
testimony for the consideration of the committee. 

Dr. Ruehe, will you come forward, please? 

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? 

Dr. Ruehe. I do. 

The Chairman. You may proceed. 


agricultural barriers — THE DAIRY INDUSTRY ^ 

Mr. Donoho. Will you state your name and address, please? 
Dr. Ruehe. My name is Harrison A. Ruehe, of Urbana, 111. 
Mr. Donoho. What is your position. Dr. Ruehe? 
Dr. Ruehe. I am at present the head of the Department of Dairy 
Husbandry of the University of Illinois. 

^ For general testimony on the dairy industry, see Hearings, Part 7. 

124491— 41— pt. 29 10 15869 


Mr. DoNOHO. Dr. Ruehe, will you please explain to the committee 
your qualifications to discuss the question of trade barriers in the 
dairy industry? 

Dr. Ruehe. For the past 30 years I have been engaged in the 
teaching and research related to the production, processing, and dis- 
tribution of dairy products, and since July 1, 1921, I have held the 
present position of head of the Department of Dairy Husbandry of 
the University of Illinois. 

Mr. DoNOHo. Just what are these" trade barriers. Dr. Ruehe, in 
the dairy industry ? 

Dr. Ruehe. Trade barriers in the dairy industry are the various 
laws, orders, ordinances, and regulations particularly of health de- 
partments, which by their provisions or the enforcement of these 
provisions tend to retard the free flow of dairy products of equal 
quality in various trade areas. Sanitary regulations and inspection 
are beneficial to both the dairy industry and the public since they 
protect the producer and distributor of high quality, wholesome 
dairy products, and they protect the health of the public. 

However, in some localities these sanitary regulations have been 
used also as a means of keeping out milk produced outside of the 
milkshed, county, State, or other area, even though such milk is of 
equal sanitary quality. 

In such instances, these regulations prove to be uneconomic trade 
barriers since they curtail the supply of milk coming into the market 
and by so doing they artificially raise the price of milk and dairy 
products in the restricted area and the consumers within this area 
pay the penalty. 

Mr. DoNOHO. Dr. Ruehe, just how important is the dairy industry 
in our national economy ? 

Dr. Ruehe. In the aggregate, the dairy industry is one of the 
largest industries in the United States. It furnishes employment for 
more than a quarter of a million urban workers in addition to the 
members of over two million farm families engaged in the production 
of milk. 

Milk provides about one-fifth of all the agricultural income of 
this country and it is the largest single source of farm cash in the 
United States. 

Dairy products supply about one-fourth, by weight, of the food 
consumed by the people in this country. 

Mr. DoNOHO. In your opinion. Dr. Ruehe, are the children of the 
country obtaining sufficient quantities of dairy products to adequately 
take care of their nutritional needs? 

Mr. Ruehe. Many children are, but there are literally thousands 
of children in the United States suffering from nutritional deficiencies, 
and manv of those difficulties could be remedied by supplying these 
childrt^n with adequate amounts of milk. 

Mr. DoHONo. Do these so-called trade barriers have any relation- 
ship to this deficiency to which you refer? 

Dr. Ruehe. Yes ; in some instances they do. Trade barriers which 
tend to increase cost to consumers have an influence in retarding 
consumption, especially in the case of low-income groups. This 
presentation discusses some of these trade barriers now hindering 
the free economic flow of high-quality milk, cream and other dairy 


Mr. DoNOHO. Dr. Ruehe, are these so-called trade barriers to which 
you refer attributable only to States and municipalities, or does the 
Federal Government have a part in setting up such trade barriers? 

Dr. Ruehe. Some of these trade barriers are the result of legis- 
lation or regulation of nmnicipalities. Some are due to regulations 
enforced by various counties, other are due to State legislation and 
in some cases they have been created by the Agricultural Marketing 
Act of 1937. 

Mr. DoNOHO. Would you care to give a specific illustration of 9 
trade barrier created in your opinion by the Agricultural Marketing 
Act of 1937? 

Dr. Ruehe. This act gives the Agricultural Adjustment Adminis- 
tration the authority to administer milk marketing orders. If a 
farmer now seeks to enter some of these markets operating under 
Federal Order, he may be subjected to discrimination by being 
forced to accept a reduced price for \il^ product, even though it 
meets the market requirements of high quality. 

The act states that in the case of milk and its products, orders 
may contain this provision: 

Providing that, in the case of all milk purchased by handlers from any 
producer who did not regularly sell milk during a period of thirty days next 
preceding the effective date of such order for consumption in the area covered 
thereby, payments to. such producer, for the period beginning with the first 
regular delivery by such producer and continuing to the end of two full 
calendar months following the first day of the next succeeding calendar month, 
shall be made at the price for the lowest use classification specified in such 

This, you understand, forces new producers to accept the lowest- 
use-classification price and i% designed to operate as a trade barrier 
by discouraging the entrance of additional milk-producing farmers 
in that market. Subparagraph G definitely designates that no 
marketing agreement or order applicable to milk and its products 
in any area shall prohibit or in any manner limit, in the. case of 
the products of milk, the marketing in that area of any milk or 
product thereof produced in any production area in the United 
States. As to milk itself, market orders may, and do, limit the 
marketing thereof. Thus it appears that the intent of Congress 
was not to place trade barriers against the entrance of new farmers 
within markets and also between production areas. However, this 
is being done except in the case of manufactured dairy products. 

A further example of how the Federal Government regulation 
under the Agricultural Marketing Agreement Act of 1937 may op- 
erate as a trade barrier is Order No. 4, for the Boston market as 
amended January 19, 1940. A new amendment to the order provides 
that handlers having less than 10 percent of their i"eceipts as fluid- 
milk sales, in the marketing area shall not participate in the uniform- 
price-equalization provision by which farmers selling to them would 
secure the same price as other producers. Instead, these handlers 
are required to contribute to the equalization fund an amount equal to 
the difference between the manufactured-milk value and the fluid- 
milk value for the benefit of producers of other handlers in the mar- 
ket having more than 10-percent fluid sales. This contribution by 
such handler to the rest of the market in which producers selling to 
him do not share, has the effect of discouraging the sale of the milk in 
the Boston market by these farmers and thus it constitutes a trade 


barrier to such farmers and to the entrance of new farmers because 
the price they receive is lower than that received by established 

Mr. DoNOHO. You .uive discussed, Dr. Ruehe, at some length, bar- 
riers which, in your opinion, are occasioned by Federal legislation. 

(Representative Clyde Williams assumed the chair.) 

Acting Chairman Williams. In that connection, I wish you would 
just t«ll us in English what that means. I confess sitting here and 
listening to that and not being familiar with the fact, I don't know 
what it means. Just in a few words, how does that act operate as a 
barrier ? 

Dr. RuEHE. If a plant, for example, were purchasing milk from 
producers operating under the order, and less than 10 percent of the 
milk which he purchased went out as fluid milk, that is bottled milk, 
and so forth, then he could not pay his producers on the same basis 
as the plant that was distributing more than 10 percent as fluid milk ; 
and yet at the same time has to pay into the pool this dii^'^rpnce in price 
between class 1 and manufactured milk for that portion which he 
sells as fluid milk. 

Mr. DoNOHO. And is your point, Dr. Ruehe, ihat the producer who 
is at a distance from this plant would be the producer who normally 
would supply more than 90 percent of the products, not to be used as 
fluid milk? I just want that clarified. I don't quite get the rela- 
tionship between your statement and the trade-barrier problem. 

Dr. Rtjehe. Well, yes ; in that the handler pays a price based on how 
he uses the milk, but, of course, such handler might buy hia milk nearby 
or might buy it at some distance. Ordinarily it would be at some 

Mr. Pike. This barrier doesn't necessarily correspond with State 
lines at all? 

Dr. Ruehe. No. 

Mr. Pike. It may be. an interstate barrier ? 

Dr. Ruehe. That is right; a Federal barrier. That is true in Chi- 
cago, for instance, where they buy milk from Indiana, Wisconsin, and 

Mr. Pike. Would it be true that there might be a barrier against 
come producers in Illinois and not a barrier against others under this 
sort of rule ? 

Dr. Ruehe. The producer isn't at the disadvantage that the handler 
is because the handler has to pay in the funds to equalize the price, but 
he is at this disadvantage. The producer is not taken care of the same 
as other producers. 

Ml'. Pike. It is the handler and producer that gets it in the neck 

Dr. Ruehe. Yes. 

Mr. Donoho. Now, would you describe some of the barriers in your 
industry occasioned by laws enacted by States and municipalities ? 

Dr. Ruehe. Of course, in the past 20 years there has been a great 
development -in sanitary regulations, particularly by States, and this 
trend is really a progressive revolution of State, county, and municipal 
sanitary standards regidating milk and its products. No doubt this 
trend has been a protection and benefit to the public's health, and for 
that reason it has had the wholehearted support of the dairy indus- 
try. However, there has developed a misuse in the application of some 


of these health measures. Today in some States and municipalities 
these health regulations have the effect of trade ba'-riers in keeping out 
milk, cream, and other dairy products from other areas, even though 
the qualities of these products are equal to those produced within the 
restricted area. 

As an illustration, may I cite Act No. 210 of the Pennsylvania 
General Assembly, enacted in 1935. This act contains a provision 
whicli requires all milk and cream which is sold wdthin the State, and 
all dairy products used in the manufacture of ice cream and other 
milk products, to be subject to tlie regulations of the secretary of the 
State bureau of sanitation. The regulation provides for the inspec- 
tion of dairy plants and farms supplying milk to these plants wherever 
they may be located. 

Ice cream is given particular attention. Every product used in its 
manufacture is subject to inspection at source by the secretary of the 
State bureau of milk sanitation. 

This act has all the earmarks of a health measure, but in reality 
it merely builds an economic wall around the State of Pennsylvania. 
The regulation is more political than it is protective, especially in 
relation to the consumer of milk and ice cream in that State. It is 
discriminatory against products of equal sanitary and nutritional 
quality produced by the Western and Southern States. For example, 
cream, evaporated, and dry milk from other States is shut out of 
Pennsylvania unless the manufacturer or the supplier goes to the 
expense of having Pennsylvania State inspectors duplicate inspec- 
tions which have already been made by the legal authorities at the 
point of production. 

The supplier located in Pennsylvania is not required to pay for 

Mr. DoNOHO. Is the cost of such inspection rather high for out-of- 
State producers? 

Dr. EuEHE. It may be, depending upon the distance. For inspec- 
tion outside of the State they may charge a per diem and expenses. 

Mr. Pike. You mean, let's say, evaporated milk cannot be shipped 
into the State in cans without inspection? 

Dr. RuEHE. It cannot be used in the manufacture of dairy prod- 
ucts, that is right. 

Mr. Pike. Then, let's say, Borden would have to have a Pennsyl- 
vania inspector go out to the plant in Michigan or Wisconsin to have 
its plants inspected by a Pennsylvania inspector? 

Dr. RuEHE. Yes; that is right. 

Mr. DoNOHO. That is. if the evaporated milk is to be used in the 
manufacture of ice cream in Pennsylvania. 

Dr. RuEHE. That is right. 

Mr. Pike. But not for home consumption? 

Dr. Ri ehe. I will touch upon that a little later. Another example 
is the case of a Maryland creamery, which is affected by this barrier. 
The products of this creamery are approved by the District of Co- 
lumbia, which probably has the most rigid of sanitary standards, 
and thus obtains one of the finest milk supplies in tlie world. This 
Maryland plant was repeatedly refused a poi-mit t ; ship intc Penn- 
sylvania and not until after the recent change in< administration in 
Pi'iinsylvania, when new policies v/ere put into effect, \\as this plant 
o receive a permit. 


Another example of the arbitrary exercise of authority is the ex- 
clusion of supplies from without a State is an incident that occurred 
in which West Virginia milk was to be barred from Pennsylvania, 
However, West Virginia was able to prove that Pennsylvania ship- 
ped more milk into West Virginia than West Virginia was shipping 
into Pennsylvania. West Virginia then threatened to retaliate if 
their milk was barred from Pennsylvania, and I am told that the 
Pennsylvania ban on West Virginia milk was lifted immediately. 

Even though the State of Pennsylvania has the stringent State 
sanitary law, certain cities in that -State have set up their own daiiy 
regulations. These cities will not accept inspection other than that 
made by their own officials. Inspection made by State inspectors 
and those of other cities are not accepted. 

Another type of trade barrier existing in Pennsylvania is pro- 
vided by law enacted in 1939. Under thisj relief agencies are re- 
quired to deduct from the allowances to families on relief a sufficient 
fund for purchasing fresh fluid milk for children and others who 
require the use of milk for their physical welfare. It is believed 
that the obvious purpose of this enactment was to displace evaporated 
milk used extensively by families on relief. 

Although evaporated milk is produced within the State of Penn- 
sylvania, most of this product consumed in that State originates in 
other States. These are but a few of examples of the way in which 
acts of legislation created to protect the health of the public are 
misused as economic trade barriers. 

Mr. DoNOHO. Dr. Ruehe, you have testified with respect to how 
measures ostensibly to protect the public health may be misused. 
Now are these measures, generally speaking, of the various States 
uniform in their scope? 

Dr. Ruehe. No, they are not. I think their intents or purposes were 
more or less uniform since these laws were enacted primarily for the 
purpose of protecting the health of the consumers within the State, 
but although they do have this uniform purpose, there are many 
differences in the provisions in the legislation enforced by the differ- 
ent States. 

Many of these differences are of minor importance insofar as the 
main purpose of their regulations are concerned. 

Mr, DoNOHO, May I interrupt there, Dr. Ruehe? Are many of 
these provisions statutory provisions, or are they administrative 

Dr. Ruehe. T6u might say they are both, because many of these 
State laws give health departments the jurisdiction over these laws 
and they can make certain regulations which they interpret as com- 
])liance with the law. Consequently we may have a variation even 
though the two laws may be quite similar. The interpretations and 
applications may vary somewhat because of the way different health 
officers interpret the purpose of the law and establish their regula- 

Mr. DoNOHO. It just occurred to me that a j^ood illustration of 
*hat point that you have made of the situation with respect to Mary- 
land creameries, I believe it was, couldn't get a permit in Pennsyl- 
vania until a change of administration. 

Dr. Ruehe. That is right. As a matter of fact, you might go fur- 
ther and sav that even though a State or a district may have set 


regulations which cover the coiiipliance with the law, two different 
inspectors may have some different interpretations of the regulations, 
so it is possible for one inspector to approve a plant or a farm and 
another inspector employed by the same agency to disapprove certain 

Acting Chairman Williams. Let me ask you this, is it possible or 
is it desirable that a uniform system of inspection throughout the 
entire country be established ? 

Dr. RuEHE. It is highly desirable, if we could have something 
more uniform so that farmers would not be subjected to anywhere 
from one to several inspections which are slightly different. For 

Acting Chairman Williams (interposing). In your opinion, is that 
possible throughout the country? Is it possible to have a standard- 
ized inspection? 

Dr. RuEiiE. I think that it is possible. 

Acting Chairman Williams. And make it one and the same 
throughout the entire country, both for the States and municipalities 
and localities? 

Dr. RuEHE. We could at least unify them much more than we 
luive at the present time, and it seems to me that where two different 
districts or States have practically the same laws, and the same 
quality of inspection, that one market might accept the other mar- 
ket's inspection. 

Acting Chairman Wiixiams. Is there any general agreement as to 
what that standard should be throughout the country? 

Dr. RuEHE. Not at the present time. 

Acting Chairman Williams. Well, is there any movement in that 

Dr. RuEHE. Yes; the U. S. Public Health Service have been de- 
voting considerable time to what they call the "Model Milk Sanita- 
tion Code." One of the great difficulties has been the way different 
localities have interpreted that code or established their laws or 
ordinances. For example, Chicago has its ordinance based on the 
U. S. Public Health Service standard milk code, and yet they only 
took part of the code, so that we have different municipalities that 
have followed basically the standard code but there are some slight 
differences, and there may be some difference also in the quality of 

Now it is certainly true, I b&lieve, that in sonie areas the in- 
spectors are well qualified and do do an excellent job of inspection. 
There are some other localities where perhaps the inspections are not 
quite as rigid. 

Acting v'hairman Wiixiams. That is a question of pTsonnel, 
rather than the rules or regulations or the ^aw? 

Dr. RuEiiE. That is true. 

Acting Chairman Williams. That would be true everywhere, un- 
der all conditions? 

Dr. RuEHE. That is true. I do believe, he wever, that by a series 
of standardized examinations that it would help to eliminate some 
of them. 

Acting Chairman Williams. Is Jiere any way by which we can 
avoid this inspection by the cities, even though the State has 9 
proper and efficient in-^^.-'ction service ' 


Dr. RuEHE. It seems to me that each State has to set up its own 
system. Of course if it is interstate shijiments we have the possibility 
of Federal control, but I question the sufficiency of Federal control 
only in our present set-up, because all of the industry is concerned 
with inspection of intrastate-interstate shipments. 

Mr. Pike. Well, Congressman Williams' question interested me 
very much, too, as a matter not of different State controls, but of a 
city within a State duplicating the inspection of that same State, and 
not accepting the State's inspection. I think that is true in perhaps 
New York and must be true, as you mention, in other cities. 

Dr. RuEHE. It is true in many cities and States. 

Mr. Pike. The possibility of eliminating that might be quite 
important ? 

Dr. RuEHE. It certainly would take; for instance — San Francisco 
plants that satisfy tlie rigid inspection of San Francisco can not 
sell milk across the bay in Oakland. Oakland will not accept San 
Francisco's inspection. I think in New York, Buffalo, and Roches- 
ter close by, there are some minor differences in the requirements. 
I am not sure that I have them straight, but at lea^t one of them 
requires the closed-top milk pail and the other requires the open-top 

Mr. Pike. How about Minneapolis and St. Paul? They usually 
get together on all subjects, don't they? Do you happen to know 
about that? 

Dr. RuEHE. I am not as familiar with that market as I am with 
some of the others. 

Acting Chairman Wiliiams. Here is what I had in mind. Take 
your own State of Illinois. Perhaps I don't know the situation 
there, but perhaps you have a different inspection in Chicago to 
what you have in the State. 

Dr. RuEHE. Yes, indeed. 

Acting Chairman Williams. Well, now that wouldn't apply to 
some of the smaller cities, would it? 

Dr. RuEHE. In Illinois, no ; there are at the present time twenty-six 
cities that have adopted the standard milk ordinance, most of them 
in toto, and the State Department of Health is attempting to stand- 
ardize inspection as well as it can, but Chicago has an ordinance 
which is built on only part of the standard code; and St. Louis has 
the standard code for instance, but Chicago will not buy St. Louis 
milk — St. Louis inspected milk, I should say. 

Acting Chairman Williams. In other words, your smaller cities 
in Illinois accept the State-inspected milk while Chicago doesn't? 

Dr. RuEHE. That is true, on the grade A. They have their own 
inspectors. Of course, I am sorry to confess, I think our inspection 
in Illinois in many of our cities, towns, and smaller communities 
isn't what it should be. The only inspection they get is by the State 
Division of Foods and Dairies. Tliey only have about 25 inspectors 
for the whoie State, and I think they have some 26 or 27 laws to 
enforce, which includes restaurants and everything else, so the in- 
spection isn't what it should be. 

Mr. Pike. There are some inadequacies, then, in State inspection 
that would give excuse to the cities, so it would be up to the State 
to clear its house first? 


Dr. RuEHE. That is right. At the last session of the Illinois legis- 
lature the State did accept a grade. A law which requires all milk 
sold as grade A in Illinois meet the grade A standard. Before the 
enactment of that law, for instance, anyone could sell grade A 
milk just out of the city limits of Chicago, for example, call it 
grade A, even tliough it did not meet the grade A requirements", 
and there was very little that could be done about it. 

Acting Chairman Williams. Then, is it your idea that there stiould 
be such an efficient State inspection as to meet the needs of the large 
cities as well as the small and have one uniform system throughout 
the States? 

Dr. RuEHE. 1 presume that would differ some with different States. 
In Illinois any law or ordinance I should say, that is adopted by a 
city must be as rigid as the State requirements, but may be more so. 
Now, Chicago is more so and the Illinois State officials do accept the 
Chicago inspectoi-s' reports on all inspection, food, dairy plants, 
and everything. There is a wide difference in the way the various 
States have such matters set up, but I do think that much could be 
done along the line of standardizing requirements and inspection, 
not only within individual States, but between States. 

Mr. DoNOHO Dr. Ruehe, we were discussing the barriers set up 
by municipalities; have you any specific illustrations of instances 
that graphically^ illustrate the conflict between laws of municipalities 
and of States? 

Dr. RuEHE. Yes; there are many. Take California, for instance. 
The counties in California may have their own system of inspection 
and standards of inspection, so that milk in one county will not 
be accepted by another. It is also true that California inspection 
may differ from the inspection of neighboring States with the result 
that, I know in some instances, the California plants just quit tr3'ing 
to ship some of their product out of California. 

Mr. DoNOHO. Just for the record. Dr. Ruehe, we discussed at 
some length the fact that tiiore was need for uniformity within a 
St?te, but it is your position, is it not, that the need for uniformity 
goes beyond State lines? 

Dr. Ruehe. Yes, indeed. We will take for example a situation that 
exists in New Jersey. I am citing this because it is one of the most 
complicated that I have heard of. There are 10 municipalities in New 
Jersey that make complete inspections of certain plants that sell in 
New Jersey. In addition 3 of these 10 municipalities inspect all of 
the farms supplying these plants. If these plants sell in both New 
York and New Jersey there are other inspections to be made by the 
inspectors of the city of New York, and the New York State Depart- 
ment of Health, in addition to the 3 New Jersey inspections, thus 
making 5 inspections of farms and plants. 

Obviously these are conflicting, duplicating inspections, and they 
discourage the entrance of additional supplies of milk from areas out- 
side of New Jersey. There are bills pending in the New Jersey Leg- 
islature which contain provisions even more rigid; they would require 
all sources, all farms and plants outside of tlie State, to be inspected 
ar^l approved by the New Jersey State Board of Health before lliey 
'd ship into that State. If these become laws there would be still 


another inspection of the aforementioned plants, raising the number 
of types of supervision to six complete inspections. 

A plant located at New Milford, Pa., sells in New Jersey and New 
York. If this legislation were passed this plant, and farms supplying 
it with milk, would have inspection from Jersey City, Newark, Mont- 
clair, New Jersey State Department of Health, New York State De- 
partment of Health, and the New York City Department of Health. 
if sales were made in Pennsylvania it would require a Pennsylvania 
State inspection also. In other words, many of these inspections are 
very similar but one city will not accept another city's ins^^ection. 

Here is the way some of these trade barriers affect certain farmers 
in Ohio: A plant shipping cream into New Jersey must have the "n- 
spection of New Jersey and this inspection is quite thorough. Th? 
same plant ships to Cleveland, and this city will not recognize the New 
Jersey inspection because it has one of its own. Furthermore, the 
local health department of the city where the plant is located will not 
accept the inspection of Cleveland nor New Jersey, and both of these 
are reported to be more rigid than the inspection of the local health 
department. In order to sell milk locally it would be necessary to 
have three different sets of inspectors bothering farmers as well as the 
plants. If they were to ship into Pennsylvania farmers would be 
required to have still another inspection. 

Mr. Pike. I get the impression that there must be some very fine 
inspection jobs. 

Dr. Rtjehe. Some of them are excellent and I am sorry to say some 
are not so excellent. 

Mr. Pike. At least there are a lot of jobs for inspectors built up on 
this system? 

Dr. RuEHE. That is true, due to a lot of duplication. These condi- 
tions are rather prevalent. There are many illustrations that can be 
given. For instance, Boston does not accept New York City inspec- 
tion and New York does not accept Boston's. 

Mr. DoNOHO. Is it not true that a number of cities have adopted the 
Model Sanitary Milk Code formulated by the United States Public 
Health Service as a basis for their sanitary requirements of milk? 

Dr. RuEHE. That is true; as pointed out a few moments ago, some 
cities have adopted it in toto; others have adopted parts of it. So 
that even though we say cities are operating under the provision of 
the sanitary code of the United States Department of Health, there 
may be some divergence in their requirements as well as in the in- 
tensity of inspection. 

Mr. DoNOHO. So that milk produced imder the inspection of one 
of these markets is not necessarily acceptable to all other cities under 
similar codes? 

Dr. RuEHE. Well, I would say yes and no, because it is true that 
in sonie cases cities selling grade A milk will accept otlier cities' in- 
spection or State inspection of grade A milk. There are some east- 
ern markets that will accept the State Board of Health of Illinois 
inspec^^ion of grade A milk. On the other hand, as mentioned before, 
ihere are some cities that will not accept the inspection of other cities, 
even tliough they are opera tinij- •iijdcr provisions of the standard code, 
and where there is a variation in the ordinance they do not, either. 

A notable example oui <-\,: way is that Chicago has not accepted 
iif toto the United States Public Health code, and St. Lonis has, but 


Chicago will not buy St. Louis milk and St. Louis doesn't buy 
Chicago milk, so we have that difference. 

Mr. DoNOHO. What effect has this lack of uniformity in sanitary 
requirements had upon the milk supply of various markets? 

Dr. RuEHE. Well, the lack of uniformity of standards and provi- 
sions for reciprocity in health-inspection permit systems — it makes 
little difference whether it is State, city, county, or what not — as 
clearly shown in some of the illustrations I have given you — has 
limited the supplies of milk and cream available for sale in many 
communities, and thus has encouraged the development of artificial 
prices which are higher than conditions in an open-market basis 

(Senator O'Mahoney resumed the chair.) 

Dr. RuEHE. In fact I think it can be said the only ways in which 
State and Federal milk-control laws and orders have been able to 
create artificially high prices for fluid milk, fluid cream, and in some 
cases cream for ice-cream manufacture, have been in making such 
higher prices applicable only to the milk producers marketing in 
accordance with the regulations of the health authorities in that or 
those particular markets, and by so doing they have actually limited 
the potential supply of milk in these markets, and therefore have 
artificially increased the price. 

Mr. DoNOHO. Has this had any effect upon the prices paid fpr 
milk in such markets? 

Dr. RuEHE. Yes; it has. This situation is illustrated by the class 
prices in effect in the New York Milk Market under Order No. 27, as 
reported for January 1940, by E. M. Harmon, market administrator. 
The price of Class 1 milk was $2.82 per hundred pounds, and the 
prices of Class IIA and IIB milk were $2.05 and $2,006, respectively. 
The milk in these class uses — that is, fluid milk, cream, and products 
used for ice cream — has to be produced in accordance with New York 
City Board of Health requirements. The remaining six manufac- 
tured dairy products use classes for milk sold by farmers under the 
New York order, and which have to compete with dairy products not 
inspected by New York City, and, therefore, are priced in accordance 
with national markets, are as follows: Class IIIA, $1,606; IIIB, 
$1,670; IIIC, $1,270; HID, $1,245; IVA, $1.17; IVB, $1,265. The 
weighted average price of the three class uses requiring New York 
City Board of Health inspection was $2.74 per hundredweight. The 
weighted average price for the remaining classes priced in relation- 
ship with United States open market quotations was $1.48 per hun- 
dredweight. Thus the difference between the prices of New York 
inspected milk and open market milk was $1.26 per hundredweight. 
This is 2.7 cents per quart, or an 85-percent higher price which has to 
be paid in that city because the Agricultural Adjustment Adminis- 
tration order milk class uses required New York City inspection. 

Mr. DoNOJi.0. Can you give a specific ex'^niplo. Dr. Ruehe, of dif- 
ferences in prices paid for cream of identical quality when sold on an 
open market basis as compared with prices when sold on a closed 
market ? 

Dr. Ruehe. Yes; I think perhaps the best example can be taken 
from the market report of the Agricultural Marketing Service dated 
March 4, 1940. This report states that on New York inspected cream 
sold in New York for March 1 and March 2, the price — that is, the 


wholesale price — was from $1.85 to $1.90 per gallon. This same re- 
13ort states that the New York quality inspected cream in Boston was 
priced on an open market basis at $1.30 per gallon. 

Mr. Pile. This might be from the same farm ? 

Dr. RuEHE. Well, the same inspection, at least; in other words, 
cream that is passed upon and accepted in New York, sold in New 
York at $1.85 to $1.90 per gallon, but if they would ship some of that 
cream to Boston and it is sold on the open market basis, it would be 
priced at $1.30 per gallon, which is a difference of 60 cents per gallon. 

Mr. Pike. Is there actually some of that cream shipped to Boston, 
some of the excess New York wouldn't take at the $1.90 price? 

Dr. RuEHE. That is true. In fact, as will be brought out by other 
witnesses, I think you will find that the New York marketing order 
has a clause in it which makes possible shipping milk to outside areas 
which give some advantage to the New York producers over producers 
in those outside areas. 

Representative Williams. Are we to infer from that that what we 
call an overinspection in the city of New York, such an inspection 
that limits the supply in such«a way that the price has gone up? 
They have put so many restrictions upon the inspection, the inspec- 
tion has been so stringent? 

Dr. RuEHE. No; I wouldn't say that. 

Representative Williams. What is the reason for the difference, 
in that the price is higher there? 

Dr. RuEHE. The reason is simply this, that they can limit the 
cream coming into New York because the marketing order requires 
New York inspection. In other w^ords, milk or cream being pro- 
duced in Connecticut or Vermont that was not inspected by New 
York inspectors could not enter the New York market. 

Representative Williams. Unless the inspection was such as to ex- 
clude that cream, what objection would there be to its coming- in 
there, even though there was an inspection? 

Dr. RuEHE. I presumes the main objection would be that you would 
increase the supply of milk and cream which would have the tendency 
to lower the price, and they don't want to do that. To make the 
marketing order successful the}' want to pay a larger price. 

Representative Wili-Jams. Then that comes back to the proposi- 
tion submitted in the first place, it is because of the inspection that 
the price has raised. 

Dr. RuEHE. Yes. 

Representative Williams. Is that a desirable condition or not? 

Dr. RuEHE. The industry feels that that is a trade barrier that is 
hindering the progress of their industry. 

Representative Williams. And therefore they would not luive any 

Dr. RuEHE. No; have inspection but make it not limited. Foi in- 
stance, ihere is no reason why ^ew York could not accept an in- 
spection of equal quality and quantity made by some other State, but 
in the marketing order, they only accept New York inspected 

Representative Williams. Unless that inspection was different, 
though, that product would go througli at that, wouldn't it? 

Dr. RuEHE. No; it would not; it must have the approval of that 
depy rtment. 


Representative AVilliams. I say if that inspection turned out to be 
the same as the original inspection, there is no reason why it shouldn^ 
pass that inspection and be admitted to that market. 

Dr. RuEHE. If New York City had not inspected the farms it would 
not, again it may duplicate the inspection. 

Representative Williams. It goes back to the inspection of the 
farms ? 

Dr. RuEHE. All the way through. 

Representative Williams. And you have to send an agent from one 
State to another to inspect the source? 

Dr. RuEHE. That is right. 

Mr. Pike. They can refuse to accept? 

Dr. RuEHE. That is right. 

Mr. Pike. And as I recall, they sometimes do. 

Dr. RuEiiE. That is true. And another thing that acts in the same 
way as a barrier the State may furnish the inspection within the 
State but charge for inspection outside of the State. I think there 
have been instances where some smr 11 plants in Wisconsin have paid as 
high as $500 a year for some other State's inspection, and that, of 
course, is quite a burden to a small plant. 

The Chairman. The point is, I take it, that you are contending that, 
generally speaking, the inspection laws of the State tend to exclude 
milk from other States. 

Dr. RuEHE. That is right. 

Mr. DoNOHo. Do some markets exclude manufactured products 
through inspection? 

Dr. RuEHE. That is true, through inspection of farm and plant. 
Take Cleveland, for example, and there are other cii. but Cleve- 
land is a good example. The evaporated milk or dric ^ilk and 
sweetened condensed milk cannot be sold unless produced on ic ms and 
in plants inspected by the department of public health and welfare. 
Xo other city has this requirement. That is, in most cases, so far as 
cities are concerned, they will accept milk that goes into manufactu^'ed 

The inspection is provided free. Here is a good example of what \ 
mentioned a moment ago. The inspection is provided free within a 
radius of 150 miles of the city of Cleveland, but the expense of inspec- 
tion must be paid by the suppliers of these products if the farms and 
plants producing evaporated milk lie outside this 150-mile zone. 

Representative Wilijams. In order that I may know as a matter 
of information, are the inspection fees in all cases paid by the pro- 
ducers, distributors, or is it a public service that is rendered by the 
State, city, or county? 

Dr. RuEiiE. In most cases, the inspection, if for the city, is paid for 
by the city, or for the State, by the State, but they may charge if they 
go outside the confines of their normal territory or State. 

Representative Williams. Ordinarily, then, it is simply a public 
service within the jurisdiction of the particular governmental agency. 

Dr. RuEHE. That is right. 

Representative Williams. It is a service paid for by the public. 

Dr. RuEHE. Yes. 

Representative Williams. The city, the State, or the Nation. 


Dr. RuEHE. That is right. If on the other hand, the inspection is 
beyond a certain limit, then the plant that is getting into that limit 
has to pay the charge. 

The Chairman. Of course, you are also dealing with the question 
of surpluses, are you not? 

Dr. RuEHE. That is true. 

The Chairman. And the motive in many instances, or at least one 
motive for the enactment of such laws, is primarily to provide a 
stable price or a better price for a commodity which, without that 
regulation, would be so cheap that the producer couldn't operate at 
a profit. 

Dr. RuEHE. That is the purpose, and of course that is the primary 
purpose of a lot of these markets operating under orders, yet in some 
instances, at least, they have clauses allowing a diversion of their 
surplus into somebody else's back yard. 

The Chairman. Then doesn't it come down to this in the last 
r-^alysis, that this manifestation whicli we are studying here is pri- 
marily a result and not a cause of present economic conditions with 
respect to interstate trade? 

Dr. RuEJiE. Yes ; but I would say that there are some other things 
that should be said before you could draw such a conclusion, and 
that is this: In many of these markets they have held up the price 
not only to the producer but also to the coiisumer, with the result 
that they have curtailed consumption-. In other words, while benefit- 
ting one end they have curtailed consumption and handicapped the 
consumer end. After all, we could have a much larger consumption 
of fluid milk in most States, to the benefit of the health of individual 
consumers as well as the farmer who is producing the milk. 

The Chairman. Yes ; and, of course, that could, however, be carried 
to such an extent that the farmer could no longer produce, and that 
would curtail the supply. 

Dr. RuEHE. Correct. 

The Chairman. So that our problem in the last analysis is one of 
so stimulating consumption at a reasonable price that both the farmer 
upon the one hand who is the producer, and the consumer upon the 
other, will receive reasonable prices. 

Dr. RuEHE. That is true, and I should add to that that another part 
of the problem is to assist farmers or educate them and direct tnem 
in ways in which they can cut their production costs. When we 
find production costs varying as much as 300 percent on neighboring 
farms, there is a chance for a vast amount of improvement. 

The Chairman. It may not be out of order for me to remark at 
this point that the more evidence that is presented upon this and kin- 
dred subjects, the clearer it seems to me that these devices which you 
have been describing, and which others have been describing, are, as 
it were, merely poultices applied to a deep-seated economic disease 
which can be treated only by some more far-reaching remedy which 
will tend to increase the consuming power of the masses of the people. 

The Chairman. Would it not be impossible to amend some of the 
Federal marketing orders so as to eliminate some of the difficulties 
which you have mentioned? 

Dr. RuEHE. A number of amendments have been made during the 
past 2 or 3 years, but they have not eliminated the difficulties. 


Dr. RuEiiE. That is right. I think of it in this way, in terms of 
the old jingle: 

Patch upon patch, hole in the middle, 

Guess this riddle and I'll give you a gold fiddle. 

Mr. DoNOHO. From j^our observation, Dr. Ruehe, is the situation 
which you have been describing as to these trade barriers becoming 
more or less complicated ? 

Dr. RuEHE. It seems to me that trade barriers are becoming more 

Mr. DoNOHO. That is in the dairy industry? 

Dr. RuEHE. As related to the dairy industry; yes. There is a con- 
stant threat of an increase in the number of trade barriers that will 
affect the dairy industry, and if I may I should like to give a few 
examples. Senate bill 856, New York Legislature, is an example. If 
this bill is enacted, it will require all dairy products used in the man- 
ufacture of ice cream in New York State to be inspected by New York 
State inspectors. Such legislation will result in an increase in the 
price of New York State cream by setting up burdensome require- 
ments on cream from other States. This bill, if enacted, would not 
permit the acceptance of ice cream and ice cream mix inspected by au- 
thorities of the States of Penns^dvania, Connecticut, Massachusetts, 
and Vermont. All the farms and plants supplying the products would 
be required to be inspected by New York State inspectors. 

Practicall}' every State legislature has had before it some bill that, 
if passed, would add in some way or other to these various trade 
barriers affecting the dairj^ industry. 

Mr. DoNoiio. Dr. Ruehe, as I understand it. New York will not 
accept fluid- cream now without inspection, brit this bill will also 
reqiiire cream for ice cream to be inspected ? 

Dr. Ruehe. New York will not now accept uninspected fluid cream 
which is to be consumed as fluid cream, but this proposed legislation 
would affect the products that go into manufacture, which at the 
present time in many markets will exclude certain milk because it 
doesn't meet inspection requirements for milk that is to be sold as 
fluid milk or cream, but it may accept it if it goes into evaporated milk 
or ice cream or cheese or some other commodity. 

Mr. Pike. That would be at a very different price, wouldn't it, 

Dr. Ruehe. Yes; they are at lower prices because they are priced on 
market conditions, pretty largely. 

Taking another good example, the Oklahoma Legislature passed a 
bill which was even broader than this New York bill, but later this 
body reconsidered and killed this proposed legislation. The proposed 
Oklahoma bill would have required all farms and plants supplying 
dairy products of any kind to be inspected by the State dairy com- 
missioner or his deputies before the finislied dairy products could 
enter the State, thus giving no recognition whatever to inspection by 
other States, and you can see what a complicated ])roblem. that would 
be if applied to butter or some other commodities. Of course, they 
are trying to make the state self-sufficient insofar as their own dairy 
inoducts are concerned. It would practically bar dairy products pro- 
duced in other States. 

Similarl>:, in 1938 the State of Louisiana considered a bill under 
which the Louisiana MiiK Tommisr/'on could have established regu- 


lations against entrance of dairy products from outside the State so 
as to protect the farmers producing milk within the area. 

Pending legislation in Kentucky affects a broader field than the 
dairy industry. If this proposed legislation is enacted it would 
require all food products shipped into the State of Kentucky, even 
though the}^ would comply with the Federal Food and Drug Act, to 
be subject to the State inspection, for which a fee would be charged. 

Mr. DoNOHo. Dr. Ruehe, do you think that the industry as a whole 
approves rigid sanitary requirements? 

Dr. Ruehe. There is no question but what the dairy industry as a 
whole approves some sanitary requirements of a high order so as 
to protect the consumers, so as to be sure the consumers will get safe, 
high-quality dairy products. The industry realizes that it is now 
on its present high plane of high quality partly because of the work 
of milk sanitarians and health departments. However, the dairy 
industry, represented by the Dairy Industry Committee, is definitely 
not in favor of any laws, rules, regulations, or practices that in any 
way tend to interfere with or obstruct the free flow of equally whole- 
some milk and dairy products between States and local markets in 
this country. 

Today the dairy industry of this country is furnishing the con- 
sumers of America with high-quality dairy products. In fact, I 
think that it can be said that the United Statas leads the world in the 
quality of its dairy product % This is due to several factors, includ- 
ing the research work of t e Federal and State experiment stations, 
the ingenuity of engineers hat made possible the modern plants, the 
cooperation of dairj^ farmers and the progressiveness of the members 
of the industry. 

Mr. DoNOHO. Dr. Ruehe, you mentioned a situation in Pennsyl- 
vania which seems rather interesting. As I understand it, you stated 
that the farm source of evaporated or dried milk to be manufactured 
into ice cream must be inspected by Pennsylvania inspectors, is that 

Dr. Ruehe. Yes; they are tending to control all products that go 
into the manufacture of ice cream. 

Mr. DoNOHO. But as I understand it, you also said that for home 
consumption of such dried or evaporated milk, this requirement was 
not imposed. 

Dr. Ruehe. I didn't say that, but I did imply that because they 
have another act which tries to change the consumer over from evapo- 
rated milk to fresh milk, which again would mean consuming 
Pennsylvania-produced milk 

Mr. Donoho. But it is possible to feed one's baby on condensed 
milk not inspected by a Pennsylvania inspector. 

Dr. Ruehe. That is correct. 

Mr. Donoho. That is the point I wanted to make. Thank you. 

Mr, Chairman, I have no further questions to ask the witness. I 
understand, however, he has some recommendations he would like to 

Representative Williams. I was going to ask that very question, 
what are we going to do about it ? 

Dr. Ruehe. In my opinion the solution of this complex problem of 
trade barriers in the dairy industry cannot be attained through Fed- 
eral legislation and regulation since cities and States cannot be forced 


to accept such regulations, and I am sure that the illustrations which 
I have presented poii.t out very definitely that States and municipali- 
ties do not do this voluntarily. The trade barriers in dairy products 
raise prices to the consumer without adding any necessary protection 
to the public's health, and furthermore, they interfere with the free 
marketing of milk produced on farms and cause unnecessary expense 
and annoyance to farmers who are reouired to meet the inspection of 
several States and municipalities. realization of these facts is 

growing with consumers and farmers*, and to some extent with public 
health officials. Eventually, this should result in reciprocal accept-" 
ance of inspection by health authorities, and then there will be a free 
flow of equally wholesome milk and dairy products. 

The Chairman. How could that be brought about. Doctor? 

Dr. RuEHE. I imagine what we will have to do is to use every effort 
through certain agencies to get health inspector^^to come and thrash 
out a definite stand. I realize of course that itjs diffichilt to get some 
inspectors who may have hobbies, with some inspectors their job gets 
to be their hobby, and somethimes it is difficult to get them to give 
and take. 

The Chairman. Can that be done, can this objective of yours be 
attained by voluntary cooperation? 

Dr. RuEHE. I think so if the consumers become aware of the situa- 
tion and put the pressure on to make them stop, look, and listen a 
bit, and force them to consider a more uniform system of inspection. 

The Chairman. How could consumers do that? 

Dr. Ruehe. Our consumers groups are doing a great deal in be- 
coming familiar with actual conditions, especially those which tend 
to increase prices, and they oan retaliate by curtailing consumption a 
little bit more if necessary. 

The Chairman. Of course there is always a long lag between the 
realization of the existence of a problem and the development of a 
remedy for it. 

Dr. Ruehe. That is true, and it takes time to diagnose the problem. 
I do believe, however, a good starting point would be in some of 
these markets operating under the Federal orders. As will be brought 
out by other witnesses, there are certain provisions in some of these 
orders that operate in curtailing the supply of m-ilk within markets. 

The Chairman. The only remedy that you suggest for what you 
conceive to be an unfortunate situation would arise from voluntarv 
cooperation among consumers and producers and public hfalth 

Dr. Ruehe. I would say it would be educating our consuming pub- 
lic and farmers to the full facts which exist, and perhaps they would 
bear some weight in getting health officials to attempt an aggressive 
step to bring this thing about. 

The Chairman. Do you believe that the Federal Marketing Agency 
for milk should be eliminated, should be repealed? 

Dr. Ruehe. I think that at least there are some phases in some of 
these orders which should be. 

Mr. Pike. In the act, or in some of the orders coming out of the 

Dr. Ruehe, That is right. 

Mr. Pike. Sonie of the orders? 

124491 — 41— pt. 29 11 


Dr. RuEHE. Some of the orders and provisions. I think some of 
our other witnesses that will follow me will bring out very pointedly 
some of those points. 

The Chaikman. Could the Stat6 of Illinois acting alone solve the 
problem for the producers and consumers of Illinois? 

Dr. RuEHE. It could not because it so happens that Illinois is close 
to Wisconsin, and within a radius of perhaps 200 miles of Chicago, for 
example, there is probably four or five times as much milk produced 
in that area, which is the potential supply of fluid milk, as is actually 
consumed within Chicago. 

The Chairman. If the solution were to depend upon law, do you 
think there would be any hope of getting, let us say a uniform State 
law to govern local inspections? 

Dr RuEHE. There might be. 

The Chairman. Has any effort been made to do that ? 

Dr. RuEHE. The Council of State Governments and I think there 
is another organization called Council of State Governors — I am not 
certain as to the name of the latter — have some of these things under 
consideration. Mr. Bane, I think, reported the other day on some 
efforts that the Council of State Governments have under considera- 
tion to attempt to help bring such a thing about. 

The Chairman. The only thing, however, is that the Federal 
Government probably could not effect beneficial results by additional 
legislation ? 

Dr. RuEHE. That is right. 

The Chairman. And you prefer, therefore, to allow the matter to 
be left to the States? 

Dr. RuEHE. Within the States ; that is right. 

The Chairman. And if that is done, do you believe that these 
barriers of which you speak could be removed ? 

Dr. RuEHE. I think they could be, and I believe there is a ten- 
dency toward that. As 1 mentioned, there are some eastern markets 
that will accept the State Department of Health of Illinois inspec- 
tion of grade A milk. They take it without question. I think there 
are some other States and markets, especially city markets, that are 
doing the same thing. I believe there is a tendency in that direction. 
It is moving rather slowly, however. 

The Chairman. And do you believe that the principles which you 
advocate for the dairy industry should be applied to all other indus- 

Dr. RuEHE. Well, of course, I am more familiar with things apply- 
ing to the dairy industry than I am with many of the others, and I 
am hardly qualified to pass judgment on some of those other matters. 

The Chairman. Well, have you any opinion with respect to the 
distribution of margarine, as I understand the experts call it? 

Dr. RuEHE. Well, I think that when we speak of trade barriers in 
margarine and trade barriers in milk we are having two vastly 
different things. In the first place in all of this discussion which I 
have presented I have been speaking about milk of equal quality, so 
far as its sanitary standard and nutritional qualities are concerned. 
The Chairman. Of course, inspection services are intended to de- 
termine what the quality is, and you object to inspection services or 
at least some of the results of the inspection service. 


Dr. RuEHE. I object to certain what I call finicky inspection, if 
you please. For instance, one market may demand that the pump 
that furnishes the water for cooling the milk be located within the 
milk house, and some others demand that it be located outside the 
milk house. I know of one farm in Illinois that was given a prize 
for being the neatest farm in the Chicago area, and yet that farmer 
could not ship milk into the city of Chicago because he didn't have 
a partition across the milk house that divided the vat where he 
washed the cans from the tank where he had the cooler and yet 
that milk house was built out of white glazed tile and it had every 
facility for doing a good job. 

The Chairman. Now, by that last question of mine I threw .you off 
of the discussion you were about to initiate when you said that your 
testimony now had to do with a commodity of equal quality. 

Dr. RuEHE. Correct. 

The Chairman. And then you were going to draw some inference 
from that with respect to margarine? 

Dr. Rtjehe. Equal quality and the same product, milk, or dairy 
products, and so forth. When we speak of oleomargarine we are not 
speaking of the same thing as butter. The sources of the oils that 
go into oleomargarine are entirely different from the source of oils 
that go into butter. In other words, it is a so-called substitute 
product for butter and it raises a different question. In the case of 
milk — it is trying to remove trade barriers to permit milk of equal 
quality to flow into a market; when we speak of oleomargarine versus 
butter it is a question of whether or not we are going to protect a farm 
dairy commodity against a substitute, not only protect the farmer 
but the consumer as well. 

I can recall as a small boy when the oleomargarine tax law went 
•into effect and it was not uncommon to find stores selliiig oleomar- 
garine as butter, and consequently I think at that time at least the 
legislation was necessary in order to protect the unsuspecting con- 

The Chairman (interposing). That, of course, was the reason for 
the passage of so many color laws, requiring the product to be sold 
under its natural color, so that the consumer would not be buying a 
product in the belief that it was butter? 

Dr. Ruehe. That is right. 

The Chairman. Of course, the attitude of Congress has been ex- 
pressed over and over again in this matter and it has been entirely 
favorable to the dairy industry. Provisions are carried into an ap- 
propriation bill for the Veterans' Administration which limit the 
use of margarine in Veterans' Hospitals, and that sort of thing. So 
I am not concerned in these questions about the conflict between 
butter and margarine, as I am interested in developing the whole 

f)roblem of the regulation of substitutes, and whether in your opinion 
aws passed by the States, or ordinances passed by the cities, which 
tend to prevent the sale of substitutes, or which make it more diffi- 
cult to sell competing products, should be classified among the unde- 
sirable trade barriers, from your point of view. 

Dr. Ruehe. In my point of view the conditions ought to be made 
such that the consumer knows what he is buying. 

The Chairman. So that legislation which is for the protection of 
the consumer, even thought it may have the effect of making more 


difficult the sale of a particular commodity, would, in your opinion, 
bdperfectly defensible? 

Dr. RuEHE. Yes, sir. 

Mr. Pike. I wanted to ask a question. Suppose this ideal should be 
approached of good uniform inspection, with perfect reciprocity 
between States and districts and municipalities, what do you think 
would be the effect on the general price level of milk and milk 
products ? 

Dr. RuEHE. Well, that is rather hard to answer. 

Mr. Pike. It is a hard question. 

Dr. Ruehe. And yet if we take what is as right I think we could 
say that it would be from 1 to 3 cents per quart. 

Mr. Pike. Wliich way? 

Dr. Ruehe. If we allowed the free flow of milk, perhaps it would 
reduce the price to the consumer from 1 to 3 cents per quart. As I 
pointed out, there was one difference of 2.7 cents per quart. 

Mr. Pike. To the consumer that would be an unqualified benefit, 
if there were no adverse effects on other elements. You would expect 
then a higher total use of milk and milk products? 

Dr. Ruehe. Yes. 

Mr. Pike. It is one thing I am not acquainted with. 

Dr. Ruehe. That is qualified also on the consumer's income, because 
the consumer's ability to pay has much to do with what he buys. 

Mr. Pike. With those things even, consumption of milk products 
is quite elastic, is it — will increase considerably with differences in 
price ? 

Dr. Ruehe. I think perhaps one of the most notable examples is — 
sometimes it is misinterpreted — in St. Louis; there was an increase 
of about 17 percent in the consumption of fluid milk in a relatively 
short time due to the lowering of prices. 

Mr. Pike. How much was the lowering of price — about? 

Dr. Ruehe. Well, it yaried a good deal because milk was made avail- 
able in gallon jugs, at a price which was equivalent to a drop about 
2 to 2y2 cents per quart, around 10 cents a gallon. 

Mr. Pike. Where would the dairy farmers get off in this ideal 
condition ? 

Dr. RuEHE; Of course, if we can consume more milk in the form 
of fluid milk, I think it would result in a benefit to the producer. 

Mr. Pike. You believe in the differential in price to the farmer? 

Dr. Ruehe. Yes; it costs more to meet certain rigid inspections 
than it does some that are less rigid, and at the present time there 
is very little inspection, in our State at least, of cream that goes 
into butter making, unless it is the surplus from the fluid-milk in- 
dustry. What that differential would be would vary a good deal. I 
think in some of our intense dairy districts it might be anywhere 
from 20 to 30 cents per hundred. In some instances it might be 

Mr. Pike. You don't think the dairy industry, as a whole, then, 
would be hurt in its total earnings, let us say, right from the farmer 
to the distributor, if you could cut out some of these overlapping 
and conflicting inspections? 

Dr. Ruehe. I really think they would be benefited. In other words, 
the dairy farmer buys his groceries with a blended price ; that is 
what he gets, and by diverting more into the fluid-milk channels I 


believe the blended price would be increased — of course that is just a 
conjecture, but it would take away some of the supply that is now 
going into butter and cheese and consequently raise the price of those 
products, as well. 

Mr. Pike. It is your considered opinion, then, that the farmers on 
the whole would be better off? 

Dr. RuEHE. Yes ; and the people would be better off. At the pres- 
ent time our consumption of milk per capita in the United States 
is only about half of what some of our best ai thorities recommend. 

Mr Pike. Of course, what I would wonder is who hires the best 

Dr. RuEHE. Well, I think there are sufficient data available on cer- 
tain angles of this which would make it possible to compute fairly 
accurately our nutritional needs. 

Mr. Pike. The only thing that worries me, if any one of us drank 
all the milk he ought to drink, and ate all the bread the bread 
people said, and the meat the meat people said, you would be pretty 
well stuffed. 

Dr. RuEHE. I think that is one of my troubles. [Laughter.] 

Representative Williams. It seems to me that from my view there 
is some conflict between the Federal and State authority in this mat- 
ter. Do you view it in that way? In other words, it seems to me 
that States are entirely within their rights to place these extra in- 
spections upon imported things, under their police powers, and in 
that respect there is nothing that the Government can do about it, 
is there? 

Dr. RuEHE. Not by legislation, in my opinion. 

Representative Williams. On the other hand, it seems the Federal 
Government might have some control over the goods that are shipped 
in interstate commerce. 

Dr. Rlt:he. They would; yes. 

Representative Williams. And perhaps under the "general wel- 
fare" clause. 

Dr. RuEHE. I think that might be a good place to start, as far as 
the Government is concerned in the goods that go interstate. 

Representative Williams. Well, of course it is that very thing we 
are talking about, the goods that flow across State boundaries, the 
State barriers that are being erected on goods that are imported, milk 
s^^hipped from one State into another ; that is the very problem we are 
confronted with here, largely at least. 

Dr. RuEHE. That is true, and yet I think so far the Federal ac- 
tivity establishing the marketing orders has added to the complexity 
of some of these barriers. 

Representative Williams. Instead of helping? 

Dr. RuEHE. Yes. 

Representative Williams. And is it your opinion that the Federal 
Government should stay out of that field entirely and leave it to the 

Dr. RuEHE. Well, I think they should have something to say about 
interstate shipments. I think they should. 

Representative. Williams. Well, the point is still in my mind, 
where you have conflict with the States as to what is a proper in- 
spection, who has clie say-so about it? 


Dr. RuEHE. Of course the States do within the State and the Fed- 
eral Government does interstate. That' has been brought out in our 
own State, Mr. Williams. The Illinois State law for instance on 
the composition of milk requires 3 percent of fat, whereas the Fed- 
eral standard was 3.25. Some milk produced in southern Illinois only 
contained 3 percent of fat; it was perfectly legal, but when they 
shipped it into St. Louis it was illegal, and there has been some conflict 
over that, so it is a matter, I think, that the Federal authorities should 
work with the State authorities and help iron out some of these 

Representative Wiuliams. There is still the qiostion in my mind 
whether or not the State itself hasn't the right under its police 
powers and under its inspection powers, under the Constitution, to 
place such restrictions upon the importation and in the inspection 
of products that come into its State as it sees fit, regardless of what 
the Federal Government says about it. 
Dr. RuEHE. Absolutely, that is true. 

Representative Williams. Well, then, if that is true I don't see 
where the Federal Government can have anything to do with it. 

Dr. RuEHE. On the marketing orders they do, these orders are set up 
under the Agricultural Adjustment Act. 

Representative Williams. Does that affect the question of in- 
spection ? 

Dr. RuEHE. y es ; on certain markets at least. 
Representative Williams. Has that question ever been decided by 
the courts, to your knowledge ? 

Dr. RuEHE. I don't know, but I do know that within the last 
month there was a hearing in New York for the purpose of chang- 
ing a certain phase of the order that had to do with the diversion of 
mnk from that market to other markets. I don't think that the 
thing was changed but they have been debating it but I don't have 
the definite outcome of that hearing. 

Representative Williams. It just occurred to me that there was a 
conflict perhaps very vital in the authority on that particular ques- 
tion, on the question of inspecting goods which come from one State 
into another, whether or not the State has complete police power 
sufficient to determine the time and character of inspection which 
must be, and which it may impose upon articles which came into its 
borders from other States. 

Dr. RuEHE. That is right, and that is the reason why I stated 
that the Federal legislation wouldn't do it and hadn't; it had to 
come within the State. 

The Chairman. It goes beyond the police power, of course, be- 
cause the right of the State to pass an inspection law is recognized 
in the Constitution itself. 
Dr. RuEHE. Yes. 

Representative Willaims. I said that the constitutional provision, 
the very things provided for in the Constitution itself; that being 
true, I come back to the original question as to what the Federal 
Government could have to do with it. 

Dr. RuEHE. Very little other than insofar as they give authority to 
cer.tfiin inarketing acts. 


The Chairman. It is the opinion of the witness, as I understand 
him, that this problem should be solved by State action, cooperative 

Dr. RuEHE. With other States. 

The Chairman. And reciprocal arrangements apiong the States? 

Dr. RuEHE. That is right. 

The Chairman. You recognize, however, that that probably will 
be a ratlier difficult thing to develop? 

Dr. RuEHE. Yes. 

I'he Chairman. What progress has been made in the development? 

Dr. RuEHE. Well, as I say, for certain markets at least some re- 
ciprocal agreements have been made, I don't think they have from 
the States' standpoint, but certain city markets have had some 
reciprocal action. 

The Chairman. Are there any other questions to be asked of the 

Mr. Dorfman. What is the bas;is of a number of the milk-consum- 
ing areas requiring a more rigid inspection for fluid milk and cream 
tlian for either ice-cream mix or ice rr+^'^m? 

Dr. RuEHE. Well, I presume the major contention is this, that 
fluid milk and cream in many cases is consumed as is, so to speak, 
Avhereas some treatments in the manufacturing processes may curtail 
the development of undesirable qualities. Personally, I think that 
much could be done toward equalizing certain inspections so that the 
milk that goes into manufactured products, cheese making for 
instance, would be wholesome and safe. 

Mr. Dorfman. Well, is there any reason why milk and cream unfit 
for consumption as such becomes fit when made into ice cream which 
might be mixed with milk in the making of a milk shake? 

Dr. RuEHE. Well, I would say that would depend upon what you 
classify as unfitness. It would be true if we used certain inspec- 
tion criteria; then that would be true. In other words, there are in 
certain areas milks that could not be used for fluid purposes but at 
the same time could be skimmed and the cream sold to a butter- 
making plant, and so forth. 

Mr. Dorfman. Then the inspection is not intended solely for pro- 
tecting the health of the consumers? 

Dr. RuEHE. That is the general contention, but I think we have 
overlooked certain things. Of course, that dates back to the history 
of inspection, when a large portion of the milk was consumed raw, 
and, of course, since milk was the primary source of food for infants, 
raw milk did have a direct bearing upon the health of a community 
more strongly than is true at the present time. The present pasteuri- 
zation of milk has eliminated a lot of the difficulties that were present 
years ago. I think that is borne out pretty largely by any statistics 
you might have on the death rate of infants. 

Mr. Dorfman. If the intent were solely to protect the consumer's 
health would there be any reason for subjecting ice cream and ice 
cream mix to any less severe tests than the fluid milk? 

Dr. RuEHE. I think not. 

Mr. Dorfman. . Thank you. 

( Representative Williams took the chair.) 


Acting Chairman Williams. Any other questions? That is all. 
Doctor. Thank you; we have been very much enlightened by your 
information. Call your next witness. 

Mr. DoNOHO. Mr. Treadway, will you come f oi-ward, please ? 

Acting Chairman Williams. Do you solemnly swear that the testi- 
mony you are about to give in thi^ proceeding shall be the truth, the 
whole truth, and nothing but the truth, so help you God ? 

Mr. Treadway. I do. 


Mr. DoNOHO. Will you state your name and address, please? 
Mr. Treadway. William E, Treadway, Indianapolis, Ind. 
Mr. DoNOHO. What position, o^cial, do you hold, Mr. Treadway, 
in Indiana? 

Mr. Treadway. I am the Executive Secretary of the Indiana Com- 
mission on Interstate Cooperation. Would you care to have me ex- 
plain what that is? 
Mr. DoNOHO. Please. 

Mr. Treadway. Forty-four States at the present time have enacted 
legislation creating conmiis3ions on interstate cooperation. They are 
charged under those statutes with cooperating with the other States 
by affiliation through the Council of State Governments, which is the 
statutory connecting unit of government between those States that 
are so affiliated. 

Mr. DoNOHO. What experience has Indiana had with trade bar- 
riers affecting its commerce with other States with which your com- 
mis,sion is familiar? 

Mr. Treadway. This commission was created in 1938, and since 
that date we have been engaged almost continuously in combating 
trade barriers and in seeking them out and diagosing them. 
Mr. DoNOHO. What success have you had, Mr. Treadway ? 
Mr. Treadway. We have succeeded so far in definitely eliminating 
two. Perhaps the clas3ic example, if you are interested in going into 
past history just briefly, was the solution of almost a state oi war 
that had developed between Indiana and the nearby States of Michi- 
gan, Ohio, Illinois, and Missouri, with Kentucky threatening to join 
the outer ring. The matter was precipitated by Indiana adopting a 
liquor code after prohibition was ended and liquor was thrown into 
the laps of the States without sufficient time for them to make a study 
of suitable legislation. 

We enacted a liquer code providing for ports of entry for out-of- 
State beer being biought into Indiana that carried a differeritial of 
$1,500 a year on license fees for importers of out-of-State beer. That 
law became the target of objection, particularly from Michigan and 
Missouri. Thosa two States enacted positive discriminatory acts to 
combat what they complained of in our law. The difficulty was 
brought to a focus through the commissions of these States, acting 
with the assistance of the Council of State Governments, whereby the 
Indiana port -of -entry law was repealed; the Missouri law, at the 
request of Governor Stark, was repealed, and the Michigan law rem- 
edied to the extent that i*; was no longer offensive 


The same thing happened in Ohio. Kentucky did not enact its 
threatened retaliatory measure. Now, in regard to liquor, I might 
&ay in passing that I do not know of any existing trade barriers 
in liquor in the Middle Western area at the present timte, ex- 
cept in wines. Indiana is not interested as a State in wine, either 
as a producer or consumer. It is my understanding that we consume 
about the least wine per capita in Indiana of any State in the Union, 
which may or may not indicate that we are hard drinkers. 

Acting Chairman Williams. You are speaking for the whole State, 
are you? 

Mr. Treadway. Yes, sir; we produce practically no wine in Indi- 
ana. For your information, if you care for any infornmtion, I could 
give you the situation with regard to wine in Michigan, 

Mr. DoNOHO. I believe that has been covered. 

Mr. Trr-vdway. If that has been covered, I will not attempt to 
duplicate anything that is in the record. 

With those two exceptions, the wine laws of Michigan and Ohio, 
we are substantially free from trade barriers in the liquor field. 

We have more recently, I would say during the last 30 days, 
brought about a dissolution of trade barriers that have for several 
years handicaped our interstate commerce due to the failure of three 
outstanding States to grant reciprocity to private motor carriers 
operating under license plates from Indiana. Wisconsin has been oyr 
worst source of grievance. Wisconsin, incidentally, has the highest 
truck-license fees and charges of any State in the IJnion, averaging 
somewhere around $850 per truck per year, 

Mr. Pike. What size truck would that be for? 

Mr. DoNOHo. That is for the average weight truck on the average 
mile-load carried. 

Mr. Pike. That probably means commercial, not the little half-ton, 
ton, and ton-and-half truck? 

Mr. Treadway. That is based on the average collection made per 
truck. They operate on a quarterly collection basis with a bond 
posted for payment quarterly for truck license fees similar to returns 
for income tax. 

Mr. DoNOHO. Have you been successful in getting reciprocity in 
that situation? 

Mr. Treadway. les; during the second week in February 1940, 
we entered into a reciprocal treaty with Wisconsin whereby they 
now recognize our private carrier license plates, and the third week 
of last month we entered into a similar agreement with the States 
of Tennessee and Alabama, which now give our truckers free access 
to those highways within a radius of what is economically sound ter- 
ritory for truck operation from Indiana. 

Acting Chairman Williams. Did they do that regardless of the 
size, weight, capacity? 

Mr. Treadway. That is true, so long as they are private carriers 
within the definition of private carriers, that is both the vehicle and 
the merchandise in the vehicle belong to the same owner. 

Mr. DoNOHO. Mr. Treadway, since you are appearing here, I assume 
your commission has not been successful in eliminating all barriers. 
Just what barriers are you concerned with now ? 

Mr. Treadway. That is true. We have quite a bit of unfinished 
business in the way of trade barriers. I would like to say in passing 


tliat we have avoided a new barrier recently in the Sitate of New 
Y'ork, in which the legislature had passed in one of its houses a bill 
to restrict importation of Indiana limestone to that in the rough 
block, and to require that any limestone or similar building materials 
be brought in in the rough and fabricated in New York. I am glad 
to say upon the request of our Commission, that particular bill failed 
of passage when it came up for final action on the floor. 

Now, as to existing barriers that are the subject of the work of 
this Commission, one is relatively minor and the other is quite 
aggravating. The lesser I would say is the matter of local prefer- 
ence laws of adjoining States in the matter of purchases by the States 
of merchandise for consumption in State institutions. We have no 
such law in Indiana, but an example of such a law is found in Illinois 
which has a 3-percent differential in its statute favorable to bidders 
of Illinois over bidders from without the State for merchandise con- 
sumed in the public institutions of Illinois. That, in itself, of course, 
constitutes a statutory trade barrier, but in addition, the purchasing 
agent of Illinois goes beyond even the spirit of the statute and de- 
clines to furnish bidders lists to wholesalers outside of Illinois, which 
amounts to complete exclusion. We object to that for the reason, as 
I say, that we have no such law and during the last 3 months in check- 
mg our records, I find that Indiana purchased 20 percent of its mer- 
chandise for use in our public institutions outside of the State, of 
which $8,000 was spent in groceries alone in the State of Illinois. 

We are most conscious of a trade barrier in Indiana at the present 
time handicapping us in our exportation of sweet cream for manu- 
facturing purposes, and in our exportation also of manufactured 
dairy products from Indiana, and also the Middle West, into the East. 

Mr. DoNOHO. To what extent is Indiana engaged in the dairy busi- 
ness? Just how important is the dairy business to Indiana, Mr. 
Treadway ? 

Mr. Treadway. Our dairy business at the present time amounts to 
$50,000,000 in our annual State income. Of our total production, we 
export from 57 percent to 60 percent of our dairy production. We 
are definitely an exporting State. 

Mr. DoNOHO. In that connection, is it possible at the present time 
to export dairy products from Indiana to other localities without 
restrictions ? 

Mr. Treadway. It is not. I would limit our objection to sweet 
cream for manufacturing purposes, and also to the manufactured 
dairy products for the reason that due to the unfavorable ratio be- 
tween the bulk of whole milk and the shipping charges by refriger- 
ated express, it is not economically sound to ship whole milk from 
the Middle West to the East. It is due to increased value of cream. 

With that limitation in our interest, we find that even so, our east- 
ern markets have been so restricted in the past few years that we 
can ship cream into very few localities. 

Mr, DoNOHO. Will you elaborate on that and describe some of these 
restrictions, please? 

Mr. Treadway. The restrictions consist mostly of public-health 
ordinances of municipalities, but in addition consist to a certain ex- 
tent of State laws and certain Federal orders under the recent amend- 
ment to the Agricultural Act. 


The barriers consist, to be specific, in inspections, laws, and regu- 
lations, in the multitude of sanitary requirements, in the lack of 
uniformity in inspection and sanitary requirements throughout the 
East, and in the refusal on the part of Eastern jurisdictions to give 
reciprocal recognition to inspection certificates of either our inspectors 
or of those sent by Eastern communities. 

Mr. DoNOHo. Do you believe that these inspection requirements, 
these sanitary inspection requirements, sometimes go further than 
necessary to protect the health of the consumer ? 

Mr. Treadway. They do. The inspection laws and regulations — and, 
of course, the inspection is based upon the sanitary requirements — 
operate together and separately as trade barriers, I would say. For 
instance, the inspection laws themselves operate as trade barriers. 
Certain jurisdictions limit the area within which inspections will be 
made by a definite radius of miles from the point of consumption, 
while others limit the area within which milk will be imported to an 
arbitrary area such as the State itself, or to certain designated 
counties of surrounding States. An equally effective trade barrier 
is afforded in inspection laws and regulations after they are once 
adopted by the purported or expressed inability of the States having 
those laws to make the inspection. They profess good faith, they 
insist they have the best qualified trained staff of inspectors who are 
acquainted with their local requirements and local laws and regula- 
tions, and in whom they have the utmost confidence; and are quite 
willing to make the inspection but usually they say due to lack of 
personnel or due to lack of funds they are unable to get their inspec- 
tors out from the East. 

I would say in passing they do not find those difficulties when there 
is a drought or lack of supply in the East. They get out without 
any loss of time or other difficulties. 

Mr. DoNOHO. You will agree, then, with Dr. Ruehe, that some 
of the results of which you complain are the results of administration, 
sometimes bad administration? 

Mr. Treadway. I think almost entirely it is a matter of adminis- 
tration. The ordinances in some respects exceed what we believe, and 
I believe what you gentlemen would believe, are the maximum re- 
quirements to safeguard the consumer's health, but one administrative 
feature you now ask about is a further trade barrier in the prohibi- 
tive charges that may be made for inspections. For example, Con- 
necticut has never declined to make any inspection, to my knowledge, 
in the Middle West, but its inspection service is only good for a 
period of 6 months and must be renewed twice a year to permit our 
exporters to engage in that market. Connecticut's charge is a fee 
of 10 cents for each farm supplying a dairy plant, in addition to 
the expense reimbursement of the inspector. This additional over- 
head, I may point out, amounts to a trade barrier in that the pro- 
ducer in the Middle West cannot meet that additional overhead and 
remain in the Eastern market. 

Mr. DoNOHO. I was interested in your use of the word "exporter" 
Mr.- Treadway, in referring to the movement of Indiana cream to 
the East. Does that have a sinister sound in respect to movement of 
cream to the Eastern States ? 

Mr. Treadway. It has a rather foreign sound, I would say, to a 
united nation. 


Mr. DoNOHO. How does the lack of uniformity in inspection and 
sanitary requirements in the Eastern markets amount to trade bar- 
riers ? Just be specific on that point, please, Mr. Treadway. 

Mr. Treadway. It amounts to trade barriers to the extent that any 
exporter, using the word again, in the Middle West, who desires to 
enter more than one Eastern market, must undergo added expense 
and effort in meeting the lack of uniform requirements of the East, 
and I would say that probably that is the greatest barrier within 
the acts and ordinances themselves, aside from the administrative 
problems I have pointed out. 

As an example, some of the Eastern States recognize in steriliza- 
tion of utensils that only steam is an efficient agent. The District 
of Columbia is one of those jurisdictions. On the other hand, the 
milk market of Newark, N. J., recognizes that only chlorination is 
efficient as a sterilizing agent and will not recognize steam for that 
purpose. There is even a division in the jurisdictions requiring 
steam. Some require the application of steam for a long period of 
time under low pressure while others require steam exposure for a 
shorter period of time under high pressure. 

The differences in such requirements also go into the plant equip- 
ment, which is a serious handicap amounting to a trade barrier. 

As to barns and milk houses and the equipment itself, an Indiana 
farmer, in order to meet the present requirements of various markets 
that might be selected throughout the East would be required to 
erect and maintain an equal number of different barns and an equal 
number of different milk houses for each of the different markets 
that he proposed to enter, as well as having on hand the different 
styles of milk pails, stools, and other milking equipment to meet the 
respective demands. Some require open pails, some require topped 

Acting Chairman Williams. Is there any real reason for that, or 
is that purely a trade barrier? 

Mr. Treadwat. In my opinion, sir, it is purely a trade barrier. 

Acting Chairman W'umams. It strikes me, in such little things as 
that — that is the way it would look to me — ^that there wasn't any real 
foundation for that kind of regulation. There may be; I don't 

Mr. Treadwat. For instance, if you want sp)ecific items pointed 
out, in the District of Columbia a producer having a metal milking 
stool is given a higher rating than one having a wooden milking 
stool, regardless of the cleanliness of the respective stools: 

I might also point out, to meet the present requirements, this room 
in which we are now seated would not be acceptable to the inspectors 
as a milk house for the reason that the ceiling is not smooth, and in 
conformity with the decision which has been handed down and by 
which a farmer who had a ceiling of corrugated metal was ruled 
out as having a ceiling that was conducive to dust collection, I assume 
they would not be able to pass this room as suitable for a milk house 
for milk to be consumed in the District of Columbia. 

Acting Chairman Williams. It seems to me somebody said we 
have the best milk-inspection rules and the best milk supply. 

Mr. Treadwat. I would agree and would say in addition you have 
ma^sy numerous and superfluous requirements. 

Mr. Pike. Of course, they might be right about this room. 


Mr. Treadwat. Also in the District of Columbia, if you don't 
mind my pointing out some local examples, inspectors are required 
to make an actual count of the number, of towels used by milk pro- 
ducers; the regulations require the total number of towels in the 
amount of four per day per cow. A separate wet towel is required 
for application before milking for each cow, a separate dry towel is 
required for application before milking for each cow for each sepa- 
rate milking per day, and they must be carried in two separate 
buckets, one for the dry towel and one for the wet towels, with the 
requirement going still further, that the towels must not have any 
ragged edges, which would necessitate, if the committee please, that 
the towels probably be hemstitched. 

Acting Chairman Williams. What success has your association 
had in doing away with these rather unreasonable requirements ? 

Mr. Treadavay. Very little, so far. We are permitted to ship 
sweet cream into the District of Columbia at the present time only 
under the definite understanding that it is to be used for manufacture 
into ice cream only and for no other purpose, and before it leaves 
Indiana there must be added a chemical agent to that cream that 
will serve as an identifying agent upon its arrival here. I forget 
the name of this chemical, I am not a chemist, but that is a require- 
ment of the District. We are permitted to ship sweet cream for 
the sole purpose of manufacturing into ice cream in the District. 

Acting Chairman Williams. Do you think if you were permitted 
to ship cream into here under more liberal conditions you would be 
able to lower the price here in the District for some of us ? 

Mr. Treadway. I think so. 

Mr. DoNOHO. Mr. Treadway, how does the refusal tq grant mutual 
recognition of certificates amount to trade barriers in the dairy 
industry ? 

Mr. Treadway. When requiring the local plant operators to submit 
to a multiplicity of overlapping inspections, usually borne at the 
expense of the plant, by increasing its overhead operation in propor- 
tion to the number of different Eastern markets that that producer 
seeks to enter, and in fact tending to exclude it from attempting to 
enter any considerable number of Eastern markets. 

Mr. DoNOHO. Is Indiana cream intended for shipment into other 
States produced and shipped under sanitary conditions ? 

Mr. TrIeadway. It is. The cream produced on our farms is under the 
constant supervision of the State board of health. It is handled and 
processed by inspected milk plants and is shipped East by fast re- 
frigerated railway express, in refrigerated express cars attached to 
passenger trains, which permits delivery into the East in an overnight 
movement foni the Middle West. 

Mr. DoNOHO. Mr. Chairman, I have no further questions. I under- 
stand, however, Mr. Treadway has some recommendations. 

Acting Chairman Williams. Are there further questions at this 
time from members of the committee? 

Mr. Elmore. Yes ; I have a question. Mr. Treadway, the testimony 
given before the committee yesterday was to the effect that Indiana 
imposed no taxes, excise or license, on margarine. Do you know that 
to be a fact? 


Mr. Treadwat. I know that to be a fact. It has been proposed 
before the Legislature of Indiana for the last 21 years, but never 
has been enacted. 

Mr. Elmore. And the testimony was further that one of the largest 
manufacturers of margarine was located in Indiana, and further that 
no member of the National Association of Margarine Manufacturers 
was located in a State which imposed taxes on margarine, with one 
exception and that was Texas. Now based on your experience in 
interstate cooperation, is it your opinion that these margarine manu- 
facturers who have located in nontaxing States have done so because 
of the absence of taxes, or do you think that the presence of these 
margarine manufacturers in such States discourages the imposition of 
those taxes ? 

Mr. Teeadway. In answer to- part of your question, I do not know 
the relative position or importance of the oleo industry in Indiana. 
I understand that there is one plant manufacturing oleo, but I do not 
even know the name of the plant. There may be more. 

Now, as to why they have located in Indiana, I wouldn't know 
unless it is because we do a considerable meat-packing business in 
Indiana, and it might afford a logical location for the manufacture 
of a byproduct of animal fats. There never has been suggested to 
me by anyone that there was any relationship between ihe manu- 
facture of oleo in Indiana and the lack of any tax or requirement on 
its manufacture. 

Mr. Elmore. Does your knowledge extend to the other States ? 

Mr. Treadwat. I know that Wisconsin has — I have discussed that 
with the counsel for the Board of Health in Wisconsin. I know they 
do have a relatively high oleo tax, and have had for a number of 
years, and I also know that Tennessee has a tax that seems strange 
to me, being in the amount it is, in an area that has a certain amount 
of cottonseed oil, at least, but Tennessee in addition is relatively an 
important dairy State. 

Mr. Elmore. You can't say, then, that there is any. relationship be- 
tween the presence of these manufacturers in nontaxing States and 
the fact that the States do not impose taxes? 

Mr. Treadwat. I know of no such relation, and I think I can say 
of my own observation that the bill has been defeated by Indiana 
sentiment in each of the last four sessions of the legislature that I 
have observed, rather than by any lobbying efforts on the part of 
oleo interests. 

Mr. Elmore. I didn't mean to imply lobbying efforts. 

Mr. Treadwat. The objection to and the defeat of oleo legislation 
has been brought about largely by the fact that our legislature is 
composed of a majority of farm members, and I don't know how typi- 
cal that is of other States, but I am told that the largest consump- 
tion of oleo in Indiana is in the farming areas — that the farm pro- 
ducer is quite a customer. 

Mr. Pike. You mean the dairy people eat margarine. 

Mr. Treadwat. Not the dairy people ; the smaller farmers ; yes. 

Mr. Pike. What is the attitude of the dairy interests toward the 
margarine tax? You haven't apparently been very strongly for one 
or you might have got it over ? 

Mr. Treadwat. Since I have been in Washington I asked that 
same question, or a similar one, of witnesses from the dairy industry 


who are here before this committee and they tell me that there is a 
definite competition in Indiana between oleo and dairy products. 

Mr. DoRFMAN. What is the basis for the District permitting the 
use of Indiana cream here in ice cream, but not for sale as fluid 
cream, if j'ou happen to know? 

Mr. Treadwat. The only reason I would know is that bottled 
milk in the District sells at a sufficiently high price that it affords 
a premium in the local area of consumption for that puipose, and 
thereby probably brings about a shortage of cream. In other words, 
there probably is a sufficient quantity of liquid whole milk, bottled 
milk, not whole milk but grade A bottled milk, without bringing in 
more, or if there isn't sufficient, it might be due to some ulterior 
motive, perhaps, in maintaining price by limiting the supply. 

Mr. DoRFMAN. The considerations, though, are unrelated to the 
health of the consumer? 

Mr. Tbeadway. I would say they go certainly far beyond the maxi- 
mum requirements of public health. 

Mr. DoRFMAN. Is there any reason why cream used in ice cream 
would injure one when it would not if he consumed it as fluid cream? 

Mr. Treadway. I see no reason why there shouldn't be the same 
requirements for cream going into ice cream as in cream for any other 
use. The public health would be equally concerned if it was a health 

Mr. Dorfman. The Indiana cream which comes into the District for 
use in ice cream is just as good, insofar as the consumer is concerned, as 
the fluid cream sold here ? 

Mr. Treadwat. I am certain of that fact. 

Mr. Dorfmax. And it sells at a lower price,* does it not, than the 
cream sold as fluid cream ? 

Mr. Treadwat. Yes; it is a matter of market-price quotation. It 
carries a lower market value than cream for bottled use. 

Mr. Dorfman. Then the elimination of such restrictions would oper- 
ate to reduce the price of fluid cream to the consumer? 

Mr. Treadwat. If the District removed its restriction that cream 
be used for manufacturing ice cream only, it should follow, as a matter 
of operation of economic law, that bottled-cream prices would be 

Mr. Dorfman. Without any impairment of the health of the con- 
sumer ? 

Mr. Tr-^.adwat. With none whatever. The same type and quality 
of cream is permitted to enter other markets for bottled consumption ; 
I think possibly even to Boston, which is considerably farther than 

Acting Chairman Williams. Do you have any other suggestions, 
Mr. Treadway? 

Mr. Treadwat. If I may have 2 or 3 minutes, I can conclude. 

The Middle Western States have taken the initiative in trying to 
solve this mtersectional problem. The first conference on the subject 
\A as held at Chicago last October, which was a study session. The 
last conference was held on March 15 and 16 in Chicago, which was a 
technical session attended by dairy experts and by public-health ex- 
perts of nine Middle Western States. The outgrowth of these sessions 
on the part of the Middle Western States has been a serious effort to 
agree among ourselves upon acceptable and reasonable standards of 


inspection and sanitation, in which we were assisted by the United 
States Public Health Service, Dr. Haskell and his staff being made 
available to us for that purpose. 

It is our purpose to first put the middle western milk area upon a 
uniform, sound basis of sanitation and inspection which the United 
States Public Health Bureau would recognize, for instance, as safe and 
sound, and that any other impartial body might view the same way. 
We will then invite the Eastern Seaboard States into an intersectional 
meeting, in which we will ask for reciprocal recognition of inspection 
certificates. We feel that that will be our best contribution to a 
solution of the problem. 

Acting Chairman Williams. Have you finished your statement? 

Mr. Treadway. Yes, sir. 

Acting Chairman Williams.- We thank you for your presentation. 
It has been very interesting and constructive. 

(The witness, Mr. Treadway, was excused.) 

Acting Chairrhan Williams. The committee will stand in recess 
until 2 : 30. 

(Whereupon at 12 : 45 o'clock a recess was taken until 2 : 30 o'clock 
of the same day.) 


The committee resumed at 2 : 35 p. m. upon the expiration of the 

Acting Chairman Reece. Are you ready to- proceed, Mr. Donoho ? 

Mr. DoNOHO. Yes. Mr. Money, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony 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. Monet. I do. 


Mr. DoNOHO. Please state your name and address. 

Mr. Monet. A. T. Money, of the Page Milk Co., Shelby ville, Ind. 

Mr. DoNOHO. And what is your occupation, Mr. Money? 

Mr. Monet. I am General Manager of the Page Milk Co. 

Mr. DoNOHo. Mr. Money, please give the present daily receipts of 
your company and the products manufactured. 

Mr. Monet. At the present time we are receiving about 45,000 
pounds of liquid milk from 1,400 producers surrounding our plant 
and we manufacture dry milk solids, that is powdered milk, and ap- 
proximately 50 ten-gallon cans of 40 percent butter fat cream for 
manufacturing purposes. When I speak of a 10-gallon can I want 
to clarify that — or can of cream — as a 10-gallon can; it isn^t a 5- 
gallon or 2-gallon can ; it is a 40-quart, 10-gallon can. Now the but- 
terfat, 40 percent, is for every 100 pounds of the liquid cream, con- 
tains 40 pounds of butterfat. 

Mr. DoNOHO. How many 10-gallon cans of cream have you manu- 
factured since January 1, 1940? 

Mr. Monet. Approximately 4,000 cans. 

Mr. DoNOHO. How many cans were shipped during this period, Mr. 
Money ? 


Mr. Money. Approximately 1,800 cans, which is about 50 percent 
less than shipments made a year ago. 

Mr. DoNoiio. And Avliere did the cans which you didn't ship — 
where did the cream go? ■ 

Mr. MoKEY, Well, the 1,800 cans that were shipped came into the 

Mr. DoNOHo. "Where did the 2,200 cans go? 

Mr. Money. The 2,200 cans went into butter. 

Mr. DoNOHO. For what market do you now hold shipping permits! 

Mr. Money. The District iof Columbia and the State of Virginia. 

Mr. DoNoiio. You ship now into Virginia? 

Mr. Money. No; not at the present time. We do, however, hold a 

Mr. DoNoiio. Why don't you ship into Virginia? 

Mr. INIoNEY. We lost the Virginia market. 

Mr. DoNoiio. Explain, please. 

Mr. Money. As I said before, _we have permits to ship into the Dis- 
trict of Columbia, also into the'State of Virginia. We have permits 
to ship cream for manufacturing purposes, but we do not have a per- 
mit to ship ice-cream mix or a finished product, and w^e shipped 
cream into the State of Virginia to a certain concern there. They 
nuide this cream up into ice-cream mix and offered it in the District 
of Columbia, and for some reason or other it was rejected in the Dis- 
trict of Columbia ; therefore, we lost the Virginia market. 

Mr. Don OHO. Have jou previously shipped cream for manufactur- 
ing purposes into other Eastern markets? 

Mr. Money. Yes ; Ave have shipped ci^am intb several other Eastern 
markets, but as time goes on we gradually were eliminated and ex- 
cluded from those markets. 

Mr. DoNOHo. Why are you eliminated and excluded from those 
markets ? 

Mr. Money. Because of more stringent health-department rules 
and regulations, and our inability to cope with the price quotations 
in those government -controlled markets. 

Mr. DoNOHo. Is the New York market oj^en for your cream? 

Mr. Money. At the present time, no. The New York market elimi- 
nates all inspections beyond a 500-mile radius, and since our plant is 
beyond the 500-mile radius, we are excluded from the New York 

Mr. DoNOHo. I wonder, Mr. Money, do you know whether this 
exclusion is by law or by administrative ruling? 

Mr. Money. I think it is by administrative ruling. The market is 
open. At the same time they, should I say, refuse to go beyond the 
500-mile limit. 

Mr. DoNOHo. That is your opinion. 

Mr. Money. That is right. 

Mr. DoNOHo. Have you previously shipped cream to the Connecti- 
cut market ? 

Mri Money. Yes; but we were excluded from the Connecticut 

Mr, DoNOHo. Why were you excluded from this market? 

Mr. Money. AVe were excluded from that market because of our 
inability to meet the exorbitant inspection costs. 

124491 — 11— pt. 29 12 


Mr. DoNOHO. Would you please explain what you mean by "ex- 
orbitant" inspection costs ? 

Mr. Monet. Well, as Mr. Treadway explained to you this morning, 
you must have an inspection every 6 months. Your inspection is only 
good for 6 months. They ask you to pay $1 per producer — that is, 
per inspection. That is $2 per producer per year. In addition to 
that, the expense of the inspection is involved. We, with 1,200 pro- 
ducers, which would be $2,400 per year for the producer, in addition 
to the inspection expense involved, would probably approximate $3,500 
a year for an entry into the Connecticut market, which is exorbitant, 
and we cannot afford to do it. 

Mr. Pike. How much would that have run per gallon on the cream 
that you customarily shipped into Connecticut before this thing 
came on ? 

Mr. Money. I don't have those figures. 

Mr. Pike. It would probably have been out of the question ; it would 
have been a thing that you couldn't have absorbed ? 

Mr. Money. We couldn't have absorbed it. It would have been im- 
possible to absorb it. 

Mr. DoNOHO. Mr. Money, were you excluded from eastern markets 
because of the quality of the cream you were shipping? 

Mr. Money. No ; the quality of our cream has never been questioned. 
We have an improvement program on in Indiana which assists and 
helps us in maintaining the quality of the product. We have plat- 
form inspection; sediment-disc inspection, which determines the 
amount of sediment in the milk as it is received at the plant ; and we 
have a 24-hour delivery service by fast passenger trains in refriger- 
ated cars. We have a low bacteria count as the product is delivered 
into the eastern market. In other words, the bacteria count of our 
cream delivered into the District of Columbia at this time would not 
exceed, oh, ten to fifteen thousand. 

Mr. Pike. That is per cubic inch ? 

Mr. Monet. No ; that is bacteria per cubic, centimeter, by the plate 

Mr. Pike. That is as delivered, when it reaches here ? 

Mr. Money. Yes; and cream, before it can become objectionable — I 
am not a technician ; I am not going to attempt to tell you more than 
I know; but I am quite sure it would have to run beyond a million 
before it would become objectionable. 

Mr. DoNOHO. Mr. Money, you have described this exclusion from 
these markets. Just how much difference in net return to you do these 
exclusions amount to ? 

Mr. Money. If you will pardon me, Mr. Donoho, before you get onto 
that, I want to make this emphasis, and I want to leave with this com- 
mittee that many of these Eastern markets place considerably more 
emphasis upon the farm requirements, which act as trade barriers, thiin 
they do upon the quality of the product after it is delivered and 
received in the market. Going on to your question, will you repeat it 
again ? 

(The reporter read the last preceding question.) 

Mr. Money. At the present time it amounts to about 4 cents a pound 
butterfat, and each can containing 33 pounds of butterfat amounts 
to $1.32 per can, and on the 2,200 cans which have been involved in this 
transaction since January 1, it would amount to approximately $2,900, 


Mr, DoNOHO. Do you feel that these market exclusions are legiti- 
mate, Mr. Money ? 

Mr. Money. No ; we do not. The Mid-Western cream shippers con- 
sider these health-department regulations which extend beyond t. 
public-health interests as trade baiTiers, and as a direct attempt or a 
means to an end in keeping Western cream out of Eastern markets. 

Acting Chairman Reece. Is there any standard of inspection by 
which, if the States comply with those standards, there are reciprocal 
relations between the various States or municipalities or marketing 
areas ? 

Mr. Money. That is being worked upon at this time. Mr. Tread- 
way gave a rosum^ of that meeting in Chicago last week bearing on 
that particular question. 

Acting Chairman Reece. You need not go into it again. I was 
unable to be present this morning. 

Anyway, there has not been much accomplished along that line so 

Mr. Money. No ; it is in the making. 

Acting Chairman Reece. You hope? 

Mr. Money. We hope. 

Acting Chairman Reece. I do, too. 

Mi. Donoho. What effect is all this ultimately going to have upon 
you and upon the farmers supplying you with milk ? 

Mr. Money. It seems to me that the handwriting is on the wall that 
these rules and regulations which serve as trade barriers are eventually 
going to force the Western cream shipper and producer out of business, 
or at least reduce his manufacturing operations to a butterfat or a 
cheaper grade, a cheaper dairy product, which will mean considerably 
less returns to our Mid- Western farmers. 

Mr. DoNOHo. Mr. Chairman, I have no further questions to ask the 

Acting Chairman Reece. Does any member of the committee have 
any further questions? 

(The witness, Mr. Money, was excused.) 

Mr. DoNOHo. Mr. Witham, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear the testimony you 
shall give in this proceeding shall be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Witham. I do. 


Mr, DoNOHO. Please state your name and address. 

Mr. Witham. My name is C. L. Witham, Indianapolis, Ind. 

Mr. Donoho. What is your business, Mr. Witham ? 

Mr. Witham. I am bulk goods sales manager for the Indiana Con- 
densed Milk Co. 

Mr. Donoho. In what way is your business affected by so-called 
trade barriers, Mr. Witham? 

Mr. Witham. Our business is further affected by trade barriers; 
that is aside from these sanitary regulations that have been talked 
about by the A. A. A. Marketing Act. Under this act there lias 
been a number t)f orders set up, one of wliich is the New York order. 


This New York order establishes a price for milk going into cream 
of considerably less than we pay. They in January were able to 
purchase their milk in New York State for cream going to Boston 
or so-called outside markets, at $1.25 a hundred. The February 
price incidentally is $1.15. The average price the condensers paid in 
the Central West during the month of January was $1.50 a hundred. 
This farmer that delivered milk to the New York plant which paid 
for it at $1.25 a hundred, due to this A. A. A. order, received $2.06 per 
hundred for his milk. 

That is due to the pooling arrangement in existence under the 
order. As I see it, this order relieves the dealer in New York State 
of the responsibility previously had to his farmers. In times gone 
by, before the time of this order or other orders, if he had been so 
disposed to reduce his price to that low level we wouldn't have 
worried so much about it because we knew his farmers have him 
and he soon would either have to raise his price or go out of business. 

Mr. Pike. Where does that 81 cents come from; the differential? 

Mr. WiTHAM. The marketing order establishes a price of $2.82 for 
classT milk. To make it a little more clear, the dealer in New York 
State in reality reports to the market administrator how his milk 
has been used. Then the market administrator, after getting reports 
from all dealers in New York, figures a blended price, which in Jan- 
uary was $2.06. Then the market administrator calls this dealer 
back and says, "You pay your farmers $2.06." Then the No. 1 
dealer, or the dealer that purchased high-priced milk, pays his farm- 
ers $2.06 and has money left. 

He sends that extra money to the administrator. The adminis- 
trator in turn sends that extra money to this dealer that bought the 
cheap milk. 

Mr. Pike. So the difference between the $1.25 and the $2.06 is 
made up by the people who paid the $2.80 — something for the whole 
milk, really. 

Mr. WiTHAM. That is right. 

Mr. Pike. That is what I was trying to get at. 

Mr. WiTHAM. That is right. It is interesting to note that the 
New York situation has developed to the point that there is some 
milk at the present time being hauled by tank truck as far west as 
Lima, Ohio. That in January when the credits or deductions were 
taken off, was only some 65 cents that went into the pool. 

Mr. Pike. That is a strictly abnormal, artificial movement, isn't it? 

Mr. WiTHAM. It is ; no one ever heard tell of such a thing before. 
This Boston situation — I refer to Boston primarily because it is a 
good big market. 

Mr. DoNOHO. And is the Boston market a so-called free market? 

Mv. WiTHAM. The Boston market is a so-called free market. How- 
ever, they do have platform inspection that is pretty rigid. 

Mr. DoNOHO. Do you think this Federal order could be corrected 
so that it could stay in effect and still not injure Indiana cream 

Mr. WiTHAM. Yes; I do. It seems to me that the Department of 
Agriculture should accept the responsibility of the welfare of the 
farmers in the Central West to the extent that they would take an 
average of the prices paid to those farmers for milk going into 
cream, cheese, and other commodities, and use that as a basis for 


establishing their price under their order in New York ; thereby we 
as handlei-s would start off even. 

There would be no competitive difference as there is now. 
Mr. DoNOHO. Just for the record, I would like to ask you to make 
a summary. Your complaint in essence, is it not, Mr. Witham, is 
that you as a manufacturer of the raw milk — that is, you, as a proc- 
essor' of milk, have to pay a higher price for your raw material 
than does the processor of milk under the artificial conditions exist- 
ing in the New York milk area ? 

lilr. Witham. That is right. In addition to — we have talked here 
about butterfat. I would like to make this point. Butterfat is the 
thing that cream comes from. In addition to that the New York 
handler gets his skimmed milk under this order for nothing, which he 
is able to make into dry milk solids, and dump onto the market and 
wreck that market. 

Mr. DoxoHO. Are there any other — you have described, Mr. Wit- 
ham, the New York milk order. Are there any other like orders in 

]\Ir. Witham. There is an order that is in effect here in Washing- 
ton with some slight differences, as I understand it. Somebody ^ot 
an injunction against part of it in Maryland. It is something like 
90 i^ercent in effect. I have read that order, and their method of 
establishing prices for milk paid to go into cream is also too low. 

Mr. Doxoiio. How did 3'our company's sales of cream last year 
compare with other years? 

Mr. Witham. Our sales of cream are off at least 50 percent of 
previous years. We are going to — the farmers in the Central West, 
unless these conditions are corrected, are going to have to get out 
of the business of shipping cream. 

Mr. Doxoho. Can the Eastern farmer produce milk cheaper than 
the Central Western farmer? 

Mr. Witham. In my opinion, and in the opinion of several uni- 
versity men, he cannot. It is a pretty conclusive fact that it takes 
either cream or the feed for the cows to supply the Eastern needs. 
In other words, one of the two things have to come from the Central 
AVest, either the food supply for these cows or the cream. 
Mr. Pike. That is a part of the food supplies,' of course ? 
Mr. Witham. Yes: it takes 1,200 pounds of grain and roughage 
(o produce approximately 1,000 ))Ounds of milk, and it takes approxi- 
mately 1,000 pounds of milk to make one can of cream. It seems to 
me that the Western farmer is economically in a position to do that 
better because it is cheaper to ship 83 pounds of cream than it is to 
ship 1,200 pounds of feed. 

Mr. DoxoHo. Do I understand you to mean, Mr. Witham, that 
you are objecting to the artificially low price that the Eastern 
processor can obtain in raw material? 
Mr. Witham. That is right. 

Mr. DoNOiio. And you are also objecting, as I understand it, to 
the fact that you cannot — that you are excluded from shipping milk 
into this controlled market area, but that this controlled market area 
is shipping milk into your area? 

^Ir. Witha:m. That is right, moving west. 

Representative Williams. Let me see that I understand you. T>e 
3'ou mean to say that the dairying interests in the East are making 


no profit on their business, that they don't get as good an income as 
t he Middle West dairymen do ? 

Mr. WiTHAM. I mean to say that for that part of it that goes into 
manufactured products they are receiving less return than the "West- 
ern farmer is. 

Representative Williams. What part of it goes into manufactured 
products ? 

Mr. WiTHAM. About 50 percent. 

Representative Williams. What about the price they receive for 
the rest of it ? 

Mr. WiTHAM. They are getting a higher price for it. Class I price 
in New York, under the order, is $2.82, as I remember it. 

Representative Williams. In other words, the gross income for the 
various classes is as good or great in the East as it is in the West 
and Middle West? 

Mr. WiTHAM. It is at the moment. The production continues to 
increase due to this op it wouldn't be. That is my forecast, under- 
stand ; that is not the record at the present time. 

Representative Williams. Well, of course, I don't understand the 
situation, except as you say that part of the product they get a 
higher price for and part of it they don't get as high. 

Mr. WiTHAM. They get a much lower price. Last year under the 
Federal order in New York there were some 24,000,000 pounds of 
milk went into cream-making purposes and in January there were 
35,000,000 pounds. 

Representative Williams. Thai is the part they get low prices 

Mr. WiTHAM. That is right. 

Mr. Pike. Is that quite correct, Mr. Witham ? The processor pays 
a low price for it but the farmer gets the blended price, isn't that 

Mr. Witham. That is right. 

Mr. Pike. The farmer doesn't care whether he gets 90 cents or 
$1.10 for that part, as long as he gets his blended price, where, as 
I take it, the people who buy whole milk are penalized in order 
that this milk used in manufacturing is sold at very low unremunera- 
tive rate. That must be the effect of it. 

Mr. Witham. I don't see that the farmer would object momen- 
tarily. Of course, a farmer that was looking into the future would 
see the picture. 

Mr. Pike. The point I think that bothered Congressman Williams 
was that the farmer should get such a low price as $1.15. Now he 
doesn't really get that low price. 

Mr. Witham. That is :he part of it that is unfair, as I see it. 
The farmer doesn't know; if he did know there would be nothing 
he could do about it.' I mean to say this, if the farmer in New 
York State is long-thinking and got the figures and found out he 
was producing 200 pounds of milk a day and according to the figures 
he was only getting $1.15 a hundred for 75 pounds of it; even though 
ho had arrived at that fact, if he had then decided to keep that 75 
pounds at home, he still would have to share in this low price. 

Mr. Pike. He wouldn't be better off if he kept the 75 pounds. 
He would still be in the pool ?nd vuukl get the blended price 
Mr. "Witham. That* is right. 


Representative Williams. After all, is there any ditference be- 
tween the price which the producer receives in the Middle West and 
the East? 

Mr. WiTiiAM. I don't quite get you. 

Representative Williams. Here is a dairyman engaged in the 
dairy business in the East and in the West ; he sells his product on 
the market ; who gets the most for it ? 

Mr. WiTHAM. If he is in tlie marketing area such as New York 
and he participates in the blended price, he is getting more. 

Representative Williams. Getting more? 

Mr. WiTHAM. Yes. 

Representative Williams. Than the producer in the Middle West? 

Mr. WiTHAM. The producer in the Middle West selling to manu- 
facturing plants. But the dealer that buys that milk buys it for less, 

Mr. DoNOHO. That is in New^ York ? 

Mr. WiTHAM. Tliat is right. 

Mr. DoNOHO. And you as a dealer in Indiana can't compete with 
this dealer in New York who buys milk at an artificially low price? 

Mr. WiTHAM. That is right. 

Representative Williams. What do you mean by a dealer? 

Mr. WiTHAM. A dealer as used in my statement is one who buys 
milk from the farmers and puts it through his plant and processes 
it into the product that goes to the final consumer. 

Representative AViLLiAMS. Would you include in that the dis- 
tributor of milk? 

Mr. WiTHAM. The distributor of milk might be a dealer. That 
is, he might take part of his milk and put it into manufactured 

Representative Williams. What I am trying to get at is whether 
or not the user of milk, one who used milk, not the manufactured 
products, the milk that is sold, for instance in New" York, does that 
reach the consumer at a lower price than it does, say, in Indianapolis? 

Mr. WiTHAji. No. 

Representative Williams. What is the difference? 

Mr. WiTHAM. The prevailing price in Indianapolis is 12 cents — 
you are talking about fluid milk now, are you ? 

Representative Williams. That is what I am talking about, milk. 

Mr. AViTiiAM. The prevailing price in Indianapolis is 12 cents at 
the door and 11 cents at the grocery. I am not positive, we are not 
in the bottled-milk business, but I understand the New York price 
is 15 cents. 

Representative Williams. That dealer in that city when he gets 
Ills milk and he can market that at a lower price, he certainly isn't 
passing that on to the consumer. 

Mr. WiTHAM. Well, of course, this cream that we are talking 
about here largely goes into ice-cream manufacture. The cream 
that goes into New York City has to be paid for at around ^■>20 a 
can. for instance. 

Representative Willl\ms. You are talking about it from the sti nd- 
point of the fanufacture of ice cream or other products. 

Mr. WiTiiAM. Primarily, that is right. 

Representative Williams. And not from the standpoint of either 
the producer or the distributor or the consumer of milk — fluid milk. 


Mr. WiTHAM. I am trying to carry to this committee the position 
that the Central Western producer is placed in by this order. 

Mr. DoNOHO. In final analysis, your complaint is that there is an 
artificially high price for fluid milk which makes it possible to have 
an artificially low price for milk which is processed. 

Mr. WiTHAM. That is right. 

Mr. DoNOHO. I have no further questions. 

Acting Chairman Reece. Does any member of the committee have 
any questions? 

(The witness, Mr. Witham, was excused.) 

Mr. DoNOHO. Mr. Freeman, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear the testimony you 
shall give in this proceeding shall be the truth, the whole truth, and 
nothing but the truth, so help you God? 

Mr. Freeman. I do. 


Mr. DoNOHO. Will you state your nanje and address, please? 

Mr. Freeman. Walter R. Freeman, Indianapolis, Ind. 

Mr. DoNOHo. What is your occupation, Mr. Freeman? 

Mr. Freeman. I am secretary of the Indiana Milk and Cream Im- 
provement Association, with headquarters in Indianapolis, Ind. 

Mr. DoNOHO. What is the object of your association? 

Mr. Freeman. The association membership is made up of plants in 
Indiana engaged in the manufacture of butter, cheese, evaporated and 
condensed milk, sweet cream, and dry milk solids. The association 
was formed to carry forward an industry program of quality Im- 
provement on milk and cream going into the manufacture of these 

Mr. DoNOHo. Mr. Freeman, Mr. Money and Mr. Witham have just 
been discussing this subject. Will you add to the information which 
they have given the committee? 

Mr. Freeman. In this way, that trade barriers in cream and other 
manufactured dairy products in interstate commerce have a pretty 
vital financial bearing on the health of the dairy industry in Indiana, 
and by the industry I mean both tlie producers and manufacturers of 
the product, for this reason, that from 57 to 67 percent of our product 
is sent out of the State to outside markets. About 87 percent of our 
farmers are engaged in the sale of milk or cream as a whole or a 
minor part of their returns. That is about 720.000 farms. 

In the past we have enjoyed a very profitable market for sweet 
cream, though in recent years that has been declining, we feel in part 
due to the various rules and regulations that have arisen around indi- 
vidual markets in the East to more or less protect the market there 
for their product. I would like to point out there that a large part 
of this difficulty comes from the lack of uniformity in these regula- 
tions. Indiana at times sends sweet cream to markets from Massachu- 
setts to Plorida. There is a wide range depending upon the season 
and the demand. 

I miirht sum it up in this way: If a specific market, for instance, 
would have a use for several cars of cream, then before our cream could 


get to that market, it would be necessary that an inspection of the 
farms and the plant be made to allow that cream to go on to that 
market. That would entail considerable expense, not only in equip- 
ping farms and the plant but the actual expense of having the 
inspection made. 

Then another market requires possibly the same amount, and it 
means a reinspection, some difference in equipment, both of plants and 
of farms. When we add those all together, we find too much expense 
to allow us to ship the cream into those markets. 

Mr. DoNOHO. Do these variations in regulations affect only sweet 
cream ? 

Mr. Freeman. No; not altogether. There are some other trade 
barriers, as we call them, that affect other manufactured dairy prod- 
ucts. I have in mind at the present time a new act passed in Con- 
necticut which is at variance with the act carried in almost all of the 
other States and the Federal act. That is referring particularly to 
the Federal and State Food and Drug Acts, and the Federal Butter 
Act. In that act they allow for a certain amount of coloring to be 
added to the product, both of butter and cheese and ice cream, so that 
a uniform product throughout the year can be made. As I under- 
stand it, effective in July, Connecticut's act will require butter or 
cheese to be labeled "with added coloring" if that is in the product, 
which means special manufacturing and special labeling and cartons 
to take care of that particular market, and it is not always possible for 
plants to know when making up the product what market it is going 
to end up in. 

Mr. DoNOHO. Mr. Freeman, have you any suggestions for improv- 
ing this situation? 

Mr. Freeman. We believe that some way can be found to induce 
Eastern markets to adopt more vmiform requirements for the pro- 
duction and processing of products that come into it, and inspection 
methods. As Mr. Treadway pointed out this morning, the Mid- 
Western States have got together on a voluntary basis in which they 
adopted some uniform standards for inspection and an agreement to 
accept or exchange inspection from one State with the other. Just 
this morning I received in the mail a report on a somewhat similar 
meeting that was held in Providence, R. I., containing somewhat 
the same features, and showing there was a tendency to get together. 
If more of that effort can be put forward I believe uniformity can 
be obtained and reciprocal inspections arranged for, which will be 
very helpful. 

Mr. DoNOHO. Have you any further comments to make, Mr. 

Mr. Freeman. Only that along with uniformity of requirements 
I think it is essential that reciprocal inspection agreements be worked 
out, and again I think that is possible, because just recently Indiana 
and Pennsylvania have agreed to interchange inspection — that is, 
Indiana inspectors will inspect Indiana farms for Pennsylvania on 
the basis of Pennsylvania standards, which will be quite a saving 
in expense to Indiana farmers. 

Mr. DoNOHO. I have no further questions. 


Representative Williams. May I ask this? Is there any funda- 
mental difference between the standard of inspection between what 
you have called the Eastern and Western States? 

Mr. Freeman. There shouldn't be. I think a more rigid series 
of requirements has been set up around Eastern markets than 
there has been in the Western markets, such as Mr. Treadway ex- 
plained today, in the construction and style of farm equipment, 
of milking equipment, and in plants, but I don't see any reason why 
uniformity can't be developed along that line if confidence can be 
developed between the States and between municipalities as regards 

Representative Williams. Is it your feeling that some of these 
inspections have been tightened simply as a means of preventing 
the importation of foreign milk and dairy products, or has it been 
done in an honest belief that it was necessary in the interest of the 
public health? 

Mr. Freeman. It is my thought that they have gone beyond the 
strict needs for the protection of public health. 

Representative Williams. Have the Western States followed gen- 
erally the model that prevails in Indiana? 

Mr. Freeman. I don't just understand that question, sir. 

Representative Williams. You have a standard of inspection, of 
course, in Indiana, which is entirely satisfactory to you and the 
people of Indiana. 

Mr. Freeman. No — I understand what you mean — they haven't. 
There are variations in some of the Western States, but there is a 
definite attempt now to iron out those differences and get on a solid 

Representative Williams. Do you have any material importation of 
dairy products — I use that in the sense of local importation — from 
surrounding States? 

Mr. Freeman. No; very little. There is some interchange, but very 
little, because we produce more than is used in Indiana. 

Representative Williams. Have you an accepted city inspection in 
your State? 

Mr. Freeman. Yes, sir. 

Representative Williams. They don't accept your State inspection? 

Mr. Freeman. Tliat is true in part ; yes. Some of the Indiana cities 
will not always accept the Indiana State Board of Health inspection. 

Representative Williams. Is it your hope and the hope of your 
organization to bring the cities in the country in cooperation with the 
States in the establishment of a standardized inspection system? 

Mr. Freeman. That will have to be done to carry it to its ultimate 
end; yes. 

Representative AVilliams. Do you get very much encouragement 
along that line? 

Mr. Freeman. It is pretty slow. 

Acting Chairman Reece. Are there any other questions? 

We thank you very much. 

(The witness, Mr. Freeman, was excused.) 

Mr. DoNOHo. Mr. Creighton, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear the testimony you 
shall give in this proceeding shall be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Creighton. I do. 



Mr. DoNOHO. Wliat is your name, please? 

Mr. Creightox. W. T. Creighton, Springfield, Mo. 

Mr. DoNOHO. What is your business? 

Mr. Creighton. Manager, Producers Creamery Co., Springfield, Mo. 

Mr. DoNOHo. Do multiple sanitary inspections mentioned by other 
witnesses affect your business? 

Mr. Creighton. Yes; I would say tliey do. For example, some- 
time ago our company considered applying for a permit to ship sweet 
cream into an Eastern market.' It was discovered that we would have 
to have inspection from four municipalities, and decided this expense, 
estimated at four to eight thousand dollars, would be too great and 
would overcome the advantage of that particular market for our 

Mr. DoNOHo. What would be your solution ? 

Mr. Creighton. I would say reciprocal inspections among States 
and municipalities; uniform methods of farm inspection; uniform 
requirements of quality of milk and cream; and after a State has 
adopted these uniform requirements that the State inspection of one 
State would be accepted by other States. Furthermore, that the cities 
within a State having such uniform requirements accept State inspec- 
tion for products used. 

Mr. DoNOHO. Do Federal milk-marketing orders affect your Mis- 
souri dairy farmers' markets in any way? 

Mr. Creighton. Yes; decidedly so. As an example, condensery 
and other competitive prices for manufactured milk in our territory 
during the month of February was $1.50 per 100 pounds of 3.5-per- 
cent milk. Under the New York order, class III milk was estab- 
lished at $1.15 per hundred pounds of 3.5-percent milk. This was 
manufactuTed into products which were sold into adjoining markets 
in competition with us. AVhen the freight rate is considered, this 
placed the Western manufacturer at a distinct disadvantage. 

I might add that the low price for Eastern-produced surplus milk 
for manufacturing purposes was possible due to the extreme high 
price for class I milk for bottling purposes produced under the Fed- 
eral order and the blended price of all classes was relatively high 
and attracted the Eastern producer, whereas our farmers necessarily 
must depend upon the market for manufactured products. 

It might also be added that probably 60 percent — I will say that 
our dairymen, our type of farmers, represent probably 60 -percent of 
the milk producers in the Nation. 

Mr. DoNOiio. What is your suggested solution, Mr. Creighton? 

Mr. Creighton. It would seem to me that some modification of such 
Federal orders whereby the class I price would be on a sound rela- 
tionship to national markets for dairy products upon which our price 
is based would be necessary. It seems unreasonable and unnecessary 
to maintain the class I price as much as 3 cents per quart higher 
than the price for surplus milk in order to maintain a blended price 
that is satisfactory to the producer within that particular milkshed. 
I am not sure it is really clear to the committee just how these prices 
are blended and how they are classified. I have here the market 
administrator for the New York metropolitan milk-marketing area 


giving utilization for all the milk that was handled under the order 
for the month of January, and I might give that as a matter of 
record, so that you may see just how it is worked out. 

Mr. DoNOHO. I have no further questions, 

Eepresentative Williams. You offer that for the record, I presume. 

Mr. Creighton. That is right. 

Acting Chairman Reece. If there is no objection, it may be 

(The chart referred to was mai'ked "Exhibit No. 2386" and is 
included in the appendix on p. 16141.) 

Representative Williams. In Missouri, do different cities require 
different inspection? 

Mr. Creighton. Yes; I think that is true. 

Representative Williams. That is especially true of St. Louis ? 

Mr. Creighton. Yes; I think of all the large cities of Missouri. 
They maintain their own inspection. 

Representative Williams. Has the Stat^ an efficient inspection, as 
a State? 

Mr. Creighton. No ; the State maintains no inspection. 

Representative Williams. No inspection at all? 

Mr. Creighton. No. 

Representative Williams. This matter that you complain about, 
the Federal order, have you brought that to the attention of the 
administrators of that order in the Agriculture Department ? 

Mr. Creighton. Not directly ; no, we have not. 

Representative Williams. Do you know whether the complaint, 
which seems to be general here, has been brought to the attention of 
the Agriculture Department? 

Mr. Creighton. I think it has been called to the attention of the 

Representative Williams. You haven't discussed that with him 
yourself ? 

Mr. Creighix)n. No; I have not. 

Acting Chairman Reece. Are there any other questions? 

Thank you very kindly. 

(The witness, Mr. Creighton, was excused.) 

Call your next witness. 

Mr. DoNOHO. Mr. White, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear the testimony 
you shall give in this procedure shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Dr. White. I do. 


agricultural barriers — the nursery industry 

Acting Chairman Reece. You may proceed. 
Mr. Donoho. Will you give your name and address please ? 
Dr. White. Richard P. White, 636 Southern Building, Wash- 

Mr. DoNOHO. Whom do you represent. Dr. White? 

Dr. White. Tlie American Association of Nurserymen. 


Mr. DoNOno. Is this association representative of the nursery 
trade of the country? 

Dr. White. We believe it is, sir. We have members in 43 of the 48 
States whose acreage or annual business volume amounts to approxi- 
mately 80 i^ercent of the total volume of the nursery industry in the 

Mr. DoNOHO. Dr. White, I understand that the movement of lun-- 
sery stock is regulated by Federal and State quarantines against 
plant pests. For the purpose of the record, can you explain briefly 
the purpose of these quarantines? 

Dr. White. These quarantines have been enacted in all States in 
the Union under a plant-pest law of each of the States, and these 
l)lant-pest laws are designed to do one or more of the following 
things. In the first place, they are designed to control and eradicate 
and prevent the spread of plant pests within the State. In the sec- 
ond place, they are designed to establish and enforce plant quaran- 
tines against other States. In the third place, they are designed to 
set up authority for the inspection of nurseries within that State, and 
in the fourth place, they are designed to enforce the rules and regu- 
laions which the administrator of the plant-pest law finds necessary 
to promulgate. 

Mr. DoNOHO. In your opinion. Dr. White, are these objectives de- 
sirable and necessary to prevent the introduction of plant pests into 
the State? 

Dr. White. AVe believe they are. We believe they are an essential 
part of the State's authority to rid itself from invasion of pests from 
other States. However, our complaint is based largely upon the ad- 
ministrative rules and regulations which are promulgated under the 
quarantines of the plant-pests laws. 

Mr. DoNOHO. Just how do the rules and regulations hinder the 
interstate movement of nursery stock? 

Dr. White. As we will show later, in some cases it is the exorbi- 
tant costs involved in meeting — that is, the out-of -State shipper meet- 
ing the requirements and regulations promulgated by the adminis- 

In other cases, and many of them, it is the nuisance value of these 
regulations which prevents the small shipper particularly from seek- 
ing interstate business. 

Mr. DoNOHO. Would you care to list those requirements which in 
your opinion have no relation to the legitimate function of preven- 
tion of the entry of plant pests but which do hinder interstate move- 
ment of nursery stock? 

(Kepresentative Williams assumed the chair.) 

Dr. White. They take many forms. Bonds are one requirement 
put on interstate shippers not required of intrastate shippers, regis- 
tration fees, agents' fees, post-office terminal inspections, duplicate 
invoices, special State tags, and certain other miscellaneous things 
that don't come to mind right now. 

Mr. DoNOHo. AVith respect to bonds. Dr. AVhite, would you please 
discuss the bonding requirements of the various States? 

Dr. White. There are only five States now which require the post- 
ing of a bond as a prerequisite of doing business within that State 
by an out-of-State nurseryman: Idaho, Mississippi, North Carolina, 
Montana, and Wyoming. 


Mr. DoNOHo. Do these States require bonds for nurserymen within 
the State? 

Dr. White. No; they do not. 

Mr. DoNOHO. What is the size of these bonds? 

Dr. White. One thousand dollars apiece, with the exception of 
Wyoming, which requires the posting of a bond of $500 only. In 
Idaho, I would like to point out, the bond is limited to out-of -State 
nurserymen Avho are selling fruit stock in Idaho, and in North Caro- 
lina the bond of $1,000 is limited to out-of-State nurserymen who are 
planting in North Carolina and promise to take care of the stock 
after it is planted. 

Mr. DoNoHO. Does the posting of a bond by an out-of-State ship- 
per tend to prevent the introduction of plant pests into the receiving 
State, Dr. White? 

Dr. White. Well, if yoti make the assumption that all interstate 
shipments of nursery stock represent a danger from a plant-pest 
standpoint, then I think they would prevent the introduction, or 
retard the introduction, of plant pests, because the posting of the 
bond limits the amount of nursery stock entering the State, and 
insofar as the volume of nursery-stock shipments entering the State 
is reduced, it will consequently therefore reduce the .danger from 
plant pests. 

Mr. DoNOHO. You mentioned inspection fees as constituting a bar- 
rier to the free movement of nursery stock. Would you please ex- 
plain for the committee just what you mean by registration fees? 

Dr. White. Before I can answer that question directly, we must 
understand that all nurseries in every State, irrespective of their size 
and irrespective of the fact of whether they are in interstate com- 
merce or not, are annually inspected by their own State-inspection 
services. These inspections are made by qualified entomologists, and 
if the nursery stock is found to be apparently free from dangerous 
plant pests, the nursery is then given a certificate from its own State 
indicating that the nursery stock has been inspected and has been 
found free of plant pests. 

Mr. DoNOHo. Is this inspection certificate accepted by other States 
generally. Dr. White? 

Dr. White. Many States do accept that inspection certificate as 
prima facie evidence that the nursery stock has been inspected and is 
free of pests. For example, in the following list of States, which I 
would like to read into the record, that is the only requirement of 
out-of-State shipments. 

Mr. DoNOHO. That is, that a duplicate receipt be filed? 

Dr. White. Yes, the out-of-State shipper files with the Department 
of Agriculture of the receiving State a duplicate of his State-inspec- 
tion certificate, and in addition to that, I might say, every shipment 
of nursery stock entering these States will carry a facsimile of that 
certificate. These States are as follows : Vermont, Connecticut, Dela- 
ware, Maryland, Missouri, Rhode Island, New Jersey, Pennsylvania, 
Illinois, and Ohio. 

Mr. DoNOHO. What do the States other than those that you men- 
tioned require in this connection. Dr. White? 

Dr. White. Most other States require what they call a registration 
fee. This fee is prerequisite to doing business within the State of 
destination. In addition to filing the duplicate of their own inspec- 


tion certificate which they have received, and which indicates that the 
stock carried in the package is free of plant pests, these out-of-State 
nurserj'nien must also pay a registration fee in the State of destina- 

Mr. DoNOHO. Is this second fee required of intrastate shippers? 

Dr. White. It is not . 

Mr. DoNoHO. Dr. White, what is the size of these fees, and in what 
States are they required ? 

Dr. White. The size of the fee varies from $1 to $25 for each regis- 
tration fee. Indiana and South Dakota require only a registration 
fee of $1. Georgia, Kentucky, Maine, and Texas require a registra- 
tion fee of out-of-State nurserymen of $5 each. New Mexico, Ala- 
bama, Oklahoma, Utah, and Virginia require a registration fee of 
$10. In Utah and Virginia, however, it is limited to those out-of- 
State nurserymen who employ agents in those States. West Virginia 
and Wyoming require a registration fee of $15, and Montana a regis- 
tration fee of $25. 

In Idaho the fee varies from $5 to $15, depending upon the volume 
of the man's business in that State — $5 if he does a gross business 
of less than two hundred per annum, and $15 if he does over $200 
per annum. 

Mr. DoNOHO. You stated, Dr. White, that these fees do not apply 
to intrastate shippers. Do they apply equally to interstate shippers? 

Dr. White. No. they discriminate between different classes of in- 
terstate shippers in this way : An out-of-State nurseryman who re- 
ceives an order, we will say, in a State requiring one o:^ these fees, 
requiring a fee, we will say, of $10, might receive an order from a 
customer in that State which did not amount to $10, and therefore he 
would naturally have to refuse that order because the cost of meeting 
the requirements is so great that this shipper could not afford to ac- 
cept the order. The registration fee applies equally to a single ship- 
ment or a nurseryman making one shipment in a State, or a nursery- 
man making a thousand shipments. 

Mr. DoNOHO. What in your opinion is the relationship between 
thes3 registration fees and the prevention of the introduction of plant 
pests within the State charging such fees? 

Dr. White. We don't see any relationship. If there were a rela- 
tion, it would be illogical to assume that South Dakota, for example, 
could prevent the introduction of plant pests by charging a registra- 
tion fee of $1, while in Montana it would require to perform the same 
service, a fee to the State of $25. 

Mr. DoxoHO. Mr. "White, you mentioned agents' fees as constituting 
a barrier to your product. Will you discuss that subject? 

Dr. White. Many nursery concerns sell through agents. In othe? 
words, they make arrangements with individuals in other States, and 
also within their own State, to sell nursery stock for them. These 
agents then take the orders, the orders are sent into the headquarters 
nursery which fills the order, and then the orders are sent either 
to the agent for delivery or direct to the customer. These nursery- 
men who employ agents as a sellinir means may have already paid a 
registration fee, may have paid the charge in their own State for 
inspection service, may have posted a bond, but before they can solicit 
orders in these States with airents' fees they must secure a permit and 
pay an agent's fee to the State of destination before they can do 


Mr. DoNOHO. What in your opinion, Dr. White, is the relationship 
between the requirements that agents fees be paid and the danger of 
the introduction of plant pests into the State making such require- 
ment ? 

Dr. White. Here again we believe there is no direct relationship 
between the payment of a fee and the movement of plant pests per 
se. For example, the agents' fee varies, as well as the registration 
fee. Agents' fees in a large number of States are $1 per agent. I 
would like to read those into the record : Alabama, Arkansas, Georgia, 
Idaho, Indiana, Michigan, Nebraska, Ohio, Oklahoma, Oregon, South 
Dakota, Virginia, and Washington. 

On the other hand, Kentucky and Maine charge $5 apiece for their 
agents' fees and New Mexico $10, and here again we believe that if 
the large number of States can keep out plant pests by charging a $1 
fee, that it is illogical to 'assume that the same objective will be 
reached by New Mexico which charges $10, 

Mr. DoNOHO. When you were discussing bonding requirements, Dr. 
White, you mentioned that Mississippi had reciprocal arrangements 
in this respect with other States. Would you care to explain about 
these reciprocal arrangements? 

Dr. White. Yes, that is true. The Mississippi bond, applies only 
to the other four States which require a bond. • In other words, they 
have set up with these four States a reciprocal arrangement which is 
merely an arrangement between Mississippi and these four States that 
if the other four States will not charge Mississippi shippers their 
bond, then Mississippi wir not require the posting of a bond by inter- 
state shippers from these ther four States. 

Mr. DoNOHo. What States have the local authority to enter into 
such reciprocal arrangements? 

Dr. White. A rather long list of States have the right to enter into 
reciprocal arrangements, brought about by the amendment of the 
plant-pest law in those States. The following States have the legal 
authority through administration of the plant-pest laws to enter into 
reciprocal arrangements: Iowa, Kansas, Michigan, Minnesota, Missis- 
sippi, Nebraska, North Carolina, Tennessee, Washington, Wisconsin. 

I would like to point out tliat the reciprocal arrangement in Mich- 
igan, Nebraska, and Washington applies only to the registration fee 
and not to the agents' fees. In the other States it applies to both, 
and also the bond, if required. 

Mr. Donoho. Earlier in your testimony. Dr. White, you mentioned 
post-office terminal inspections as creating trade barriers. Will you 
briefly describe how this inspection service operates, the extent to 
which it is enforced, and your opinion as to its effect, deterrent or 
otherwise, upon the interstate movement of nursery stock? 

Dr. White. I would like to leave that testimonv, sirs, to the witness 
who follows me. I would, however, like to read into the record the 
list of States which do require post-office terminal inspection. It is 
merely an arrangement between the Department of Agriculture, the 
postal authorities, and the State of destination whereby shipments of 
nursery stock traveling by,_parcel post can be intercepted and 

Mr. DoNono. You mean the United States Department of Agri- 


Dr. Whitf. Yes, the United States Department of Agriculture. I 
have in my hand a copy of an announcement signed by Ramsey Black, 
Third Assistant Postmaster General, appearing in the Postal Bulle- 
tin of June 20, 1939, and entitled "Terminal Inspection of Plants and 
Plant Products." 

It is merely the requirement of the various States for terminal 
inspection, and the points which they have laid down, or designated 
for terminal inspection, and from this I would like to put the follow- 
ing list of States in the record as requiring terminal post-office in- 
spection. I would like to leave the details of how this works and" 
how it hinders interstate movement of small parcel-post shipments 
to the next witness, if I may. The following States require post- 
office terminal inspection : Arizona, Arkansas, California, Florida, 
Idaho, Louisiana, Mississippi, Montana, Oklahoma, Oregon, Utah, 
Washington, the District of Columbia; also two of the Territories, 
Hawaii and Puerto Rico, but they do not concern us vory much because 
we don't ship much to those places. 

Mr. DoNOHO. Dr. White, you mentioned special State tags as con- 
stituting trade barriers. Just what do you refer to when you say 
special State tags? 

Dr. White. Well, in addition to these registration fees and agents' 
fees and posting of bonds, many States require of the interstate 
shipper, not of the intrastate shipper, who is moving nursery stock 
into these States that every shipment of nursery stock, whether it be 
a parcel-post shipment or a carload, must carry attached to it a 
special State tag. Now, in most cases, these special State tags are 
purchased by the nurseryman from the State of destination at vary- 
ing' prices. I have mounted g»n this chart merely for exhibit purposes, 
and for the committee, samples of some of these State tags. 

Mr, DoNOHO. Just hold it up so the committee can see it better. 

Dr. White, They take various forms. For example, this State tag 
of Louisiana has attached to it what is called an invoice stub, and 
that invoice stub at the time of shipment is mailed to the State of 
destination. The same invoice stub appears on the special State tag 
of Mississippi, An interesting one here from Arkansas is merely a 
mimeographed affair, very small but nevertheless costing the inter- 
state shipper 2 cents apiece. 

In addition to these special State tags, of course, every shipment 
carries the facsimile of the State registration certificate and various 
other tags which we will illustrate later. 

Mr, DoNOHO. What is the cost of these tags? 

Dr, White. As I say, the cost varies. Some of these tags, if you 
buy them in large lots, are very reasonable in cost, $4.50 a thousand, 
for example. In other cases, in small lots they wilj run as high as 
3 cents apiece in lots of less than 100. In one case, South Carolina, 
it is 5 cents apiece, if you want a small quantity, 5 or 10, 

Mr. DoNOHO. Are these special tags required of intrastate ship- 
ments ? 

Dr. White. No; they are not, and I would like at this time, if I 
might, to read into the record the States requiring special State 
tags: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, 
New Mexico, South Carolina, Virginia, West Virginia, Wyommg, 
Texas, Oklahoma, and Connecticut. 

124491 — 11— pt. 29 13 


Mr. DoNOHO. In your opinion, what relation do these special State 
tags have to the movement of plant pests? 

Dr. White. Again I must answer you I believe they have no rela- 
tion to the movement of plant pests. They merely are an indication 
that the shipper has complied with all other requirements which the 
State of destination requires. And by that I mean they indicate 
that he has paid his bond, posted his bond, and paid his registration 
fee, and if he employs agents, he has permits for his agents. 

Mr. DoNOHO. Early in your testimony, Dr. White, you mentioned 
the requirement of certain States for duplicate invoices for shipments 
entering the States. Do you mean by that that the shipper must for- 
ward to State authorities a duplicate invoice for each shipment of 
nursery stock shipped into the State? 

Dr. White. Yes, that is right. Certain States require that the 
shipper of nursery stock into that State must mail to the Department 
of Agriculture on the day the shipment is made a duplicate invoice 
of all the stock that may be in a carload or small parcel-post package. 
The large shipper, of course, who is shipping out maybe thousands 
of packages a day, finds it impossible to meet that requirement because 
just the mechanics of the thing are too great for him to meet in his 

Mr. DoNOHO. What is the relationship in your opinion, Dr. White, 
between the filing of a duplicate invoice in the State nursery in- 
spector's office and the prevention of the introduction of plant pests ? 
Dr. White. We don t see any, sir. The invoices pile up in the 
Department of Agriculture office of the State of destination and it 
merely indicates the amount of stock coming in there ; whether ever 
used or not I wouldn't be in position to state. 

Mr. Pike. Wasn't there originally possibly a point there that if 
plant pests did show up in introduced plants they could go back to 
this duplicate invoice and spot the guilty party ? 

Dr. White. That i§ true, sir, and that has been recently used. 
There is a pest in the Southern States of Louisiana, Alabama, Missis- 
sippi, and Florida, that appeared there a few years ago, and as a 
result of the duplicate invoice file in the Department's office in Florida 
they were able to locate all the shipments of nursery stock which 
came from these infested States into Florida, and then they, of course, 
immediately sent out their inspectors and inspected around the locali- 
ties where this nursery-stock shipment was received. 

Mr. Pike. So there was to that extent a relationship between plant 
pests and the duplicates? 

Dr. White. That is true. To my knowledge, that is the first time 
that has ever been used. 

Mr. Pike. That was very likely the original purpose of that ? 
Dr. White. Probably was; yes, sir. 

Mr. DoNOHo. Are there any other inspection fees which you have 
not mentioned. Dr. White, required by any of the States ? 

Dr. White. Yes ; there are two States which require so-called des- 
tination inspection fees. Those two States are Idaho and Montana. 
If a nurseryman shipping nursery stock into Idaho or Montand — we 
must remember from previous testimony that in both of those States 
they must pay or post a bond of $1,000 iDefore shipping. In addition 
tp that he pays a registration fee of $25. Then he ships into that 
State and there is burden upon him of a destination inspection fee, 


and if he has complied with the laws of the State and done these 
things, then the destination inspection fee is $10 per carload, and 
smaller shipments in proportion. On the other hand, if he has not 
posted his bond or paid his registration fee, then the registration 
mspection fee is 10 percent of the invoice price, with a minimum fee 
of 50 cents. 

Mr. DoNOHO. This nursery stock having already been inspected in 
the State of its origin is declared to be free from dangerous pests? 

Dr. White. That is correct, and the shipment will carry of course 
as a matter of routine and in compliance with the law a facsimile" 
of the certificate, showing the shipment has been inspected and found 
free of plant pests. 

Mr. DoNOHO. What is the reason for this requirement of the re- 
inspection at destination, then? 

Dr. White. Well, I suppose the only reason I can conceive would 
be to make doubly sure that the stock was free of plant pests. I think 
it indicates perhaps a doubt on the part of the receiving State oflfi- 
cials that perhaps the inspection service in some of these other States 
isn't as good as it should be. 

Mr. DoNOHo. It is your position the State has a right to require 
this reinspection ? 

Dr. White. Oh, yes. 

Mr. Pike. As a practical matter, Dr. White, what do you think 
is the uniformity of inspection in the various States in general? Is 
it good enough so that other States could take it on trust, or as has 
been shown up in this milk situation, frequently an incompetent or in- 
sufficient inspection force so that other States might perhaps be 
sensible in suspecting? 

Dr. White. That is a very pertinent question, sir, and that has 
been raised before. I think perhaps it has a grain of truth in it. 
Certain States which are dependent entirely upon inspection fees 
from their own nurserymen, and perhaps the number of nurserymen 
in that State is very small, cannot afford to hire as adequate a trained 
personnel as other States, big nursery States like New York, Penn- 
sylvania, and New Jersey. 

Mr. DoNOHO. Are there any other State laws which you consider 
constitute barriers to the free interstate movement of nursery stock? 

Dr. White. I would like to call your attention to an acclimation 
clause which is on the statute books of Minnesota, which applies to 
the movement of nursery stock into that State for highway develop- 
ment work: section 3861. 1-b of the standard specifications of the 
Minnesota State Department of Highways reads as follows : 

All plant materials shall be from stock which has been acclimated to con- 
ditions prevailing at the project and which has been consistently grown in the 
area designated as follows : All of Minnesota and Wisconsin, all that part 
of North Dakota and South Dakota lying' north and east of the Missouri 
River, and all that part of Iowa and Illinois lying north of latitude 42 degrees 

We believe this is very evidently a discriminatory regulation 
against nurseries which might lie just south of that parallel . 

Mr. DoNOHO. In that connection, Dr. White, is there any basis 
for believing that nursery stock grown south of what is it, parallel 42? 

Dr. White. Yes. 

Mr. Donoho (continuing). Would not be hardy when planted 
north of that parallel ? 


Dr. White. We think not. We have nurserymen in that territory 
in the Great Plains region which have for years been shipping nur- 
sery stock into Minnesota for highway development work with per- 
fectly satisfactory results. Our opinion is also borne out by the 
opinion of two of the leading plant ecologists in the country, and I 
would like to read into the record, if I could, their opinions. I 
have a letter from Dr. J. E. Weaver, professor of plant ecology at 
the University of Nebraska, Lincoln, addressed to me under date of 
November 28, 1939. In preface to reading these letters I would like 
to say I addressed an inquiry to them on this very point. 

Deab Mr. White: In answer to your letter of November 21, let me say that 
the natural belts of vegetation, such as the true prairie association and the 
oak hickory association, extend north and south quite beyond parallel 42 degrees 
north latitude. Furthermore, I feel that forest trees, such as American elm, 
American linden, bur oak, etc., grown from seeds collected in Nebraska would 
probably reveal very little, if any, difference in hardiness from similar trees 
grown from seeds collected in southern Minnesota. The distance is quite too 
small and differences in seasons do not seem to be enough to make mAich, if any, 
difference in later performance of the trees. 

In regard to clones produced from such trees and grown respectively in 
Nebraska or Minnesota, it would seem that any hereditary factor of hardiness 
would not be lost whether the trees were started in Nebraska or in Minnesota. 
Differences between southern States, such as Oklahoma and Texas, and Minne- 
sota and Wisconsin might probably be evidenced in differences in winter hardi- 
ness, since the climates in the two places are, according to human feeling and 
measurements, quite different. But certainly the differences between southern 
Minnesota and southern Iowa or eastern Nebraska are, in my opinion, quite too 
small to have any practical effects in the way of differences in plant behavior. 

I trust that this answers your questions satisfactorily. I have gone to the 
trouble to confirm my own observations and information by consultation with 
a forester who had worked extensively up and down the Great Plains with tree 
seedlings and other problems related thereto. 
Sincerely yours, 

J. E. Weaver, 
Professor of Plant Ecology. 

This letter fronl Dr. Frederic E. Clemens, Carnegie Institution 
of Washington, division of plant biology, dated December 22, 1939, 
and addressed to me: 

Dear Mb. White: Your letter was found upon my arrival in Santa Barbara 
last week, following a motor journey from Washington. 

As to the significance of parallel 42°, I may state that there is no warrant 
for such a line in the natural vegetation and hence none in climate as 
determined by such vegetation. 

With respect to the modification of hardiness as opposed to its persistence, 
most of the evidence is so general and often so conflicting tliat it is diflScult 
to speak up definitely. At present an actual test alone can be decisive. 

I am drawing up a comprehensive pfan to determine degree of fixity and 
rate of adaptation and fixation in species of woody and herbaceous plants 
employed for conservation in the Middle West. It is hoped that installations 
can be made at intervals of 100 miles from south to north and of 3 inches of 
rainfall fi'>m east to west across the Great Plains. This should provide de- 
pendable answers to your questions, as well as related ones. 
Sincerely yours, 

FREDERIC E. Clemens. 

I think these opinions from these two leading ecologists bear out 
my statement before, that we believe there is little if any relation- 
ships between this arbitrarily drawn line of parallel 42° north, rela- 
tionship between that line and the hardiness of plants. 

Mr. DoNOHO. Do you have any further statement to make, Dr. 


Dr. White, Only this, Many of these things which I have men- 
tioned such as duplicate invoices, special State tags, registration 
fees, and so forth, no one of them could probably seriously interfere 
with the interstate movement of nursery stock from a large shipper. 
Taken together, however, they do present -problems to the large 
shipper wnich tend to inhibit and retard and reduce the amount of 
stock going into many of these States which have all of these re- 
quirements on their books. Any one of them, however, is sufficient 
to discourage the small interstate shipper. As you can readily see 
from business in these States, the costs are excessive, the nuisance 
value excessive, and therefore he confines himself to a local territory 
within his own State. 

Mr. DoNOHO. Mr. Chairman, I have no further questions, but I 
believe the witness has some recommendations he would like to make. 

Acting Chairman Williams. I would like to ask a question or two. 
Is it possible, you think, to establish a uniform system of inspection 
as applied to the nursery business from one end of this country to 
the other? 

Dr. White. Up to a certain point ; yes, sir. The country is divided 
up in explanation of your question so it will be clear to you; the 
regulatory officials of the States are organized hito four regional 
plant boards, and two members of each regional plant board con- 
stitutes w^hat is known as a national plant board, and this manner 
of uniformity of inspection procedures and tolerances, and so forth, 
is now before them for discussion and has been for 2 or 3 years. 
The progress they are making is discouraging and slow, however. 

Acting Chairman AVilliams. Plant life and plants, I take it, are 
entirely diflFerent in different sections of the country? 

Dr. White. That is true. 

Acting Chairman Williams. And would necessarily require a dif- 
ferent character of inspection, wouldn't it, depending on the locality, 
climatic conditions, and so on ? 

Dr. White. The procedure might be the same ; the inspector would 
be looking for different pests, but the procedure would be the same. 
The question is. Shall this inspector inspect every single plant in the 
nursery ? Shall he go down the row and take 100 plants here and 100 
plants there? It is a question of procedure. Now, whether he is 
looking for one kind of a bug or another kind of bug, that doesn't 
enter into the picture, I believe. 

Acting Chairman Wili.iams. What percentage of the nursery busi- 
ness is domestic and what is foreign ? I mean by that within the 
State and outside the State. 

Dr. White. Well, that would depend entirely on the State, sir. 

Acting Chairman Williams. I mean as a whole; what part of the 
business ; what part of the nursery business of this country is carried 
on within the State of origin and what part of it is transported to 
some foreign country ? 

Dr. White. I do not have any exact figures on that, but my best 
opinion would be that better than half of the nursery business is in 
interstate movement. 

Acting Chairnian Williams. You think over half of it would be 
transported from one State to another? 

Dr. White. Yes; the reason being, sir, that many of the smaller nur- 
serymen doing landscape business and doing a wholly Ic^al business 


buy material from the larger wholesalers. For example, in Texas we 
have a very concentrated section where rOses are grown, and those roses 
probably go into every State in the Union. 

In the Northwest we have a very favorable climate for fruit-stock 
production, and in the Ohio and Missouri Kiver Valleys, certain sec- 
tions, fruit stock ; and that fruit stock goes all over the country to the 
smaller nurseymen, who then retail it. 

Acting Chairman Wdlmams. Do you know what burden there is on 
the business by reason of these barriers which you mention, all com- 
bined for the entire country? 
Dr. White. You mean on doUars-and-cents basis? 
Acting Chairman Williams. Yes. 

Dr. White. The next witness will give some testimony on that. 
Acting Chairman Williams. Right interesting that over half of it 
is foreign business and to what extent it places the burden of tariff tax. 
Dr. White. The next witness is U nurseryman himself and has some 
figures on his own business and a few other businesses. 

Mr. Pike. I have a question. This applies, I take it, only to shrubs 
and small bushes and trees; it doesn't apply, what you have been 
saying, to seeds and things like that, does it? 

Dr. White. No ; I am not speaking about seeds ; shade trees, fruit 
trees, nut trees, ornamental shrubs, and evergreens, such material as 
that, sir. 

Acting Chairman Williams. Now if yovL have some remedies to 
offer here, we would be glad to hear from you. 

Dr. White. Well, I am afraid I have no remedies to offer. This 
association, however, fe^ls that the answer does not rest in a Federal 
control or Federal regulation of the State inspection services. We 
believe that that is a function of the States and do not believe that 
a Federal set-up would be any more efficient or any more economical 
than the present system. It has been recommended, however, when 
you consider the set-up which has been recommended, that the con- 
trol of a State inspection service be placed under the Department of 
Agriculture here in Washington, who would qualify on an examina- 
tion basis the State inspectors; as soon as they do that then they 
of course must police the system, which will mean the hiring of 
additional supervisory inspectors over the State inspectors to be 
sure they are continually doing a good job. 

We don't think that economical nor do we think it would lead to 
any better inspection services in the States. 

Acting Chairman Williams. Does the Federal Government now 
in any way supervise or influence these State inspections? 
Dr. White. No; they do not. 

Acting Chairman Williams. Has nothing at all to do with it? 
Dr. White. Not now. 

Acting Chairman Williams. And it is your idea it should not? 
Dr. White. That is correct. 

Acting Chairman Williams. That the States themselves, inde- 
pendent of the Federal Government, can take care of the problem? 
Dr. White. I think they can. 

Acting Chairman Williams. Are they making progress toward 
that end ? 

Dr. White. They are making some progress, yes; but again I 
might say it is discouragingly slow to us who are constantly con- 


fronted with all of these problems. We believe that since our nursery 
stock is all inspected in the State of origin that the carrying of a 
State certificate of inspection which indicates the nursery stock has 
been inspected and certifies it is free of dangerous plant pests is all 
that should be required for the interstate movement of this material. 

Now the gentleman on my left raised the question : Was there not 
a reasonable doubt that some of these State inspection services might 
be questionable? And I will have to agree with him. Therefore 
it becomes a problem of raising in some cases the number of State 
inspectors, but I think rather than numbers it is capabilities of the 
State inspectors, so that eventually we can have a perfect trust 
between the inspection service in one State and the inspection service 
in another state. 

Acting Chairman Williams. We have laws in every State now, 
have we, requiring a public inspection? I mean, inspection by public 

Dr. White. That is true. 

Acting Chairman Williams. Not depending simply upon the 
private inspection of the individual nursery? 

Dr. White. Oh, no. This inspection is required by law in each 
and every State, and the inspection is made by State authorities. 
(Representative Reece assumed the chair.) 

Acting Chairman Reece. Are there any further questions? 

Mr. DoNOHo. Mr. Lumry, will you come forward, please? 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony 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. LuMRT. I do. 


Mr. DoNOHO. Will you give your name and address, please? 

Mr. LuMRT. Carl C. Lumry, Shenandoah, Iowa, representing the 
Mount Arbor Nurseries of Shenandoah. 

Mr. DoNOHO. What is your capacity with the Mount Arbor Nur- 
series ? 

Mr. Lumry. I am manager of the retail mail-order department. 

Mr. DoNOHO. Would you explain to the committee how the mail- 
order department of your nursery operates, Mr. Lumry? 

Mr. LuMRT. Yes. We have arrangements or contracts with three 
firms who publish and distribute retail mail-order catalogs. They 
secure the orders from the retail customers, and send the orders to 
us, and we make the shipment direct to the customer. The reason 
for this kind of an arrangement is that the physical characteristics 
of the plants are such that they require special storage facilities and 
special facilities and special types of packing material to properly 
pack them for shipment so they will arrive in good condition to the 
customer. These firms, not being technical and not being experts, 
do not have tliese facilities, and we as a wholesale nursery fill their 
retail orders for them. 

Mr. DoNOHO. To what extent is this branch of the business en- 
gaged in interstate commerce, Mr. Lumry? 

Mr. Lumry. Those figures naturally vary from year to year, de- 
pending upon how much business the catalogs secure; in our own 


home State last year the percentage was 84; 84 percent of our retail 
mail orders went into interstate commerce. 

Mr. DoNOHO. Into how many States do you ship nursery stock? 
Mr. LuMRY. That also varies from year to year. Last year we 
shipped in 44 States, but 75 percent of our business was in 26 of 
these 44 States. 

Mr. DoNOHO. Do you keep records of the number of mail-order 
shipments leaving your nurseries? 
Mr. LuMRY. Yes. 

Mr. DoNOHO. Have you those figures? 

Mr. LuMRY. Those are vital statistics that we keep. In 1938 we 
shipped 276,841 retail packages, and in 1939 we shipped 207,243 

Mr. DoNOHO. Over what period of time are these shipments usu- 
ally made? 

Mr. LuMRY. Naturally, the retail customer buys and wants to re- 
ceive his plants during the planting season. That is, he has no 
facilities for storing the merchandise; he has to have it when the 
ground is wet so that he can immediately plant. Therefore our 
shipping season is very short. We have to handle this tremendous 
volume in just a matter of a few weeks. It runs from 6 to 8 weeks 
in the Spring and from 4 to 5 weeks in the Fall, and, in that short 
period, we ship about 75 percent of our business. The other 25 is 
in periods just before and just after the niain planting period. 

Mr. DoNOHO. You mentioned some 200,000-odd packages shipped by 
your nursery in 1939. Just how much nursery stock is represented in 
this number of packages,? 

Mr. LuMRY. The number was slightly over 3,000,000 plants, and 
those plants were distributed, in one of our catalogs, over 1,243 differ- 
ent sizes and varieties and kinds of plants, so that there was not a 
large quantity of any one particular size or any one particular variety. 
Mr. DoNOHo. What was the average retail value of these ship- 

Mr. LuMRY. The average retail value is very small. In 1938 it was 
only $1.65 at retail, and in 1939, $1.82. 

Mr. DoNOHo. Dr. White testified about the fact that nursery stock 
must usually carry special tags going into certain States. Do these 
requirements obtain with respect to small shipment^ of $2 and such like 
only $1.65 at retail, and in 1939, $1.82. 

Mr. LiTMRY. Yes, sir; the same requirements are made of a 25- 
cent shipment as are made of a thousand-dollar shipment. For ex- 
ample, I have here a box containing five gladiolus bulbs, which is 
packed ready for shipment. The advertised catalog price of those 
five bulbs is 25 cents. On the package there is the address label, a 
certificate of contents, the certificate of origin (that is, the State in 
Avhich the bulbs were grown), postage on the end, and on the bottom 
we have to put on our own certificate of inspection, because there wasn't 
room here. 

Last year we shipped 443,000 gladiolus bulbs, so you see we had a 
triemendou&,number of small shipments. 

; These two packages represent one lot having a retail value for the 
t'\^o packages of $2.03. The nature of our stock is such that different 
types of packages are required for different types of plants. As you 
can see, these are green, liviiig plants; they can't be tied up in an 


ai-tight package like this, so we have to make the shipment in two 
packages. This package here, this part of the shipment, has the ad- 
dress label here, the postage label here, a list of contents and certifi- 
cate of origin here, the special certificate on strawberries here, and 
the special grape certificate here, and a notice to the customer here that 
his package went in two shipments. 

In order to put that sticker on there, our Plant Pathologist had to 
immerse the vines in water for 3 minutes at a temperature of 127 
degrees and then personally sign the certificate and date it, and per- 
sonally put it on the package. 

To get this certificate here, we had to arrange with our Iowa ento- 
mologist to go to the fields last summer and inspect these straw- 
berries in the field and then, after they had been dug and brought into 
our place, he had to come down and inspect them again. There is 
only one State out of the 48 that requires this. 

This other package contains three perennials having, a retail value 
of 49 cents, and is a part of one order. This carries the address label, 
list of contents, certificate of origin, postage, Iowa State inspection, 
and another notice that the shipment is in two packages. 

Acting Chairman Reece. Altogether, how many stickers are required 
for the one shipment ? 

Mr. LuMRY. On this one order — of course it is in two packages but 
it is one order— there are six plus the postage on that one and fojir 
on this plus two stamps, and the total value of the order is $2.03. 
Our average order, as you can see, is so small that we have lots of 
orders that are smaller than this. We have some larger, also, of 
course, that strike the average. 

Mr. DoNOHO. That, as 3'ou said previously, is representative of your 
average order, around $2? 

Mr. LuMRY. This is larger than the average order. The average 
order in 1939 was $1.82 and in 1938, $1.65. 

Mr. DoNOHO. Dr. White, in his testimony, indicated that many 
States require certain fees tor out-of-State shippers of nursery stock 
which are not required of intrastate shipments. Can you give us, 
from your records, the cost to your firm of meeting the requirements 
of the States into which you ship? 

Mr. LuMRY. Yes: This cost naturally varies from year to year, 
depending on the States from which we get orders. In 1939 we spent 
$161 for registration certificates, $102.25 for special State tags, and 
the cost of the extra clerical help needed to comply with the tagging 
requirements, duplicate invoices and so forth, amounted to $655.20, 
the total cost to my firm being $918.45 to comply with the laws, and 
that does not take into consideration, because I can't give you any 
accurate figures on the cost of fastening all these things on the package 
after the package is packed. The above are office expenses. They 
have nothing to do with this additional cost in the shipping depart- 
ments, of which we have no record. 

Mr. DoNOHO. Is this figure of some $900 comparable to the costs 
of other interstate shippers of nursery stock ? 

Mr. Ltjmry. Yes; the amount of fees varies, not only from year to 
year but with the differejit firms. That is, a firm doing busineas in a 
comparatively fniall area, if it is rortnnate enough to be in an area 
that doesn't require these tags, would have less expense. A fii-m 


doing business over a wide area and using house-to-house agents 
would have greater expense. I have a recent letter, dated March 14, 
1940, from the Krider Nurseries, addressed to Mr. Richard P. White, 
who just finished testifying. He states that the cost of securing the 
registration and State tags in 13 States was $45 for fees and $41.20 
for the tags. I have another letter from the R. M. Kellogg Co., of 
Three Rivers, Mich., dated March 13, from which I quote : 

We estimate it cost us approximately $200 for our inspections, special tags, 
and so forth. We conservatively estimate that for extra clerks to censor orders 
and attach these tags and lists of contents we had a cost in excess of $500 — 

Which would be a total of $700 for this particular firm. 

Mr. DoNOHo. Mr. Lumry, from your records what percentage of 
your retail mail-order packages were condemned for various causes ? 

Mr. Lumry. We, under our contracts with various firms that we 
serve, keep very accurate records of this, because we are responsible 
for that. In 1938, out of 276,841 packages, 29 were condemned, which 
is a total of .01 of one percent. Of these 29, 16 were condemned 
because they didn't carry the right color label and 13 were con- 
demned for claimed violation of quarantine or for infestations, the 
13 being .005 of one percent of the packages shipped. 

Of course, we have figured on the number of packages shipped, but 
we might have a package here with 25 plants in it and only one plant 
out of the 25 which would be condemned. The rest of the package in 
most States would be approved and forwarded to the customer, and 
we would be obliged to replace the one plant out of the entire shipment, 
so that the percentages actually are even less than that given here. 

In 1939 we shipped 207,243 packages. Fifty-four were condemned, 
which is .03 of one percent. Thirty-two were held up because of 
improper labels, and 22 were condemned for infestation or violation 
of quarantine, which is .01 of one percent. 

Mr. DoNOHO. Will you explain what happens, Mr. Lumry, wheri a 
mail-order shipment is refused delivery? 

Mr. Lumry. The carrier, the post office, or the express agent notifies 
us that the package has been condemned. That applies in some States. 
In other States the State notifies us directly that the package has been 
condemned, that certain pieces in the package have been released and 
the others are being held for disposition. They give us an oppor- 
tunity to send them the postage or transportation to have it come back 
by express collect so we can, if we care to, examine the plants after- 

Mr. DoNOHO. Mr. Lumry, Dr. White stated you would discuss post- 
office terminal inspection requirements. Will you please do so ? 

Mr. Lumry. Post-office terminal inspection is based on an act of 
Congress dated March 4, 1915. In this act authority was given the 
States to provide for terminal inspection of mailed shipments of 
plants and plant products. Under this act the States, and I quote 
from the act — 

shall establish and maintain at the sole expense of the State such inspection at 
one or more of the places therein. 

Order No. 8760 of the Postmaster General, dated April 2, 1915, 
signed by Daniel C. Roper, Acting Postmaster General, amends the 
Postal Laws and Regulations, section 478, quoting verbatim from the 
wording of the ace and stating that — 


The States shall provide for terminal inspection of plants and plant products 
and shall establish and maintain at the sole expense of the State such inspection. 

Acting Chairman Reece. What is the date of that act? 

Mr. LuMRY. It is 1915 — March 4. I have a transcript of it here 
which was supplied by the Bureau of Entomology. 

If a State wishes to establish post-office terminal inspection, they 
must first, and I quote — 

submit to the Secretary of Agriculture a list of plants and plant products and the 
plant pests transmitted thereby which they desire to bring under these regu- 

The Secretary of Agriculture, after approving the list, then trans- 
mits the list to the Postmaster General, who issues the necessary regu- 
lations to insure that all mail shipments of plants and plant products 
in the list are subject to inspection. 

I would like to call your attention to two points in the act; the 
first, that the States requesting authority for post office terminal 
inspection must establish and maintain such inspection at the sole 
expense of the State; and second, that they must submit a list of 
plants and plant products and the plant pests transmitted thereby 
that should be subject to terminal inspection. 

Mr. DoNOHO. In your opinion, Mr. Lumry, are the total costs in- 
cident to post office terminal inspection borne by the States enforc- 
ing such inspection ? 

Mr, LuMRT. No; we don't think so. In the first place there are 
comparatively few of the States that maintain a resident inspector 
at the terminals which have been designated by the State. This 
means that the packages are held there until the inspector can 
arrive. This merchandise is highly perishable. The post office 
naturally has no facilities for the proper storing of this kind of 
merchandise, so that there is a large percent of this stock that is 
subject to post office terminal inspection which dies. That is, it can't 
stand that kind of treatment, and that cost is borne by the shipper. 

Representative Williams. To what extent are those terminal post 
office inspections established? Is that general all over the country? 

Mr. Lumry. The list was read into the record by Mr. White, who 
testified just before me. 

Representative Williams. He testified as to the States, I believe. 
Take the State, for instance, of Missouri. How many were estab- 
lished, assuming they established any? I don't know whether they 

Mr. Lumry. Missouri has no post-office terminal inspection. That 
depends entirely on the state authorities. I don't know on just what 
it is based. 

Representative Williams. Take one that has. 

Mr. Lumry. The State of Mississippi, for example, lists 14 inspec- 
tion points. The State of 

Representative Williams (interposing). Right in that connection, 
does that mean if you wanted to ship one of your products to Mis- 
sissippi you would have to send it to one or these post-office ter- 
minals, regardless of the location where it is going? 

Mr. Lumry. The Post Office Department has set up two different 
procedures. We can address this package to the consumer, say this 
is going to be inspected and pass through post-office terminal inspec- 
tion, and when it arrives at the post office the postmaster notifies the 


customer that the package is there and informs him of the amount 
of additional postage that it will cost to send this package from 
the addressee to the designated inspection point and return. The 
consumer has to pay that postage back and forth. 

There is another optional arrangement which has been set up. 
We can consign this package to the inspector at one of these inspection 
points, the point that we feel is closest to the customer. We can ad- 
dress the package, such as this, to the inspector, and he will inspect it, 
but before that we have to put this envelope on here which would 
contain a new label and would contain postage to carry the package 
from the designated inspection point to the customer's address. 

Now that feature has some advantages over this, but there are two 
very decided disadvantages. In the first place, the shipper would 
have to go to the expense of computing the distance between the 
inspection point and the customer's address, figuring the amount 
of postage it will take, and then putting the postage in this envelope, 
which would also be supplied, and tying the envelope on the package 
with the new label which the inspector could put on. 

This has advantages over that but it does not eliminate the delay 
and loss caused by delay on the part of the inspector arriving at the 
point of inspection. 

Representative Williams. When it arrives, when the inspector gets 
hold of it, he takes those packages apart and inspects the contents 
and rewraps them? 

Mr. LuMRY. We will inspect this package here the same way it 
would be handled at the terminal. As you can see, this package, you 
can see the green, you can see that it is quite nicely formed. In 
fact, this package was packed last Friday and as far as I can see, it is 
still in perfect condition. The inspector has to open the package 
like that [demonstrating]. Theseplants are highly perishable. 

This is a carnation. With any type of perennial, in fact a great 
many plants, if we get too much moisture around this part of the 
plant [indicating], particularly a package that is going to be carried 
m a mail sack, this will rot. If we don't get enough moisture 
around the roots, the plant will die. This particular material [indi- 
cating] is very resilient; we call it cyprus wool. It comes from 
Florida, 'and it keeps the moisture away from the crown of the 
plant. This particular material [indicating] is from Wisconsin ; 
it is moss. It will hold the moisture and keep the roots alive. 

When the inspector takes that out, he has to take these plants — 
that is, he is supposed to — and look at all the roots to be sure there 
are no little bugs on them, and then without any facilities at all — 
he has no facilities; naturally the Post Office Department can't be 
expected to supply the State of Arizona, or any other State, with 
free M-rapping material or string — this inspector must take this pack- 
age apart and with these materials we nave shipped it in must tie 
it up. In the first place he doesn't know how unless he observed 
closely M'hen he unpacked it; in the second place, when he gets it 
tied up the only string he has available is the jute that the Post 
Office Department has available, so that is one of the things that we 
complain about, that the States practically confiscate our property 
doing this because through carelessness and lack of proper facilities, 
they insist on this inspection and then don't wrap this thing up 
again so the customer has a chance to get anything for his money. 


Representative Williams. The fact is, he doesn't do very much 
inspecting anyway, does he? By what means does he determine 
whether the plant is pest-bearing or not, whether there is some pest 
in it ? 

Mr. LuMRY. I am sorry sir, I am not an entomologist or plant 

Representative Williams. As I understand, he unwraps it and 
sees it has the right amount of moisture and wraps it up. 

Mr. I.UMRY. He is supposed to have expert knowlecfge where to 
look for the little bugs or what have you. 

Acting Chairman Reece, Can you tell us how we came to pass a 
law like that? 

Mr. LuMRY. No, sir ; I am sorry, I can't. 

Representative Williams. There is one other question I would like 
lo ask you. In States where they do not have this postal terminal 
inspection, where they have another kind of inspection, how do they 
handle that? 

Mr. LuMRY. The terminal inspection is the most vicious of all 
because it causes more loss and more damage and more unhappiness 
than any other thing we have to contend with. 

Representative Williams. Take the ordinary case where you ship 
into the State where they don't have post-office inspection and do 
have inspection by a State official, what does he do? "Where do you 
send it ? 

Mr. LuMRY. In such States they don't pretend to inspect these 
small, insignificant shipments, such as we have here. They accept 
the Iowa certificate. 

Representative Williams. Do you mean that all St9,tes accept 
your inspection certificates? 

Mr. LuMRY. No; they don't, because the States that have been 
mentioned that require post-office terminal inspection would also in- 
spect the plants at the express terminals, if that is what you mean, 
and the freight terminals. 

Representative Williams. Missouri, for instance, has no post-office 
inspection ? 

Mr, LuMRY. That is right. 

Representative W^illiams. Do they inspect your products that you 
send in there? 

Mr. LuMRY. No, sir. 

Representative Williams. Is there any State that does, outside of 
the ones that have this post-office terminal inspection? What I am 
getting at is this : What kind of an inspection do they make of your 
products when they are shipped into the State ? 

Mr. Lumry. Most of the States depend oh the Iowa certificate. 

Representative Williams. "Most of them" — but those that do not? 

Mr. Lumry, They have terminal inspection. 

Representative Williams. Then that is the only kind of inspec- 
tion they have ? 

Mr. Lfmry. Yes; either post-office terminal inspection or inspec- 
tion at the express terminal or freight terminal. 

Representative Williams. What kind of inspection takes place at 
the express or freight terminal? 

Mr. Lumry. The inspection is in some ways more thorough. We 
ship a lot of things by express. The express company has a certain 


responsibility for delivering this merchandise to the customer, that 
is, if the thing is unnecessarily delayed we file a claim with the 
express company and try to collect our money. So that the express 
company does everything they can to expedite the handling by the 
inspector at the terminal, and they will let these inspectors go in 
anywhere and inspect, which is perfectly satisfactory with us. The 
express company, in order to avoid claims for damage, and so forth, 
will cooperate with the inspector by providing the necessary string, 
and so on. So far as I can remember, we have never had a com- 
plaint from the customer due to mishandling of express shipments 
that have been inspected at a terminal. They have more facilities 
for handling, and the shipments are larger, and I suppose that, un- 
consciously, the inspector pays more attention to the larger shipment 
than he does to the small shipment. That is the only way I can 
figure it out. 

Representative Williams. In these States where they do not accept 
your certificate and you want to send a small package such as you 
have indicated there, by mail, are those inspected at all? 

Mr. LuMRY. You mean in the States that do not have terminal 
inspection ? 

Represenative Williams. Yes. 

Mr. LuMRY. No, sir. 

Representative Williams. Then there is such a thing as those going 
through without any inspection at all, all the smaller articles. 

Mr. LuMRY. Yes, sir; even the larger ones. 

Representative Williams. And where they do not have the postal 
terminal ? 

Mr. Lumry. We can ship a truckload or trainload into Missouri 
and it will never be inspected but in some States we can't ship 25 
cents' worth without being inspected. 

Representative Williams. But, of course, Missouri accepts your 

Mr. Lumry. That is right. 

Representative Williams. Now, I am talking about the States that 
do not accept it. 

Mr. Lumry. They require that we go through the formula of put- 
ting on a special tag that is supposed to be a notice to their customer 
that we have complied with their laws. The special tags were re- 
ferred to by Dr. White in his testimony. That is, we file our certifi- 
cate — just for example, the State of Oklahoma then gives us authority 
to print the special certificate and attach it to each package, and that 
is this certificate here, and on an Oklahoma package, each package 
has four stickers, and this is supposed to be a notice to the Oklahoma 
inspector that we have complied with the Oklahoma law, and while he 
has the privilege, if he can find the package in the post office or in the 
freight office, there is nothing to prevent him from inspecting if he 
wants to. As a general rule, they don't. They will accept our certifi- 
cate plus their own State certificate. The same thing applies in Wyo- 
ming and a number of other States, such as Texas, that require a 
special State tag in addition to our Iowa certificate. 

Mr. DoNOHO. With reference to this Federal statute that authorizes 
post-office terminal inspection, as I understand it, Mr. Lumry, it 
requires the State enforcing such inspection to supply to the Secre- 


tary of Agriculture a list of plant and plant products that it intends 
to inspect. Now, are these lists specific or general in character? 

Mr. LuMRT. I have here a reprint of a notice which appeared in the 
postal bulletin of June 20, 1939. Picking out at random most any 
of them, here is Mississippi, Louisiana, District of Columbia, Utah : 

All florists' stock, trees, shrubs, vines, cuttings, grafts, scions, buds, fruit pits, 
and other seeds of fruit and ornamental trees and shrubs, and other plants 
and plant products in the raw or unmanufactured state except vegetable and 
flower seeds. 

So that they have set up post-office terminal inspection on everything 
in the list from A to Z with the exception of flower seeds, which of 
course are not nursery items. 

Mr. DoNOHO. Would you please explain, Mr. Lumry, how these 
requirements influence your retail mail-order business? 

Mr. LuMRT. In the first place, they put a burden of expense on 
the shipper, because any reputable shipper has to guarantee to the 
ultimate consumer that they will receive a plant that will grow. 
That is, if the customer sends in 25 cents or $2 or a dollar and a half, 
she expects to get back something she can put in the ground and 
that will grow, so that when the plants are subjected to post-office 
terminal inspection, if they don't grow then the customer naturally 
and properly complains to the firm from whom she bought this 
stock, and then we have to go ahead and make another shipment, 
which is subjected to the same treatment and which in a large num- 
ber of cases is also dead when it gets to the customer. We have in- 
stances where the third and sometimes the fourth replacement is 
made before the customer finally gets a plant that she can plant aijd 
have any results. 

Mr. Pike. It is pretty late in the season by then, I should think. 

Mr. Lumry. And then it is late in the season ; yes. 

The other customer, who gets disgruntled and disgusted, will dt 
mand a refund of her money, so we have gone to the extent of ship- 
ping the stock, supplying it and paying the postage and all these 
things; and then, in the final analysis, we have to give her back her 
money. That is very unsatisfactory, not only from our point of 
view, but for the catalog company. For example, we ship a lot of 
orders for Montgomery, Ward & Co. The lady sends in and buys 
a couple of rose bushes. Naturally, it is understandable that the 
women like roses and they will pay more attention to a couple of 
little rose bushes than to something that might be worth $10 more, 
so they send in for these rose bushes to Montgomery Ward & Co. 
and we send them out. We try to give her good bushes because we 
want her order again next year. And she gets the bushes after they 
have gone through terminal inspection aiid they die, and she writes 
to Montgomery Ward & Co. and tells her story and asks for another 
plant, and Wards send it to her, and that keeps on indefinitely. 

And while that goes on and the lady doesn't have the rose bush, 
in the meantime the man of the house wants to buy a tractor or 
wants to buy a hundred dollars' worth of fencing or a roof for the 
barn or something else, and he says, "Well, gosh, I don't know ; giv- . 
ing me such bad service on these rose bushes, I don't know whether 
I want to buy anything there. Let's buy from their competitor." 
And thus it adversely affects their business as well as our business. 

Mr. DoNOHO. you finished with this explanation? 


Mr. LuMRY. I believe so ; yes, sir. 

Representative Williams-. You gave the percentage of the busi- 
ness that you ship out of the State? 

Mr. LuMRY. That is right. 

Representative Williams. That is your business? 

Mr. LuMRY. That is right. That is not our business — well, yes 
and no. It is business that we ship for these other firms. We make 
the shipments. It is our business from the wholesale view, but some- 
one else retails it. 

Representative Williams. I understand it is the business that goes 
out of your plant and you get the money. 

Mr. LuMRY. We get the wholesale value of the stock; yes. 

Representative AVilliams. Have you any figures showing the per- 
centage of business that is done on that line in the nurseries ; I mean 
throughout the entire country? 

Mr. LuMRY. No ; I don't have any figures. 

Representative' Williams. Yours would be, of course, much 
larger, would it not, than the average ? 

Mr. LuMRY. Yes; we are larger than the average. 

Representative Williams. I mean of that kind of business going out 
of the State. Interstate business in your State would be larger than 
the average nursery business, wouldn't it ? 

Mr. LuMRY. Yes ; I think so. 

Representative Wiii>iams. But you haven't the figures on it? 

Mr. Lumry. No. 

Representative Williams. I am interested to know what part of 
the nursery business is carried on between the States as com'pared 
with the local consumption. 

Mr. Lumry. I have an opinion, but it is not supported by available 
facts. It is only an opinion that is based on observation. I heard Dr. 
White express an opinion that at least 50 percent was handled in inter- 
state commerce, and I believe that the doctor was very conservative, for 
this reason, that in addition to the business that I am particularly 
interested in with our company, we are one of the larger wholesale 
nurseries. That is, in another department of the business we sell at 
wholesale in 42 or 43 States, I don't know exactly, but we distribute 
all over the country at wholesale, and the people we sell this mer- 
chandise to, that is all in interstate commerce, of course. The people 
we sell the merchandise to may be landscapers or they may be land- 
scape architects, they may be local nurseries, but even thougli they are 
not in interstate commerce themselves, the merchandise tliat they are 
selling has largely been handled in interstate commeice before they 
got it, so I think that Dr. White was quite conservative in his estimate 
of ^0 percent^ because the technical knowledge required to grow 
nursery stock is so great that only a comparatively small nmnber of 
nurseries pretend to grow their own merchandise. It is a highly tech- 
nical business, so far as equipment and years of knowledge are 

(Representative Williams assumed the chair.) 

Mr DoNOHo. Mr. Lumry, you are doing what might be called a 
wholesale business? 

Mr. Lumry. Yes, sir. 

Mr. Don OHO. Now with respect" to your retail outlets, do any of 
these refuse to accept business from States requiring post-office-termi- 
nal inspection ? 


Mr. LuMRY. Yes, sir; I have here a Berry seed catalog of Cla- 
rinda, Iowa. That is one of the firms we have served for a good many 
years. On page 7 of their catalog they state : 

We do not ship strawberries or nursery stock to Arizona, California, Florida, 
Idaho, Nevada, Oregon, or Washington. 

Other firms, the Earl E. May Seed Co., which is affiliated v^ith our 
firm, endeavor to control that in two different ways. In the first place, 
they purge their mailing list. They don't knowingly send catalogs 
into these States. They destroy the names. If they run an advertise-, 
ment in a national magazine and secure orders from these States, they 
sometimes ship them and sometimes send back the money and say, 
"We can't fill the order." 

Mr. DoNOHo. I have no further questions to ask, Mr. Chairman, but 
I believe the witness has some recommendations he would like to offer. 

Acting Chairman Williams. We are always glad to receive these 
remedies for all these troubles. We would be glad to hear from you. 

Mr. LuMRT. In regard to the post-office terminal inspection, which 
upsets us probably more than any one thing, we think it would be 
very desirable if some arrangement could be made whereby the lists 
could be confined to material which is known to be injurious to ag- 
riculture in the State to which it is being shipped. 

Acting Chairman Williams. Do you think it would be a good iaea 
to repeal the law altogether? 

Mr. LuMRY. That is what we would like, sir. That Would be the 
simplest solution, and quite effective, too. 

But, if the States are going to have this post-office terminal in- 
spection, we feel that it is no more than fair to the shipper and to 
the consumer, who after alt is one of their own citizens, that the 
inspectors be provided with proper facilities and proper materials 
so that they can repack this material and get it back to the customer 
in good shape, and that there be sufficient inspectors — we have had 
cases where the packages were held up for 30 days waiting ,for this 
terminal inspection. Of course it was valueless when the customer 
finally got it. 

It would seem-that they could be required to inspect promptly and 
provide the proper facilities for efficient re-packing. 

And about the duplicate invoices and special tags and this other 
rigmarole, it would seem that it should be sufficient for us just to 
put our tag on here. After all, it is not reasonable to assume that a 
postal clerk or an employee of the express company or railroad is 
going to take the time to read all this fine print. It is of no interest 
to anybody except the inspector in the State where'. the stock is 
consigned. All the State would have to do would be to give their 
ins|:>ectors a typewritten list saying that the Mount Atbor Nurseries is 
accredited in the State of Oklahoma, , Montana, or Wyoming, and 
then all this fellow would have to do would be to reach in his 
pocket and get this little list, see that we are accredited and that 
would answer the same purpose as these tags we have to put on. 

Mr. Pike. Of course it is quite a problem just to find the postage 
stamp on there. 

Mr. LuMRY. We really don't object to the postage. We get a lot of 
value for that. We get pretty good service out of the postage. Other 
than that I don't think we. have any specific recommenoations. 

124491 — 41— pt. 29 14 


Mr. Pike. What is the trend on this sort of nuisance stuff? Is it 
getting worse, do you think, or do you see any improvement in the 
last several years? 

Mr. LuMRY. Oh, it is one of those things, you know; it changes 
from year to year. 

Mr.' Pike. Which way ? 

Mr. LuMRT. Sometimes good, sometimes bad. We may have an en- 
tomologist this year that is very reasonable and everything goes along 
fine. Next year we have an entomologist who is obsessed with fears 
of hosts of this and that and the other and then he clamps down and 
we are in hot water again so long as he is there. But I think, in 
general, the trend is for closer cooperation due to the work being done 
by the various Plant Boards in their endeavor to iron out a lot 
of these things that they themselves realize. 

I had a letter from a State the other day. They sell us special inspec- 
tion tags. Tags are hard for us to handle because on little packages 
like this, we have no place to stick a tag and have to use string to get 
it fastened on. I asked permission to print up some labels like this at 
our expense. The entomologist wrote back a nice, courteous letter and 
said, "I agree with you perfectly; you should have that permission, 
but we can't give it to you on account of our archaic law." I think that 
was the word she used. They had been trying to change it and hadn't 
been able to get it changed. But there is a definite trend I think on 
the part of the plant boards to simplify this thing as far as they can, 
but unfortunately it seems to be a very slow process. 

Acting Chairman Williams. Does Iowa accept the plant inspection 
of other States? 

Mr. LuMRT. Yes. 

Acting Chairman Williams. All of them? 

Mr. LuMRY. Yes; if a nurseryman from another State has his 
license revoked or.anjrthing like that, then of course Iowa wouldn't 
accept his shipments, but Iowa doesn't require any special tags. The 
only thing Iowa requires is this certificate here from shipper's home 

Acting Chairman Williams. That is a certificate showing his 
inspection ? 

Mr. LuMRY". That he is in good standing in his own State, that his 
plant material has been inspected and found apparently free from all 
injurious pests. 

Acting Chairman Williams. Do you think that is a desirable situa- 
tion for the country at large? 

Mr. LuMRY. Well, we don't worry about it, and most of the Middle 
Western States don't worry about it because we have sufficient confi- 
dence in the entomologists. If you could see how they inspect our 
nursery you would feel it was sufficient. The entomologist comes in 
with three and four trained men and spends several weeks walking 
up and down the rows of nursery stock and examining the plants. 
Some varieties are inspected at two or more different times during the 
year; other varieties are inspected in the fields and then again after 
being placed in storage. 

Acting Chairman Williams. I mean you think the inspection serv- 
ices throughout the country are satisfactory and sufficient to prevent 
the spread of plant disease and pests? 


Mr. LuMRY. In general, of course, it changes. The caliber of the 
men changes, but I think in general they are very well qualified. 

Acting Chairman Williams. That is all ; thank you. 

(The witness, Mr. Lumry, was excused.) 

Acting Chairman Williams. The committee will stand in recess 
until 10:30 in the morning. 

(Whereupon at 4 : 50 p. m. the committee recessed until the following 
day, Thursday, March 21, 1940, at 10 : 30 a. m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:40 a. m., pursuant to adjournment, on 
Wednesday, March 20, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding:. 

Present: Senator O'Malioney (chairman); liepresentatives Sum- 
ners (vice chairman), Reece, and Williams; Messrs. Kades, Pike, and 

Present also: W. S. Whitehead, Securities and Exchange Commis- 
sion; Frank H. Elmore, Jr.. Department of Justice; D. Haskell 
Donoho. associate attorney; Dr. Frederick V. Waugh, head of Divi- 
sion of Market Research, Department of Agriculture; and Paul T. 
Truitt, chairman, Interdepartmental Committee on Interstate Trade 
Barriers, Department of Commerce. 

The Chairman. The committee will come to order, please. 

Mr. Donoho. Mr. Chairman and membeis of the committee, today 
witnesses will testify on the effects of trade barriers in a number of 
unrelated but important fields. 

Mr. Carter, will you come forward, please ? 

The Chairman. Will you be sworn, Mr. Carter, please? Do you 
solemnly swear the testimony j'ou are about to give in this proceeding 
shall be the truth, tlie whole truth, and nothing but the truth, so help 
you 'God ? 

Mr. Carter. I do. 


The Chairman. You may be seated. 

Mr. Donoho. Will you state your name and address, please? 

Mr. Carter. My name is G. S. Carter. My address is Santa Fe, 
N. Mex. 

Mr. Donoho. Whom do you represent, Mr. Carter? 
^ Mr. Carter. I represent the Honorable Jolin E. Miles, Governor of 
New Mexico, and I also have served as tlie chairman of two meetings 
of the Rocky Mountain States on this subject. 

Mr. Donoho. The subject of trade barriers ? 

Mr. Carter. Yes, sir. 



Mr. DoNOHO. Mr. Chairman, Mr. Carter has a statement he wishes 
to make. 

The Chairman. Proceed, Mr. Carter. 


Mr. Carter. Attendance at, and experience with, trade-barrier con- 
ferences has taught m^ that enthusiasm and emotion often control the 
statements made b}' tliose who discuss this imporcant subject. My 
testimony will differ from others who appear before this committee. 
Some enthusiasts will undoubtedly label my argument a defense of 
trade barriers. It is tlierefore necessary, at the outset, that I em- 
phatically state my position by saying that there is no defense for 
actual discriminatory, barriers U trade between the States. There \^ 
definite need, however, following the sound reasoning of Honorable 
Lloyd C. Stark, Governor of Miss<uiri, who has di5:tin^uished himself 
in trade-barrier study, to draw the line between discriminatory barrier;- 
and necessary domestic taxation and regulation. In my opinion, there- 
has been entirely too much emphasis upon generalities and too little 
realistic, consideration of the specific enactments which are, in fact, 
barriers. Many necessary and proper State enactments have been 
caught in the general sweep and have been condemned as barriers to 

My objective is to encourage the elimination from discussion of 
those measures which are not trade barriers so that true emphasis 
may be applied to those measures which reEilly are. Goveraor 
Stark's comments, made after he discussed the trade barrier subject 
in general, are worthy of the following quotation. I quote Governor 

Please do not misunderstand me. Many of these regulations are perfectly 
legitimate, and serve a useful purpose. 

The most ardent advocate of free farm trade between the States would not 
criticize inspection laws set up in accordance with the code devised by the 
United States Plant Board. 

There is another misconception which frequently arises in a discussion of 
trade barriers. It is the tendency to confuse legitimate taxation of certain 
kinds of common carriers with those objectional fees levied purely to increase 
the cost of the products being hauled across State borders. 

I can clarify the poirjt by quoting from the committee reports of the National 
Conference on Interstate Ti-ade Barriers held in Chicago last April. I had 
the honor of delivering the keynote address at that meeting. 

The Committee on Taxation recommended-^ — 

Governor Stark quotes — 

"That out-of-State users be taxed at no higher effective rate for thp use of 
public highways of the taxing State than is imposed on domestic carriers of 
that State. A pa.rity should be established between domestic and nonresident 
users of highways no matter whether gasoline tax, license, ton-mile, or combina- 
tion of such taxes is utilized." 

That recommendation is fair enough. It presumes that domestic truckers will 
not have imposed upon them a trade barrier tax, and therefore out-of-State 
truckers taxed on the same basis will not be discriminated against. 

It is a mistake, too, to assume that any bonding charge placed upon mer- 
chant truckers is a form of trade barrier. The Committee on Agriculture 
clarified this point in its report. 

^ This subject resumed, infra, p. 16001. 


Governor Stark quotes — 

"The Committee on Agriculture concluded that regulation, licensing and 
bonding of the occasional trucker or merchant trucker is necessary and desir- 
able. On the other hand, excessive license fees and restrictive regulation; 
as vpell as preferential treatment to local interest appears to set up unnecessa y 
and burdensome restrictions on local and interstate commerce. The public 
interest demands that truckers be given a place in the market." 

Governor Stark still speaks [continuing] : 

I cite these findings in support of my contention that we must guard against 
confusing unnecessary trade barriers which hamper business with those rea- 
sonable taxes and fees which every form of private enterprise is called upon 
to contribute to the operations of county, state and federal government. 

It should be realized that for more than 150 years the United 
States Supreme Court has been charged with the responsibility of 
interpreting and applying the commerce clause of the National Con- 
stitution. That eminent body has been conscientiously and intel- 
ligently examining various State enactments to determine which of 
them exert undue interference with interstate commerce, and dis- 
crimination by one State in favor of its own citizens and against 
those of another, or in favor of its own products and against those 
of another State, has been legally condemned by the Supreme Court 
during all this time. In all probability, the real and practical place 
for testing the identity of a given statute as to whether or not it 
actually is a barrier is in the duly and properly constituted courts 
of the land. Almost all of the laws referred to as examples of bar- 
rier statutes come from the exercise of the taxing power or the police 
power of the State in which they are found, and the principle upon 
which almost all of such statutes are based has been held valid and 
proper under the commerce clause, equal-protection clause, and due- 
process clause of the Constitution. If a given statute is an infringe- 
ment of the commerce clause it is invalid and can be promptly nul- 
lified by orderly procedure in the proper way. 

Mr. Pike. At that point there is room for some disagreement, I 
think. Some of the Justices on the Court have pretty clearly stated 
that they didn't think that that probably ought to be used as the 
sole criterion of barriers. In other words, I think the statement, if 
I remember the substance of it, was that these could only be brought 
up to them in particular piecemeal ways and they felt that the real 
onus of either establishing or erecting barriers ought to be left to 
the States themselves. I can't quote the citation, possibly counsel 
has it. 

Mr. DoNOHo. The case has been given. I don't recall the exact 
citation. It is on the record. 

Mr. Carter. I think that is true. I think your point is well taken. 

Mr. DoNOHO. The case is McCarrol vs. Dixie Greyhound Lines. 

Mr. Pike. It tends in some instances to differ from this statement. 

Mr. Carter. I think all of the recent dissenting opinions have 
recognized the existence of various trades and have made the very 
point that you make here. 

It must, therefore, be admitted that any statute charged with being 
a barrier to interstate trade is one which has for its real purpose 
the proper exercise of the State's reserv^ed power and whose effect 
on interstate commerce is incidental to its real purpose. In other 
words, a statute, to be a trade barrier, must be constitutional, yet 
operate as an impediment to trade between the States. This is 


true because the remedy to the evils complained of is purely legis- 
lative. Surely there is no need for Nation-wide agitation agamst 
statutes which are in violation of the commerce clause, because such 
acts are already outlawed and the remedy is plain, speedy, and 

Mr. Pike. Again, on that same point, in my State of Maine I 
think we have a law prohibiting the export of electric power from 
the State, and if my memory is at all correct, it dates back to around 
1906. I don't think that law has ever been backed in the national 
courts. It may have been, but a quick look at it would make one 
think that it was almost surely constitutional, and yet in the absence 
of having been taken up to the Supreme Court it still is, and for 
the last 34 or 35 years has been, on the statute books, and operates 
as a distinct trade barrier, and will do so until it is decided whether 
that law is or is not jconstitutional. In other words, the effect of it, 
whether or not it is constitutional, is that of a strict trade barrier, 
and, as far as I know, there is still no movement to take it up to 
the Federal courts to see where it stands. There may be, and there 
probably are, in other States things of the sort, and there certainly 
must be, in some of the States, laws which between the period of 
their passage and their being challenged in the courts operate as 
trade barriers, and that period might very well be as long as 33 or 
34 years, or in this case 34 or 35 years. It doesn't seem to me one 
can draw an exclusive distinction that only '.those that are constitu- 
tional can be trade barriers. In effect they certainly act as trade 
barriers until the thing is determined. 

Mr. Carter. What I, meant to convey was that that very kind 
of a condition that you point out could be instantly taken to the Su- 
preme Court and could be determined as to what that body thought 
of that law. Then you would get right back where we always do 
on these things, that it dealt with a specific point and didn't give 
you a general definition after all. That is the tragedy of that. 

The commerce clause prohibits imdue burdens on interstate com- 
merce, yet laws which actually do burden or interfere with such 
commerce are valid if their real purpose is the exercise of the State's 
police power or taxing power or possibly the sovereign power of 
the State in the protection of its own property. However, under 
the decisions of the courts, if such statutes are to be valid, it must 
be clear that their real and true purpose is the exercise of such 
powei-s, for if their pretended purpose is the exercise of such power 
while their real purpose is to burden or prohibit commerce between 
the States, they are invalid under the law. 

The Chairman. Wouldn't it be proper to say that laws or enact- 
ments of this character are reajly trade barriers, while constitu- 
tional enactments, though they may have the effect of impeding 
trade, are actually not trade barriers? 

Mr. Carter. I think that is true. 

The Chairman. That is not what I understood you to say. 

Mr. Carter. Then, I didn't understand what you said. Senator. 

The Chairman. As I followed our original statement here, you 
said, "In other words, a statute to be a trade barrier must be consti- 
tutional." ,1 am asking if the reverse isn^t actually the case. If a 
State enacts a constitutional law for a proper State power in the exer- 
'cfSe'"of its reserved power, though the effect of thaV statute may be in- 


deed to throw up some obstacle to trade, can it properly be called a 
trade barrier, since it is a constitutional exercise of State power for 
■A proper purpose? While, on the other hand, the exercise of restric- 
tive poiver under color of the Constitution for the purpose of actually 
impeding trade, whether it be on the border line or actually unconsti- 
tutional, would, it would seem to me, be more properly called a trade 
barrier than the other. 

Mr. Carter. My thought is, as I express it later on, that undoubt- 
edly there are laws on the books that do act as barriers to trade in the 
sense that all taxation does, and the measure is whether or not the 
good done for the State itself or its people outweighs the harm done 
by the existence of the trade bprrier. 

The Chairman. Well, we are striving to reach a definition of what 
may properly be called a trade barrier. My conception of it — of 
course, I am just listening to the testimony here — is that a trade bar- 
rier is an enactment designed for the purposes of obstructing trade 
from another State coming into the State in which it is enacted, an 
enactment which is carried out under color of constitutional right. 
That, I would judge, could properly be called a trade barrier, but if 
a State enacts a constitutional statute for purposes of inspection in 
the exercise of police power or in the exercise of any other reserved 
power for the purpose of proper State objectives, that, it seems to me, 
could not properly be called a trade barrier, even though it might 
have the effect of obstructing trade. Of course, this is just a matter 
of opinion. 

Mr. Carter. I think we agrep, because I know that is what goes 
through my mind — whatever I put on my paper, at least, that is what 
goes tnrough my mind about it. 

Representative Williams. Let me ask you a question also. There 
may be many laws passed by the State under the police power or 
under inspection, under the constitutional powers, which are entirely 
valid and constitutional, and at the same time might place a very 
serious restriction on interstate commerce, might it not? 

Mr. Carter. I think that is true ; yes, sir. 

Representative Williams. And after all, it is very difficult to tell 
what is an undue restriction in interstate commerce. It seems to me, 
as I have stated before, that there is a conflict of authority there of the 
Federal Government and the State authority with reference to the 
exercise of police powers. 

Mr. Carter. I don't think there is any doubt about that ; when we 
read practically all court decisions on this subject there is a wide dif- 
ference of opinion within the personnel of the Supreme Court on 
that very point, and your point is very well taken — where one sees it 
as a constitutional measure the other one looks on it as a violation of 
(he spirit if not the letter of the Consti'ution, I think that is very 

Mr. Pike. There seems to be a fair-sized vacancy strip, a no-man's 
land, which one maj' occupy part of or perhaps almost all of, until the 
other one comes in and says, "Well, you are on my territory," and 
then a dispute arises. 

Mr. Carter. That is right; and at least we have observ^ed in our 
own State that the result of a public discussion of this very im- 
portant subject has been very helpful in correcting some of our own 


State statutes and in the enactment of some new ones. I know in the 
last legislature we had two or three examples come up where the trade- 
bariier aspect presented itself and either the legislation did not pass 
it or it was greatly minimized. I know in the adoption of our so- 
called compensating tax, which is a supplement to our sales-tax law, 
the Governor made it a point, as a result of the information that had 
come to liim from various avenues, to ask this question of a senatorial 
and house committee: "Has the trade-barrier aspect been removed 
from this law ? If so, I will si^ it." 

It took them an hour to conv^^ce hnn, but they finally pointed out 
that they had given full credit ic. the payment of sales taxes in other 
States, and that generally comes within the pale of the approved kind 
of use tax or compensating tax law. 

Mr. Pike. Of course, beside the question of power there comes the 
question of just plain legislative good sense. 

Mr. Carter. That is right. 

Mr. Pike. To which one must really go back in the long run? If 
there are certain places where the complete exercise of the power 
would result in evil probably for all concerned, that must be true. 

Mr. Carter. It must be true. 

Mr. DoNOHO. To return to the relationship between trade b><'riers 
and constitutionality, don't you think it might be well for you to 
clarify your position a little better foi- tlie record? I am thinking 
now of the twenty-first amendment. It is undoubtedly true, I sup- 
pose, that a State could exclude all out-of-state liquors from coming 
into the State under that amendment, is it not ? 

Mr. Carter. That is my interpretation of the twenty-first amend- 
ment ; it gives the States very broad and specific powers on the control 
of liquor. 

Mr. DoNOHO. And such exclusion would unquestionably be consti- 

Mr. Carter. I think it would. 

Mr. DoNOHO. Do you think such exclusion would amount to a trade 
barrier ? 

Mr. Carter. Yes ; it would. 

The Chairman. Of course, there again it depends upon what you 
mean by a trade barrier. I think I would like to know what counsel 
has in mind as a trade barrier. 

Mr. DoNOHO. I wanted the record to show what the witness con- 
siders as a trade barrier. 

The Chairman. Am I to understand you don't want the record tO' 
show what counsel considers a trade barrier ? 

Mr. DoNOHO. I apologize if that was the impression 

The Chairman. Of course I know that was not ^he case. 

Mr. Carter. May I read into the record at this point a definition 
of a trade barrier? 

The Chairman. Fine. 

Mr. Carter. I have a kind of fatherhood of tliis particular defini- 
tion, of which there are many, but I presented this at a meeting of 
the Western States Trade Barrier Conference at Denver, and it was 
adopted unanimously as a pretty good idea of what a trade barrier is : 

A trade barrier is a State law or regulation that deliberately discriminates 
against the products or services of units of society of another State, it being 
recognized, however, that domestic taxation and regulation essential to the 


maintenance of State government and public health and safety can and must 
be applied to interstate commerce without discrimination. 

Later on I am going to ask to put into the record those resolutions 
adopted at Denver. 

The Chairman. Mr. Carter, I am sorry that those two signals 
indicate that a quorum is being called in the Senate, and a question 
of real importance is coming up there today having to do with the 
treatment of sugar. That may or may not be another trade barrier 
that we have got to act upon immediately. I am sorry I am not 
going to be here to listen to the rest of your statement and participate 
in what I can see from your testimony so far will be a very inter- 
esting discussion. 

(Kepresentative Williams assumed the Chair.) 

Mr. Carter. Thnnk you very lauch for your courtesies extended to 
;he Governor and myself, Senator. 

Since the efforts to remove trade barriers are sincere, and would 
not have for their purpose remedial legislation when there is an 
existing remedy in the courts, we must assume that the barriers re-, 
ferred to are not those enactments which are, in themselves, uncon- 
stitutional. To apply the converse, since a statute complained of 
must be one which does interfere with interstate commerce, and to 
be constitutional, must have been enacted under the police, or taxing, 
or sovereign power of the State, the entire field of controvp^sv or 
consideration is therefore narrowed down to a balancing of the pub- 
lic's interest between the profit or gain it may derive from the free 
flow of commerce, on the one hand, and the injury that it may sustain 
through the loss of its revenues, or the infringement of public health, 
morals, welfare, or sovereign property on the other hand. 

In identifying a statute which is in fact an improper barrier to 
interstate trade it must be found : 

First, that it actually does restrict or impair the free flow of com- 
merce between the States ; 

Second, that it discriminates against the persons or products of a 
sister State and in favor of the persons or products of the home 

Third, that it is valid und'ir the constitution and cannot be nulli- 
fied in the courts. 

Mr. Pike. On that place, I guess we would have to take those few 

Mr. Carter. Yes, we would; and fourth, that the enactment is not 
really necessary for the protection of property owned by the State, 
for the preservation of its revenue or for the protection of the peace, 
health, morals, or welfare of its citizens, or that the benefit gained 
by such protection and preservation is outweighed by the profit or 
gain which would accrue to the State or its people if such protection 
were waived. 

In my opinion, all four of these questions must be resolved in the 
affirmative in order to find any given enactment to be a "barrier to 
interstate trade," and thus a proper subject for consideration. 

Mr. Elmore. Mr. Carter, referring to these four criteria, is it your 
contention that certain barriers may be proper ? 

Mr. Carter. We get there into what, is a barrier. I subscribe to 
the thought that you might have barriers to trade that would be 
proper, but we would have to measure, then, as I point out here in 


the last thing, whether or not the public harm or the putlic good was 
to be considered. I don't think there is any doubt but that we do 
liave things that suggest a barrier to trade. I have on a suit of 
clothes that cost me so much money. In it are a lot of taxes down 
through the whole manufacturing-distribution method and it took 
me a little bit longer to decide to pay what I did for it than if the 
taxes hadn't been there. I think the barrier to trade thing is always 
present wherever there is a tax dollar present. 

Mr. Elmore. Would you consider an example of proper brtrrier 
legislation would lie in the burdening of interstate trade which arises 
from the nondiscriminatory diversity of statutory provisioas of the 
several States? 

Mr. Pike. Perhaps you have missed some of the earlier testimony, 
but there are cases, let's say in motor trucking, where you might go 
across six States, each one having a statute that on its face seemed 
quite reasonable, but the poor motor trucker having gone across tlie 
six, he has had to pay out pretty nearly the cost of his motor truck, 
and the cumulative effect of them has been a barrier and to that 
fellow it seems an unreasonable barrier when perhaps none of them 
in themselves could be called unreasonable. 

(Representative Sumners, the vice chairman, assumed the Chair "* 

Mr. Carter. That brings up the question of flat annual fees, and 
for the purpose of the record I might just read this in : 

Flat annual fees for the use of highways by trucks are sometimes complained 
of as barriers for trucks which make only occasional trips. Most states now 
have laws which give non-resident truckers the privilege of short period use 
of roads in payment of a fraction of the year's fee such as one-tenth or one- 
fifth of the fee, and so forth. A plan was discussed at our last conference at 
Santa Fe whereby interstate carriers could buy trip permits good for five days 
in exchange of, say, 3 per cent or 5 per cent of the annual fee, with the provi- 
sion that receipts for the payment of suc"h fees could be used as credits in pay- 
ment for the full fee. In this manner, a non-resident would never be required 
to pay more than a resident. 

However, flat annual fees are assessed by the states in preference to toll 
charges because of th'^ 'difference in administrative and collection costs. Regis- 
tration fees are in the nature of stand-by charges, and as the Supreme Court 
held in the Aero Matffloiver case against Georgia, 295, U. S. 285, if the fee is 
reasonable for the privilege granted the taxnayer has no cause for complaint if 
he does not elect to make full use of the privilege he buys. 

Although registration fees for the bigger trucks may appear to be large in 
some instances, it should be borne in mind that the state is obliged to invest 
substantial sums to make its roads and bridges suitable for the heavier units. 
The investment is there whether it is used or not. In the same manner, when 
you go to the theater your ticket pays for the whole show and you can't expect 
a discount because you only want to see one of the acts. Many' of the states 
feel they have too much money invested in roads to adopt a "no cover charge" 

I am somewhat warped in talking to you as a westerner, because we 
have a tremendously large State with a very small population and 
very little tax-income sources. I wouldn't want to say that we had 
dried all of the sources of revenue, but we are at that point where 
the taxpayer feels very unhappy about it, and I think that is general 
in the West, and I think later on in my paper here I will develop 
that question of why we do some of the things we do out there because 
we are just simply not in a position to do otherwise. 

Mr. Pike. But it still reniains that it is pi-etty tough for the man 
who may have to pay six of those things in 2 or 3 days. 


Mr. Carter. It is tough. We have suggested, or it was discussed, 
that possibly trucks could come i)ito a State, say within 25 miles, and 
then report to the county treasurer and get a sticker and keep that 
thing in a receipt form until he finally got his full fee paid, and I 
think there is a general unanimity of thought that the thing you are 
talking about is very cockeyed. I think that is very true. 

The Rocky Mountain States, comprising New Mexico, Arizona, 
Texas, Oklahoma, Kansas, South Dakota, North Dakota, Wyoming, 
Colorado, Utah, and Nevada, have just completed their third confer- 
ence, sponsored by the Colorado Chamber of Commerce, on the subject 
of trade barriers; and while actual results await legislative action at 
the next sessions of the various legislatures, probably more progress 
has been made by this group than by any other in actually determining 
whose barriers to trade are destroying what interstate business. There 
is woeful lack of actual evidence of existence of true barriers of the 
discriminatory type. 

May I just make this observation to you : In this last meeting we 
liad up for discussion the New Mexico oleomargarine law, and it de- 
\eloped that it was not a trade barrier. The reason it isn't a trade 
barrier is that that law w^as so written that it did not discriminate 
against the Texas cottonseed oil — we are a cotton State ourselves — 
but it did discriminate against coconut oil from Hawaii; and we 
devoted one-half houi as to whether or not we still were not discrimi- 
nating against trade by building up that kind of a situation against 
one of our possessions. 

Mr. Pike. You say Hawaii being a Territory it wasn't an interstate 
barrier. It is a little technical. 

Mr. Carter. That seemed to get rid of it, but. now we are on all the 
maps that they distribute in their trade-barrier arguments as having 
a trade-barrier law that does set up a barrier to trade within the 
States, and actually any kind of product made in the United States 
come in O. K. under our oleomargaine law, but we do step out and say 
something about coconut oil. 

Most of the Western States have kept pace with the Eastern States 
a nd the Federal Goverimient in meeting the demands of the people for 
governmental service, and in so doing have obligated themselves to tax 
programs that make necessary the actual enforcement of their various 
tax laws. Taxing fixed property is One thing — the ad valorem tax 
system takes care of that, in the main. Taxing mobile property and 
I>rivileges and transactions presents an entirely different problem — 
one that must be handled through the imposition and collection of 
excise taxes. To impose an excise tax is a simple matter. To collect 
an excise tax from all upon whom it is imposed is a most difficult ad- 
ministrative function. Those who own real or fixed property located 
in the taxing State must pay both the ad valorem and the excise taxes 
ru lose their real property through tax lien and sale. The nonresident- 
operator, whose property is mobile or intangible, can pay the excise 
tax voluntarily or make "the State tax collector chase him down. 

Too many nonresident businessmen took the "chase me down" atti- 
tude, and as a result the much damned and discussed ports of entry, 
came into existence. These ports of entry, so-called, got away to sl 
bad start. In some instances little men, with no instruction and an 
exalted opinion of their personal and official importance, acted like 
"the dead-end kids" until the legislatures could meet and make the 


necessary adjustments in the laws that created the port-of -entry sys- 
tem. Today's ports of entry are mere registration stations, at which 
trucks report for inspection and taxation purposes, and at which, in 
some States, all vehicles report to agricultural inspectors to prevent 
the spread of animal and plant diseases. 

Mr, Elmope. Mr, Carter, in this discussion of ports of entry you 
have stated that in some States all vehicles must report at ports of 
entry to agricultural inspectors for the purpose of preventing the 
spread of animal and plant diseases. 

Mr. Carter. Yes, sir. 

Mr. Elmore. Previously you stated there is a lack of actual evi- 
dence of true barriers of the discriminatory type in the Rocky Moun- 
tain States. 

Mr. Carter. I used the word "woeful" lack. I had that objective 
in there, anticipating that question. 

Mr. Elmore. Let me ask you if in this practice of insj)ecting to 
prevent the spread of animal and plant diseases there are levied any 
registration fees, inspection fees, I'/.^'^nse taxes, or quarantines on 
plants or livestock shipped into the State of New Mexico by non- 
residents which are not levied on local dealers. 

Mr. Carter. We have no plant laws that I am familiar with. I 
am very lame on this particular point, it is out of my line, but I 
think that our quarantine law is set up as it applies to animals on 
the basis that if it has been inspected elsewhere, there is no other 
charge in New Mexico. During our last meeting at Sante Fe we had 
a wire from the sheep growers' , association of our own State who 
were complaining that they paid a fee in New Mexico and then when 
they took that particular livestock into Texas there was another fee. 
I carried the things through by writing to the Texas commission, 
and so forth, and we had back an argument or a presentation from 
their attorney general's office, and then from their own livestock 
commission — I have forgotten the exact name of it-^in which they 
set up a perfectly logical argument for this additional fee, but I 
certainly believe that if a State imposes any kind of a tax on any 
kind of a transaction or inspection or regulation, that there is some 
justification for, where it is strictly a fee, and a nominal one, that 
there ought to be some kind of a basis whereby one State can accept 
the other. 

As the result of our last meeting in Sante Fe, very, very shortly 
we are to have a series of conferences with the State of Colorado 
on this subject. 

I would like to say for this committee that it is very encouraging 
to those of us who are interested in the subject from either sioe to 
find that there is a tremendous and a very serious interest. We had 
this meeting in Sante Fe; there were 100 people there, and we had 
100 percent attendance all the time, and it was strictly a desire to 
get it done. 

Our big lack will be, as in your own instance, to determine the 
cause that the barrier was made, and if it is a barrier ; and, third, 
how to get rid of it without destroying the State that did enact it in 
its certain power and certain regulaions. 

Representative Williams. Do you find from your examination that 
there is a deliberate attempt on the part of the States to enact and 
enforce these discriminatory laws simply as a trade barrier, or is it 


done in the interest of the public health, or for the purpose of ob- 
taining the desired revenue to keep up their roads, and so on — a 
legitimate purpose, in other words! 

Mr. Carter. I would say that 95 percent of these things are gone 
into by the legislators always with an idea of protecting public 
health, public safety, or a revenue measure. I know out in our 
own part of the country that we have been so pressed for govern- 
mental income that we have adopted tax laws. Then the enforcement 
of those laws is becoming increasingly difficult because the taxpayer 
has more taxes to pay, and the desire not to pay them increases with 
the number of taxes that he does have to pay. It isn't a new 
thought to you gentlemen at all, but the multiplicity of taxes the 
taxpayer is faced with bothers him more than the tax-dollars he 
pays out, because ii. making up different kinds of reports, he often- 
times puts out more money in getting the reports ready than he 
does in the actual report he makes and the money he sends in. 

Representative Williams. You don't think that these laws are in- 
spired by the fact that other States pass certain legislation that seems 
to be discriminatory? 

Mr. Carter. May I say this to you — that we worked nearly 20 
hours at this last meeting at Santa Fe. Every State presented its 
arguments against the other States, and I know, had I the transcript 
before me, tEat I could be verified by it that we had one such law 
discussed and admitted by the two States. Utah admitted that it 
adopted a retaliatory law against Colorado involving beer. Colo- 
rado said that only beer in such-and-such a size keg and one thing 
and another shall do this and shall do that. It simply froze out 
Utah. Utah went back home and said, "Well, we will adopt one 
now and keep out the Colorado beer," and that is the only one that 
we found. 

Representative Williams. That is perhaps the only one that would 
admit it. You wouldn't expect them to openly admit it. 

Mr. Carter. I think the tone and the temper of that meeting was 
such that they would have; I really do. 

It is important to note the difference between the so-called honor 
system of reporting taxes by resident and nonresident operators of 
mobile property and the more aggressive registration station method. 

May I add to the record just this thought: The words "honor 
system" may not be understood, but as I was writing this up it 
came to my mind as a part of our Santa Fe discussion. The argu- 
ment was made : Why couldn't they make reports and then have these 
reports checked? And it was called the honor system instead of 
checking at the time of entry. I mean by "honor system" the way 
we file our income-tax reports, and they are subject to future audit. 

In every instance, without exception, the tax income derived by 
checking such operators as they enter the State has accounted for 
marked increases in the collection of Ahe various taxes imposed by 
law on such residents and nonresidents. 

May I say that not only ton-mile tax, not only license fees, but 
our sales taxes and other excise taxes that are normally difficult to 
collect from nonresident operators have shown increases under this 
more aggressive collection system. 

The reporting of taxes on the so-called honor system entails the 
necessity for checking such reports after entry, both as to honesty 


and accuracy of interpretation and remittance. There is definite 
necessity for checking such reports at the time of entry or thereafter. 

My next sentence is subject to controversy : Experience has shown 
that less loss of tax revenue — there is no doubt about that — and less 
mconvenience for all concerned — that is the debatable point — is 
caused by making the check at the time of entry. There are some 
potent arguments on the point of theory that if a truck has to stop 
it causes considerable loss of time for both man and truck. 

Mr. Pike. What is the loss of time involved — if there is any such 
thing as an average on that. 

Mr. Carter. If the papers are in order and everything is made 
clear by the trucker who sends it out, it shouldn't take more than 
an average of, say, 5 to 10 minutes. You do have cases where 
eight or nine trucks hit a port at the same time. 

Mr. Pike. Within half an hour or more. 

Mr. Carter. Yes, sir. 

Mr. Pike. And then there might very well be cases where the 
truck man had filled in the papers properly or there might be cases 
where the administration might not be perfect. 

Mr. Carter. That is right. 

Mr. Pike. So really it might be an annoyance on both sides. 

Mr. Carter. Let me say this : The administrations of the ports of 
entry, using the language of the street, were put under such a tre- 
mendous amount of heat for a couple or. 3 years that there isn't 
any Governor who doesn't personally go out and see that the ad- 
ministration is as near perfect as you can get human beings to do it, 
and we have a far different situation than we had in the beginning, 
because some of those boys did act like the dead-end kids; there's 
no fooling about that. 

The ports of entry, or registration stations, or ports of welcome — 
call them what you will — came into existence as a necessary tax 
collection method both from a State tax income standpoint and 
from the viewpoint that those who were paying their taxes were en- 
titled to an effort on the part of the State to equalize the tax load 
by catching their tax-evading competitors. 

There was a meeting held at Salt Lake City during 1934, before 
we adopted our port-of-entry system, and it is interesting to note 
that witnesses here and others have referred to ports of entry as 
examples of trade barriers. I think they are trade barriers, de- 
pendent upon how they are administered and what the philosophy 
bohind the law is and the attitude in lots of cases of the Governor of 
the State as to how much he insists on fair administration. 

The New Mexico statute creating the ports of entry was enacted 
pursuant to the affirmative recommendation of the Western Truck 
Conference held in Salt Lake City in 1934. There were many, many 
iruckers who were paying all these taxes, and they had lots of 
people in competition with them who were not paying them; and 
I don't say it as a defense of our action or as an argument that the 
truckers wanted this kind of a law, because that wouldn't be true, 
but there certainly were a number of men who recognized the neces- 
sity for some uniformity in the collection of these taxes, because 
by the time you add the ton-mile and the sales tax and the use tax 
and a few other taxes onto a trucker, if his competitor is not paying 


those taxes be nas got a very definite money advantage over the 

Mr.' Pike. It is the old bootleg problem. 

Mr. Carter. That is the old bootleg problem, and we have in- 
creased so much of our gasoline-tax income through this system that 
we feel very, Very friendly to it from that standpoint if from no 

The Vice Chairman. There is probably no higher duty of govern- 
ment then to protect an honest individual against illegal competition. 

Mr. Carter. I think that is true. Our whole tax system — it isn't " 
always politically popular, but we think it is sound business in New 
Mexico. We believe that the State owes the taxpayer all the services 
we can render him to have everybody pay on the same basis. 

New JMexico and most Western States — and I ask your sober con- 
sideration of this .thought, because to my mind here is our problem 
in the West — have always been obliged to tax the interstate income 
of its industries in order to meet their tax obligations. The intra- 
state income of the oil, potash,- metal, coal mining, and railroad in- 
dustries in New Mexico has always been less than the total amount 
of New Mexico, county, city, and State government taxes paid by 
those and other industries. One railroad that I think of, and I 
mention railroads only because this example comes to my mind, paid 
our State something like a million and a half dollars in taxes in one 
year, 1939. Their business within our State, intrastate, was <;on- 
siderabl}' less than $900,000 for the same year. 

Mr. Pike. That is their gross business? 

Mr. Carter. Their gross intrastate business. That isn't the ticket 
they buy from Santa Fe to New York, but the ticket they buy from 
Santa Fe to Albuquerque, and all of that freight. We produce 100,- 
.000 barrels of oil in New Mexico every day. Less than 1,000 barrels 
are refined in New Mexico. It is all refined outside of our State, at 
the end of the pipe line. That means that 99 percent of oil corpora- 
tions' revenue from oil production is interstate, and they pay one- 
fourth of all our taxes, all of our domestic taxes, and it really presents 
the basis of this^statement. 

The trade-barrier aspect has always been present, measured by the 
same yardstick today's trade barriers are accounted for, and yet these 
groups have never claimed and are not now claiming that that con- 
dition has erected barriers to their interstate trade. It is an inter- 
esting commentary that the groups who are most interested in this 
subject, from an economic and commercial viewpoint, can readily 
account for constantly increasing interstate business -with and through 
the States under their attack. 

My argument has had much to do with taxation and when the 
hide is pulled off the carcass, that is the heart of most trade-barrier 
discussion. The Western States are so situated that excise taxation 
is a necessity. Please consider the following tabulation of land own- 
ership in certain States and you will readily appreciate the fact that 
there is not enough taxable real property available to create the in- 
come for today's governmental services. 

When I say "governmental services," I mean to say that the people 
of New Mexico have the same viewpoint that the people of the State 
of New York have ; they have sort of had a kind of unwritten agree- 
ment among themselves that all the people can get together and they 

124401— 41— pt. 20 1-5 


can afford anything as the collective whole, and they ask the Govern- 
ment to provide it, and then somebody has to pay the bill and that is 
where a tax collector comes in for a considerable amount of worry as 
to where to get the tax dollar with which to pay the bill to keep faith 
with the people who believe that the Government has advanced* tu 
the point that it can provide these services. 

Mr. Pike. Don't you suppose it might be healthier if you proved 
that it couldn't? 

Mr. Carter. I think it would, if you could. The tragic part about 
it is that we have all sort of subscribed to a belief in that, and I 
would like very much to lead that kind of thought if you can get 
somebody to listen to you. 

The Vice Chairman. The notion of never opposing an appropria- 
tion and always opposing increase of taxation, unfortunately, is too 

Mr. Carter. That is very true. 

In Arizona, 75 percent of the land is owned by the Federal and 
State Governments, meaning it is not on the tax rolls ; in California. 
54.2; Colorado, 37; Montana, 50.8; New Mexico, 44; Nevada, 74; 
Oregon, 57 ; Washington, 39 ; and Wyoming, 51. 

There is such a tremendous amount of our land out there that is on 
Indian reservation or national forests, and so forth, that when you 
go to tax an ad valorem tax, put an ad valorem tax on it, we simply 
run out of money with our present capacity for governmental services. 

Mr. Pike. Most of that land is of the sort that wouldn't stand much 
taxation anyway, though, isn't it? 

Mr. Carter. That is not always true. 

Mr. Pike. I realize it is not always true. 

Mr. Carter. Some of our best lands are in the Indian reservation 
country, and many of our national forests, if they were privately 
owned and they could have an income from timber, and so forth, 
would be taxable. ' I would say that in our own State, at least, we 
could materially increase our tax income from an ad valorem stand- 
point if we had it, but I am thinking of one county now. I think it 
is Sandoval County — yes ; that is correct — which is nearly 85 per- 
cent Indian reservation, and it isn't an infrequent thing for the ad 
valorem taxpayers to come down and pay their taxes in advance of 
the time the tax is due, so that they can keep things going, because 
they have such a tremendous problem in their county situation. 

The Vice Chairman. Is your tourist crop profitable up there by 
reason of these public lands, in your section ? 

Mr. Carter. Very much so. I would say that if we didn't have 
Indian reservations and Indians we wouldn't have all the cars in 
Texas over there part of the months of the year. It seems that Texas 
kind of moves over en masse in the summertime, when it gets hot, 

Mr. Elmore. Mr. Carter, do you have any idea whether any con- 
siderable portion of these State-owned lands are owned by the State 
as the result of the inability of the owners of the fees to pay their 

Mr. Carter. Very, very definitely. In 1933 we were going into the 
real estate business so very fast in New Mexico that it was just one of 
those things that, if we hadn't stopped it, we would have been in the 
real-estate business instead of the business of State government, be- 


cause it was coming in b} the thousands of acres. In that connection 
there is a turn-over of our fcjtate lands. People are buying them. One 
man from New York recently came out and bought something like 
375,000 acres at one lick. It was being rented for 18 cents an acre 
a year. I forget what he paid for it, but it is property on which you 
can put one cow to about 50 acres, so when you go to taxing that kind 
of property you still have a tax problem. 

Mr. Elmore. Would you say that most of it was unimproved 
property ? 

Mr. Carter. I would say that it was; yes. It comes under the 
head of ranch property, and we have discovered oil on a great deal 
of it, for which the State government and everybody else is most 
grateful. The problem you refer to became so real that we adopted 
a constitutional amendment which said this, that after this becomes 
the law there shall never be more than 20 mills per dollar of valua- 
tion assessed on real estate in the future. 

That was fine. It really stopped the slide, but that brought in the 
sales tax and the rest of them on down the line. 

The Vice Chairman. May I ask you just one question, and I ask 
it seriously, with regard to these public lands. Do you have an 
opinion as to whether the revenue is greater leaving them public 
lands and open to visitors generally than it would be if they were 
privately owned lands and paid an ad valorem tax, or do you have 
an opinion? 

Mr. Carter. Well, I think that our tax income undoubtedly would 
be less if they were under private rules, measured as to how they are 
now being used, but I do believe that private ownership might build 
some camps and might build some facilities that are not now avail- 
able to the public. 

We have learned this. We have always had a very, very fine 
climate and .very, very nice scenery out there, but until we got good 
roads nobody came out to see them. Now, as we open up new play- 
grounds and new places for the touring American to come to, our 
business is generally increasing, and I believe that with the turn in 
our economic picture, where we are coming into the tourist-trade 
class, which amounts to about $50,000,000 a year to us in gross in- 
come, we undoubtedly could make better use of those private lands 
in the years to come than they are now being made use of, both 
from a tax standpoint and also from the standpoint of people who 
might own them. 

The Vice Chairman. I didn't mean to lead you too far afield, but 
I thought it was pretty important. 

Mr. Carter. The most potent argument ottered by trade-barrier 
elimination enthusiasts is that nonresident truck operators should not 
be taxed, even on a parity basis with resident taxpayers. That pre- 
sents the most dangerous aspect of this whole study, because, carried 
through to its conclusion, in order that equity may be established, 
nonresident railroads, nonresident potash companies, nonresident oil 
corporations, nonresident telephone companies, and all other non- 
residents operating in a given State would be able to operate on a 
tax-free or reciprocal basis. When the Western States are deprived 
of their authority to tax and regulate nonresident business operators, 
they will lose so much of their tax income that their status as inde- 
pendent States M'ill vanish. 


I would say that at least 75 percent of our tax income is derived 
from nonresident business operations in our State. 

Mr. Elmore. Do you consider the taxation of motor vehicles oper- 
ating in interstate commerce to be similar to a tax on potash, oil, and 
coal-mining industries carried on in interstate commerce? 

Mr. Carter. I don't see any difference between taxing one business 
operation as against another. 

Mr. Elmore. Isn't there a difference between an operator owning 
property in a State which depletes the State's natural resources and a 
company which merely passes trucks through the State ? 

Mr. Carter. Well, of course, there are those of us who believe that 
there is a depletion of our roads as they are being used by trucks, and 
perhaps that is the reason that we tax them the ton-mile tax and the 
other taxes that we tax residents. 

Mr. Elmore. You consider for that purpose then a road in the same 
classification as a natural resource ? 

Mr. Carter. Well, I couldn't tell you our present inyestment in 
roads in New Mexico. It would be small compared to some of the 
Eastern States. But I would say that our investment in roads would 
be comparable to some of our natural resources that are being taken 
away, and maintenance is a devil of a problem with us. When we get 
ready to build a highway in New Mexico we have a gentle rolling 
country and we have a plain country, and then we have a mountain 
taking over. The interesting thing to observe is that down here you 
have a very, very heavy traffic flow, and when you get here where the 
higher costs of the road, are, you run into another problem. 

I would say that the amount of potential natural resources per. 
resource measured out in terms of what we have built into our high- 
ways, invested there, would be a very comparable figure — not in all 
cases, understand. Oil would be contrary, and I think potash would. 

Mr. Elmore. Close enough to justify an argument, anyway, Mr. 

Mr. Carter. I think so ; yes, sir. 

Mr. Pike, I think there is another question. I don't want to do 
anything but just bring it up. 

Mr. Carter. That is all right. 

Mr. Pike. About what Federal interest is there in your roads there ? 
The Federal Government pays a rather substantial portion, of course. 

Mr. Carter. Very substantial. 

Mr. Pike. And you have, perhaps, as compared with equal States, 
a great proportion of your highways arterial highways, rather than 
byways. I mean, your expensive highways are of a nature of main 
traffic arteries to get into the State on one side and get out of the 
State on the other. 

Mr. Carter. We have a vast number of roads, however, that are not 
Federal aid roads. As you look at a road map — this w^ill be true of 
Texas, Wyoming, and all these other States — there is a tremendous 
investment in our so-called secondary highways. 

Mr. Pike. Yes. 

Mr. Carter. And we do appreciate, and are truly appreciative ot, 
the attitude of the Federal Government to help us build these arterial 
highways, because without them we wouldn't have -any roads, but 
we do have to go out and i y to get and do get the tax dollar through 
our gasoline tax and other road funds with which to build up to the 


point where we can ask the Federal Government for help, and that 
investment, even from a State standpoint, is very tremendous. 

We have, I think, 122,000 square miles of land and only 454,000 
people, and when you begin to measure that 

Mr. Pike (interposing). You mean square- miles of land. 

Mr. Carter. Yes; I meant to say square miles, and when you 
measure that out in terms of taxing, we have a devil of a problem. 

Mr. Pike. It spreads pretty thin. 

Representative Williams. Have you any such thing as a recipro- 
cal agreement with neighboring States, a condition under which you 
permit free licensing to their trucks in return for a similar consider- 
ation from them? 

Mr. Carter. Not at the present time, but that is the direction we 
are taking as a result of the meetings we have been having. Our 
problem there is this. For instance, we are surrounded by Texas, 
Colorado, and Arizona, Old Mexico being to the bottom of us. If 
we had a reciprocal agreement, just an out and out reciprocal agree- 
ment, with the State of Texas, for instance, we would have this prob- 
lem : For every truck which we sent to Texas, there would perhaps 
be 1,000 trucks coming back to our own State. 

I say that for this reason, that most of the oil operations in New 
Mexico are conducted by Texas people, and it is just an extension of 
the West Texas field, you see, and there is a tremendous flow of 
trucks there. 

Then, in the State of Colorado are located Denver,^ Colorado 
Springs, and Pueblo, all large centers. They have a considerable 
amount of trucking business, and reciprocity for us would be kind 
of like poor folks trying to keep up with rich folks. We would have 
a problem that would be one that we would have trouble really in 

At pur Denver conference we got into reciprocity and uniformity 
and what not, and frankly, we have some of our secondary roads 
that we have to watch very, very carefully as regards the kind of 
truck, size of truck and so forth, so really reciprocity is more than 
just "your license plate is O. K." We have to find out if we can 
accommodate those with whom we would arrange reciprocity. 

Representative Williams. Then you don't ^ink it is a practical 
proposition, on account of your peculiar condition and situation 
there, to enter into reciprocity with the other States along that line? 

Mr. Carter. Let me read just this resolution that dealt with the 
subject of size, and so on. This was adopted at the Denver confer- 
ence on Western States trade barriers : 

Whereas, Uniformity in state regulations as to the size and weight of motor 
vehicles is a desirable end, it is recognized that such uniformity in the maximum 
limits as to the size an-d weight of trucks is necessarily dependent upon sub- 
stantia! uniformity m the highways over which they operate ; and 

Whereas, There is no present uniformity in the capacity of roads and bridges 
in the several states and no uniformity in the ability of the people of such 
states to construct and maintain roads of such capacity as would be required 
to accommodate the trucks and trailers now permitted in many of the states ; 

Now Theeefobe, Your Committee on Transportation proposes to this conference 
that those of us- in attendance frankly admit and recognize the present im- 
possibility of agreement and adoption of uniform regulations as to the size 
and weight of trucks engaged in interstate commerce and urges the conduct 
of studies by the respective states bearing upon scientific and prop^pr regulations 
in that respect ' j- 


Our own highway department has done a lot of work since this reso- 
lution to try to find out what our bridge situation is. This problem 
of truck transportation has brought a lot of engineering problems 
and brought a lot of tax problems that really warrant any committee, 
from the Federal Government or from the States, sitting down to 
look at it as an independent subject, entirely away from the trade 
barrier field, because it really is of tremendous importance. 

Mr. Pike. You think bridges are usually the bottleneck on most 
roads, aren't they ridge limitations? 

Mr, Carter. I think bridges would be very controlling, and in our 
own State we build black top because we can't afford asphalt or con- 
crete, and there are good arguments from competent authorities that 
those roads are builf to suit Federal accommodations, and so forth, 
and that they will take any kind of load. In the Santa Fe conference 
we had an interesting.point, where one man rose and quoted a national 
authority on highway construction and he said that it wouldn't work. 
The same authority was quoted by another man on the other side of the 
subject and he said it would work. There is a most difficult thing, 
as to how much load you can carry on these smaller roads. 

For instance, Illinois has all concrete highways — that is, mostly. 
They have a 72,000-pound limit, 40,000 on the main truck and 32,000 
on the trailer. I am speaking from my memory now. That gives 
them a 72,000-pound limit. Our own limit is in excess of 50,000 per 
unit, so actually, on our roads, we allow a heavier unit per axle or 
per unit than the richer, better financed, better-road State of Illinois. 
The Vice Chairman. It doesn't take an expert to know that you can 
build a concrete road, for instance, that would be all right and dura- 
ble for ordinary automobile transportation, but if you put one of 
these trucks on it that is as big as a freight car, it would mash that 
road all to pieces. It just doesn't take an expert. It just takes 
somebody that has a little sense and some observation. It just won't 
stand up. 

Mr. Carter. Mr. Chairman, I would like to tell you that you are, 
may I say, leading with your chin when you make that statement, 
because there are a lot of arguments to the contrary. 

The Vice Chairman. Yes; there are a lot of people not nearly as 
smart as I am that don't agree with me. [Laughter.] 

Mr. Carter. I was speaking from experience. I made the same 

The Vice Chairman. You stay by it, because you are right. 
Mr. Carter. O. K. 

The words "trade barriers" constitute a slogan that has captivated 
the public. It is politically and socially smart today to go all the 
way with the trade barrier elimination enthusiasts, even to the ad- 
vocacyx^of the elimination of all State excise taxation on the theory 
that that form of tax creates barriers to trade. It is unwise and 
dangerous, however, to ignore the real difference between the good- 
faith campaign to eliminate trade barriers and a new approach by 
special groups to eliminate taxation affecting their own specific 

The statement has been made at all trade-barrier conferences that 
I have attended that it the States don't correct trade-barrier evils, 
the Federal Government will be obliged to take the job in hand and 


tell the States what they can and cannot do about taxing and regulat- 
ing nonresident business operations. That is a danger. 

Mr. Elmore. Mr. Carter, in your opinion, does the Federal Gov- 
ernment have that power? 

Mr. Carter. I don't doubt it at all. I think they have that power; 
yes. I think maybe a decade ago that I wouldn't have made that 
statement, but there has been a definite trend in decisions of the 
courts that has led all of us to believe there is a considerable power. 
For instance, looking at that from the converse, a decade ago, or 
even 5 years ago, none of the lawyers in this room would have be- 
lieved that a use tax would have been declared constitutional, that 
it was out of harmony with the United States Constitution, but it 
has been handed down in many decisions that it is right, so I frankly 
wouldn't try to answer that except to say that I think they have 
that power. 

Mr. Elmore. You don't know, however, of any decision of the 
courts which would justify that at the present time, do you? 

Mr. Carter. No; I don't. 

Representative Williams. Or under what section of the Constitu- 
tion they would exercise that right? 

Mr. Carter. May I read this back : 

The statement has been made at all Trade Barrier Conferences that I have 
attended that If the states don't correct trade barrier evils, that the Federal 
Government will be obliged to take the job in hand. 

That isn't my statement. It has been so many times pointed to by, 
particularly, economists who have come from the East to the West to 
tell us about our sins in these matters; they have been quite frank 
in putting emphasis on it, and it has bothered us to some extent be- 
cause we don't want to force a situation where the Federal Govern- 
ment does have to do it. We would rather do it ourselves if we can. 

The Vice Chairman. There is nothing to keep the Federal Gov- 
ernment now from saying : "If you don't do this sort of thing in this 
sort of way, we won't let you have any more money to build roads." 

Mr. Carter. I think you have got something there. 

The Vice Chairman. I have got plenty there. 

Mr. Carter. I think that is the best answer that we could give to 
your question, Mr. Elmore. 

Mr. Elmore. I agree. 

Mr. Carter. There is something more dangerous than that, how- 
ever, and that is the possibility of so definitely eliminating State lines 
and States' rights that our future will be comparable to today's 
monstrosities of human control called the Union of Soviet Republics 
and Nazi Germany. The people of the United States have absorbed 
more important problems than the trade-barrier situation and have 
done so without destroying their ideals, their people, their commer- 
cial enterprise, and their system of government. Today's discrimina- 
tory- barriers to trade have been exposed. Those that exist will be 
eliminated by the voluntary action of the States themselves. No new 
statutes of that character will be enacted. The progress is wel- 
comed by every true American. 

I can say that last part for this reason — that wherever you go the 
legislators, the Governors, business, chambers of commerce. Rotary 
Clubs, the head of the house and the housewife, John Q. Public, 


everybody, has had a good bath of trade barriers, and there isn't any 
legislative action that I can think of that any of them would want 
to take that would upset t^s picture. 

I don't mean by that there won't be a continuing enactment of 
domestic laws that will slow up trade. Every time you tax anything 
you slow it up. I know some people who were going to build a new- 
radio station in New Mexico. They say now they are not going to 
build it because we have a use tax. That may be true. 

Mr. Pike. You do think, though, there is considerable room for 
action among and between the States? 

Mr. Carter. You bet. 

Mr. Pike. To remove discriminatory and nonuniform legislation 
where it is reasonably possible ? 

Mr. Carter. That is very definitely true; and I might add, for 
your future study of this subject, that the differences between the 
Western States and the Eastern States on these matters are so fixed ; 
there are a lot of things we have to do there that you all in the East 
could easily look upon as a trade barrier when, as a matter of fact, 
to us it just strictly a tax law. 

Mr. Pike. I w-ouldn't want you to have the imprpssion that all the 
Eastern. States are rich and populous. 

Mr. Carter. You wouldn't? 

Mr. Pike. No, sir. 

Mt-. Carter. I am just a country boy, and I thought they were; 
I'll tell you that. 

With the permission of the chairman, there are some exhibits which 
I would like to submit to this committee without reading the same 
at this time. The first exhibit is a paper prepared and delivered by 
me at a public forum at Las Cruces, N. Mex., on November 7, 1939. 
That paper has had wide distribution, and sufficient favorable and 
critical comment has been made about it to make me believe that it 
might be of interest to you gentlemen who are making this study. 
It is a more specific treatment of this same subject. It is a more 
detailed discussion, Mr. Chairman, than I have given here. 

The Vice Chairman. You go right ahead with your testimony. 

Mr. Carter. The second exhibit is another paper prepared by me 
and delivered at a conference of business and government at the 
University of New Mexico at Albuquerque on December 9, 1939. 
That paper discusses in detail this same subject, particularly from the 
standpoint of ad valorem taxes and these other taxes which come 
under the trade-barrier aspects. 

Mr. DoNOHO. Shall it go in ? 

The Vice Chairman. For the record, 

Mr. DoxoHo. I offer these two exhibits for the record. 
(The documents referred to were marked "Exhibits Nos. 2387 
and 2388" and are included in the appendix on pp. 16142 and 16147.) 
Mr. Carter. The third exhibit is a file prepare 1 and distributed by 
the Colorado Chamber of Commerco following a meeting of the West- 
ern States Trade Barrier Conference at Denver, September 28 and 
29, 1939. In there are resolutions as adopted by those States, the 
names of the people who were there, and a lot of other information 
pertaining to this general subject, which in a measure expresses 
thought from the Western States in the form of resolutions adopted 
and other information. 


Mr. DoNOHO. I offer these data as an exhibit. 

(The data referred to were marked ''Exhibit No. 2389'' and are in- 
cluded in the appendix on p. 16155.) 

The Vice Chairman. How many more have you? 
Mr. Carter. Just two more. I will ^et right out of here. 
The fourth exhibit consists of copies of two recently issued news- 
papers that are designed for distribution among juveniles. I refer to 
the January 15, 1940, issue of the Junior Review, and in particular to 
the article New War Between the States Arouses Concern, and the 
January 22 to 2G, 1940 issue of Current Events, and in particular to 
the article Our Nation Is Divided Against Itself. At the most recent 
meeting of the Western States Trade Barrier Conference, held at 
Santa Fe, N. Mex., during February of this year, considerable dis- 
cussion regarding the propagandizing of children on this subject was 
held. Even the most enthusiastic trade barrier enthusiasts felt that 
adult study of the question had not been completed and that it was 
premature to implant in the minds of school children the kind of 
thought generated by these two articles. 

There wasn't by any means agreement. I simply submit, here is a 
map which shows all of this trade-barrier situation, and we don't 
know what it is all about ourselves, at least those who have attended 
the Western States conferences, and it seemed a little bit early to get 
it to the children. , 

The Vice Chairman. Haven't those maps there been introduced 
into the record? 

Mr, DoNOHO. I imagine so. 

The Vice Chairman. We will receive that and see whether it is 
necessary to include it in the record. 

Mr. DoNOHO. Received for the file? 

(The papers referred to were marked "Exhibit No. 2390" and are 
on file with the committee.) 

Mr. Carter. The fifth exhibit is a memorandum pointing out the 
difference in conditions in the Rocky Mountain and Western States 
area as compared to other parts of the country; and, frankly, what 
this is — it is a matter that was presented to the 1939 session of the 
legislature of the State of Colorad.o. 

My own study of it gave me some information regarding a natural 
barrier to trade called the Rbckv Mountains that might be a very 
good thing for you folks to have here for your studv. 

Mr. DoNOHO. I offer this, Mr. Chairman, to be filed with the pro- 
vision stated. 

The Vice Chairman. It may be so received. 

(The memorandum referred to was marked "Exhibit No. 2391" and 
is on file with the committee.) 

Mr. DoNOHO. Mr. Carter, do you wish to enter this? Will you de- 
scribe it? 

Mr. Cartep. It is a letter addressed to this Committee by the Hon- 
orable John E. Miles in which he states that I am authorized to rep- 
resent him at this meeting. 

Mr. DoNOHO. I offer this letter in evidence. 

T^ip Vtce Chairman. It mav be received. 

(The letter referred to was marked "Exhibit No. 2392" and is 
included in the appendix on p. 16155.) 


The Vice Chairman. We are very much obliged to you, Mr. Carter. 

(The witness, Mr. Carter, was excused.) 

Mr. DoNOHO. Mrs. Schalet,, will you come forward, please? 

(Representative Williams assumed the chair.) 

Acting Chairman Williams. Do you solemnly swear that the testi- 
mony you are about to give in this proceeding shall be the truth, the 
whole truth, and nothing but the truth, so help you God? 

Mrs. Schalet. I do. 



Mr. DoNOHO. Will you state your name and address, please? 

Mrs. Schalet. Beatrice B. Schalet, 3420 Prospect Avenue NW., 
Washington, D. C. 

Mr. DoNOHO. Whom are you representing? 

Mrs. Schalet. The Consumers' Milk Committee of the District of 

Mr. DoNOHO. What are the purposes of this organization? 

Mrs. Schalet. Our purpose is to make it possiljle to increase the 
consumption of milk in the District of Columbia by lowering the 
price without sacrifice to the farmer and the laborer. To that end 
the committee has made an extensive study of this industry with a 
view toward recommending various ways of effecting economies in 
the distribution of this vital food. 

Mr. DoNOHO. Who makes up this-organization, Mrs. Schalet? 

Mrs. Schalet. There are over 50 members, some of whom are dele- 
gates of other organizations with consumer interests, such as the 
Women's Trade Union League, the D. C. Cooperative League, the 
League of Women Shoppers, and some of whom are individual mem- 
bers. Most of us are housewives. 

Mr. DoNOHO. Just why is your organization interested in trade 

Mrs. Schalet. We are interested in trade barriers because of their 
effect on our pocketbook and on our consumption of goods, particu- 
larly fluid milk. We feel that a trade barrier exists in the District of 
Columbia in the form of the regulations which govern the production 
and distribution of fluid milk in the District market. As a result of 
these regulations the consumer has been penalized by prices higher 
than exist in markets where milk and its products are the subject of 
reasonable regulation. 

Mr. DoNOHO. Would you be more specific, Mrs. Schalet ? Just how 
do the District of Columbia regulations operate as a trade barrier? 

Mrs. ScHAiJET. Milk and cream outside an area of Maryland and 
Virginia, coming into this market, is kept out of this market by the 
application of health regulations in several ways. It is kept out first 
by milk regulations which are strictly local in character, and it is kept 
out second by the insistence. of District officials that the inspection to 
determine if such regulations have been satisfied must be made by 

1 For genenil testimony on coiisniiier proUlcnis, see lli^aiiiigs, Part 8. 


District inspectors; they won't accept inspection by any but their own 
inspectors. It is kept out third by a scoring system which places 
emphasis on equipment rather than product. This emphasis necessi- 
tates a very high capital investment to get into the market. It par- 
ticularly protects the cream market, since a farmer who is not located 
in the District of Columbia and isn't close enough to the market to 
ship fluid milk into the market and thus get the higher fluid milk 
returns, can't make the investment merely for the purpose of shipping 
the not so highly priced cream to market. 

Mr. Doxoiio. Mrs. Schalet, isn't this situation which you describe 
unique for the District of Columbia, or does it obtain on other markets? 

Mrs. Schalet. No ; I don't think it is unique only for the District 
of Columbia. The District isn't the only monopoly. Such a situation 
of course is burdensome upon consumers because we do pay more for 
our milk, but it does represent an entirely foolish and unnecessary 

Mr. DoNOHO. You are not advocating that health regulations should 
be abolished? 

Mrs. Schalet. No; not at all; but we could abandon the strictly 
local character of these regulations and still have adequate health pro- 
tection. We could have, for example, adequate health regulations 
which are uniformly set up and enforced in a uniform manner. We 
wouldn't consider for a minute inadequate health protection, but \ve 
don't want regulations which increase our expense unnecessarily and 
don't give us dollar-for-dollar value in protection. 

Dr. DoNOHO. Do you feel that the District of Columbia health reg- 
ulations have increased the price of milk to the consumer out of all 
proportion to the protection offered by such regulations? 

Mrs. Schalet. Yes; I do. 

Mr. DoNOHO. Would you elaborate on that point, Mrs. Schalet, and 
explain upon what you base your opinion? 

Mrs. SoHALET. In the first place, it is only natural that when you 
have a closed market a price advantage wall be taken, but to make 
the case more specific, I would like to point up the difference between 
the Baltimore and the Washington markets. Milk for Baltimore 
comes from approximately the same farming area as that for Wash- 
ington, and production costs should therefore be approximately the 
same. It comes to market from about the same distance. Any dif- 
ference, then, in the producer price of such milk would be reflected 
onlv in differences in the cost of meeting health regulations, and also 
differences in the bargaining position of producers. Now, since 1933 
-the difference between comparative prices for milk of a 3.5-percent 
butterfat content in the Baltimore and Washington markets has 
ranged from 29 cents to 53 cents a hundredweight. At present, March 
1940, the difference is 53 cents a hundredweight. The additional cost 
to the consumer is always at least one cent per quart — one cent per 
quart more here in Washington than in Baltimore, If it only 
amounted to one cent per quart this added cost would represent a 
charge on Washington consumers of well over a half million dollars 
a year, and probably nearer three-quarters of a million dollars. This 
estimate is based on fluid-milk sales estimated for the District, taken 
from Health Department reports and figures presented in hearings on 
a marketing agi'eement by the Maryland-Virginia Producers' Associ- 
ation, and this added cost of approximately a half to three-quarters 


of a million dollars does not include the fact that we are paying 2 
cents, per one-half pint more for our coffee cream here in Washington 
than in Baltimore. 

Mr. DoNOHO. Mrs. Schalet, isn't it perhaps true that consumers in 
the District of Columbia are getting, say, three-quarters of a million 
dollars' worth of health protection over consumers of Baltimore? 

Mrs. SoHALET. Well, we have no reason to think so. We don't 
think that is true. As a matter of fact, the vital statistics of the City 
of Baltimore show up better than those for Washington. For ex- 
ample, in 1939 the death rate in Baltimore was 1,210 per hundred 
thousand ; in 1939 the death rate of the city of Washington was 1,350 
per hundred thousand. Deaths in Baltimore from tuberculosis in 
1939 amounted to 78.7 per hundred thousand. In Washington in 
1939 the death rate from tuberculosis is 90.6 per hundred thousand. 
The outbreaks of milk-borne disease in Baltimore amount to zero and 
in Washington they are also zero. 

The question remains, has the expenditure of this vast sum of 
money brought real value in health protection, and if so, where is it ? 
And if we haven't been getting this extra protection, just what have 
we been getting? Health officials should be required to answer the 
question. I have never heard it contended that Baltimore was poorly 
or inadequately regulated, or that they were less healthy than Wash- 
ingtonians, and the statistics seem to bear me out. The Baltimore 
market is just regulated at less cost. The Washington papers quoted 
the manager of the local producers' association as saying that Wash- 
ingtonians were less rugged than Baltimoreans and needed a great 
deal more protection if they were to remain healthy. I leave that 
statement with the committee for what in their judgment it is worth. 

Mr. DoNOHO. In other words, your position is that the milk in 
Washington and Baltimore is good ? 

Mrs. Schalet. Yes; exactly; but it is more expensive in Wash- 
ington than in Baltimore, and we don't know why. 

Mr. DoNOHO. Is the comparison between Baltimore and Wash- 
ington a fair one to make ? 

Mrs. Schalet. I don't quite understand what you mean. 

Mr. DoNOHo. Well, is it an unusual comparison? 

Mrs. S'cHALET. No; I don't think it is unusual. Washington is 
called, in the cream trade, a closed market. The retail price reported 
for coffee cream for March 1940, by the Department of Agriculture, 
is 17 cents a half pint. In Boston, called an open cream market, the 
same product sells for from 11 to 12 cents. In Philadelphia, the 
price is quoted from 14 to 15 cents. In New York, also a closed 
market, the price is from 16 to 17 cents. Now, I am a housewife 
and not an expert, I can't take the time to cover the United States, 
but I haven't heard that Philadelphians and Bostonians are dying 
in the streets from the cream they are getting. I do know that Dr. 
Leslie Frank, sanitary engineer in charge of milk investigations, 
United States Public Health Service, reports that since 1923 not a 
single outbreak of milk-borne disease has been traced to any grade A 
j)asteurized milk supply in any community which has adopted the 
Public Health Service ordinance. Over 2,200 cities have this ordi- 
nance by now. 

Mr. DoNOHO. It is your opinion that the closed-market area has 
no better health protection than the open-market area, is that true? 


Mrs. ScHALET. I don't believe that there is any better health pro- 
tection in a closed area. 

Mr. DoNOHo. Is it possible that the quality of the milk received 
in the closed-niarket areas is better than it is in the open-market 

Mrs. ScHALET. It may be that part of that extra cost mi<i;ht result 
in better milk in some particular closed markets than in others, but 
in addition, there is an extra cost of the controlled market as well. 
But is that extra quality which we're not so sure of, incidentally, 
worth, first, the extra cost of making the milk, plus the extra cost 
which closing the market entails? And why should all consumers 
be forced to drink fancy milk ? All of us don't want and can't afford 
buch milk. 

Mr. DoNOHO. Do you have any evidence on the quality question? 
You say you are not sure that there is any difference in quality. 

Mrs. ScHALET. We do have evidence for the District of Columbia 
that supports our feeling that the extra amount we are spending is 
practically all waste. In 1937-38 the Public Health Service con- 
ducted a survey of District operations, rating the District as follows : 
Retail raw milk, 83 percent; raw milk sold to plants, 91.4 percent; 
jmsteurization plants, 75.4 percent ; pasteurized milk, 83 percent. The 
Public Health Service says that if any municipality receives a rating 
of 90 percent or more, consumers will have good reason to believe 
that distributors of grade A pasteurized milk are complying in large 
measure with the items of sanitation required for grade A pasteurized 
milk by the United States Public Health Service milk ordinance. 
The matter of pasteurization is particularly important, because that's 
really where the disease-carrying bacteria which are carried even in 
low-bacteria milk, are killed. 

We have, made our own survey of the sanitary regulations in the 
District of Columbia. A subcommittee of our group made compari- 
sons between the local regulations of the United States Public Health 
Service Milk Code and wrote a report which we mimeographed for 

Mr. DoNOHO. You compared your regulations here with the Milk 
Code of the United States Public Health Service ? 

Mrs. ScHALET. That is correct. 

Mr. DoNOHO. What were some of the features of the regulations 
in the Code that you compared.? 

Mrs. ScHALET. For instance, the ordinance permits several alterna- 
tive methods of bactericidal treatment, and the District of Columbia 
permits only live-steam sterilization, the most expensive method and 
not more foolproof than the alternatives. 

Second, the regulations for dairy farm and milk house are much 
more rigid under the D. C. rules, and the ordinance permits alterna- 
tive and less expensive methods for achieving clean, well-ventilated, 
well-lighted, and Avell-drained barns and milk houses. 

Third, there are provisions which are contained in the D. C. regu- 
lations which, if not observed, reduce the farmer's score and thus 
penalize him in the amount of money he receives by considerable, 

The Vice Chairman. Would it be an interruption to ask that a 
brief statement of the alternative methods be put in the record:? 

Mr. Doxoiio. Xo. sir. 


The Vice Chairman. Does the witness propose to put them in 
the record? 

Mrs. iScHALET. Yes ; I have a copy of the report ^ and I would 
like to submit it to you for the record. 

Mr. DoNOHO. Will you describe that report, please, just who made 

Mrs. ScHALET. This report was the result of an investigation of a 
subcommittee of the Milk Consumers' Committee which studied the 
difference between the District of Columbia health regulations and 
the United States Public Health Code in its application to milk, and 
the comparisons are set forth. The conclusion of the report is that 
our regulations are not better than those promulgated by the United 
States Public Health Service, and that those promulgated by the 
United States Public Health Service are less expensive and possibly 
more effective. 

The Vice Chairman. Less expensive? How much would that 
amount to for a gallon of milk, have you any notion of that? 

Mrs. ScHALET. I am sorry ; I haven't the figures. I am not an 

The Vice Chairman. Of course, "less expensive" could mean some- 
thing important, or something relatively not important. If you 
haven't the figures, all right. 

Mrs. ScHALET. I don't have the figures; no.. 

Mr, DoNOHO. Have you an opinion with respect to the importance 
of it? Are these differences relatively minor or do you think they 
are important? 

Mrs. Schalet. We think they would be mai'or. We are told it is 
the expense of the local health regulations that keeps our milk up to 
14 cents a quart, and so we are under the impression that if these 
more flexible and equally effective regulations of the United States 
Public Health Code were put in, our milk would come down to a 
figure where we could buy more milk. 

Mr. Pike. At least they would have to change their alibi. 

Mrs. Schalet. Exactly; yes. 

Representative Wilueams. Do you think it would result in narrow- 
ing the differential between Baltimore and Washington? 

Mrs. Schalet. I think there would be better reason to expect that 
our milk in the District would come down to the same price at which 
it is being sold in Baltimore. The defense now is that our health 
regulations keep our milk up to 14 cents, and the health regulations 
in Baltimore are cheaper, and therefore their milk can be sold at a 
lower price. 

Representative Williams. In other words, if they adopted the 
United States Health Service Code inspection, it would reduce the 
price of milk 1 cent a quart, in your opinion. 

Mrs. Schalet. At least that. We think more. 

I w^ould like to tell you what one of the silly regulations is in the 
D. C. Public Health Code. The requirement of one hemmed towel 
per teat per cow per milking is such a ridiculous requirement. It 
would be cheaper and more effective to require rinsing udders in a 
standard chlorine solution before milking and for milkers to rinse 
their hands in such a solution as well, as the Public Health Code 
sets forth. 

' See "Exhibit No. 2.")9:i," appendix, p. 1C1.")5. 


Mr. DoNOHO. That would be four hemstitched towels per cow per 

Mrs. ScHAUET. Per milking; that is right. 

Mr. DoNOHo. And the Code requires rinsing of the udders? 

Mrs. ScHALET. Rinsing of the udders and rinsing the worker's 
hands in the chlorine solution before milking. 

Mr. DoNOHo. Do you wish to offer that for the record ? 

Mrs. ScHALET. Yes; I do. 

Mr. DoNOHO. Mr. Chairman, I wish to offer this report which has 
been described by the witness for the record. 

The Vice Chairman. It may be received. 

(The report referred to was marked "Exhibit No. 2393" and is 
included in the appendix on p. 16155.) 

The Vice Chairman. Does that have to do with the hemstitched 
towels ? 

Mr. DoNOHO. The witness brought that out in her testimony. 

Mrs. ScHAiiET. They do require one hemmed towel per teat per 
cow per milking, under the D. C. regulation. 

It does cost the farmers supplying Washington more to bring milk 
in this area than to Baltimore. That is because our regulations are 
locally set up, because they must be locally enforced, and the regula- 
tions for equipment and care demand more investment and expense 
from the farmer. That is one of the ways to keep this market closed, 
and at the same time attempt to justify it. 

Mr. DoNOHO. So it is an additional cost to the farmer supplying 
thi:f'market over Baltimore? 

Mr. ScHALET. Yes. 

Mr. DoNOHO. Has the effectiveness of the .District of Columbia 
regulations ever been previously or publicly questioned? 

Mr. ScHALET. Yes; they have. The subject of the regulations is 
not a new one in the District and there have been attempts to change 
them. Local associations of farmers almost without exception have 
opposed such changes. In support of that statement I refer to the 
record of the hearings before the committee headed by Senator King 
in 1935, commonly called the Seal investigation, and the hearings 
on the Schulte bill, held in May 1939. One of the things that con- 
firms our belief that regulations here are designed in the interest "of 
building a wall around the market is in the type of support they have 

The President of the Maryland and Virginia Milk Producers' As- 
sociation in his 1938 report to members said this : 

In March, 1938, Virginia passed a bill regulating the importation of cream 
into the State. We have been asking the District of Columbia for two years 
to make such a regulation, and so far we have been unable to get any satis- 
factory regulation to control cream imported into the District for ice cream 
purposes. This unlicensed cream is the worst leak that we have on the Wash- 
ington market, so far as we are concerned. We feel that here we have very 
unfair competition, and we are hoping that the Health Department will cor- 
rect this condition with suitable regulations. The Washington milk supply 
has been improving steadily. Our low bacteria count cannot be equalled by 
that in any other city. This unlicensed product absolutely should not r me 
into competition with our licensed product. 

We see no reason why this should be so. If the product measures 
up, it should be able to stand competition like almost all other con- 
sumer goods. 


Mr. DoNOHO. Mrs. Schalet^ are other dairy products subject to the 
same strict requirements? 

Mrs. ScHALET. No ; there is an exception in this set of requirements. 
Under section 4 of the act it is specifically set out that interstate 
shipments of milk and cream for ice-cream purposes must not be 
prohibited in the District of Columbia, provided that such milk or 
cream is produced or handled in accordance with the specifications of 
an authorized medical commission or State board of health. 

Ice cream, itself, under section 2 of the act, if made in Arlington 
or Hyattsville, or Baltimore, or Philadelphia, must be made from 
locally inspected cream if it is to be sold in the District, but if the 
ice cream is made here in the District, manufactured within our 
borders, it can be made out of cream coming from any other State, 
provided it is handled or produced in accordance with other regula- 

For instance, any product containing milk in the District of Co- 
lumbia, or creanfi, such as caramels, if manufactured in the District 
of Columbia, must be made from locally inspected cream, but if 
made over the borders in Hyattsville, or two feet over the border of 
the District of Columbia, can be sold in the District. It is only the 
local manufacturers who must use the expensive cream and the man- 
ufacturers outside the District who can use the western and cheaper 

Here's a silly example of how it all works. Take a malted milk, such 
as boys buy at the drug store, made from malted-milk powder which 
is uninspected locally, ice cream, inspected or not inspected, according 
to where it is made, and milk. When it comes to milk, you can be 
positive that w^hat you are drinking has had the local O. K., but the 
other parts of the malted milk may or may not have been inspected 
when it was produced. 

All this rather loose regulation on other dairy products makes us 
feel these health regulations have other motives than those of health 

Mr. DoNOHO. Have other motives than health protection, you say. 
Would you elaborate on that, please? 

Mrs. ScHALET. If a manufactured product is unhealthy wlien made 
locally, why isn't it unhealthy when it is made outside and sold here ? 
The reason is obviously none other than to keep the market closed 
and keep outside cream out. Cream for ice-cream purposes must come 
in, so they have a regulation which says it must be dyed with annato 
so as to keep it out of bottles. 

Mr. DoNOHo. Then, as I understand you, your position is that these 
local requirements have a strong commercial motive. 

Mrs. ScHALET. Yes, exactly; the combinatioii of local standards, 
insistence on local inspection and regulations which may be regarded 
as refinements. We don't believe that any of these tilings are neces- 
sarily or directly related to health protection. 

Mr. DoNOHo. Mr. Chairman, I have no further questions to ask, but 
I understand the witness has some recommendations she would like 
to make. 

Mrs. Schalet, would you briefly make your recommendations, please? 

Mrs. Schalet. We would be grateful if regulations on milk were 
uniform, in line with other cities. By uniform regulation and uni- 
form enforcement, milk and cream can be exchanged freely between 


different areas and health can really be protected. It seems much 
more sensible to me to provide health regulations which help milk 
get to consumers, rather than to provide those which hinder it from 
getting to consumers by pricing it so high people can't buy it. It seems 
to me there's no health in that kind of health regulation. The Public 
Health Service offers at least the basis for uniform regulation. Per- 
hops more legislation will be necessary, something of a Federal nature, 
as in meat grading by the Department of Agriculture. 

The YiCE Chah^man, Are you through? We are very much obliged 
to you. 

(The witness, Mrs. Schalet, was excused.) 

The Vice Chairman. We Avill stand in recess until 2: 30. 

(Whereupon, at 12:25 p. m., a recess was taken until 2:30 p. m. 
of the same day.) 


The hearing was resumed at 2:30 o'clock, upon the expiration of 
(he recess, Representative Sumners, the vice chairman, presiding. 

The Vice Chairman. Are you ready to proceed? 

Mr. DoNOHo. Yes, sir. 

The Vice Chairman. The committee will be in order. 

Mr. DoNOHO. Mr. George, will you come forward, please? 

The Vice Chairman. Do you solemnly swear the testimony you are 
about to give will be the truth, the whole truth, and nothing but the 
truth, so help you God? 

Mr. George, I do, 


trade barriers in relationship to direct selling 

Mr, DoNOHO. Will you state your name and address, please ? 

Mr. George. J. M. George, Winona, Minn. 
• Mr. DoNOHO. Will you state 3'our position, your occupation, Mr. 
George ? 

Mr. George. I am executive secretary of the National Association 
of Direct Selling Companies. 

Mr. DoNOHO. Describe your organization, please. Mr. George. 

Mr. George. It is a trade organization having some 225 members. 
The members of this association are all engaged in what is called the 
direct-selling business. In other words, our merchaiKlise reaches tiie 
consumer througli personal solicitation, as distinguished from mail 
order or shop selling. 

Mr. DoNOHo. What is the volume of such business in comparit=on 
with the total retail sales in the United States through all combined 
sources, Mr. George ? 

Mr. George. There are not any known figures on it. There have 
been several estimates made, and we have made a mathematical sur- 
vey of a portion of the field, and thai, to a ertain extent, constitutes 
an estimate. I would say that we handle ' etween 1 and 2 percent of 

124491 — il— pt. 20 16 


all retail sales of all sources in the United States. That means on 
the dollar basis. 

Mr. DoNOHO. Mr. George, why is your group interested in the sub- 
ject of trade barriers ? 

. The Vice C^^airman. Will you have Mr. George a little more defi- 
nitely and somewhat in detail identify the charaqter of his clientele? 
You are the representative of these organizktions ? ' 

Mr. George. Yes, sir. 

The VioE Chairman. Where are they located ? 

Mr. George. All over the United States, but the great bulk of these 
companies are east of the Mississippi River. 

The Vice Chairman. What do they have in common that causes 
them to have an organization? 

Mr. George. A method of distribution. 

The Vice Chairman. I don't think that explains anything to me. 

Mr. George. It is not a commodity organization. We are inter- 
ested in all types of commodities, but we all distribute our goods to 
the consumer in the same manner. 

The Vice Chairman. You mean you have a common agency for 
distribution ? 

Mr. George. No; a common method. They are all independent 
companies, but they have a common method. 

The Vice Chairman. What is that? 

Mr. George. For instance, the consumer is solicited by personal 
solicitation, salesmen, solicitors, peddlers, and upon the solicitation a 
delivery is made or an order is taken, and the goods are then either 
immediately delivered or shipped to the consumer. 

The Vice Chairman. What is the reason for them having an or- 
ganization? Do they assist each other? 

Mr. George. The principal reason is to protect ourselves from trade 
barriers. My organization 

The Vice Chat^^man. (interposing). I assume you will explain that 
as you proceed. 

Mr. George. I will. 

The Vice Chairman. W^ill you indicate one or two of the organi- 
zations, or even a few more, in order to give us some notion as to 
what businesses are typical? 

Mr. George. The type of distribution which I refer to is of such 
companies as Fuller BrUsh, Realsilk,' Jewel Tea Co. 

The Vice Chairman. I assume the names indicate the character of 
the commodities. 

Mr. George. Yes; they do. Realsilk is silk products, hosiery; 
Fuller Brush is brushes; Jewel Tea is tpa, coffee, extracts, and pack- 
aged groceries. 

The Vice Chairman. That is sold by an agent calling directly on 
the trade? . 

Mr. George. Calling directly upon the consumer. 

The Vice Chairman. Consumer trade, house to house? 

Mr. George. Yes. 

The Vice Chairman. Do you represent any concerns that do not 
sell house to hoifse? 

Mr. George. We do not. 

The Vice Chairman. That makes is pretty clear. 


Mr. DoNOHO. My question, Mr. George, is, What is the interest that 
your group has in the subject of trade barriers? 

Mr. George. We consider that trade barriers are inimical to the 
national economy and to the welfare of business generally, and to 
the interests of the consumer. 

Mr. DoNOHO. And the type of marketing or distribution 

The Vice Chairman (interposing). Wait a minute. That is a very 
altruistic attitude that you have. Are you sure you have enumerated 
them all? 

Mr. George. Some others may occur to me while I am sitting here. 

The Vice Chairman. Maybe I can assist you. Would it possibly 
occur to you that it is of some little concern in your own interest? 

Mr. George. I have mentioned the concern in my own interest, Mr. 

The Vice Chairman. I beg your pardon; I. overlooked that. 

Mr. George. I will show a special interest later. 

Mr. Donoho. Would you elaborate perhaps now, Mr. George? 

Mr. George. I might say that our attitude is that the consumer 
should be permitted to determine where the consumer ^ets his mer- 
chandise, and our interest in this hearing, specifically, is that trade 
barriers are our chief problem. 

Mr, Donoho. Could you State specifically what are the more im- 

Eortant types of barriers that you consider interfere with your 
usiness ? 

Mr. George. The Green River ordinance, which is a type of ordi- 
nance directly aimed at our method of distribution; State legislation 
promoting such ordinances. Then, going to another classification, 
municipal ordinances imposing licenses, bonds, permits, health ex- 
aminations, waiting periods, and other burdens of that and like 
. character. 

Mr. Donoho. On house-to-house distribution ? 

Mr. George. On our type of distribution. Also State laws, princi- 
pally State license laws, some of them having bonds and some merely 
having licenses. Then there are the so-called "gypsy trucker" bills, 
which are a new^ form of le^slation which has sprung up" in the last 
6 or 8 years which was originally aimed at other persons, but which 
very promptly broadened out to such an extent that they cover all 
our types of distribution. 

Then there are the commodity registration laws which affect us 
the same as they affect other manufacturers of commodities that fall 
into the classifications that are registered. 

Mr. Donoho. In the order in which you have named these various 
types of laws, will you complete for the committee the Green River 

Mr. George. It is a very brief ordinance, and I be'lieve the proper 
thing to do would be to read it, with the consent of the committee. 
This ordinance was passed on the 16th day of November 1931. It 
was the first ordinance of this type which was passed that we know 
of in the United States. For many years trade associations repre- 
senting retail concerns had been figuring out a means of distribution 
irrespective of any interstate commerce phases of the same, and this 
little town of Green River, Wyo., originated this ordinance, and 
litigation that has come up since then has shown that it does apply to 
both local and interstate commerce. 


The ordinance reads : 

Section 1. The practice of going in and upon private residences in the 
town of Green River, 'Wycrmmg, hy solicitors, peddlers, hawkers, itinerant 
merchants and transient vendors of merchanditiie, not having beeo requested or 
invited so to do by the owner or owners, occupant or occupants of said private 
residences, for the purpose of soliciting orders for the sale of goods, wares and 
merchandise, and/or for the purpose of disposing of and/or peddling or hawk- 
ing the same, is hereby declared to be a nuisance and punishable as such 
nuisance as a misdemeanor. 

Section 2. The Town Mflrshall and Police Force of the Town of Green River are 
hereby required and directed to suppress the same, and to abate any such nuisance 
as is described in the first section of this ordinance. 

Seciion 3. Any person convicted of perpetrating a nuisance as described .ind 
prohibited in the first section of this ordinance, upon conviction thereof sliall be 
fined in a sum not less than Twenty-five ($25.00) Dollars or not more tlian One 
Hundred Dollars ($100.00), together with costs of proceedings, which said fine 
may be satisfied, if not paid in cash, by execution against the person of anyone 
convicted of committing the misdemeanor herein prohibited. 

Section 4. All ordinances and parts of ordinances in conflict with this ordinance 
are hereby repealed. 

Section 5. It being deemed by the Town Council of the Town of Green River 
that an emergency exi:;ts, this ordinance shall bo in force and effect from and alter 
its passage and approval. 

The Vice Chairman. This seemed to apply generally to the citizens 
of Green River as well as people that come from without. 

Mr. George. It does. 

The Vice Chairman. Do' you complain — probably ''complain" is 
not the right word — do you question the right of the people of Green 
Kiver, if they don't want people ringing their doorbells, to pass an 
ordinance indicating they want them to stay out? 

Mr. George. It happens that the people of Green River have noth 
ing to do with this sort of thing. The people of other similar com- 
munities have nothing to do with it. 

The Vice Chairman. I had an idea they elected the people who 
passed the ordinance. 

Mr. George. They, do that, but I have conclusive proof here of the 
fact that this is a barrier movement, and it has nothing to dt) with the 
fellow's welfare. 

The Vice Chairman. But tlie point we come to is, Who is to be the 
judge, the people of Green River who elect the agents that passed the 
ordinance? That is a practical question.. 

Mr. George. I think. Congressman, that" wTien my testimony de- 
velops that will be covered. 

Mr. DoNOHO. Have these ordinances spread rapidly since the orig- 
inal enactment? 

Mr. George. I might add that at the present time there are approxi- 
mately 600 of these ordinances in various States in the United States. 
West of the Mississippi River is the place where they are most preva- 
lent, and it happens that all of the business which they have regulated 
by these ordinances originates east of the Mississippi, which is com- 
munity discrimination. 

In 193? the validity of this ordinance was tested in an injunction 
action in <h*- district court in "Wyoming. That is the case of Green 
River v. FuUer Brush Compaay (60 Fed. (2d) 613), and in that case 
the court sustained the injunction on the grounds that this ordinance 
was an invalid interference with interstate commerce. The city of 
Green River appealed it to the circuit court out there, and, in the case 
of Grtcn River v. FuUer Brush (65 Fed, (.2d) 112), decided in 1933, 

CONCENTRATIO^Ofr:-ri5eONGMi€^^05yER 15969 

the circuit court held that the district court did not have jurisdiction 
and therefore dissolved the injunction, but gratuitously after holding 
that it had no jurisdiction entered a lengthy dissertation on the merits 
of thp ordinance, and in that obiter dictum expression of opinion they 
concluded that it was a proper police regulation and not a violation of 
the commerce clause or the right of Congress to regulate commerce. 

After the district court decision there was not much spread of the 
ordinance, but after the reversal in the circuit court of appeals there 
was a great spurt and the ordinance commenced drifting eastward and 
being passed in all of the States west of the Mississippi River and 
some few in the East. That happened in 1933. The Supreme Court 
of Wyoming then held the ordinance.' constitutional and a writ of 
certiorari was taken from the State Supreme Court to the United 
States Supreme Court, and during the period that it was pending 
there was a cessation of activity in the passage of these ordinances. 
The United States Supreme Court in the case oiBunger v. Green River 
(57 Supreme Court Reporter, 510), decided in 1937, in the spring as I 
recollect, held that there wasiio substantial Federal question involved; 
in other words that it didn't violate the commerce clause or the four- 
teenth amendment or any of those other sections of the Constitution. 
Immediately upon the handing down of this decision the persons 
interested in spreading this ordinance over the country gave out infor- 
mation to the effect that the Supreme Court had upheld the ordinance, 
which it did not do, and then we had the second spurt in the passage 
of this ordinance all over the United States, and up to the present 
time there are some 600 of these ordinances throughout the country. 

Mr. DoNOHO. What type of municipality has adopted this ordi- 
nance ? 

Mr. George. With but very few exceptions they are all small towns, 
towns up to 10,000; there are a few towns above 10,000, but most of 
them are the provincial, small town type. 

Mr. DoxoHO. Mr. George, I believe you have an opinioi)«as to why 
these ordinances have become so widespread. Would you care to tell 
us about that ? 

Mr. George. They have been spread principally by organized propa- 
ganda, and this has been fostered and carried on by merchants and 
organizations representing local retail merchants. Furthermore, it 
became a sort of racket to promote adoption of this ordinance in com- 
munities of various northwestern States, these racketeers preying upon 
the cupidity and the prejudice of local merchants against anybody who 
they think are invading their exclusive territory for business. 

Mr. DoNOHO. You used a rather strong term, Mr. George. Would 
you please explain upon what you base your opinion that this has been 
a racket? 

Mr. George. Well, let me say first that I made appearances in person 
in opposition to the passage of these ordinances in quite a few places, 
and invariably the sponsorship and demand for enactment has been 
presented and carried on by local merchants and their business bureaus 
and commerce associations. I have here admissions of city officials, 
including alderman, city attorneys, stating that the demand and pres- 
sure for enactment has come from the local retailers as a means of 
protecting them from so-called outside competition, and I would like 
to read pertinent parts of a few of these clippings of tradei journals 


and local newspapers which I know report the truth of the situation, 
if the committee will permit. 

i?he Vice Chairman. Can you identify the journal ? 

Mr. George. I can. 

Raton, N. Mex., the Daily Range, dated June 9, 1937 [reading] : 

The Raton City Council last night passed the famous Green River ordinance 
as a further constructive aid for local business men. 

However, in promoting the passage of these ordinances the spon- 
sors always say that it is to save the housewife from trouble in 
answering the doorbell and to protect her if possible from fraud 
and so forth. 

This paper goes on to say: 

The ordinance, council members said, is designed to protect local merchants 
from house-to-house salesmen and peddlers. 

Not a word said aBout the protection of the consumer if they need 

Then we go to the Fulton, Mo., Telegraph, May 27, 1937: 

Such a law as this has been put into effect by several other Missouri 
towns and has been successful in protecting the local merchant from this type 
of competition. 

I am reading just four or five of several hundred. 
The Plattsmouth, Nebr. Journal of July 27, 1937 says : 

Chairman Rebal of the judiciary committee asKed for further time on the 
Green River ordinance which has been requested for adoption by a large number 
of the business houses of the community — 

Showing the sponsorship there. 

New Haven, Conn., Register, August 8, 1937: 

Ordinance on solicitors may cause Bristol stir. 

This is referring to Bristol, Conn.: 

Undoubtedly, the new city law, which was passed by the mayor and cits- 
council after having been sponsored by the Chamber of Commerce was aimed j 
at outside canvassers for magazines and similar business. It goes far beyond 
that purpose, and unless speedily rescinded will result in a flock of petitions 
to the City Council for its removal from the city regulations. The ordinance 
will go into effect 14 days after its publication. 

The back-kick there from local merchants who were doing solicita- 
tion on private premises was sufficient to defeat the ordinance. It 
was afterwards repealed. 

The National Association of Retail Druggists, which is a rather 
strong, large national organization, operates a journal called the 
''N. A. R. D.. Journal." July 21, 1938, this journal in speaking for 
the association staff says: 

Druggistss Lead Way. This — 

Speaking of a decision upholding the ordinance — 

was a real blow to the master peddlers due to the fact that hundreds of cities 
had adopted the Green River regulation. Druggists, stimulated to action by 
editorial compaigns carried on by the Pacific Drug Review, North Western 
Druggists, N. A. R. D. Journal, and other publications, have led their fellow 
merchants to successful passage of similar ordinances in many cities. 

Here the association admits and boasts about their success in 
spreading this ordinance nationally. 


In the North Western Druggist, June 8, 1938, among other things : 

Believe us when we say ' that these two movements — Fair Trade — 

Referring to the price-compact acts — 

and the Green River Ordinance — inaugurated, perfected and made available 
for the. promotion of your business, not only deserve, but must have your 
unqualified support if their success is to be progressive and final. Cooperation 
is a much overworked term but assuredly cooperation — complete and whole- 
hearted — is needed now to preserve for you and your business these all-im- 
portant measures. Cooperate completely and at once. 

I have an article here from the Hardware Trade and Sporting 
Goods, which I won't read, which promotes passage. 
North Western Druggist, March 1, 1938 : 

Repeatedly we have said that the Green River Ordinance should be passed 
and enforced in every community in the Northwest. We stick to that state- 

Dry Goods Journal, Marcli 1, 1938 : 

Green River, Wyoming, through an ordinance that has been upheld by the 
courts, has put a stop — 

Not regulation, "a stop" — 

to house-to-house canvassing. A copy of the Green River Ordinance will be 
mailed to you if you clip this paragraph and mail to me — 

The idea being they would use the information to procure passage 
in their locality. 

Mr. DoNOHO. Mr. George, I wonder if you yet have justified your 
use of the term "'racketeering." 

Mr. Gp:orge. I will come to that. I have just a couple here, one 
of them vei , choice. 

The Vice Chairman. I think the committee will probably take 
cognizance ol .he fact that the local merchants would be interested 
in the passage of that law. 

Mr. George. May I read one more with three lines in it? This 
comes from the North Western Druggist of December 1934: 


These are instructions to druggists who read that journal — 

a member or members of the community not interested financially in local 
retail establishments must urge the passage of the Green River Ordinance — 

And the ammunition they use is protection of the public. 

On the question of the racket — some of these articles refer to 
these — Community Builders, Inc., a publisher of retail trade asso- 
ciation journals, started this movement called Community Builders, 
Inc., in Minneapolis. The project of this concern was to send field 
men out all over the State and adjoining Northwest States to hold 
mass meetings of local merchants and to promote passage of this 
ordinance at these mass meetings. After stirring up" enthusiasm for 
the passage, then the proposition was to sell them road signs. These 
road signs were very'fine enameled or raised-letter metal signs which 
simulated State highway signs, and on them it says: "Green River 
ordinance in force here. Peddlers and solicitors pass on," or some 
such expression. . Tlie minimum price on these signs, I think, for a 
community was $130, and if you had a lot of business in the city 
you had to buy more signs, and it was quite a lucrative proposition 
to sell these signs. I have been informed that by the sale of these 


signs they made a profit on their enterprise to build up communi- 
ties. Of course, it was all at our expefise. The city clerk at Green 
River charged a dollar to pass out copies of the ordinance and brief 
instructions, I understand, as to how to procure its passage, and 
there was considerable business done in that. 

The secretary of the Association of Commerce, at Kankakee, 111., 
staii:ed circularizing communities all over the United States offeinng 
to furnish a service on how to get the Green River ordinance and 
charge a fee, I think, which was a dollar apiece. 

Mr. DoNOHO. What is the opinion of consumers with respect to 
these ordinances, Mr. George, if you have any information on that? 

Mr. George. I have some. The consumer usually doesn't know 
what is going on until after it is passed, and on a few occasions action 
has been taken by consumers, but the ordinance was proposed at Palo 
Alto, Calif., and the £ity council decided to get a referendum vote on 
passage. It was placed on the baHot, and it was defeated by popular 
vote at the public election, by a vote of some one thousand nine hun- 
dred odd against 365. The ordinance was passed in Aberdeen, and 
citizens got out a petition for repeal on a referendum act and very 
quickly procured the qualified number of signers tg the petition, and 
the city, council then repealed the ordinance before it came to a vote 
on the popular ballot. I referred to a case where businessmen re- 
pealed it, supported by citizens, because of its effect on them them- 
selves. Laramie, Wyo., repealed it after it 4iad been passed. There 
have been repeals made because of retaliatory action, as, for instance, 
in Hastings. The largest industry in Hastings, Minn., is a manufac- 
turer of fly-spray guns, and it happened that he was selling enormous 
quantities of these to companies who sold them direct to the con- 
sumer through this method of distribution. They notified him that 
his city had a Green River ordinance and they, as purchasers of Hast- 
ings products, should be entitled to consideration in respect to their 
having a chance to do some reciprodal business with consumers of 
Hastings, and through that line-up the ordinance was repealed. 

Local sentiment has caused repeal in several instances. I don't 
have the exact facts. 

' Mr. DoNOHO. Mr. George, in your opinion, what has been the eco- 
nomic effect of these ordinances? 

Mr. George. It is aimed directly at our method of distribution and 
enforced directly against us, and as a consequence it has in some 
communities completely destroyed our business; in others, it has 
reduced it. It has rendered procurement of new business very diffi- 
cult and often impossible. It takes away from sales persons repre- 
senting our concerns in those communities their chance to make a live-' 
lihood or to augment whatever .livelihood they may have. . It in- 
creases the relief load wherever it takes our people out of gainful 
occupation and puts them on relief. It increases unemployment, not 
only by throwing those in the selling end out of work, but it reduces 
the business in our industry to the extent that people are thrown out 
of work. 

And of course it increases local competition, and because it is in 
localities where usually there are only one or two stores, there is a 
more or less important source of buying which is removed by this 
ordinance, a source for the consumer to obtain merchandise. It sets 
up trade barriers for us, definitely. 


Mr. DoNOHO, Is this type of ordinance applicable on its face and 
in fact to interstate transactions? 

Mr. George. Yes ; it is. 

Mr. DoNOHO. Is it ordinarily applied to local concerns? 

Mr. George. About 20 percent of these ordinances have a clause in 
them which exempts application to a sales person representing local 
concerns. In practically all of the other 80 percent, they have a 
definite policy of enforcement to exempt the representatives of local 
concerns because of the fact that they know that the ordinance, if it 
did contain a definite exemption, would be held invalid. 

Mr. Pike. You mean as a matter of administration they don't 
bother local people? 

Mr. George. Yes; that is right. I can't definitely say whether this 
was South or North Dakota, but the Sheriff and Police Officers Asso- 
ciation at a State convention in either one of those two States, dis- 
cussed the policy of enforcement of this ordinance in that State as a 
State-wide matter, and they tacitly agreed it would not be enforced 
against representatives of local concerns. 

Mr. DoxoHO. Are these ordinances enforced against farmers? 

Mr. George. About the same policy is used there. If the farmer is 
in the immediate trade area of the municipality having the ordinance, 
he is not interfered with, but if he comes from a distant point outside 
of the trade area, he is brought under the ordinance. 

Now, I happen to know of a particular case of that kind. Rochester, 
Minn., ha^ the ordinance. A farmer living in another county 45 miles 
away started disposing of his truckgarden produce in Rochester, and 
lie and his two boys with him were arrested. They were convicted, 
and he took an appeal to the Supreme Court of Minnesota, and the 
supreme court reversed the conviction, not on any merits so far as the 
validity of the ordinance was concerned but upon a constitutional 
provision in Minnesota which exempts farmers from selling their 
own produce from regulations of that kind. 

Mr. DoNOHO. As I understand it, Mr. George, the ordinance requires 
an invitation on behalf of the purchaser before a solicitor can go on 
the premises of the purchaser. 

Mr. George. That is right. 

Mr. DoNOHO. Has that operated as a practical prohibition against 
your solicitors? 

Mr. George. It is a practical prohibition. The crux of the ordi- 
nance is that if you have to go and get an invitation, you have slowed 
up the processes of the type of distribution to an extent that it is 
very discouraging indeed. In Wyoming, the supreme court in the 
Bunger case held that you can't go onto a person's premises in order 
to obtain an invitation. 

Tlie Vice Chairman. Of course not. i ou would look foolish if you 
went to a house, left your stuff out on the street, and went to the door 
sind said, "If you will invite me in, I will come in and try to sell you." 
You would be ringing the doorbell twice. 

Mr. George. Here is an illustration : The man who was arrested in 
the Bwnger cane went out on a completely independent trip to get 
invitations, leaving his goods out of the picture, and they arrested him 
and convicted him. 


In other towns they have attempted to arrest men who have used 
the telephone to get invitations. In another town, one of our com- 
panies conceived the idea of engaging Western Union boys, in uniform, 
on a 15-cent rate per message, to deliver a request for an invitation 
to the housewives in a certain community. These boys were going 
down the streets getting these invitations, w^hen the merchants found 
it out, and they brought so much pressure to bear on the local manager 
of Western Union that the boys \v^re stopped from getting invitations. 

Mr. Pike. Were any of these methods successful in getting invi- 
tations? If you hadn't been stopped, would they have been practical 
methods of getting invitations ? 

Mr. George. We didn't have a chance to find out whether the West- 
ern Union method was successful; and wherever we have tried the 
definite separate activity of getting invitations, it is a practical pro- 
hibition, and it is intended as such. 

The Vice Chairman. Now, isn't this a situation — we have talked a 
good deal about it — where it is a combination of the interest of local 
merchants and the housewife ? Certainly the interest of the local mer- 
chant is big in the picture, and they procure the passage of these 
ordinances, and the supreme court has held that no Federal question 
is involved, and the State supreme court in the State where the matter 
has been tested has upheld the ordinance. 

Mr. George. The State of Wyoming upheld it. The States of South 
Carolina, Maryland, Virginia, Florida, Oklahoma, and the Appellate 
Court of Georgia — I refer to all supreme courts except Georgia, Avhere 
it is the appellate court — have held that it is an unreasonable police 
regulation and void*; but Colorado, Louisiana, and Wyoming have 
upheld it. 

The point is that 88 percent of our people who are selling these 
goods or taking orders for these goods live in the communities where 
they operate, and they are citizens of those States and those cities and 
they are entitled to as much consideration as the merchant. In fact, 
they are a type of merchant themselves, and they are usually a person 
of low or no capital, and why a legislative body like a State or a 
city should undertake to set up a trade barrier against one class of 
citizens in favor of another I never have been able to understand. 

The VrcE Chairman. But coming to the practical value of this testi- 
mony, while it does bear upon the general subject insofar as informa- 
tion is concerned, what is the point in carrying this testimony further, 
putting it into the record ? 

Mr. DoNOHO. I believe that the witness has finished testifying, or 
practically so, about the Green River ordinance, and I think that he 
wants to discuss some other types of legislation which operate as a 
barrier to his type of merchandise. 

The Vice Chairman. Well, now, let's expedite it a little bit. 

Mr. DoNOHO. I am sure Mr. George will be glad to cooperate. 

The Vice Chairman. The reason why I make the suggestion, it 
seems to me, as one member of the committee, clearly a matter that is 
beyond the jurisdiction of the Congress to do anything about. 

Mr. DoNOHO. If I might comment, Mr. Chairman 

The Vice Chairman (interposing). Would you? 

Mr. DoNOHO. Quite a number of things that we have discussed here 
are probably clearly beyond the competence of Congress to do any- 
thing about, yet it does have an educational value. 


The Vice Chairman. Tliat's riglit. 

Mr. George. I feel that this is not beyond the jurisdiction of Con- 
gress. There is a sohition of this Green River ordinance proposition, 
if I may respectfully differ with the Supreme Court of the United 

The Vice Chairman. Oh, go ahead. [ Laughter.] 

Mr. George. I might say that they missed the ball when they said 
there was no substantial Federal question in the case. I think the 
l)resent Court might be prone to find that there is a Federal question. 
In fact, we have never been able to understand why there isn't a Fed- 
eral question here, because directly it prevents us from doing business 
in towns where we had formerly done business. 

Now, tJiey say that this is a police regulation, but I have got infor- 
mation here conclusively showing that this is purely a commercial 
controversy, and that it is a matter of preferring the interests of one 
method of distribution over another, and I think there is a Federal 
question there, and if the Court were so disposed it could not be criti- 
cized for holding that it is a direct and substantial interference with 
interstate commerce. 

Mr. DoNOHo. In your opening statement with respect to the types 
of legislation which you consider trade barriers to your type of mer- 
chandising you mentioned State legislation designed to augment, I 
believe you said, Green River ordinances. Would you briefly disriss 
that, please, Mr. George? 

Mr. George. The proponents of this type of ordinance, not being 
satisfied with this legislation a little at a time, have attempted to 
introduce State legislation on the subject. Bills have been introduced 
in Colorado, Iowa, and Nebraska in which enabling legislation was 
provided to make the passage of these ordinances unquestionably valid 
in those .States; since the Supreme Court took the Federal Constitu- 
tion questions out, then it now b^omes a question of whether or not 
the municipality has authority, and these proposed acts are to elim- 
inate any question of the authority. 

In a few instances they have also introduced bills which provide the 
whole text of this ordinance giving it a State-wide rather than a- 
municipal application. 

Mr. DoNOHO. Have these bills been passed? 

Mr. George. The Legislature of Nebraska passed a bill extending 
and enlarging the authority of cities of the first class, but put a proviso 
at the end of it which took all the teeth out, which said that you 
couldn't declare a business practice a nuisance unless it was clearlv 
inimical to the public welfare. 

Mr. DoNOHO. You referred to municipal ordinances imposing 
licenses and bonds and permits and health examinations and that sort 
of thing on those selling from house to house. Will you explain that, 
]>lease ? 

Mr. George. Well, practically every municipality in ^he United 
States has one or more ordinances imposing licenses of different grades 
on persons selling from house to house. The fee is ordinarily suffi- 
ciently high to be prohibitive. It runs from a few dollars a month to 
as high as $1,000 a year. Modern ordinances usually start out with 
$2 to $25 a day', and they go at a receding scale for longer periods of 

Mr. DoNOHO. Wliat about bond ordinances? 


Mr. George. Bond ordinances have been introduced in many munici- 
palities because tliey feel a bond is not a violation of the commerce 
clause. These bonds usually run from five hundred to a thousand dol- 
lars or fifteen hundred dollars. The purpose is not regulation; it is 

Mr. DoNOHO. And permit ordinances — what are they ? 

Mr. George. These are intended to discburage people from attempt- 
ing to get a permit. Application must be made to the police depart- 
ment. You must be photographed and fingerprinted and must give 
very much detailed information concerning yourSelf. 

Mr. DoNOHO. You referred to health examinations. Would you 
explain that, please, with respect to your solicitors? 

Mr. George. There are quite a number of ordinances in the United 
States where our people have to make application for a permit and 
then submit to a physical examination or health examination before 
some practicing physician. A $5 fee is usually charged for the exami- 
nation and it provides that that examination must be retaken every 
five days, so that you are supposed to become contaminated in that 
community within 5 days and then you have to have another exami- 

The Vice Chairman. Doctors are all opposed to that, I guess. 

Mr. George, you spoke of a bond a moment ago. What is the con- 
dition of that bond ? 

Mr. George. The condition, speaking of it typically 

The Vice Chairman (interposing). That is what I mean. 

Mr. George. Is that the consumer will get the merchandise which 
he orders, and the ammunition back of the passage of these bond ordi- 
nances is that they are for the protection of the consumer, but the 
consumer never pays any attention to it. We don't know of a con- 
sumer demand for anything of this kind, but it is very effective as 
an interference with our business. 

Mr. DoNOHO. Are there such things as State licenses, Mr. George, 
to solicit business? 
' Mr. George. Yes; there are. Every State has a license. 

Mr. DoNOHO. When one Jias a State license, is it necessary to get 
out local licenses still ? I presume that it is. 

Mr. George. In our business, if there is 100-percent, enforcement, 
you have to have a State license, usually a county license, in many 
places a township license and in many places a municipal license, 
and possibly a nuisance license to keep you from seeing people whom 
you haven't called on, even if you have a license. 

Mr. DoNOHO. What about State licenses? What sort of require- 
ments do they impose? 

Mr. George. State licenses are pretty much like municipal license 
ordinances. They define the occupation, usually broad enough to 
cover all of its phases, and they provide that there must be a State 
or county license paid, about 50-50, and some of them provide for 
both a county and State license to be paid; and then the usual low 
type of license is $50 a year, and they run all the way up to a thousand. 

Mr. DoNOHO. Do these laws on their face impose a burden upon 
local merchants carrying on. a house-to-house sale as a part of their 
regular commercial or shop-keeping activities? 


Mr. George. With four or five exceptions, which are in the South- 
eastern States, tliey all have exempted merchants from license pro- 

" Mr. DoNOHO. Have you anything else to say about State license 

Mr. George. There are some peculiar incidents of some of these 
-aws that I think the committee would be interested in. 

Under the peddlers law of S(5uth Dakota you can't get a license 
tinless you are a resident. In other words, unless you are a resident 
of South Dakota, you can't carry on that occupation. 

The State-wide license law of the State of New York applies only 
to peddlers of imported merchandise. In Indiana 

Mr. Pike (interposing). Imported from another State? 

Mr. George. It savs "imported." I think it means from another 

In Indiana and Kansas, if the peddler is a resident he is not re- 
quired to take a license in the sale of certain commodities. 

In Louisiana, if he lives in the Parish in which he operates he gets 
a license at half price. 

In Mississippi, if he is a resident he doesn't have to put up a bond, 
but if he is a nonresident he does. 

In quite a number of the States peddlers of agricultural produce are 
exempted if the products are grown or produced within the State. 

With scarcely any exceptions, the peddlers' laws exempt local 

None of the gypsy trucker or itinerant merchant license and bond 
laws, by reason of specific exemptions, apply to concerns operating 
in a locally established place of business. 

Half of the States exempt various types of ex-soldiers from license 
fees, and of these States, California, Connecticut, Kansas, Massa- 
chusetts, Michigan. New Jersey, North Carolina, Oklahoma, Penn- 
svlvania, Rhode Island, Tennessee, and Wisconsin make the exemp- 
tion available only to resident ex-soldiers. They forget that these 
boys were fighting for those States when the}^ were across. 

The period of residence required is usually 2 or 3 years, and it 
goes as high as 5 years in Wisconsin. 

In about 10 States there are exemptions in behalf of manufacturers 
selling goods of their own production. ,0f these States, Delaware, 
Ijouisiana, North Carolina, Ohio, and West Virginia make the ex- 
emption available only for local manufacturers. 

In North Carolina, in 1937, this sort of law was passed : 

Every itinerant salesman or merchant wlio shall expose for sale, either on 
the street or in a house rented temporarily for that purpose, any goods, wares, 
or merchandise, bankrupt stock, or fire stock," not being a regular merchant 
in such-oounty, shall apply for in advance and procure a State license from the 
Commissioner of Revenue for the privilege of transacting such business, and 
shall pay for such license a tax of one hundred dollars in each county in which 
he shall conduct or. carry on such business. 

The supreme court of the State, in the case of Best d' Co., Inc. v. 
Maxwell (3 S. E. (2d) 292, N. C. 1939), held this to be a valid enact- 
ment, even where connnerce is concerned. 

Take, for instance, if Marshall Field's sent an expert from their 
hat department to a town down in North Carolina to take orders 
for hats from Marshall Field's she would be subject to this $100 


license, though the transactions were completely interstate in the 
ordinary acceptation of that term. 

The Vice Chairman. Was there any claim made in support of that 
sort of ordinance that somebody would buy up an entire bankrupt or 
fire sale stock and move into an old building in a small town and 
undersell everybody in the neighborhood and disorganize the mark t 
and all that sort of thing? 

Mr. George. There are laws in practically all the States covering 
that that are separate from the peddler's laws, and undoubtedly — 

I can't say this definitely they have that sort of law in North 

Carolina and South Carolina. / 

South Carolina passed an Act, and in the case of State j/'ietter 
(5 S. E. (2d) 291 S. C. 1939), the act was held invalid; th^ same act 
was held valid in one State and it was held invalid in the next. 
Mr. DoNOHO. You referred to gypsy truckers. What are they? 
Mr. George. That is a phase of the truck regulation legislation of 
the States. About 10 years ago a trade association representing 
grain elevators and grain buyers, and afterward joined by other 
trade associations, conceived the idea of reaching the man who, with 
a truck, made a practice of picking up a load of excess commodities 
in one locality and taking it usually across- State lines, or sometimes 
not, to another locality where there was no excess of that type of 
goods, where he would sell them. He would then pick up some excess 
merchandise there, farm products, there, and take them to another 
community where there might be a scarcity and a better market. 

They started out to regulate that, and conceived the idea of what 
has since come to be known as the "gypsy trucker" acts, and' these 
acts were enlarged in their scope until they cover every type of, not 
only buying for sale, but sale of merchandise where the merchandise 
is transported in a motor vehicle. These laws require usually an 
application fee and a license which are very exorbitant, they require 
two bonds, one that you will pay taxes if there are any taxes to pay, 
and another bond that you own the goods that you are handling, 
and so forth, and then you have to comply with the insurance require- 
ments, which are complied with by contract and common carriers. 
Mr. DoNOHO. You say numerous bills have been introduced on this 
subject. Have they passed? 

Mr. George. Some of them have passed. In 1937 bills were passed 
in Nebraska, Missouri, and Nevada, but were vetoed in Missouri and 
Nevada. The Nebraska bill was considerably amended and some of 
the barrier features removed. In 1939, 34 of these bills were 
introduced in 23 States, and they passed in California, Iowa, Wis- 
consin, and Wyoming. The California, Iowa, and Wisconsin bills 
were considerably amended and Wyoming passed a very stringent bill 
which is really a prohibition of that type of business. 

Mr. DoNOHO. How are these particular laws trade barriers, Mr. 
George ? 

Mr. George. Because it is practically impossible to meet their re- 
quirements. The requirements are prohibitive. And each one of 
them specifically exempts anybody operating from or at a local fixed 
place of business. A few of them have mileage limits. If you 
have a fixed placed of business within 30 miles you are all right. 

Mr. DoNOHO. I understand that you . have an opinion as to the 
sponsorship of ^his type of legislation. 


Mr. George. Originally it was sponsored by the National Trade 
Association representing the grain dealers and elevator concerns. 
They were joined with other associations, and prior to 1937 they 
organized the Associated Producers and Distributors, and opened 
offices in Kansas City, Missouri, and so far as I have been able to 
learn, the sole activities of that organization have been to draft and 
circulate and promote the introduction and passage of these bills 
throughout the United States. On their own letterheads they repre- 
sent that the organization is maintained by trade organizations repre- 
senting retailers in grain, coal, lumber, hay, fruits, vegetables, flour, 
feeds, seeds, drugs, groceries. 

Mr. DoNOHO. You have information to this effect? 

Mr. George. I have their letterhead upon which they make that 
declaration themselves, and as to activities, other activities Frank 
M. Stoll — I believe he is their executive secretary — procured the run- 
ning in the Saturday Evening Post in 1938 of a very lengthy article 
called "Gypsy Truckers Get the Business." This was a propaganda 
article aimed at promotion of the passage of this kind of ordinance, 
and that is where I think it got the name "gypsy trucker." I have 
been in contact with Mr. Stoll on several occasions in connection 
with pending legislation of this type in efforts to procure revisions 
of it. 

He has personally been active within my knowledge in connection 
with bills which were introduced in Missouri, Kansas, Oklahoma 
during the past two sessions of those legislatures. 

Mr. DoNOHO. Have these bills had other sponsorship? 

Mr. George. Well, they are sponsored by retail trade associations 
representing those commodities which I have mentioned at the various 
State legislatures. I attended a committee hearing on the bills in 
Minnesota in '37 and there were six of these retail trade associations 
there asking and urging for the passage of the bill. 

Mr. DoNOHO. What has been the effect of this type of legislation 
on your type of merchandise, Mr. George? 

Mr. George. Where it has' passed, it is a practical prohibition of 
the types that are covered by the act after the legislature gets 
through amending the bills, and sometimes the amendments are 
sweeping and sometimes they are not. In Wyoming there are no 
exemptions. Everybody is stopped. The individual truckers of 
farm commodities, who are invariably covered, are unable to comply 
and are driven out of these States, and farmers having excess com- 
modities have no other outlet except local buyers and local comrnis- 
sion houses. The effect is to establish an efficient community barrier 
against competition. 

- Mr. DoNOHo. You have referred to commodity registration laws 
Will you please describe these laws? 

Mr. George. These laws are not aimed at our method of dis- 
tribution. They apply to all manufacturers, and this t3'pe of legis- 
lation is increasing, and it is reaching out and taking on additional 
lines of commodities. They require State registration of the named 
commodity, and in, connection with the registration there is usually . 
a fairly substantial fee. Commodities already under this type of 
legislation are insecticides and fungicides, commercial feeding stuffs, 
commercial fertilizers, foods, drugs, cosmetics, and nursery products. 
There, of course, may Tx- others that I haven't paid any attention to. 


Mr. DoNOHo. How do you relate these laws to the question of trade 
barriers ? 

Mr. George. The actual effect is to impose an enormous amount of 
registration fees payable in a given State, and the great bulk of these 
fees are paid by nonresident manufacturers. The manufacturers in 
47 States are paying the registration fee in one State. 

Mr. DoNOHO. I wish you would amplify that a little, please. I am 
not sure that that is clear. 

Mr. George. Let's take foods, drugs, and cosmetics. Illinois origi- 
nated the idea, but the bill didn't pass. Louisiana heard about it, and 
in 1936, I am quite sure, passed the first registration law relating to 
these products. They provide a $5 fee payable on each separate item 
of food. For instance, if a manufacturer gets out four kinds of food 
articles, or four separate brands, or four separate items, he has to pay 
$20. Most manufacturers of food articles have any number of items, 
exceeding 20. If you have .over 20 here, you get by for $100, and the 
newspapers, at the time this bill was iq^ for passage, commented and 
said that it would raise $1,000,000 from manufacturers for the Depart- 
ment of Health of Louisiana. I can't conceive of any necessity for 
$1,000,000 in a department because of registering food articles coming 
into the State. All of these articles come into the State under the 
Federal Food and Drug Ac<;, and all you have to do is to make your 
application and pay the fe( I have never he^rd of one being turned 
down. They just come in t lere and get your money. 

The Vice Chairman. Do these people in their campaign for this sort 
of legislation make a contention to the effect that these mi^rc Hants in 
a given community are there, local, paying taxes and liolding th6 com- 
munity together, supplying its ordinary commercial requirements, 
and that these people come in from the outside and pay no local taxes, 
they are here today and gone tomorrow, and take tlieir business, and 
weaken the business structure of the community ? 

Mr, George. They make those claims, but I believe there is a satis- 
factory answer to every one of them. The merchant is not a taxpayer; 
he is a tax collector. All of this tax load gets back to the communi- 
ties. Merchants don't make a community. They don't come there 
until there is a community to live off. 

The Vice Chairman. When do you all arrive ? 

Mr. George. In the same way. 

The Vice Chairman. Unless there is some such tax, when do you 
pay back the taxes you have collected ? You collect taxes there. 

Mr. George. I don't get that. 

The Vice Chairman. You say the merchant is a tax collector. You 
mean by that he is in business and sells for a profit, and he pays a part 
of that profit in taxes ; but, of course, the consumer has paid him the 
profit out of which he pays the taxes. Tlien you come into the com- 
munity and sell for a profit. Then, unless you do pay some tax, how 
do you give back to the community the share of taxes you have collected 
in the community ? 

Mr. George, incidentally, 88 percent of our people who make the 
local profit that is made in that community, spend it with those 
same merchants who object to them, but I think a broad view of the 
situation is that t^iis is one country, and we pay plenty of the taxes 
where we do our business. 


The Vice Chairman. I am just trying to get at your reasoning. 
You do some business where you make your sales, of course. 

Mr. George. Where the sale is made, the profit that is made in the 
retail sale is spent right in that community, and the taxation is in- 
direct, but it is just exactly aa definite. 

The Vice CJeiairman. What I was trying to get at is, how do you 
give back, unless you do have some tax, now do you give back to 
that community the same share of your profit which the local mer- 
chant gives who pays'the tax? 

Mr. George, Well, we don't — take for instance, let's take a solid-' 
tor tax, for instance. 

The Vice Chairman. Let's take the case I have just put to you 

Mr. George. Directly, we are subjected to the license tax. In other 
words, the license tax is applicable to us, but it is not possible to 
make revenue from an act like that because it is purposely pro- 

The Vice Chairman. I know, but you are arguing with me, and 
1 have asked you a question. You say the merchant doesn't pay a 
tax. Of course he does pay a tax. _That is just what you mean. He 
goes down to the tax collector's office and hands him some money and 
gets a tax receipt. What you mean by your statement as I under- 
stand it is that he is paying the tax collector a part of the profit made 
from selling goods to the people in the community, or to whom 
everything is sold. Is that true ? 

Mr. George. My point is that taxes are a part of your overhead. 

The Vice Chairman. What is your point about how your people 
make your share of contribution to that community from the profit 
you make out of that community unless you are taxed? 

Mr. George. I don't make that claim. I make the claim that it is 
not a community question. 

The Vice Chairman. They seem to not agree with you about that, 
the people who live in the communities. 

Mr. George. I understand that. This is one whole community, 
the United States. What profits we make at the point where we 
manufacture the goods we pay into the State and Federal Treasury, 
and the school fund that is contributed from Washington to Mon- 
tana, for instance, or to any other States, comes from the income 
that all of us are paying into the Federal Government, and we are 
carrying our load. 

We figure that if the people in one State want to depend entirely 
upon their own people for their business, then that is a dinerent 
thing, but where there is an interrelation of commerce between com- 
munities, you can't lay it on the basis of paying 8; tax per square 
mile in the locality. 

The Vice Chairman. In other words, you recognize there have to 
be some taxes paid by the people in the communities, and you want 
the privilege of going there and doing business there without making 
contribution to the taxes. 

Mr. George. In the first place, I don't consider it a privilege. 

The Vice Chairman. I wasn't sure whether you did or not. 

Mr. George. It is a right. We have as much right as anybody else 
has to do business. 

124491 — 41— pt. 29 17 


The Vice Chairman. But why don't you pay your proportionate 
share of the profit made in their community to the upkeep of the 
community ? 

Mr. George. We aren't given an opportunity to pay a share of the 
taxes that we can stand. 

The Vice Chiarman. You claim that what they charge you is 
exorbitant, but you don't mind paying a tax? 

Mr. George. We will pay our share of the taxes under all condi- 

The Vice Chairman. You say you do not object to paying a license 

Mr. George. We do not object to paying a tax if it is not prohibi- 
tory, and if it is consistent with the amount of our interests, the 
interests of the person aflfected. 

Now, Congressman, we don't have that local transaction ourselves 
in about 50 percent of our companies. That person is a dealer trad- 
ing on his own account. You understand, we sell the goods to that 
person and that person resells on his account to the consumer. That 
is a local transaction not within the scope of interstate commerce, and 
the tax burden, if any, is on that person. Where we have a solicitor 
take an order in your town, for instance, and he sends it to Chi- 
cago for acceptance and later delivery if the order is accepted, the 
shipment is made through the mails to the consumer and that is an 
interstate transaction and it has been generally understood until 
probably the last couple of weeks — having in mind the possible effect 
of various recent decisions of the United States Supreme Court — that 
those transactions are not lawfully taxable. 

The Vice Chairman. I think I understand your position. It is 
hardly as strong as you put it in the first instance. You don't mind 
paying your share of the taxes for the benefit of the community, but 
your claim is that the taxes which they charge you are prohibitive 
and not a fair shaire. , 

Mr. George. That is right. 

Mr. DoNOHO. You referred to laws requiring the registration of 
foods and preparations for animals. Would you explain this type of 
law, please? 

Mr. George. There are 42 States that have laws of this kind con- 
taining registration fees in some cases, tonnage taxes in others, and 
in still others a registration and tonnage tax. Registration fees run 
all the way from $1 to $25 per each individual item and they are on 
an annual basis. A manufacturer having 10 articles in a State of 
that kind would have to pay $250 a year. This condition exists in 
42 States, and when you consider a manufacturer doing business on 
a national scale, he has to pay those fees in 42 States, and they are 
very exorbitant and a considerable burden. When you look at it 
from the amount of money that isi taken from all manufacturers in 
all of the States, it is a very substantial figure. 

Mr. DoNOHO. What is the situation with respect to insecticides and 
fungicides ? 

Mr. George. Similar laws apply in that case, but there are only 
14 States that have them at the present time. 

Mr. DoNOHO. Does^any of this legislation require the payment of 
registration fees or licenses by local dealers? 


Mr. George. Very few of them. There is a tendency growing up 
toward fees on dealers. 

Mr. DoNOHO. Is there anything else you would like to discuss that 
I haven't covered by my questions, Mr. George? 

Mr. George. I think not. I have some tabulated information on 
these laws showing their citations, and other detailed information 
which I have only touched on in my testimony, and I would like to 
offer them for the files of the committee, or the record. 

Mr. DoNOHO. They will be offered for the files of the committee. 

Mr. Kades. Mr. George, I understood you to say in reply to the 
Chairman's question that the organization which you represent 
doesn't object to local license and franchise taxes, but you f^el that 
those should be so computed as not to be prohibitory, is that correct ? 

Mr. George. That is not exactly it. My organization wouldn't 
have anything to do with it, but the individual firms where the trans- 
action is that of the sales person, so-called, and he is a dealer, that 
would be the dealer's responsibility and I don't know what the dealer 
would do. On the other transactions, they have never been con- 
sidered within the taxing authority of the locality. 

Mr. Kades. Do the organizations which comprise your Association 
attempt to regulate the method by which the dealer does business ? 

Mr. George. No. 

Mr. Kades. Could the dealer open a store of his own in competition 
with other local stores and not solicit from house to house? 

Mr. George. He could ; yes. 

Mr. Kades. And still handle the same articles? 

Mr. George. Yes; I don't know of its ever being done except occa- 
sionally somebody has done it. 

Mr. Kades. Can you account for the fact that it "isn't being done 
in view of this legislation that you have described? Why wouldn't 
the legislatign have a tendency to foster the establishment of small 
stores by your dealers? 

Mr. George. The tendency would be to stop this man from any 
kind of operations because usually those people don't have funds with 
which to start a-«tore. They are very small operators and it is very 
difficsulty to get a tax small enough to be a fair burden on the 
amount of their sales and gross income. For instance, a tax of 
$100 a year might be 331/^ percent of their income. So many of 
them are part-time people. 

Mr. Kades. Has your organization done anything to attempt to 
open up capital markets to the dealers? 

Mr. George. I really don't know what you mean by that. 

Mr. Kades. If the corporations which comprise your association 
provided financing for the dealers through whom you do business, 
then it would be possible for them to dp business without paying .the 
various prohibitory taxes and license fees, would it not? 

Mr. George. You mean if the companies would finance a store 
for them? 

Mr. Kades. That is right. 

Mr. George. Then they would come under the chain-store laws, 
and they are just as bad. 

Mr. Kades. That the objection that you have to this legislation is 
the same, substantially, as that made to the chain-store tax legisla- 


Mr. George. My objection to it is that it has no tendency toward 
promoting the public welfare, and the regulations, taxes, and bur- 
dens are used as a means of controlling and destroying competition. 
I don't think that a man should be made to choose the type of busi- 
ness which he shall perform because some one group of distributors 
want to have it all for themselves. Why should our people not be 
free to use such methods of distribution as they desire or choose? 

Mr. Kades. Is it your opinion that the legislation is aimed at the 
dealers, or is it aimed at the concerns which are members of this 
association ? 

Mr. George. It is aimed at this method of distribution, which is 
through sales persons — we call them dealers because they buy and 
sell on their own account, but they are house-to-house distributors. 
They are little fellows, these house-to-house distributors; they buy 
their goods from us, probably have $100 worth of goods at a time, 
and sell them to the consumer, and then when they sell those they 
buy more. 

Mr. Kades. You don't think it is a fair statement, then, to assert 
that the prohibitory legislation which you have described is aimed 
at direct-selling companies? As I understand what ^ou are say- 
ing now, 3^ou are endeavoring to show that the legislation is aimed 
at preventing persons without capital from going into business, not 
that it is aimed at large direct-selling companies. 

Mr. George. Practically all the large direct selling companies do 
the same type and kind or business that the little ones do. This type 
of legislation is aimed at our method of house-to-house distribution 
by personal solicitation and it is in competition with local stores, 
and because it is in competition with local stores, these burdensome 
legislative enactments are passed. 

Mr. EIades. Is it possible that it might be sound public policy to 
attempt to preserve the small-business man from that kind of com- 
petition ? 

Mr. George. In the first place, they don't need preservation from 
us. We don't do over 1 percent of retail sales in the United States; 
and in the second place, we produce more business for them than 
we ever took away from them. 

Mr. Kades. How does that occur? 

Mr. George. Our people go around and promote a sale and don't 
make it. They create interest in that particular product. Ninety- 
five percent of those sales are made by the merchant. We get 5 
percent of them, or less. Take a commodity like aluminum ware, 
the merchants tried to sell aluminum ware when it first came onto 
the market and it was a flop. It went into the direct-selling method 
of distribution and became a popular item in the household and it 
passed out of the hands of direct selling and now 95 percent of that 
is sold by the merchants, and we created that market for them. 

The Vice Chairman. Did you send them a bill or anything ? Why 
don't they solicit you to come in, Mr. George; are they just not 
smart or something? 

Mr. George. I think they need education on the subject. I am 
serious about that. 

The Vice Chairman. Are you really serious? 

Mr. George. I am very serious about it. I can show you other 
illustrations of where we have created markets. We are the mis- 


sionary people in retailing, and we certainly create more business 
than we get. I have convinced merchants of tnat. 

The Vice Chairman. You are a pretty good salesman. 

Mr. DoNOHO. Mr. Chairman, Mr. George has some data that he 
wishes to introduce for the files and it is rather important and unique 
material. I wish he would describe it very briefly for the record 
so that anyone looking over the record would know where to go 
for that material. 

The Vice Chairman. Go ahead. 

Mr. George. The paper marked as my "Exhibit No. 1," is a copy 
of that Louisiana Food, Drug and Cosmetic Act. 

No. 2 is a tabulation of State animal preparation laws. 

No. 2A is the tabulation of insecticide and fungicide registration 

No. 3 is the Green River ordinance. 

No. 4 is a list of communities, practically correct, where the Green 
River ordinance is in effect. It shows the population of the com- 
munities opposite each name. 

No. 5 is a nuisance ordinance with discriminatory local exemptions. 

No. 6 is a variation of the nuisance ordinance prohibiting annoying 
or trespass. 

No. 7 is a combined nuisance and license ordinance. 

No. 8 is extracts from publications showing that this is a commer- 
cial, and not a public-welfare activity — the imposition of these 

No. 9 is a Synopsis of the State license laws of the various States. 

No. 9A, Special trade-barrier incidents of State peddlers license 
laws, and copies of that North Carolina and South Carolina act which 
I referred to. 

No. 10, a typical license ordinance. 

No. 11, a license-and-bond type of ordinance. 

No. 12, a bond type of ordinance. 

No. 13, police permits conditioned upon fingerprints and other pro- 

No. 14, an ordinance requiring a waiting period before our people 
can start trying to make a living. 

No. 15, an ordinance requiring that repetitious health examination. 

No. 16, an ordinance containing practically all the burdens you ever 
heard of, from Duluth, Minn. 

No. 17, the Gypsy Truck Act, passed by Nebraska, which is the 
original act of that kind in the United States. 

No. 18 is the tabulation ox gypsy-truck legislation which shows how 
prevalent the efforts are to pass tnis type of law. 

No. 19, some remarks, (m barriers and merchandising. 

Mr. DoNOHO. Mr. CH>vrrman, I offer these various papers for the 

The Vice Chairman. They are received for the file. 

(The data referred to were marked "Exhibit No. 2394" and are on 
file with the committee.) 

Mr. Donoho. Mr. Chairman, I believe the witness has some recom- 
mendations he would like to make. 

Mr. George. These are not all original ; reciprocity between States 
and communities ; legislative repeal of barrier laws ; State legislation 
curbing the power or municipalities to enact barrier ordinances ; con- 


gressional and State regulation of pressure groups. I believe the 
committee realizes that most legislation is hot the result of legis- 
lators, it is the result of pressure groups, particularly that which 
related to merchandising. 

The Vice Chairman. Have you any specific plans for stopping 
that ? [Laughter.] 

Mr. George. One very effective thing I think you could do would 
be to require a legislator, upon introducing a bill by request, to state 
exactly who requested it. That is just one detail. 

Mr. Pike. Do you suppose you could ask lobbyists to take those 
health examinations. Judge? 

Mr. George. I believe there are ways of finding out at least what 
a pressure group is aiming at. Practically all pressure legislation is 
enacted in the name of the "dear public." I haven't given any de- 
tailed thought to ity but I think that is something that could be 
studied with profit. 

Corrective Federal legislation which has a slight tendency to com- 
pel the State to take corrective action itself ; Federal legislation to 
occupy the whole field of commerce to the exclusion of State legis- 
lation which has a tendency to get in there when, there is room. I 
am of the opinion that Congress could with profit to the country 
cover more fully the various phases of interstate commerce, and in 
that event, according to the law, the States would have to step aside. 
There is too much left open that really substantially affects com- 
merce in the States. 

Take some steps — I don't know what they would be — to make the 
consuming public conscious of the fact that theirs is a paramount 
interest in trade barriers. I feel that in this country we have gotten 
away from the fundamental idea that merchandising and distribu- 
tion are a means to an end and that consumers are a first considera- 
tion. If we could bring that old idea back, we would be much better 
off and we would have much less trouble, I think, in our complexi- 
ties of business life. 

I think a permanent commission of this kind would be very well 
worth having to work federally, and in conjunction with the States, 
on the elimination of unnecessary barriers and regulations which are 
not in the public interest. 

The Vice Chairman. Does the Council of State Governments show 
any interest in this? 

Mr. George. It is one of their projects. 

I think the States should be given a chance to solve some of these 
unique laws and administrative activities, but where there is defi- 
ciency of action on their part I think Congress should step in. I 
think there was compensation in. the "horse and buggy" days; we 
didn't go so fast, but we had a lot less trouble. 

The Vice Chairman. We knew a whole lot more about what to 
do whea we got there, didn't we? 

Mr. George. Yes. 

I have no further remarks. 

The Vice Chairman. We are very much obliged to you. That 
was a very interesting statement. 

(The witness, Mr. George, was excused.) 

Mr. Donoho. Dr. Agnew, will you come forward, please? 


The Vice Chaibman. Do you solemnly swear the testimony you 
are about to give shall be the truth, the whole truth, and nothing 
but the truth, so help you God? 

Dr. Agnew. I do. 


Mr. DoNOHO. Will you give your name and address, please, sir? 

Dr. Agnew. P. G. Agnew, 29 West Thirty-ninth Street, New York 

Mr. DoNOHo. Whom do you represent, Dr. Agnew? 

Dr. Agnew. The American Standards Association. I am secre- 
tary of the association. 

Mr. DoNOHO. Please describe your association briefly. 

Dr. Agnew. The association is a federation of 75 national organi- 
zations that are interested in standardization. These include 6 of the 
regular departments of the Federal Government, 14 or 15 of the na- 
tional engineering and professional organizations, and the rest are 
national trade associations. 

Mr. DoNOHO. Please outline in a few words, if you can, what the 
work of your organization is. 

Dr. Agnew. The work of our organization consists in the develop- 
ment of national standards : dimensional staiidards^ SUCh as bolis S-Sid 
nuts; specifications for materials, for machinery, machine elements; 
safety codes for the protection of workingmen and for the protection 
of the public. 

Mr. DoNOHO. What is the relationship between the work of your 
association and trade-barrier problems, Dr. Agnew? 

Dr. Agnew. We have found in our work that many of the stand- 
ards that are being developed through the organization have a very 
direct effect in the eliminatiori of certain types of trade barriers, 
particularly those types of trade barriers which arise through the 
use of legally enforced local standards. 

Mr. DoNOHO. Would you give an illustration? 

The Vice Chairman. I am afraid I didn't get the Doctor's state- 
merit. Your statement was that your work tends to eliminate State 
barriers or runs in conflict with State barriers? 

Dr. Agnew. It tends to eliminate State barriers. Our work in the 
past 20 years has definitely eliminated a considerable number of 
State barriers. 

The Vice Chairman. I interrupted you too soon. I beg your 
pardon, Doctor. 

He was just about to explain, I believe. 

Mr, DoNOHO. Yes; I believe he was. He was going to illustrate. 

Dr. Agnew. I would like to illustrate this work by the work on 
bedding and upholstery of furniture in which we are now engaged. 
This problem was brought to us by the organized retailers, and in 
the work the leadership is being taken by the enforcement officials of 
the various State governments. The association was asked to under- 
take the job because there are now in existence a large number of 
conflicting regulations among the various State governments. 
Thirty-seven States have legislation on which regulations are based. 
There are 16 of those States that are very active in this enforcement. 


There are a half a dozen States that have legislation and are not 
enforcing it, and others are enforcing it only indifferently.^ 

We have organized a very representative committee of all of the 
groups concerned to work upon this problem. 

To give you the nature of the conflict, there are several types of 
conflicts between the regulations in the various States. The most 
important of these consist in differences in the requirements in regard 
to the materials that go into the product, and also in the require- 
ments of labeling. For example, the State of New York requires 
that feathers that have been reconditioned shall be labeled "curled, 
feathers." That is not legal in Pennsylvania, which requires that 
they shall be labeled "crushed feathers." In New York reworked 
cloth clips are called "garnetted"; in other States they must be 
labeled "shoddy." Furthermore, there are important differences in 
the administration of. these laws and regulations, so that often double 
inspection is required, and it has" actually happened in many rases 
that even when the regulations are the same, one administration rules 
the matter prohibited and other States permit it, even though the 
wording of the regulation is the same. 

A striking illustration of this is in the State of California, where 
the administration of the law is so different that a pillow which is 
made of downs and feathers, 90 percent down and 10 percent feathers, 
if it is made in the State of California, may be labeled "pure down." 
If it is made outside of the State and imported into the State, it 
must be labeled "90 percent down," although the materials are 

Furthermore, there are very annoying differences in the form of 
label required, differences in the statements on the label, differences 
in the color of the label required, differences in the size. 

Mr. DoNOHO. Are differences like that very important? They 
seem rather small. 

Dr. AoNEw. They are small, but sometimes small things, like a 
microbe, may cause considerable trouble, and these rec^uire virtually 
the preparation of the material specially for the destination of the 

Mr. DoNOHO. Just what is your association doing about this sort 
of thing ? 

Dr. Agnew. Under the leadership of the State officials that are 
charged with this duty, they have an association called the National 
Association of Bedding and Upholstery Law Enforcement Officials, 
we are developing 

The Vice Chairman (interposing). Let's get that. You say the 
States have an association of their officers whose business it is to 
enforce the law with regard to beading? 

Dr. Agnew. That is right, sir. 

The Vice Chairman. That is distinguished from the association of 
the States as it functions, I believe, mainly through the office of the 
chief executives of the States? 

Dr. Agnew. Yes, Mr. Chairman. There are a considerable group 
of organizations of State officials. 

The Vice Chairman. That is ri^ht, the chiefs of police, sheriffs 

Dr. Agnew (interposing). Public-utility commissioners. There are 
at least seven or eight of such national organizations of State officials 
that are cooperating in this work. 


The Vice CuAiRiktAN. I just wanted to put that in the record. 
Thank you. 

Dr. AoNEw. In this case, Mr. J. Davis Donovan, of Maryland, is 
the president of that association and he is the chairman of our com- 
mittee. It is a rather long list, but to show you how this work is 
carried out, I would like to read the list of the different national 
organizations that are participating in this work. Each of them is 
concerned with some angle [reading] : 

National Association of Bedding and Upholstery Law Enforcement Officials 
American Association of University Women 
American Cotton Waste Exchange 
American Home Economics Association 
American Hospital Association 
Associates for Government Service 
Bedding Manufacturers Board of Trade, Inc. 
General Federation of Women's Clubs 

Maryland and District of Cc'.umbia Bedding Board of Trade 
National Association of Bedding Manufacturers 
National Association of Curled Hair Manufacturers 
National Association of Furniture Manufacturers, Inc. 
National Bedding and Upholstery Manufacturers Board of Trade 
National Bureau of Standards 
National Retail Dry Goods Association 
New England Bedding Manufacturers Association 
New York State Department of Labor— Bedding Division 
Supply Men's Club 

U. S. Department of Agriculture: Consumers' Counsel, AAA; and Bureau 'of 
Home Economics. 

The Vice Chairman. In those various groups do you have very 
different general basic interests or are they groups that have the same 
interests basically ? 

Dr. Agnew. There are groups there that have quite different inter- 
ests. The manufacturers' interest in many respects is quite different 
from the retailers' interest, and in many respects the consumers groups' 
interests are different. Again the institutional buyers of such prod- 
ucts have different interests. 

The Vice Chairman. I don't mean to take up too much time, but 
what is the difference between their interests and the interests of the 
ordinary housewife? 

Dr. Agnew. Well, it is closely allied to the interests of the ordinary 

This committee is made up of representatives of these various or- 
ganizations. Three standards for the different materials that go into 
this have already been developed. Other standards are under way — 
for inner springs, feathers, and downs ; and also for quite important 
methods of test to see whether the material is new or reworked, and 
whether second hand or used material is properly sterilized. 

The Vice Chairman. I think the committee gets that point of 
the picture. Is there an agency of inspection and supervision or 
does the individual buyer have to determine for himself? 

Dr. Aqnew. In this case the various State laws and the regulations 
require a label revealing the fact or certifying that it has been prop- 
erly sterilized, and also to prevent fraud in misrepresentation of the 
contents. You can't tell by looking at a mattress or a pillow what is 
on the inside, and these labels prevent fraud as well as make for the 
protection of the health of the public. 


The Vice Chairman. I get that. How do you go about having an 
agency of inspection and supervision whose efficiency and authority 
would be generally recognized in interstate commerce ? 

Dr. Agnbw. This scheme depends wholly on the cooperation be- 
tween the different States through this national organization of the 
officials. Fortunately the manufacturers have cooperated very closely 
with it. 

The Vice Chaikman. I can understand. You see, I know pretty 
well what we want, and I think you know what we want, too. What 
I am trying to get at is how do these groups agree upon who is to 
do the inspecting, or do you contemplate an arrangement where there 
will be a compact among the States which will accept each other's 

Dr. Agnew. That is right. That is exactly what the association of 
officials is planning, and certain steps have already been made between 
certain States, but that is not yet general, and the general arrangement 
with a coordinated system of inspection will have to await completion 
of all of the standards in this field. 

The Vice Chairman. With respect to these springs that you speak 
of, does that require a very large and expensive rearrangement of 
machinery for manufacturing? 

Dr. Agnew. No, Mr. Chairman; the type of standardization work 
that we do does not attempt to stop manufacturers from doing any- 
thing. It is just to reveal what the product is. 

The Vice Chairman. Personally, as one member of the committee, 
I am tremendously interested in what you are talking about. I don't 
know how much more you want to say before you let me begin to 
ask you some questions. 

Mr. DoNOHO., Had you rather asji your questions now? I believe 
the doctor indicates he would be glad to answer them. 

Dr. Agnew. Just as you like, Mr. Chairman. 

The Vice Chairman. I don't want to interfere with the doctor's 

Mr. Donoho. I don't believe you will, Mr. Chairman. 

The Vice Chairman. I have, if I may spe \ 'for myself, given some 
consideration to what I think are the possibilities of standardization. 
As I see it, if you can by standardization be able to describe a com- 
modity by a well-recognized trade term, then you would make it 
possible to put that commodity, whether produced by a little manu- 
facturer or a big manufacturer, in contact with the general market 
while it probably is at the point of origination. If instead of having 
to ship your mattress, for instance, around over the country to have 
it inspected, you could sell it by its descriptive trade name and there 
were an agency of inspection and supervision which would make the 
person buying it by its descriptive trade name feel confident that it 
would be delivered according to that description, there would be — and 
some da^ I hope there may be — an intermediary agency that would 
give selling confidence that there would be receipt and payment 

But if you gentlemen who are interested in standardization could 
work out systems of standardization with regard to commodities which 
are in general demand, both as to raw material, possibly, and as to 
finished commodities, it would seem that you probably would make it 
possible for thft small producer of a standardized raw material to 


list his commodity on some market place comparable to an exchange, 
and if it could be done, then he could establish trade contact with the 
general market, however small the producer is. On the other hand, 
the small manufacturer, it seems to me, could produce a commodity 
that would meet, for instance, your standard requirements — for in- 
stance in mattresses — and there should be some place where it would be 
made possible for the person who "w'ants to buy that mattress to get 
in trade contact with the person who has produced it, whereby it 
seems to me that that would go far toward bridging the distance be- 
tween production and consumption and go far toward creating the 
possibility of the small man not big enough to have an individual 
selling organization to bridge the distance between himself and the 
general market. I don't like to ask you directly, but I am not sensitive. 
Is that crazy stuff or is that somewhere in the realm of reasonable- 
ness? People are very candid with me and I have quit blushing, so 
you needn't mind. 

Dr. Agnew. Mr. Chairman, far from being crazy, that is in many 
commodities a realized fact today. It is a realized fact in a consider- 
able number of commodity specifications, but mostly in the industrial 
field rather than in the consumer-goods field. Our whole organiza- 
tion was set up to eliminate conflicting standards, because at that time 
there were several hundred organizations in the country issuing 
standards. It was set up primarily for standards for those products 
which one corporation buys of another, but a few years ago some of 
the consumer organizations came to us and asked us to enter into 
the field of consumer goods. We have done so, and that work as yet 
is very small compared with the work that we have done in the other 
field — a dozen specifications in the consumer-goods field against 400 
standards that have been issued and approved in the field of indus- 
trial goods. 

The Vice Chairman. I wish you people would kind of keep work- 
ing on that thing. I have believed in it 30 years (I was very young 
when the idea first came to me, of course) and I am certain that many 
commodities are susceptible of being sufficiently described by a trade 
term that the buyer and seller can have the same picture of what 
that thing is. Where it is not. possible for these buyers and sellers to 
get together, it would be possible, it seems to me, to establish an 
intermediary agency of inspection, supervision, and labeling so that 
entire strangers would have confidence in trade with each other in 
the commodity which the buyer had never seen, purchasing from a 
producer or seller whom he had never seen and whose integrity was 
of no concern to him. If we could do that, it seems to me we would 
be moving pretty far toward establishing a sort of democracy in 
business opportunity. 

Dr. Agnew. May I illustrate a fine example of just what you have 
outlined, Mr. Chairman ? That is a realized fact. It is not an accom- 
plishment of our organization. I wish I could say it were. That is 
what is known as the I. E. S. lamp. Those letters stand for Illumi- 
nating Engineering Society, which developed specifications for a 
lamp for the household that would give really good lighting, ade- 
quate lighting, would be flexible and which would not be injurious to 
the eyesight, in other words, a real illuminating engineering job. 
This lamp was developed and put on the market by any manufacturer 
that wanted to meet those specifications, and a great many of them 


were made and actually, for the first few months, they could not keep 
up with the orders, the lamp was so popular. The output is con- 
trolled by a well-developed system of test and inspection, and it is 
one of the notable recent new developments in merchandising. 

The Vice Chairman. Well, sir, it is worth your whole trip down 
here and almost worth half of this examination to have somebody 
really give some testimony like that. It seems to me a most im- 
portant thing. You can readily see that one of the big difficulties that 
confronts modern society in trying to preserve a democracy of oppor- 
tunity is the fact that with the application of steam, electricity, and 
gasoline to our activities, the field of production and the field of con - 
sumption have moved so far apart that a small organization can't 
bridge the distance, can't maintain trade contact. In the days of 
the manorial markets when the individual was the industrial unit, 
the community in the main the industrial organization, the old man- 
orial markets which were under Government control afforded the 
oj.portunity for everybody to bring his commodity in and really get 
in contact with the general market. Now, we have had no substi- 
tute for that, no way for the person who has a commodity for sale, 
a relatively small producer, to let the persons who want to buy his 
commodity know that he has a commodity ; he can't ship it all over 
the country, but if he could ship the descriptive trade name, if there 
were some place, more or less on the hilltops of commerce, where 
he could list the commodity for sale and to which prospective buyers 
could resort, even by telegram, then you would seem to me to have 
made a great step. 

I am trying to get this across to you because you are in a key posi- 
tion^we can suspend this operation, we've got so many words here 
now that we can never read them all. Say up here at the head- 
waters of the Potomac there are buyers on one side of that river and 
sellers on the other, the difficulty in getting »across is not so great, but 
when the thing moves down here to this broad river if there were 
no public bridges it would be only a tremendously big farmer, for 
instance, on the other side who could build a bridge of his own to 
span the river and the little fellow couldn't get across. What he 
would have to do would be to sell to somebody to bring his stuff 
across. We should have somebody to take that place, and you people 
can do it, and it can't be done, as I see it, unless you do the job. 

Dr. Agnew. Your remarks are very encouraging, Mr. Chairman. 
You have outlined in admirable form the main objective of the Ajner- 
ican Standards Association. I think that it is remarkable that so 
small an organization has been able to attract the cooperation of so 
many large groups. All of the 400-odd standards that we have de- 
veloped have a very definite influence toward a free national market. 
You spoke of definitions of terms. Even a very technical specifica- 
tion, Mr. Chairman, like the specification for cement, after all is but 
a definition so that a buyer can send a telegram even, as you say, 
"Send me a thousand barrels according to Specification No. 37," and 
that is the definition of what the buyer and seller mean and they are 
speaking the same language. 

Mr. Chairman, I believe that the plans of the committee are to delve 
much more deeply into this whole subject of standards at a later time. 
I did want the opportunity to present certain phases of our work 
wh ih do definitely affect those. 


The Vice Chairman. I beg your pardon — no, I don't, either; I'm 
glad I interrupted you. t 

Dr. Agnew. So am I, Mr. Chairman. ' 

Mr. DoNOHO. Dr. Agnew, I don't think I will ask you any more 
specific questions. I .wish you would go ahead and develop in your 
own way those aspects of your work which relate to the problem 
primarily under consideration here. 

Dr. Agnew. I should like to mention a few other examples of this 
type of work. We have developed a safety code for refrigeration, for 
the protection of the public against the hazards of this new art. 
When that code was developed we had a very rough time of it. In 
my opinion, very unfortunately certain of the commercial groups 
made contact with the municipalities to influence ordinances, to affect 
the materials one way or the other. 

Mr. Pike. Those are the refrigerants? 

Dr. Agnew. That is right. We have taken that standard through 
three stages, and it has gone a very long way in cleaning up those 
barriers in the form of city ordinances, and has made a pretty clear 
national market. Now this has gone hand in hand with the research 
and standardization work on the subject, and as a result, over this 
period of years the product has improved very definitely and the 
price has dropped. It is a fine illustration of that freeing of a na- 
tional market, an improvement of product, with protection of the 
consuming public, by an organized attack on fundamental problems. 

1 mentioned safety codes. We have a group of more than 50 codes, 
a code for grinding wheels, a safety code for elevators, for punch 
presses, an electrical code, and so on. The purpose of these codes js 
for the protection of employees in industry and for the protection 
of the public. That program was started originally at the instance 
of the manufacturers who were annoyed by conflicting State regula- 
tions. For example, an electric motor for a particular use in order to 
be legally safe in Pennsylvania had to be legally unsafe in the State 
of Wisconrin, and similarly the Wisconsin motor was legally unsafe in 
the State of Pennsylvania. 

There are three methods of guarding gears so that the workman 
doesn't .get his fingers destroyed. One group of States required one 
of those methods, another group of States required another method, 
and a third group required a third group of standards. A thoroughly 
organized committee went at it 9,nd brought out a code which allowed 
in the proper place all of these three types. 

Mr. Pike. All three were satisfactory ? 

Dr. Agnew. For particular situations. Each was allowed wherever 
the situation was applicable, of course. The same thing in punch 
presses — different requirements in the different States. Each of these 
committees that work on, say, the refrigeration code or the elevator 
code, and so on, is made up of individuals that represent all the in- 
terests involved, and this has brought about a fundamental integration 
as between the different States and the requirements as between em- 
ployers and labor for the protection of the workmen. Insurance com- 
panies used to have different regulations; they are now using these 
national codes. In fact, in much of this work there is a really inte- 
grating factor going on as between the Federal Government and the 
State governments, and in other cases the municipal governments. 


Mr, Pike. That means almost in each case that somebody has to 
give up his petty idea in order to fit in with the others ? 

Dr. Agnew. That is right. It is remarkable, though, how after 
they have worked together, a committee of men like that, sometimes 
bitter rivals at the start, really get interested in the fundamentals. 

Mr. Pike. The old example we used to get on the border ; on one 
side you drove on the left, on the other side on the right, and either one 
was perfectly sound, but if you got on the other side you were in 

Dr. Agnew. Your illustration reminds me of a few other jobs that 
this organization has tackled. Fifteen years ago you stopped your 
car on Fifth Avenue in New York City on green, you started it on 
yellow, and red meant caution. There was a different system in Cleve- 
land, a different system in Chicago, a different system in Buffalo, and 
so on. The Association of Police Chiefs asked us to take up that 
problem, and there were many different ideas, but there came out of 
it a imified code 'which is now in universal use in this country; it is 
in extensive use in Europe and is being introduced generally in each 
of the other continents. 

The Vice Chairman. You made a very interesting statement. When 
people get together and do together a thing; they learn by doing that 
thing how to get together and do other things. 

Dr. Agnew. That has happened many times in our committee. 
May I illustrate that by another code? In the gas burning appli- 
ances, originally that committee was gotten together to develop a 
minimum code for gas safety. There were battles in that committee 
that lasted a half dozen years. They learned to work together and 
they solved the problem, and under the leadership of the gas in- 
dustry itself, but with the cooperation of every other group that had 
a substantial concern with the problem they have developed specifica- 
tions, standards, for 27 different types of gas burning appliances 
and accessories, which includes all of the tyyes of apparatus that you 
find in a well-equipped home. 

There was a tendency years a^o for city barriers to grow up. 
There were different kinds of ordinances passed in about 50 cities, 
but this group of standards, worked out on a voluntary basis, has 
pretty well worked out that situation and there is a pretty free 
national market unencumbered by local restrictions. 

A very interesting part of this is that it had to be founded on a 
great deal of research and testing work, which was headed up in 
the gas industry itself, and as a result, in the last 10 years there have 
been more improvements in gas-burning appliances than had taken 
place in the 40 years previously. In that 10-year period the thermal 
efficiency of the top burners of the gas range has increased by 50 
percent. That means that today in the modern stove you can heat 3 
quarts of water with the same amount of gas that 10 years ago was 
required to heat 2 quarts. Similarly, the efficiency of the gas-fired 
hot-water heater has increased 25 percent in that same 10-year period. 
That improvement has gone forward coordinately with this standard- 
ization work, not alone from standardization work, but coupled with 
research and standardization. 

The Vice Chairman. Let me ask you. Doctor, in your experience 
of trying to bring about acceptances of abolishing trade barriers, is 
it recognized generally that these trade barriers are not economic and 


that the pressure of a general recognition as it comes to be under- 
stood tends in itself to break down these barriers? 

Dr. Agnew. I would say that the groups I am working with would 
agree with the expression that you have just made. 

Mr. DoNOHO. Have you anything further to add, Dr. Agnew? ^ 

Dr. Agnew. Mr. Chairman, in connection with the Chairman's last 
remark, I would like to add two things: First, that in the electrical 
development their market has been kept pretty fairly free by a 
series of codes, notably the National Electrical Safety Code under 
the leadership of the National Bureau of Standards, and the Na- 
tional Electrical Code on the wiring of buildings under the leader- 
ship of the National Fire Protection Association. In connection 
with the words of the chairman a moment ago, it seems to me 
that this voli^nmry method of developing national standards has an 
enormous role'»ix» play in the removal of certain types of local stand- 
ards, particularly those which depend on local regulations. It seems 
to me that it should be definitely the obligation of the Government ad- 
ministrator. Federal, State, or local, before he issues and puts the 
police power of the law behind a local standard, to investigate the sub- 
ject and find out whether there are national standards that are work- 
able and that will apply ; and second, it seems to me that it should be 
'he moral obligation of the industrial leadership to see that such 
natic"'-al standards are developed where there is a need for them. 

The Vice Chairman. Doctor, thank you very much. 

(The witness. Dr. Agnew, was excused.) 

Mr. DoNOHO. Mr. Beesley, will you come forward, please? 

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

Mr. Beesley. I do. 


trade barriers in relationship to TRANSAcrnNG business by mail 

Mr. DoNOHO. State your name and address, please. 

Mr. Beesley. Thomas Quinn Beesley, president of the National 
Council on Business Mail, Inc., Second National Bank Building, 
Washington, D. C. 

Mr. DoNOHO. What is j^our purpose in being here ? 

Mr. Beesley. To present the views of the large users of the mails, 
the chief customers, in other words, of the Postal Service and the 
problems they are encountering of barrFers to transacting business 
by mail throughout the States. 

Mr. DoNOHO. Mr. Beeslev, the chairman has mentioned the lateness 
of the hour, so if you would, will you, in your own way, please give 
your statement? 

Mr. Beesley. I shall be very happy to keep in mind the chairman's 

^ See also data subsequently submitted regarding trade barriers and State laws on 
bedding and upholstery, appendix, p. 16193. 


It SO happens, Mr. Chairman, I live here, and if there are other 
witnesses who would like to ^et out of town over night I can come 
at any time in the next few days. 

My remarks, Mr. Chairman and gentlemen of tlie committee, are 
presented for a group who represent approximately one-third of the 
total postal revenue of the United States. Our organization com- 
prises approximately 1,000 of the largest users of the mails for busi- 
ness purposes in 49 different lines of industry in every State of the 
Union except 2, Arizona, and New Mexico. We are the Washington 
clearing house on all postal problems for 14 very large trade asso- 
ciations who are affiliated with us, and whom we represent in 

Obviously, as users of the mails we are engaged in interstate com- 
merce in a great many different ways. Our organization contains, 
for example, the largest paper mills, the largest paper distributors, 
the largest paper manufacturers in the United States. It contains 
the 20 largest Manufacturers of envelopes. The correspondence 
schools, through their organization, are members. The mail-order 
houses, through their association, are members. The printers and the 
other six divisions of the graphic arts, through their organization, 
are members, so that we have about as many different problem.s to 
contend with in interstate commerce as anj organization in the 
United States with one very important exception which differentiates 
us from all the others. 

We are the only one using the facility which is exclusively under 
the control of Congress by the Constitution. The seven words of 
the Constitution, "to establish post offices and post roads," ate the 
basis on which we operate, and in the remarks I am about to offer, 
Mr. Chairman, for the record, I would like briefly to review seven 
items which I will state in order and then go bpck over them in the 
same sequence. 

The first is the constitutional background of this problem of trade 
barriers when we are using the mails ; the second is the important dif- 
ference today between the old methods and the new which have come 
about through advertising as an economical method of distributing 
goods; third, the various formr of trade barriers which affect anyone 
who uses the mails ; fourth, the effect of those trade barriers ; fifth, the 
problem of the Post Office Department in relation to these trade bar- 
riers; sixth, the trend as we see it and the probable effect of it; and 
seventh, our recommendation so far as we have gone in our study 
of this problem. 

The United States, as we see it, Mr. Chairman and gentlemen of the 
committee, is heading very swiftly back to the same condition, the 
same disputes, the same deliberately erected barriers within States to 
uses of the mails and the flew of business which wrecked the Confed- 
eration of the States and led to the Constitution, which had written 
into it that provision, "to establish post offices and post roads." 

The commerce clause was also produced from the same source, and 
I think we are getting back there to that same state of confusion about 
as rapidly as the Government could go. It was separatism that 
wrecked the Confederation. 

Now, today the situation has a new phase which is becoming a seri- 
ous menace to anyone who has to transact business in any way through 
the mails by offering goods for sale or services for sale. And the im- 


portance of that to our national economy at the present time is that 
one of the mo3t economical methods of distributing goods and serv- 
ices is through advertising, both national and retail. It isn't only the 
direct-mail letter that prodi'ces goods. Catalogs produce goods. In 
fact, Mr. Chairman, at this point I would like to add a comment that 
I didn't have in my original notes that was produced by your own 
very clear comme. ^ with regard to manorial markets. You spoke of 
the manorial market. The only vestigial remains of a manorial mar- 
ket is the catalog. That enables many manufacturer^ to combine to 
offer their goods, and a great many goods to be offered at very low 
prices so that very large numbers of very low income people have 
common access to them which they would not otherwise have. 

Advertising, to be effective, must have universal distribution, and 
people must have access to the good^ it offers without restraint. The 
consequence is that the Post Office and the Postal Service are perhaps 
the best method that any modern merchant can use for selling his 
wares. Certainly it is one of the cheapest. The consequence is that 
retailing today ha^ entered on a new phase that wasn't in existence 
25 years ago when I first entered the advertising field. It is the 
trend away from the large city to the small town. It is the metro- 
politan newspaper which, instead of being just the Washington Post, 
let us say, is the morning newspaper of nearby Maryland, nearby Vir- 
ginia, just as Washington is within the sales territory of the Philadel- 
phia papers and the New York papers, and the Post Office Depart- 
ment has recognized that fact by giving coupon privileges for busi- 
ness-reply purposes to metropolitan merchants, so that you can clip 
them out of their retail ad, you can paste one on tlie outside of an 
cnviBlope, and mail it back business reply with no postage, the postage 
being paid by the business house in New York, Philadelphia, and 
so on. 

That is expanding all over the country. Small-town merchants 
in many instances reach out anywhere from 50 to 150 miles by mail 
into the rural areas. But when you come into conflict with local 
s<^atutes and regulations and ordinances and arbitrary administrative 
action, all shortsightedly designed for the supposed advantage of 
local residents and products and enterprises, you cease to be a mer- 
.chandiser. You become a legal specialist. You become a tax expert. 
You are beginning to discover there are such things as quarantine 
and ports of entry and a thousand other things that have been the 
subject of this investigation so far. And you don't realize just how 
many of those there are, gentlemen, until you start to do business by 

The other night, in preparing these remarks, I sat down to make a 
list, and before I had gone very far I had 11 of them ^nd I stopped at 
that point because I didn^ want to refine the picture too far. For 
example, you have the "most favored State" agreements, to use my 
phrase for it. The politer word for it would be "reciprocal arrange- 
ments," but it is a most-favored-State treaty basis. 

You have regulations or taxes on various forms of advertising. 

You have use and consumption taxes. 

You have quarantine and inspection regulations. 

You have foodstuff definitions and standards; State-of-origin and 
similar legislation. 

124491— 41— pt. 29^ 18 


You have direct-selling ordinances and regulations; you have 
trucking regulations and taxes. You have regional- freight-rate con- 
ventions. You have preferential treatment of local products. And 
then, to cap it all off, you have discriminatory corporate or agency 
requirements for out-of-State businesses, and when you get done 
with all that you can start worrying about Social Security and 
Workman's Compensation and so on. 

The Vice Chairman. The trouble of it is that we can't quite prob- 
ably relieve you of all this. 

Mr. Beeslet. To pick out just a few of them at random and put 
them together, I will visualize for you a business that is just mod- 
erate in size, not a big one that would be affected by all of these. I 
am taking a business that sells only by mail and distributes a low- 
priced product which it can very frequently truck in as cheaply or 
more cheaply to its warehouses or its main places of business than 
it can get it in any other way. 

The firist thing that it runs into are the use and consumption taxe^. 
For example, you sell a low-priced dress, Mr. Chairman, to a woman 
in Michigan from, your place of business in Chicago. There is a 
use tax imposed by the State of Michigan after it comes to rest and 
gets into her possession. While it is in the United States mails it is 
still in your possession and subject only to such Federal taxes as 
you are subject to. The moment she gets it, there is the MichiglCn 
use tax immediately to be paid by her. And who is going to collect 
it? And how are you going to arrange to pay it? 

Ohio is in the same situation. Experience goes to prove that 
when you write and ask the customer to send in that use or con- 
sumption tax, you are lucky in some States if you can collect so 
much as 50 percent, and you are doing uncommonly well, gentlemen, 
if you collect as much as 70 percent in any State. 

The Vice Chairman. Is that tax the same tax that would be 
charged by a local' mei;ch ant who sells a dress in the community? 

Mr. Beeslet. Yes, sir; with the great advantage on the part of 
the local merchant that with him it is an over-the-counter transac- 
tion, where the tax is collected immediately. 

The Vice Chairman. What would you do about that ? Would von 
exempt the foreign merchant as against the local merchant? 

Mr. Beeslet. No ; I shouldn't say that. I should say that first of 
all some uniform system of taxation 'should be worked out. 

The Vice Chairman. You are discussing the specific thing to which 
you are objecting. I was wondering what remedial legislation would 
be suggested to your mind. 

Mr. Beeslet. I have anticipated that question, and will say that I 
have spent more than 2 years/ trying to work out something that will 
be practical and satisfactory, and I will be frank to tell you we 
haven't been able to formulate a program, but we do hope to bring 
some program of that kind before the Congress. 

The Vice Chairman. We will pass that up. We don't wf^ nt to hear 
about what you can't do ; we want to know what you can do. 

Mr. Beeslet. I might say, as the chairman will recall, that I have 
appeared before other committees of Congress on this subject of 
taxation where they have attempted to put the Post Office into the 
business of being a tax collector, like the bill which was originally 
supposed to be to help collect taxes on merchandise, and when the 
actual facts came out it was really to help collect cigarette taxes. 


The last time it came up, the Post Office Committee disposed of it 
IG to 3 adversely, so we are still back where we started. 

But I mentioned taxation first because it is one of the big barriers 
to trade due to the lack of uniformity, lack of a method of collection, 
and its overhead of collecting and paying back to the State. Of 
course, the other items there, like State-of-origin and similar labeling 
laws, have been discussed in connection with the topics of other wit- 
nesses, and I won't go over that again except to mention that you do 
run into them very seriously when you do business by mail. I have 
already mentioned trucking regulation and taxes and their connec- 
tion with this problem. Regional freight-rate conventions have been 
the subject of so many speeches on the floor of the House and. in the 
Senate recently, so I can't rehearse that. Preferential treatment of 
local products has been covered by other witnesses, but definitely it 
is one of the business hurdles in doing business by mail, and of course 
discriminatory corporate or agency requirements for out-of-State 
business explains itself. It reduces itself to two main headings, taxa- 
tion and special restrictions, which have become a Chinese wall 
confronting any advertiser who attempts to distribute goods na- 

The consequence is, gentlemen of the committee, that business after 
business has been comp'elled to reshape its methods of sales, its meth- 
ods of advertising, its methods of distribution iiito almost parochial 
lines to meet the varying conditions. The company lawyer is rapidly 
becoming a very important figure in any sales and advertising con- 
ference. You have to find out whether you are going to jail before 
you start to advertise and do business, and after you have got that 
important problem settled, tl e next person you call into the modern 
business conference is your tax manager, if you are big enough to 
•have on you are fortunate, and any business of any size today has 
to have one, .along with the traffic manager and advertising manager. 
After the lawyer and tax manager have got done with it, you can 
start in to make your sales plan, and such formerly simple things 
as samples, trial oJers, coupon replies, and other standard selling 
methods, instead- of being a sales utility, are rapidly become a hazard 
to you. It doesn't make any difference M you whether you are a 
newspaper publisher or magazine publisher or mail-order house, or 
are selling education by mail or you are selling silverware to retail 
jewelers and wholesalers for sale in turn to the public, the problem 
confronts you identically in any phase of business. 

That brmgs us to a very important consideration that is necessar- 
ily constitutional, gentlemen. State lines are political and geo- 
graphical accidents which the Post Office, as a Federal utility for 
mterstate commerce, perforce has to ignore. The Supreme Court a 
long time ago settled the question about the jurisdiction of the Post 
Office Department. It settled it so thoroughly that Post Office vehicle 
drivers do not have to have a license to drive if the Post Office says 
that they don't, no matter what the State law is or the local ordi- 
nance. It is supreme in their own jurisdiction. 

Another very interesting exampla is the one that was discussed 
here so colorfully yesterday afternoon by the gentleman from Shen- 
andoah, Iowa. Personally, I doubt the constitutionality of that 
quarantine provision of the Agricultural Act, because I think it in- 
terferes with the constitutional authority of the Post Office Depart- 


ment. I would like to see a case tested in the Supreme Court to see 
what the reaction to that would be. Of course, the simple solution 
would be just to repeal that provision and not waste the time and 
the money finding out what the Supreme Court thinks about it. 
That is a recommendation that I put before the committee to con- 
sider because it is one of the most irritating and totally unnecessary 
examples of trade barriers in the whole course of doing business by 
mail, and it has another aspect, gentlemen, that I think ought to be 
brought to your attention. The Post Office Department has made 
repeated efforts to obtain the cooperation of the State quarantine 
officials even to the extent last spring of sending an executive all 
the way to the Pacific Coast to sit in with him and put before them 
a very simple solution of the problem which seven States, or eight 
States, have long since adopted, putting on packages the label that 
is evidence, on its face, that the commodity has been inspected at the 
source by the State plant quarantine inspector of the State of origin, 
which should be sufficient for all purposes in any State. But no co- 
operation was possible, and all he got out of the trip to California 
was the ride. 

In addition to that, these other proposals that have been made here 
in Washington to have the Post Office disclose the names of addressees 
on packages so that the State tax collectors could get at the felon or 
culprit who was getting this stuff in without paying his nine- or ten- 
cent tax is simply a revival of something that led to the Revolutionary 
War, the old Orders in Council, and writs of resistance. It was rather 
shocking to see that introduced into the United States after that was 
settled between 1775 and 1789. I advert to it merely for the record. 

Our conclusions are that trade barriers are going to wreck our 
modern economy unless some abatement, some check, is put upon them, 
and something like a national system of interstate commerce can be 
worked out. I have already adverted to the fact that efforts to correct 
the present situation through programs of cooperation have made some 
progress in some quarters, but they have failed miserably and com- 
pletely in others. I don't wish to go into the reasons why I think thej' 
have failed, but I want to get into the record the fact that in a good 
many directions they have failed. 

Another thing, the trend is continuing. I don't see any very notable 
curtailment of it. The scope of judicial proceedings is too narrow, 
the expense is too heavy, the time involved is too long to effect tliie 
relief required. We are coming rapidly to the conclusion that action 
by the Confess to devise a policy fair alike to the States and to the 
Union is going to be the only ultimate answer. We have reached that 
conclusion, gentlemen, because, in our opinion. Congress alone has the 
resources and the plenary power to survey this problem and deal with 
it as the facts of history and, in our judgment, the plain wording of 
the Constitution indicate. 

The Vice Chairman. We are very much obliged to you. 

(The witness, Mr. Beesley, was excused.) 

The Vice Chairman. What time do you want to convene ? 

Mr. DoNOHO. At 10: 30? 

The Vice Chairman. We will stand in adjournment until 10:30 

(Whereupon, at 4 : 55, a recess was taken until the following day, 
March 22,.1940, at 10 : 30 a. m.) 


FRIDAY, MARCH 22, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Thursday, March 21, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman), and White; Repre- 
sentative Williams ; Messrs. Pike and Brackett. 

Present also: W. L. Whitehead, Securities and Exchange Com- 
mission; Frank H. Elmore, Jr.j Department of Justice; John E. 
O'Neill, Federal Alcohol Admimstration ; D. Haskell Donoho, asso- 
ciate attorney; Dr. Frederick V. Waugh, head of Division of Mar- 
ket Research, Department of Agriculture ; and Paul T. Truitt, chair- 
man, Interdeplirtmental Committee on Interstate Trade Barriers, 
Department of Commerce. 

The Chairman. The committee vrill please come to order. 

Are you ready to proceed? 

Mr. Donoho. Yes, sir. Mr. Holifield, will you please come for- 

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. Holifield. I do. 


Mr. Donoho. Will you state your name and address, please? 

Mr. Holifield. M. B. Holifield, 112 East Todd Street, Frankfort, 

Mr. Donoho. Whom do you represent? 

Mr. Holifield I represent the Honorable Hubert Meredith, at- 
torney general of the Commonwealth of Kentucky. 

Mr. Donoho. Mr. Holifield has a statement he would like to pre- 

The Chairman. We shall be glad to hear it. 

trade barriers relating to state problems of finance, highway 
construction and maintenance, and public safety 

Mr. Holifield. We have been advised that certain interests have 
listed the Kentucky law regulating size and weight of trucks as 



being a "trade barrier." I must confess that I do not know defin- 
itely what is meant by the use of that term. I assume it means an 
unreasonable and improper interference with trade and commerce, 
but whatever it may mean, it is my purpose to show that the Ken- 
tucky statute is nothing more than a reasonable and proper exercise 
of a police power of the State for the purposes of preservation of 
public highways and protection of public safety, and that it is not 
either legally or economically an unreasonable or improper inter- 
ference with trade or commerce. 

The only aspect of this question in which we are interested is in 
niaintaining the right of a State to preserve its property and to pro- 
tect the safety and convenience of the public in itL use of that prop- 
erty; and to show that this statute attacked as ;i. trade barrier is 
a reasonable and proper exercise of the police power to accomplish 
the two purposes I have mentioned. 

For some time prior to 1932, tliere was in effect in Kentucky, a 
statute limiting gross weight of trucks to 28,000 pounds. However, 
it was found that this limitation was not furnishing adequate pro- 
tection to the highways, and that the large, heavy trucks permitted 
under this law were endangering public safety, and unduly interfer- 
ing with the public's use of the highways; consequently, in 1932 
the present act was passed. This limits gross weight of trucks to 
18,000 pounds (including load), height to 11^/^ feet, width to 8 feet, 
length of single unit trucks to 261/2 feet, and length of semi-trailer 
trucks to 30 feet. 

• Not long after this act became effective its validity was attacked 
on various grounds, amQng others, that it constituted an interference 
with interstate commerce. The validity of the act was sustained in 
Ashland Tramsfer Co. v. State Tax Commission (247 Ky. 144, 56 
S. W. (2d) 691). On page 693 the Court said— by the way, that is 
of the South Western : 

We are concerned in this case only with public highways. Their regulations, 
maintenance, and protection, as well as the safety of travelers upon them, 
is everywhere and by all courts conceded to be within the police power of the 
jurisdiction maintaining them. 

The court, after referring to a number of decisions of the Supreme 
Court of the United States, said : 

* * * the law as universally declared by both state and Federal courts 
is that such regulatory acts will be upheld and enforced in all cases where 
they are confined to what is termed "reasonable" regulation, and that neither 
exact precision nor e"f/en scientific calculation is essential to reasonability. 

The court quoted with approval from Morris v. Duby (274 U. S. 
135), the following: 

In the absence of national legislation especially covering the subject of 
interstate commerce, the state may rightly prescribe uniform regulations adapted 
to promote safety upon its highways and the conservation of their use, applic- 
able alike to vehicles moving in interstate commerce and those of its own 

Insofar as the validity of the act in its application to interstate 
commerce is concerned the Ashland Transfer case was reconsidered 
and reaffirmed in the case of Whitney v. Fife (270 Ky. 134, 109 S. W. 
(2d) 832). 

The validity of other aspects of the act was again affirmed in 
Commormealth v. Abell (273 Ky. 802, 122 S. W. (2d) 757). 


In August 1937 certain operators of commercial trucks, and shippers 
by such trucks, filed suit in the Federal court for the eastern district of 
Kentucky, attacking the law particularly in its application to approxi- 
mately 1,800 miles of the best highways of the State on the, alleged 
ground that they were adequate to support heavy loads "without 
material damage," and hence that as to those highways the law created 
a barrier to trade and constituted an unreasonable interference with 
interstate commerce. After both sides had prepared the evidence the 
plaintiffs, who were represented by the general counsel of the American 
Trucking Associations, Inc., of Washington, D. C, dismissed the case 
without even asking for a trial. 

In view of that fact, and of the nurtierous court decisions I have 
cited, it is clear that, in the legal sense, the law in question is not, and 
does not create, any "trade barrier," but is simply a valid exercise of 
the recognized right of the State to use its police power for the protec- 
tion of its property and its citizens. 

Did you want to ask any questions? 

Mr. DoNOHO. I just wanted to make a summation. Your position, 
as I understand it, is that such restrictions as you have in Kentucky, 
which you discussed, are unquestionably constitutional? 

Mr. HoLiriELD. Yes. 

Mr. DoNOHO. I might add, I don't think there is any disagreement 
with that position at all by anyone. 

Mr. HoLiFiELD. I propose now to show that the law is not only a 
legally valid use of the State's police power, but in Kentucky's case 
at least is a physically necessary exercise of that power, because of the 
condition of our highway system. 

The total highway mileage of Kentucky is divided as follows : 

State Highways 8,657 miles 

County Roads (as of July 1, 1988) 47,563 miles 

City streets, approximately 2,886 miles 

Conditions on the 8,657 miles of States highway, vividly illustrating 
the inadequacy of those highways to accommodate safely or without 
undue damage trucks larger or heavier than those allowed by our 
present law, were described by no less an authority than Mr. Tliomas 
H. Cutler, chief highway engineer of Kentucky, in an address de- 
livered before the Kentucky Association of Highway Contractors at 
Louisville on March 1. In this address Mr. Cutler pointed out that 
on State highways alone there are approximately 23,931 curves which 
are sharper than 6°, 24,180 locations with inadequate sight distances 
for moderate safe traffic, 1,500 miles of inadequate surface types, 
6,000 miles of surface too narrow for present safe traffic, and "several 
hundred bridges which are not only inadequate, but dangerous." I 
wish to file a newspaper account of Mr. Cutler's speech, from the 
Louisville Times of March 1, and to discuss briefly each of the short- 
comings mentioned by Mr. Cutler. 

Mr. DoNOHO. You wish to offer this for the record ? 

Mr. HoLiFiELD. Yes, sir; but if you wish to put it in the files, it 
will be all right. 

Mr. DoNOHo. Mr. Chairman, it is reasonably short. I suppose it 
would be proper to offer it for the record. 

Acting Chairman Williams. This may be admitted for the record. 

(The clipping referred to was marked "Exhibit No. 2395" and is 
included in the appendix on p. 16160.) 



Mr. HoLiFiELD. Of the 8,657 miles of State highway, only 1,786 miles, 
or approximately 20 percent of the total, have a cement, concrete, 
brick, or high-type bituminous surface. 

The remaining 80 percent either have a low-type bituminous, un- 
treated stone, gravel, or earth surface, and could, under no circum- 
stances, be expected to support loads heavier than are allowed by our 
present law. The mileage of each type of surface is shown in the 
following tabulation : 

Type of surface 

Percent of 




Untreated gravel and stone. — 
Low-type bituminous surface. 
High-type bituminous surface 
Cement-ooncrete or brick 





I am herewith filing a map headed "Road Condition Map of Ken- 
tucky," prepared by the Kentucky Department of Highways, on 
which are shown the location and types of surface on U. S. Routes 
51, 45, 41, 41-E, 41-W, 68, 31-E, 31-W, 25, 25-E, 25-W, 27, 60, and 42. 

Mr. DoNOHO. Mr. Chairman, I offer this map for the files of the 

Acting Chairman Williams. It may be received for the files. 

(The map referred to was marked "Exhibit No. 2396" and is on 
file with the committee.) 

Mr. HoLTTiELD. These, generally speaking, are the best and most 
important highways in K^entucky, and were the routes (aggregating 
about 1,800 miles) particularly designated in the Federal court suit 
referred to above as being able to support without material damage 
heavier trucks than are now permitted by law. 

The next exhibit is a statement prepared by the Kentucky De- 
partment of Highways showing in detail the type of surface, width, 
thickness and year of construction of each section of each of these 
ten principal highways. These two exhibits thus supplement each 
other, the first showing in map form part of the data shown in 
tabular form in the second. 

Mr. DoNOHO. Mr; Chairman, I offer this statement as an exhibit. 

Acting Chairman Williams. It may be received for the files. 

(The statement referred to was marked "Exhibit No. 2397" and is 
on file with the committee.) 

Mr. Holitield. The next exhibit is a traffic flow map prepared 
by the department of highways, and from which it will be seen 
that the 10 United States routes mentioned above are the most 
heavily traveled highways in the State. 

Mr. DoNOHO. I offer this map as an exhibit to be filed with the 
committee. ' 

Acting Chairman Williams. It may be received. 

(The map referred to was marked "Exhibit No. 2398" and is on 
file with the committee.) 

Mr. HoMFiELD. From "Exhibit No. 2396" it appears that practi- 
cally every one of these routes is composed of sections of high type 


surface brokon bj sections of intermediate type surface and in some 
instances by sections of low type surface. 

The next exhibits are, respectively, a maj) and tabular statement 
showing types of surface on all highways in the state system not 
included in the iO principal routes mentioned above, and not, there- 
fore, shown in "Exhibits Nos. 2396 and 2397." 

Mr. DoNOHO. Mr. Chairman, I offer these maps for the files of the 

(The map referred to were marked "Exhibits Nos. 2399 and 2400" 
and are on tile with the committee.) 

Mr. HoLiriELD. "Exhibit No. 2399" shows in map form part of 
the data shown in tabular form in "Exhibit No. 2400" ; and "Exhibits 
Nos. 2396, 2397, 2399, and 2400" together present a complete picture 
of the surface construction of all Kentucky State highways. 

The inability of Kentucky highways to carry loads greater than 
those now permitted by law is further emphasized by the next ex- 
hibit, which is an Associated Press dispatch appearing in the Louis- 
ville Courier Journal of February 16, 1940, according to which — 

the State Highway Department announced today it had ordered the maximum 
18,000-pound gross load limits reduced on a number of highways to prevent 
further strain to surfacing already damaged by recent extreme cold. 

Mr. DoNOHO. Mr. Chairman, I offer this statement for the record. 

Acting Chairman Williams. Personally, I am of the opinion ve 
can't be receiving every editorial in the country that is written 
concerning these roads. 

Mr. DoNOHO, I wanted your opinion on it. The witness is per- 
fectly willing that it be in the files. 

Acting Chairman Williams. I think it had better go in the files. 

(The clipping referred to was marked "Exhibit No. 2401" and 
is on file with the committee.) 

Mr, HoLEFiELD. It appears from the details given in this dispatch 
that a number of the highways to which this order applied were 
portions of the United States highways to which I have heretofore 

Clearly, if under any conditions the present limit has to be reduced, 
it is absurd to ar^e that it should be increased. 

The great majority, even ,of our State highways, are, as Mr. 
Cutler stated, too narrow to accommodate with even reasonable 
safety vehicles as large as those who attack our law as a "trade 
barrier" would like to impose upon them. The United States Bureau 
of Public Roads has officially stated : 

Pavements of 18-foot width are too narrow for modern passenger cars alone 
or for modem mixed traffic. Pavements of 20-foot width are reasonably ade- 
quate for light traffic used infrequently by wide trucks but are inadequte for 
heavy mixed traffic. 

Yet the surface of about 2,800 miles, or practically one-third of 
the highways in the whole Kentucky State system, is less than 18 
feet wide; on more than 4,700 miles, or 55 percent of the total, the 
width is only from 18 to 19 feet*; and on only 735 miles, or 8.5 per- 
cent of the total, is the width 20 feet or more. This exhibit shows 
in more detail the width of Kentucky highways. 

Mr, DoNOHO. Mr, Chairman, I offer the tabulation as an exhibit 
for the files of the committee. 


Mr. Pike. It may be received. 

(The table referred to was marked "Exhibit No. 2402" and is on file 
vvith the committee.) 

Mr. HoLiFiELD. On account of the rolling and mountainous topo- 
graphical conditions in Kentucky there are, as Mr. Cutler mentioned, 
on all of our State high-vvays, an abnormally large number of grades, 
curves, and restricted sight distances. 

The next exhibit is a tabulation prepared by the Kentucky State 
Highway Department showing as to each of the principal highways 
referred to in "Exhibits Nos. 2396 and 2397" the number and length 
of grades 7 percent and over, the number and length of curves over 
6 degrees, and the number of restricted sight distances of less than 
250 feet, of from 250 to 500 feet, and of from 500 to 1,000 feet. 

Mr. DoNOHO. Mr. tl!hairman, I offer this tabulation for the files of 
the committee. 

Acting Chairman Williams. It may be received. 

(The tabulation referred to was marked "Exhibit No. 2403" and is 
on file with the committee.) 

Mr. HoLiriELD. As a supplement to "Exhibit No. 2403," I am also 
filing three additional tables as "Exhibit No. 2404." 

Mr. DoNOHO. Would you describe these exhibits, please? 

Mr. HoLiFiELD. The first exhibit shows the number, and number per 
100 miles, of restricted sight distances on all main highways in the 
State system ; the second exhibit shows the number, and number per 
100 miles, and the length and length per 100 miles, of excessive grades 
on all main highways in the State system ; and the third exhibit shows" 
the number and number per 100 miles, ^nd length and length pef 100 
miles, of excessive curves on all main highways in the State system. 

Mr. DoNOHO. Mr. Chairman, I offer these data which the witness 
has described for the files of the committee. 

(The data referred to were marked "Exhibit No. 2404" and are. on 
file with the committee.) 

Mr. HoLrFiELD. By way of explanation, tlie significance of these 
figures arises from the following facts. A curve of more than 6 
degrees is a tra^c hazard, because it requires reduction of speed for 
safe operation. A grade of 7 percent or more is an even greater 
traffic hazard, particularly where large, slow-moving trucks are a part 
of the traffic, because to negotiate such grades trucks mast greatly 
reduce their speed, causing congestion and delay to other and speedier 
traffic, and tempting impatient drivers to take the chance of passing 
on hills. We have had in Kentucky many serious accidents from just 
this cause — accidents in which no truck was directly legally — let me 
add that in my testimony — involved, but for which some truck was 
clearly responsible. Restricted sight distances — that is, points where 
a driver's clear vision of the road ahead is restricted by curves, 
grades, or other obstacles — are an obvious traffic hazard, tending to 
slow up and congest traffic and lead to accidents caused by reckless 

Where there are as many traffic hazards as there are in Kentucky, 
the admission to State highways of trucks larger or heavier than 
those now allowed would not remove any imaginary "trade barrier" 
but would rather create an insurmountable barrier to all automobile 
and light truck traffic. For example, U. S. No. 60 is one of the most 
heavily traveled roads in the State On the 22-mile section of this 


highway between Frankfort, the State Capital, and Shelby ville (en 
route to Louisville, Kentucky's largest city) signs forbidding passing 
within 500 feet or more have been posted at 57 of the worst places, 
the aggregate length of these "no passing" distances on 'his one sec- 
tion ot highway alone being approximated 5.4 miles. In other 
words, even a private passenger car is forbidden to piss another 
automobile going in the same direction on one quarter of the entire 
distance betweeen Frankfort and Shelby ville. This }s typical of 
many other sections of even the 1,800 miles of the highest type roads 
in tne State. Imagine the intolerable conditions that would be 
created by operation on such roads of trucks of 40,000 or 50,000 

On the State highways there aie 600 bridges and underpasses hav- 
ing a width of less than 18 feet, many of which are so narrow that 
it is impossible for two automobiles to pass. Of the 712 bridges ?nd 

frade separations with a span of 10 feet or longer on the 10 principal 
ighways mentioned above, 100 are substandard in one or more of 
the following particulars : width, height, or load capacity. The loca- 
tion of these bridges and the particulars in which they are sub- 
standard are shown in this exhibit. These same bridges are also 
shown in tabular form here. 

Mr. DoNOHO. Mr. Chairman, I offer these data to be filed with the 

Acting Chairman Williams. They may be received. 

(The data referred to was marked "Exhibit Xo, 2405" and is on 
file with the committee.) 

Mr. HoLiFiELD. In the address referred to above, Mr. Cutler stated 
it would now cost $130,000,000 to bring the State's present highway 
system to a "safe standard." His estimate coincides with that pre- 
pared by the American Association of State Highway Officials as of 
January 1, 1940, when the said that 1,189 miles should be rebuilt at 
a cost of $22,168,000; 4,010 miles should be widened at a cost of 
$31,217,000; 1,985 miles should be relocated at a cost of $59,720,000; 
total $113,105,000, and 1,797 bridges should be widened or rebuilt at 
a cost of $19,325,000, or a total of $132,430,000. 

As of July 1, 1938, there ^Yere 47,563 miles of county roads. Of 
this total only 127 miles were paved with cement-concrete or high- 
type bituminous paving; 17,943 miles were surfaced with low-type 
bituminous paving, stone or gravel, and 29,493 miles were plain dirt 
or earth roads, of which 6,4G4 miles were in the primitive state. 
About 30,000 miles of the county road system have no width because 
they are not surfaced. On 16.400 miles which have any sort of 
surfacing, the width is less than 16 feet. Of the remaining 1,680 
miles only 185 miles, or 1 percent, are 20 feet or more in widm. No 
one can reasonably contend that heavier or larger trucks should be 
permitted on any of the county roads. 

I do not wish to be understood as criticizing our State Highway 
Department because Kentucky has consistently followed a pay-as- 

ou-go policy of highway construction^ and has avoided a heavy 

urden of highway debt. Thei necessilj' which confronted them 
was to get the people out of the mud so they could ^et their products 
to the market. But the facts I have recited demonstrate that the 
Kentucky. law is a reasonable and proper exercise of police power 
for preservation of highways and protection oi public safety. To 



open up our highways to trucks of the weight and size permitted in 
some other States would so endanger and inconvenience other traffic 
and so damage onr highways as to create a real "trade barrier." 

It would seem that public opinion in Kentucky, authoritatively 
expressed by the legislature, should be given consideration on this 

I will put this in, and if you want to object, all right, 

Mr. DoNOHO. We are delighted to have your statement. 

Mr. HoLLFiELD. The present law was adopted in 1932 by an over- 
whelming vote of both, Houses. An effort has been made at each 
biennial regular session of the legislature since that time and at 
one or more special sessions to have the law amended, but in every 
instance such efforts have failed. At the last session, just ended, a 
bill was introduced in the lower House to increase maximum gross 
weight to 32,000 pounds and and maximum length to 35 feet, xhis 
bill was defeated 69 to 16. 

Another measure proposing to authorize the highway engineer, by 
order approved by the commissioner of highways, to permit oper- 
ators of larger and heavier trucks on certain Federal-aid highways, 
was defeated in the Senate. From my own observation and knowl- 
edge of the sentiment of the people of Kentucky, I can say that the 
legislature in consistently supporting the present law has faithfully 
reflected public opinion. 

Considering the public interest from other standpoints, additional 
facts may be mentioned which show that this law has not had the 
effect of a trade barrier. 

Kentucky has no outstanding State highway bonds; Kentucky 
and Texas have the lowest truckload limits of any of the Southern 
States. It is certainly significant that with the single exception of 
Florida, the per capita State indebtedness of those two States is the 
lowest in the South (Kentucky, 86 cents; Texas^ $2.79). With few 
exceptions there is a strikingly close relationship between the out- 
standing highway bonds of the Southern States and the truck weights 
permitted in those States. 

If J as we understand it is claimed, the Kentucky law is in fact a 
barrier to truck transportation, it would seem logical to expect that 
a substantial percentage of trucks now operating in Kentucky would 
be close to the maximum sizes and weights permitted. Yet the State- 
wide highway planning survey, after weighing 10,375 loaded trucks 
at various pit-scale stations in Kentucky between August 1937, and 
July 1938, found the average weight of those trucks to be' only 13,364 
pounds, or approximately 75 percent of the maximum allowed by 
law. Again, out of a total of 67,574 trucks licensed to operate in 
Kentucky in 1939, only 578 were of greater than 2-ton capacity. 
Even if overloaded by 100 percent of their rated capacity, a sub- 
stantial pqrtion of these 578 would not approach the gross weight 
limit of 18,000 pounds. But all of the 578 trucks constitute substan- 
tially less than 1 percent of the whole number of trucks. Certainly 
no law can reasonably be considered a trade barrier when its possible 
effect is limited to less than 1 percent of those who might con- 
ceivably be affected by it. Details of 1939 truck registrations are 
given in this exhibit, which I now offer to be filed. 

Mr. DoNOHO, Mr. Chairman, I offer this tabulation for the files 
of the committee. 


Acting Chairman Williams. It may be so received. 

(The tabulatioli referred to was marked "Exhibit No. 2406" and is 
on file with the committee.) 

Mr. HoLiFiEiD. Finally, it is certainly reasonable to expect, if the 
Kentucky law actually is a trade barrier, that it would result in 
higher transportation charges to the public, and it is in this point 
that the public's major interest lies. The exhibit which 1 now oflfer, 
shows, however, that the general level of common-carrier truck rates 
in Kentucky is no higher than is the level of such rates in the States 
horth of the Ohio River, where larger and heavier trucks are per- 
mitted to operate, and is actually lower than is the level of such rates 
in other Southern States where larger and heavier trucks are pel*- 
mitted, therefore, the Kentucky law has not operated to increase 
transportation chargfes to the public, and the only effect which any 
change in that law could have would be to increase the profits of a 
few comnlercial truck operators who would be able to operate larger 
and heavier vehicles. 

Mr. DoNOHO. Mr. Chairman, I offer these charts for the files of 
the committee. 

Acting Chairman Williams. They may be received. 

(The charts referred to were marked Exhibit No. 2407" and are 
on file with the committee.) 

Mr. HoLiFiELD. In conclusion, whatever may be the real significance 
of the term "trade barrier," now so frequently heard as a slogan by 
the interests which are seeking through Federal intervention to over- 
ride State laws, it is submitted that the facts which have here been 
recited demonstrate that the Kentucky law is not, either legally or 
economically, an improper or unreasonable interference with trade 
or commerce, but is only a reasonable and proper exercise of the 
police power to preserve the property of the State and protect the 
safety of its citizens. 

It may be that the law does increase to some extent the cost of the 
operation of those who would otherwise use larger and heavier trucks 
in and through Kentucky, but there are few, if any, police regula- 
tions which are not accompanied by some increase in cost to those to 
whom they apply, and the public interest is not in the cost of truck 
operation, but in the rates cnarged for truck transportation. 

It has been pointed out above that those rates in Kentucky are as 
low as — are lower than those in. neighboring States, and I might add 
that official Interstate Commerce Commission reports for 1938 show 
that nine of the largest truck companies in Kentucky had in 1938 a 
combined net profit of over $300,000. It seems, clear, therefore, that 
our law is accomplishing its double purpose of preserving our high- 
ways and protecting our citizens, and ha's not been accompanied by 
any increase in transportation charges and has not seriously affected 
that very small minority of truck operators who may be affected 
by it. 

That is the conclusion of my statement. 

Mr. DoNOHO. Mr. Chairman, I have no questions to ask the witness. 

Mr. Pike. I have one, Mr. Holifield. From this statement, and the 
action of the State as compared with the action of other States of 
the Uni^^n, it appears that the Kentucky road system is pitifully 
inadequate for modern traffic. 

Mr. iIoLiFiELD. That is true, sir. I am sorry to confess it. 


Mr. Pike. There are two more small questions I have in mind, more 
comment than questions, possibly. On page 12 it is mentioned that 
there ai e practically no trucks in Kentucky which, when loaded, will 
come to and exceed the 18,000-pound legal limit. Of course, it is quite 
natural that with an 18,000-pound law nobody in Kentucky would 
waste money by buying trucks for use in Kentucky which would be 
illegal when put to use. Of course, there are no statistics available 
from this statement, and I don't know of any others, showing the 
number of intei-state trucks overweight that would like to use Ken- 
tucky highways but are prohibited. 

Mr. HouFiEU). Interstate truckers or operators in Kentucky are 
required to register in Kentucky a statement, of course^ but they have 
to unload if they have larger capacity than we permit them. It is 
not necessary for them to reload if they have smaller when they go 
to the next State. 

Acting Chairman Williams. Thank you very much, Mr. Holifield. 

(The witness, Mr. Holifield, was excused.) 

Mr. DoNOHO. Mr. Strong, will you come forward, please? 

Acting Chairman Williams. Do you solemnly swear that the testi- 
monj' 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. Stkong. I do. 


Mr. DoNOHO. Will you state your name and, address, please? 

Mr. STRrtNG. Floyd D. Strong, Topeka, Kans. 

Mr. DoKOiio IVhom do you represent, Mr. Strong? 

Mr. Strong , I represent the Honorable Payne Ratner, Governor 
of the State of Kansas, and the port-of -entry board of our State. 

Mr. DoNOHO. Mr. Chairman, Mr. Strong has a statement which he 
wishes to make. 

Mr. Strong. Mr. Chairman and gentlemen of the committee, on 
behalf of the State of Kansas, Governor Payne Ratner, and the port- 
of-entry board of our State, I wish to express our sincere apprecia- 
tion of the invitation to appear before this committee and discuss the 
operation and administration of the Kansas port-of -entry law as it 
relates to the free flow of commerce between the States. 

The port-of-entry plan is relatively new. Kansas inaugu?rated the 
first system less than 10 years ago. It is, therefore, no more than 
natural that it should be scrutinized, and we are happy to explain our 
particular method of control and fully indicate its aims and pur- 
poses. Any discussion of a particular type of regulation must neces- 
sarily involve some detail; therefore, in this presentation we will 
try to be as factual as possible rather than argumentative. 

Frankly, we feel that it has been a success. While we have had 
our problems, it has accomplished for Kansas an eflficient means of 
exercising a reasonable control over motor carriers, with an abso- 
lute minimum of difficulty and without hampering freedom of com- 
merce as cariied on by motor vehicle. 


To be at all intelligent in our presentation we must first at least 
briefly mention a few of the conditions which brought this plan into 

In the year 1931, the State of Kansas initiated a new system of tax- 
ing motor carriers, for the commercial use of its highways. This 
new method of assessment was not for the purpose of increasing the 
tax burden of such carriei-s, but was enacted into law with one pur- 
pose in mind — to provide a more fair and equitable means of dis- 
tributing the tax burden among them. Prior to that time the tax was 
levied on the basis of capacity and weight of vehicles. It was col- 
lected through the customary medium of the annual license plates 
sold to the truck owner to be placed on the truck. The scale of fees 
paid was determined solely by the size and capacity of the vehicle. 

Nothing else made a bit of difference. The owner who operated 
his truclc over the highways only 100 miles a month paid identically 
the same fee as did the owner who operated 10,000 miles in the 
same month. 

To correct these obvious inequalities of taxation, the Kansas Legis- 
lature determined that both weight and distance should be factors in 
determining the tax to be paid. The problem was given careful and 
detailed consideration, and resulted in the imposing of the "gross- 
ton mileage tax," which is exactly what its name implies. It as- 
sesses a tax of one-half mill per gross ton-mile traveled, and acts 
upon all operators alike. The truck owner is called upon to pay his 
share of the upkeep of the State's highway system in direct pro- 
portion to his use of the highways. 

Early experience in the administration of this system resulted in 
the discovery that an improved method of enforcement was a neces- 
sity. Some method of checking in the field was needed to prevent 
wholesale tax evasion. 

Mr. Pike. What did you use at first as a method of collecting f 
Was it a report at the end of the year by the trucker ? 

Mr. Strong. A monthly report — a voluntary monthly mileage tax 

Mr. Pike. And for the person just coming through the State? 

Mr. Strong. There was no way of checking him, no way in which 
he could obtain authority to operate within the State without first 
coming to the State capitol and obtaining the necessary authority. 

The taxpaying operator dese.rved protection from his less scrup- 
ulous competitor. 

At the same time, Kansas was meeting a different problem, that of 
so-called "hot oil." Bootleg gasoline, escaping taxation both in 
Kansas and other States, created a serious problem in the State's 
gasoline tax administration. This gasoline, frequently of inferior 
quality, presented such a threat to the State's revenue from that 
source that the Kansas Legislature provided a number of "registra- 
tion offices" at which all importers of gasoline were required to stop 
and declare their cargo and destination. 

Mr. Pike. That was during the period of very cheap crude prices, 
when gasoline was coming up mostly from Oklahoma and Texas at. 
that time. 

Mr. Strong. Yes; that is right, and some coming from Wyoming. 
That was in the days when gasoline was being doctored and it was of 


an inferior quality, and it was being bootlegged into the State, due 
to the differences in the gasoline tax in the various States. 

You see, in our country out there, some of the funds for highway 
purposes are raised by the tax on gasoline. 

This plan of establishing these gasoline -registration offices was 
preeminently successful from its inception. During the first year of 
the existence of the gasoline "ports of entry" the State's receipts from 
gasoline tax jumped over $1,000,000, increasing from $7,234,584.27 in 
1933 to $8,259,830.61 in 1934. This was followed by smaller, but 
nevertheless steady, increases as the administration was improved, 
until receipts from gasoline tax last year, 1939, totalled $10,076,640.33. 
A majoL contributing factor to this increase has been the efficient 
operation of the port-of -entry system. 

Not only was the tax feature of the law enforced, but surprising 
strides were made in eliminating unfair and fraudulent trade prac- 
tices. Adulteration of liquid fuels was practically eliminated, and 
stolen gasoline was made a highly undesirable commodity to possess. 

The use of those registration offices was so successful that in 1933 
the State determined to extend their functions to include the enforce- 
ment of its gross-ton-mileage tax law, and the Kansas ports of entry, 
as such, were set up to perform these additional duties. 

The repeal of the national prohibitory amendment placed a further 
demand upon this agency of the State government. Kansas is a dry 

Mr. Pike. It is almost the dry State, isn't it? 

Mr. Strong. Well, it is one of them. 

Acting Chairman Wblliams. In name only? 

Mr. Strong. You know what they say about Alabama, they'll vote 
dry in Alabama as long as they can stagger to the polls. My state- 
ment is that Kansas is a dry State. 

Experience soon taught that a good many of the "original pack- 
ages" in interstate commerce, concerning which we have the famous 
"original package doctrine," leaked quit© a bit in passing through the 
State. It was necessary to devolve some means of checking and seal- 
ing cargoes of intoxicating liquors, to provide protection to the laws 
of the State in this regard. Thus, there was added a third duty to 
the Kansas ports of entry. 

Another function of the ports of entry, which is a distinct ad- 
vantage, not only to the public generally, but also to the operators 
themselves, is the protection afforded by the safety-inspection fea- 
tures of this system. Every piece of equipment when cleared through 
the ports of entry is inspected for safety requirements with resultant 
savings in property as well as life and limb. 

Essentially, these four duties are the same today as they were 7 or 
8 years ago at the inception of the system. The ports of entry are 
efficiently and quickly performing them in Kansas today. 

Turning now to the mechanical side of the system, we find that 
ports have been established at convenient points at or near the State 
lines on every practical highway. In all, there are some 7:-. ci" them, 
so located as to require no detouring or unnecessary traveling; to pass 
by them. Upon entering the State, each truck or bus stops at the 
port and secures a "clearance" into or through the State, as its busi- 
ness may require. This is simply done, and there are no cumbersome 
details about it which unduly hamper or delay a carrier's progress. 


The whole process takes a surprisingly short time, and in many cases 
the clearance can be effected in as little as 60 seconds. 

Mr. Pike. What would be the average time, Mr. Strong; have you 
any idea about that? 

Mr. Strong. Oh, it would vary. 

Mr. Pike. Presuming the papers were in reasonably good shape. 

Mr. Strong. I would say a minute, a minute and a half, two 
minutes, unless there were some difficulty. I gave the example of 
60 seconds. That has to do with. your regular passenger bus, usually, 
where they make out their manifests in advance, they come by the" 
port and hand in the manifest, that is a declaration of what the 
cargo is, he is given his clearance, a sticker is put on the windshield, 
and he is through in a minute. 

Mr." Pike. He is through. Now here comes a trucker with a mis- 
cellaneous load of goods, a rather long manifest. How much in- 
spection goes on at that point? 

Mr. Strong. While he makes out his manifest. His manifest is 
a declaration of the description of his vehicle and his gross weight, 
that is empty weight and cargo, and origin and destination, and 
insurance coverage. 

Mr. Pike. You don't have to give a detailed list of cargo, except 
to swear there is no li(juor ? 

Mr. Strong. That is right. If there is liquor there is a state- 
ment on there, and then, of course, it is sealed. While- he is doing 
that — I will cover that here in a moment — the other port attendants 
make an inspection as to tires, and lights, and brakes, and so forth. 
An absolutely strange trucker who has never been in the State before 
would be through, I would gay, in not over 2 minutes if everything 
is in order. 

The information elicited covers the destination, route," description 
of vehicle, cargo, and nature and scope of the insurance coverage. 
A clearance form is filled in by the attendants at the port, and a 
carbon copy of the clearance is given to the operator, together with 
a sticker for the windshield of the vehicle. While the truck driver 
is attending to ,these matters, port attendants are making a brief 
but efficient- check of the equipment to ascertain if it meets the safety 
requirements of the motor vehicle laws of the State. This law, in 
the main, coincides exactly with the safetv rules and regulations of 
the Interstate Commerce Commission. There are no additional re- 
quirements which cause expense or difficulty in compliance. 

Mr. Pike. On that point, Mr. Strong, do trucks coming into the 
State have anything to show whether they have or have not passed 
the I. C. C. requirements? 

Mr. Strong. They have their I. C. C. plates. No>v the Interstate 
Commerce Commission as yet has never devised what they call an 
authority card or cab card. I propose to put on every truck an 
authority card showing the nature and scope of its operations, and 
the Interstate Commerce Commission, I understand, are working on 
that plan, too. 

Mr. Pike. So when that thing gets clear you will probably have 
a reciprocal arrangement. 

Mr. Strong. That is true. Since the enactment of the Motor Car- 
rier Act, you will see the problem which confronts the States. We 
would certainly have no right either real or implied, to clear a man 

124491— 41— pt. 29 19 


to some point in the State of Kansas in interstate commerce to which 
he did not have authority to go in interstate commerce as granted by 
the I. C. C. At the present time we make no inquiry into the 
scope of that authority. We rely on him. If he violates his inter- 
state authority he is answerable to the Interstate Commerce Com- 
mission.. We clear him on his statement that he has a right to go 

When the vehicle is bearing this sticker, that is the sticker which 
put on his windshield showing the type of carrier, it is free to pro- 
ceed, and may travel the length or breadth of the State without 
other inspection or check, except for a very occasional- and brief 
inspection that might possibly be given by a State or local officer. 
Such routine inspections, however, never go beyond the ascertain- 
ment of the fact that the vehicle is operating on the route which 
has been declared, and unless there is a violation or alteration of 
that route, no delay or difficulty is encountered. In actual practice, 
such further checks are made only very infrequently, and are made 
for the purpose of keeping traflSc moving on the routes declared. 
Should a carrier have occasion to i^.ter or vary his route, a simple 
method is provided. Later we shall mention how that is accom- 
plished. The vast majority of trucks, after clearing into the State, 
have no further contact with the State's representatives until they 
leave the State, possibly 500 miles from the point of entrance. 

The establishment of these State agencies at the very borders of the 
State eliminates any inconvenience, expense, or delay to which motor 
vehicles would otherwise be subjected in making side tripSj or re- 
routing themselves to go to central control points. It also dispenses 
with the necessity of contacting State offices in advance to secure 
authority to travel the highways of the State. This system, main- 
tained at some cost to the State, is primarily for the convenience of 
the motor carrier, and makes it easy and economical to comply with 
the State law. 

It is, of course, elementary that the several States have compara- 
tively limited power to control interstate traffic, particularly since 
the passage by the Congress of the Federal Motor Carrier Act of 
1935 under the provisions of which the Interstate Commerce Com- 
mission is charged tvith the duty of regulating such carriers. How- 
ever, there does remain to the States the exercise of two very impor- 
tant functions. In the first place, 'the States are to regulate and 
control such operations insofar as may be necessary to protect their 
citizens. Under this control, it is the duty of the States to see that 
the vehicles using the highways are safe, that the drivers are com- 
petent, and that the general public is protected by requiring the 
ca: iers to have adequate insurance coverage. In the second place, 
to the States is reserved the right to collect from the carrier a rea- 
sonable tax to compensate, in part at least, for the use of its high- 
ways. The several States have constructed and furnished the right- 
of-way for the motor carriers, and the States are maintaining this 
right-of-way at great cost. 

Mr. Pike. Of course, that is with the cooperation of the Federal 

Mr. Strong. That is right. 

Mr. Pike. The main routes, ordinarily. 


Mr, Strong. Of course, all of these States have a considerable 
State highway system of their own on which they do not obtain Fed- 
eral aid. 

Mr. Pike. Yes. However, one would be jnclined to estimate that 
the majority of the heavy trucking interstate is apt to stick in the 
main to the arterial highways. 

Mr. Strong. I think, generally speaking, that is true, especially 
on the through traffic. 

Mr. Pike. Yes ; that would be a fair statement. 

Mr. Strong. The taxation of motor carriers is not, and should not 
be, an item of profit to the State, In Kansas, the tax imposed is 
barely enough to maintain the highways in view of the accelerated 
deterioration thereof caused by motor-carrier operation, if indeed 
it is adequate to do so. 

I might say right here that that particular point is the subject of 
study by our legislative council pursuant to instructions in House Joint 
Resolution No. 6 to go into that question. That is, going to the heart 
of this thing, of what is the common tax factor, and we are making a 
study of that now. We don't know. We think our tax is a little too 
low. The operators say, "We think it is plenty high enough." There 
is only one thing to do, and that is to dig in and find out. 

Mr. Pike. A most interesting question. I don't know whether any 
States have any ta,ngible results on that same question. 

Mr. SxRONa No, sir; neither do I. At Mr. Bane's last regional 
conference, sponsored by the Council of State Governments in Chi- 
cago in September, I believe it was, that particular matter, this at- 
tempt to find a tax factor which would be common, was discussed. 
You can see the difficulties in the various States as illustrated by the 
gentleman from Kentucky ; each has its problems to find those fac- 
tors which" are common. Obviously, you must do that at home first 
to see that you have the proper tax base, and that is what we are doing 
pursuant to that conference. I think other States are doing it, but I 
don't know of any tangible figures that are available from any 
particular State. 

Mr. Pike, I tliink it has been — and I will check with you if you 
happen to know — the contention of many of the motor-truck opera- 
tors that the gasoline tax operates in effect as a ton-mile tax, and 
in effect it does. There is a real question whether it is an adequate 
tax, and there is also the question as to whether — and I think you 
will answer this in the affirmative — the truck of great weight and 
considerable speed shouldn't bear a larger tax than the privately 
owned automobile of light weight, in order to compensate for the 
extra wear on the route. 

Mr. Strong. That is the theory on which Kansas has set up the 
gross ton mileage tax. We know of no more ec[uitable basis on which 
to establish it than that. The man with the big load traveling many 
miles pays more than the man with the little truck going :•. few miles. 
He pays in proportion to ase. 

The statement as to gasoline tax is undoubtedly true. Some states 
put considerable emphasis on the gasoline tax, others put it all on the 
license plates, and others put it all on the tag that they buy, covering 
the right to use the highways. We arc trying to find where that 
should be distributed. We put a little on the gasoline tax so that it 
catches the ordinary touring car, the private automobile. We scale it 


upon the tag based upon the size of the equipment, so it covers the price 
of the tag and places a burden there. Then we scale it some more on 
the actual gross ton mileage, so it doesn't fall with a thud on any 
particular place. It is proportionate. 

Mr Pike. And it isn't as though the State were taking in too much 

Mr. Strong. No. 

Mr. Pike. So you feel you need practically all of those and pos- 
sibly some more. 

Mr. Strong. Yes. That is at least the subject of a study by our 
legislative council now. 

Mr. Pike. It seems to be a fairly common situation. 

Mr. Strong. The proceeds of the gross ton mileage tax are spent 
by Kansas for the purpose of maintaining the highway system. The 
cost of administration is strictly limited to 10 percent of the amount 
collected. It never has been contended that the Kansas gross ton 
mileage tax imposes an unfair or excessive burden upon motor 

To be somewhat more specific in our explanation of the assessment 
and collection of the gross ton mileage tax, let us examine its opera- 
tion a little more closely. There are two methods by which this tax 
is imposed and, depending upon the circumstances, each carrier falls 
into one of these classifications. The majority of the operators, 
whether they are residents of Kansas or of some other State, and 
whether they are engaged in intrastate or interstate commerce, are 
registered and licensed by the State corporation commission. The 
State corporation commission of Kansas is the regulatory body au- 
thorized and directed to control motor transportation in the State. 
The individual carrier may fall within any of three classes: A com- 
mon carrier, contract carrier, or private carrier. Regardless of this 
classification, the carrier is required to keep a record of the movement 
of his vehicles and at .the end of each month to report to the State, 
through the medium of its corp oration commission, the miles which 
he has traveled. This mileage, together with the capacity and weight 
of the units operated determines the amount of tax due. The carrier 
pays this tax at the end of the month and that payment is, of 
course, based upon the actual use which he has made of the highways 
of Kansas. 

Acting Chairman Williams. Do you have any difficulty about get- 
ting a correct report on that, or is there any penalty attached to it 
for the person who is inclined to cheat a little ? 

Mr. Strong. Frankly, we feel that we are making about 50-percent 
collection. Now from our good operators, our large operators who 
keep books, through our auditing system, we feel we are getting about 
100-percent response, but we have so many of another type of oper- 
ators, and, of course, we just have to rely on their honesty about it, 
subject to our audit and subject to these clearances. When these 
Kansas operators have occasion to go through the ports, knowing 
there is a record filed there of their trip through the port, they are 
pretty apt to report that trip at least. 

Mr. Pike. You don't suppose any of the boys turn their speed- 
ometers back? 

Mr. Strong, We make no speedometer check. It is just his statement. 
The law requires that he shaU keep a daily record, and at the end of 


the month he is to compile his monthly report from the daily record, 
and he is to preserve that daily record for 3 yeai*s at least or until 
authorized by the commission to destroy it. 

Mr. Pike. Of course, as Congressman Sumners said yesterday, one 
of the gravest duties imposed on the State tax authorities is to see 
that the person who pays his tax fully is protected against the one 
who is inclined to cheat, and you still have some real holes in admin- 

Mr. Strong. Oh, undoubtedly. This is a new thing. This whole 
motor-carrier industry has sprung up, as you well know, within the 
last 10 or 12 years, and it is just a matter of approaching it as intelli- 
gently and sensibly as you can and allowing the industry to grow 
in the manner in which it is entitled to grow and develop. 

Mr. Pike, It isn't that your home folks aren't as honest as the out- 
side ones ; you haven't any machinery for checking them up as well. 

Mr. Strong. That is about the situation. I think one is about as 
honest as the other. We attempt to treat them all alike. 

The particular function of the clearances through the ports of entry 
by the regularly certificated carrier is to provide a check up on the car- 
rier's mileage reports. From a practical standpoint, it would be dif- 
ficult, if not impossible, to have any idea whether his report was cor- 
rect if it were not for the availability of this check. 

We particularly ask that the committee note that the out-of-Stat« 
operator is subjected to no discriminatory treatment in this connec- 
tion. He has the same right to secure a permit; the requirements are 
no different for him than they are for the Kansas resident, except 
that he is required to appoint a resident agent to receive service of 
legal process. 

Mr. Pike. How does that one fit in, the occasional trucker? Is 
there some particular fellow whom he can appoint ? 

Mr. Strong. Yes ; I will come to that. This is the man who operates 
regularly with more or less frequency into the State, and he can qual- 
ify on exactly the same basis as the Kansas operator. The only thing 
is, being a nonresident, he does have to file a designation of agent. 
His permits are the same, his reports are the same; he files them 
monthly. It is the same basis. 

Acting Chairman Williams. .Does he have to designate that agent 
himself or does the law appoint somebody ? 

Mr. Strong. The general statute relating- to out-of -State operators 
provides for service on the secretary of state. The motor-carrier 
law specifically provides that a non-resident motor-carrier operator 
subject to the authority of the commission shall designate a resident 
agent, so we have a regular form of designation of agent that they 
send in. I think that if someone should fail to do this, we wouldn't give 
him a permit. But in manv of those old cases where they didn't, as 
this law has developed we feel that the citizens of the State are pro- 
tected due to the general code which provides that service may be 
had upon the secretary of state. 

Actmg Chairman Williams. That is what I would think. It seems 
to me the law would designate a certain official upon which service 
could be had, and avoid the necessity of having each individual who 
may not have an agent or may not know an a^ent, and would be put 
at some inconvenience to designate some individual for that pjirpose, 
do so. 


Mr. Strong. That is right. I think that is very true. However, 
we have had no particular difficulty. ' Our out-of -State operators, 
usually if they are in the State with sufficient frequency to obtain 
a permit from our commission, will have an office or a businessman 
or somebody, because they are doing business in the State. 

Mr. Pike. But usually it is somebody who handles his other busi- 
ness in the State? 

Mr. Strong. That is right; so we experience no difficulty in that 
respect at all. 

His mileage tax is figured on the same formula and amounts to 
identically the same tax payment per ton-mile operated as does that 
of the Kansas resident. The registered carrier from another State 
undergoes identically the same treatment at a port of entry as does 
the Kansas truckman. The ports of entry of the State of Kansas 
never have been, and are not in any way, instrumentalities of dis- 
crimination against carriers from 'other States. 

Quite to the contrary, the interstate operator has, in some respects, 
many advantages by virtue of the port-of -entry system. Unless 
he seeks to do purely intrastate business, he does not need to obtain 
Kansas license plates and pay the fee therefor^ While this fee 
is not large in comparison with those charged in other States which 
use this method as the principal means of collecting compensation 
for the use of their highways, nevertheless this does give to him 
somewhat of an economic advantage. 

As we mentioned a moment ago, there is another class of carrier 
affected by ports of entry. Out-of-State operators who desire to 
make only an occasional, or infrequent trip into or through the State 
of Kansas are afforded a method of securing clearances through 
the Kansas ports of entry without the necessity of first securing a 
permit from the State corporation commission. The port-of-entry 
law provides for and denotes them as "special permits" or as a 
"special clearance." These terms are syn».homous. To secure such 
a special clearance, an operator needs onlj ^o stop at the port of 
entry and state substantially the same facts as are required of car- 
riers clearing in the regular way. In substance, he must describe 
his vehicle, his destination, his cargo, and the route or distance that 
he expects to travel in the State. He. must likewise show that he has 
the necessary insurance in some company authorized to do business 
in Kansas. 

Mr. Pike. Is that any great good, Mr. Strong? I assume most in- 
surance companies are authorized to do business in the State. 

Mr. Strong. That is right. By that I mean this : that is like any 
out-of- State corporation that is authorized to do business in the State 
through the secretary of state's office. That follows the general law. 
As a matter of fact, the list of insurance companies authorized to do 
business in Kansas would take a dozen sheets. Practically every 
one I know does business in Kansas, and that is what this refers to. 

A man comes up with his insurance identification — a card is 
enough, he doesn't have to carry a policy. Now a Kansas operator 
has to file a policy; the out-of-state operator doesn't. If he has an 
insurance identification card and it should be in some company that 
no one ever heard of, or that wasn't admitted to do business in Kan- 
sas, obviously we would stop him and have him get in touch with 
his insurance company by phone and find out who they were, and if 


they weren't authorized to do business in Kansas, he would stay 
there. But I know of very few instances vvhere that has occurred 
because all the insurance companies do busin *'» Kansas. Most all 
of them are registered there. 

Upon making these necessary declarations and showing these facts, 
together with the fact that he is not making and has not made reg- 
ular trips into the State of Kansas and does not desire to become a 
regularly registered carrier in Kansas, he is entitled to such special 
permit or clearance upon the payment of the mileage tax. In these 
cases, the mileage tax is figured on a slightly different basis. The 
statute divides vehicles into three weight classifications, namely, 
those under 15,000 pounds, those over 15,000 pounds but under 25,000 
pounds, and those over 25,000 pounds. On these special clearances 
the tax imposed is li^, 2, or 3 cents per loaded mile, depending upon 
the gross weight of the vehicle and load, and the weight classification 
into which it falls. There is no application fee, delay, or other im- 
pediment placed in the operator's path. 

It will be noted that the rate of fees charged on these special clear- 
ances are slightly more than those charged the regularly licensed 
carrier. There is, however, this distinction — ^the legularly registered 
operator pays for all miles traveled, while the carrier operating 
under a special permit pays only for the loade^^ miles traveled. 
Empty mileage is not figured in ascertaining the tax under special 

Thus, an out-of-the-State operator seeking to make an occasional 
trip into or across the State of Kansas can come to its borders and 
in a few moments and upon the payment of a small tax based upon 
the loaded miles he will travel in the State, secure a valid grant of 
authority from the State to travel its highways. There are no for- 
malities or red tape in connection with securing this right. He is not 
required to make an application, pay a fee therefor, be present at 
any hearing, file any insurance, show the existence of any contract, 
or prove convenience and necessity, make any deposit to secure the 
payment of his tax, or do any other of the numerous things re- 
quired commonly by States in connection with their regular carriers. 

Acting Chairman Williams. Does he pay the tax right there? 

Mr. Strong. Yes. 

Acting Chairman Williams. Is that true in all cases? The truck 
pays the tax at the port of entry? 

Mr. Strong. That is right, that is the point exactly. At some 
expense we establish 76 agencies around the State and man them 
with 203 State employees to be out there at the borders of the State 
so that he doesn't have to file an application; he pays his mileage 
tax right there, based on his operation, and goes on about his business. 

Mr. Pike. You have no doubt that this system more than pays 
for itself, Mr. Strong? 

Mr. Strong. Yes; but not in the mileage collected. For every 50 
cents in fees we collect at the port for mileage tax on the occasional 
operator it costs us a dollar, money actually taken in, but on our 
tax response by virtue of these, and on our gasoline — I will come 
to that later and show you the importance of that — it is a big thing to 
the State. If you can prevent 1 percent tax evasion on gasoline fuel 
tax alone it amounts to $500,000. It costs us about $250,000 to operate 
these ports. 


In passing, we wish to note that under the Kansas act, the owner 
of livestock or the producer of farm products is exempt from the 
payment of the mileage tax, and this is equally true of Kansas 
residents and residents of other States. They are just simply exempt 
from all the provisions; they don't have to obtain insurance or do 
anything; they get loaded up on the highway and away they go. 
It is the same whether they come in from other States loaded with 
farm products; they are exempt just the same way. 

Similarly, persons transporting their own property where this 
property is not for sale, lease, or bailment, are totally exempt. In 
those cases, upon coming to a port of entry, the simple declaration 
of the facts will entitle the operator to an "exempt clearance" and 
a certificate to that effect is given which will permit the vehicle 
to proceed through the State without further explanation or delay. 
A few moments ago we spoke of the alteration of routes declared 
at the port of entrance, that is 'the man who gets into the State, 
he is cleared at the port, he is out in the middle of the State and 
gets a wire from headquarters, "You have got to go somewhere else," 
household movers and so forth. The regularly registered carrier, 
that is the man who has a permit, mav make such change when 
necessary, without any previous formality. That is obvious; he 
just reports it on his monthly mileage. On his monthly mileage 
report he simply reports the change in mileage total and notes the 
alteration on the carrier records he regularly keeps. Other methods 
of checking have been devised which effectively bar any material 
escaping of tax payment by this means, and we need not dwell 
upon them here, except to say that they are the same means used 
to check up on the purely intrastate carrier who has no occasion 
to ever clear through the ports; that is our auditing system. 

The carrier operating on a special permit having left the port 
of entry may alter his route by contacting a central port within 
the State, by mail, wire, or telephone, if desired, paying of the 
additional mileage tax if any, and securing an "extension" or amend- 
lent of his special permit. That is the office at Topeka. 
; Mr. Pike. If he is a couple of hundred miles from Topeka he may 
be up against a delay of 2 or 3 days, sending his tax money in, and 
so forth? 

Mr. Strong. No, sir; he would be out the expense of a telephone 
call to my office (we keep someone there all the time) giving the cer- 
tificate number on which he cleared through the port, which will have a 
description of his equipment and will control the tax bracket in which 
he falls. He states to us where he desires to go, the highways, 
whether he is going empty to pick up a load and going loaded so 
far, and we wire him an extension to clearance number so-and-so by 
way of highway so-and-so, upon receiving the tax money. He can 
wire the money in and we can wire him the clearance, and that wire, 
together with his certificate, which has the number on it, enables 
him to go right on. 
Mr. Pike. It might not be over an hour or so ? 
Mr. Strong. That is right. He does have the expense of that wire 
to us, under that system, the telephone call and the wire back to him, 
but that is the way we effect that. When for some reason he gets into 
^ the State and has to alter or vary his plans, he contacts the port 
"^ ,at Topeka, the central office there, otherwise he would never have any 


contact with us at all. This may be done in a few mii)utes and no 
special fee is required. He would just have to pay the additional 

As the committee has no doubt noticed, we have reiterated in sev- 
eral particulars the absolute similarity of treatment received by the 
Kansas operator and the out-of-the-State operator. Our purpose in 
so doing has been only to show that the Kansas ports of entry are 
in nowise intended or used to work a hardship upon carriers from 
other States or to raise a wall around the State which only the agile 
may scale. On the other hand, we believe this method is not only a 
valid exercise of the taxing and police powers of the State but also 
is a most reasonable and proper exercise of those powers. This 
method has been carefully developed for the purpose of expediting the 
flow of commerce, simplifying the requirements placed upon the car- 
riers, and adjusting the necessary tax load in the most equitable fash- 
ion. We sincerely trust that you will bear in mind that with the sole 
exception of the inspection of petroleum products and the sealing of 
intoxicating liquor shipments, there is created by the Kansas ports of, 
entry no embargoes, no inspections, and no harassment of the ship- 
ping public. 

In passing, allow me to mention again a feature of the control im- 
posed as it affects the oil industry. Kansas is a large oil-producing 
State, and it exports approximately 60 percent of its outpyt. 
Roughly, two-thirds of this moves by motor vehicle. Through other 
branches of the State government, refinery agents are stationed at the 
refineries and distributing points. Cooperating with the ports of 
entry, checks are made of loads for export from the State leaving 
those points by truck and such loads are sealed at the loading point. 
A corresponding check is made at the port of exit, and any tampering 
with seal or load detected. Further, the ports of entry and other co- 
operating departments furnish the information gained by these vari- 
ous tests in Kansas to officers of other States to assist in safeguarding 
the quality of these products of the State from adulteration or pil- 
ferage in transit. 

Mr. Pike. Also the quantity. 

Mr. Strong. That is right, to see that it isn't dumped in the State 
of Kansas and thus avoid the tax. We furnish Missouri, Nebraska, 
and all surrounding States, any State to which it is consigned — that 
is, their oil inspection and highway departments — with a copy of that 
refinery invoice; it doesn't make any difference where it is going, 
every State gets a copy; whether they want it or not we send it to 

It is the sincere belief of the Kansas port of entry officials that our 
ports are not in anywise a barrier to trade. 

The matter of the consideration of the practical operation of ports 
of entry is not entirely new. Various conferences in connection with 
trade barriers have considered the question, as this committee is 
doubtless aware, and the system of operation in use by the State of 
Kansas has yet to be criticized or found to constitute a trade barrier 
by any of these conferences in which the Kansas port of entry law 
has been analyzed and discussed. 

At the risk of boring the committee, I should like to refer briefly 
to just one of these conference reports. The Western States Trade 


Barrier Conference, held under the auspices of the Colorado State 
Chamber of Commerce at Denver, Colo., September 28 and 29, 1939, 
at which conference 10 Midwestern States, including the State of 
Kansas, were represented, adopted the following resolution : 

♦ * * Be it resolved, that this conference go on record as declaring that 
Ports of Entry in the states presented here .do not constitute trade barriers 
within the meaning as defined by the Council of State Governments, and 

Be it further resolved, that this conference go on record as endorsing the 
operation of Ports-of-Entry in the several western states represented until such 
time as a better or more economical system be devised for collecting taxes 
justly levied against interstate and intrastate operators alike for the mainte- 
nance and construction of highways. 

Surely the States in closest contact with the operation of the system 
in question should be best able to judge of its effects on the traffic 
moving between these States. The attention of the committee is 
respectfully drawn to the fact that in no instance, where opportunity 
for full and complete consideration and discussion has been afforded, 
has there been an adverse report on the port-of -entry system as oper- 
ated and administered in Kansas. 

Situated in the geographical center of the United States, her fertile 
plains crossed by many miles of Federal and State highways, Kan- 
sas, at the crossroads of America, welcomes the commerce of the 
Nation, realizing that "trade" means "exchange," and that if she is 
to market the products of her fields, mines, and factories she may do 
so only when she freely receives the products of her sister States. 

It is hoped that out of this hearing will come a clarification of 
home erroneous conceptions of the operation of port of entry or 
registration stations, which have from time to time found expression 
in articles prepared by persons who have not been fully familiar with 
the operation and purposes of these agencies. 

Acting Chairman Williams. Does your law prohibit or place any 
limitation on the size and capacity, height, length, and so on of 
trucks ? 

Mr. Strong. Yes; we have some load limitations in our regular 
motor-vehicle law of the State. 

Acting Chairman Williams. If one of those trucks comes to a port 
of entry it would not be admitted, would it ? 

Mr. Strong. Yes. 

Acting Chairman Williams. It could be admitted? 

Mr. Strong. Yes, sir ; under the regulations of the State highway 
commission and under the State highway-commission law. You see, 
we have the State vehicle law, the port-of -entry law, the .Kansas 
motor-carrier law, and the State highway-commission law. The 
State highway commission is authorized to issue overload and over- 
weight permits at each port of entry. The attendants are provided 
with those forms of permits. We have lots of large oversized agri- 
cultural machinery, these big combines and things, and they have to 
be moved over the highways. That is to take care of them. The way 
they do that is to move them during certain daylight hours and 
under the supervision of a highway patrolman. When a man like 
that who has too big a load comes to the Kansas port, he must pay 
for a call to Topeka to get authority for the port attendant to issue 
that special overweight permit. We have nothing to do with that. 
That is purely a policing function. Then if there isn't a highway 
patrolman there, he takes that slip and can proceed on the highway 


until he meets the nearest highway patrolman, who supervises the 
movement to its destination. 

Acting Chairman Williams. Then a truck of any size could obtain 
a permit? 

Mr. Strong. I think so, provided 

Acting Chairman Williams (interposing). You have limitations 
but you make exceptions and issue a speci'^l permit for that purpose. 

Mr. Strong. The highway department issue that permit. We have 
no fee or charge. 

Acting Chairman Williams. In that way there is no holding up of 
that particular kind of traffic, it is permitted to go on? 

Mr. Strong. That is correct. 

Acting Chairman Williams. That has been the practice and that is 
the practice ? 

Mr. Strong. Yes; that is the actual practice now. Prior to a 
couple of months ago those men would have to get in touch with 
the director of highways at Topeka before they could proceed, and 
have a highway patrolman come there and escort them where they* 
v^ere going, but we have placed those now at all these ports and so 
the port-of -entry attendant merely calls the office to show that cer- 
tificate number so-and-so has been issued. It has nothing to do with 
the tax or anything of that sort. 

Mr. Pike. You have made the administration fit in better with 
the facts of traffic as you find them. 

Mr. Strong. That is right, and we still have some way to go. I said 
there is no limitation. There is. For instance, a man could come up 
to a port of entry with, say, sixty or seventy thousand pounds on a 
single-axle vehicle or something of that sort. There is a limit on it. 
We tell him, "Why no, you can't come in," 

Mr. Pike. He probably couldn't get that through any of your bor- 
der States. 

Mr. Strong. I don't know whether he could or not. Some of them 
are pretty liberal. Our weights are graduated, if he has a single axle 
or double axle or dual wheels. In Kansas, I expect there are means 
of arranging for equipment to haul almost anything. We move 
these big storage tanks in the pil fields.^ We have so much heavy oil- 
field equipment, we have heavy trucks that look like flat cars that those 
operators use. 

Of course, they have the proper number of tires under them and 
the proper construction, so there is a limitation in that it has to be 
constructed in a certain way and a certain amount of tire space under 
it, but we hardly ever get one that has too big a load for the equipment 
that he can get in the State. 

Mr. Pike. That would be in the discretion of your highway depart- 
ment. If they really thought, properly handled, it wouldn't cause 
excessive damage to your roads, they wouldn't object. 

Mr. Strong. That is right. If it is too wide, a big combine or 
some other piece of machinery, under the highw^ay law they have a 
means of issuing a daytime permit so they will just move between cer- 
tain daylight hours, and under the supervision of patrolmen. That 
is just for emergency cases. 

Mr. Pike. What would be your recommend. ittion or feeling about, 
say, all the States adopting a similar provision? ' 


Mr. Strong. I think the time is coming when the Federal Govern- 
ment, if the States don't do it, will set up ports at every State bor- 
der, but they will be joint ports. That is the thing that we find. For 
instance, with the State of Colorado, we are working very closely with 
that State. They have only seven or eight ports out there, and they 
have a real problem. "We exchange our port-of-entry slips in check- 
ing weights. We have so much oiflEiculfy in the improper reporting 
of weights, and out there Mr. Ridell is attempting to get his legisla- 
ture to establish more ports, and I am attempting to get my legisla- 
ture to work with him on the idea of joint ports, so there will be one 
port where they can go through and clear everything they need, and 
I think that until we have a picture like that, where all the States 
realize it, we are always going to have this difficulty. 

Our approach to it is simply this, to facilitate that movement as 
much as possible, and you can't do it by staying at home in your 
State capital. You have to get out where those boys are, and help 
them through, and that is the theory on which our ports are operated. 

Acting Chairman Williams. Mr. Strong, we thank you, and en- 
joyed and were very highly benefited by your presentation. 

Will you call the next witness, Mr. Donoho ? 

(The witness, Mr. Strong, was excused.) 

Mr. DoNOHO. Mr. Taylor, will you come forward, please ? 

Acting Chairman Williams. Will you be sworn, Mr. Taylor? 

Do you solemnly swear the testimony you are about to give in the 
matter now pending shall be the truth, the whole truth, and nothing 
but the truth, so help you God ? 

Mr. Taylor. I do. 



Mr. DoNOHO. Will you state your name and address, please? 

Mr. Taylor. Greyton H. Taylor, Hammondsport, N. Y. 

Mr. DoNOHO. What is your business, Mr. Taylor ? 

Mr. Taylor. We grow grapes, make and sell wine; we do business 
in about 32 States. 

Mr. DoNOHO. You are, are you not, the president of the Taylor 
Wine Co. and also president of the Finger Lakes Wine Growers 
Association ? 

Mr. Taylor. Yes, sir. I also represent the Wine Institute of Cali- 
fornia, for whom I have been asked to speak. 

Mr. D-ONOHO. You are representing the Institute here at these 
proceedings ? 

Mr. Taylor. Yes, sir. 

Mr. DoNOHO. Mr. Taylor, how long have you been connected with 
the wine industry? 

Mr. Taylor. Our family has been connected with the wine industry 
since 1880. My two brothers and myself are the third generation 
in the business at Hammondsport. 

Mr. DoNOHo. What is the extent of your business, Mr. Taylor? 

Mr. Taylor. We do business in about 33 States at the present time. 


Mr. DoNOHO. How many vineyardists are there in your part of 
New York? 

Mr. Taylor. There are approximately 1,200 vineyardists, people 
connected with the growing and producing of wine grapes in our 

Mr. DoNOHO. Mr, Taylor, do you know anything about the wine 
industry in other parts of the -United States ? 

Mr. Taylor. Wine is produced in 32 other States. There is an 
estimated 150,000 people who earn their livelihood as vineyardists, 
winer}' workers, and persons employed in allied industries. 

Mr. DoNOHO. Mr. Taylor, as president of the Finger Lakes Wine 
Growers Association and president of the Taylor Wine Co., I pre- 
sume that you are familiar with the problems of the wine industry ? 

Mr. Taylor. Yes, sir. 

Mr. DoNOHO. Including those problems relating to trade barriers? 

Mr. Taylor. Yes, sir. 

Mr. DoNOHO. Mr. Taylor, what are these trade barriers, as they 
affect your industry? 

Mr. Taylor. Why, these interstate trade barriers are divided into 
three major classifications: taxes, licenses, and distribution. 

Mr. DoNOHO. Please elaborate on the tax discrimination. 

Mr. Taylor. Why, tax discrimination takes the form of States hav- 
ing higher taxes on wines produced outside of the State as compared 
with wines produced within the State. For example, in Arkansas 
tliere is a tax of 50 cents a gallon on wines produced outside of the 
State as compared to 5 cents a gallon on wunes produced in the State. 
Then, in Michigan, they have a tax of 50 cents a gallon on out-of-State 
wines as compared to 4 cents a gallon on Michigan-made wines where 
' the vineyardist is paid $55 a ton for grapes. 

In Georgia there is a tax of 60 cents a gallon and 40 cents a gallon 
on out-of-State wines as compared with 30 cents and 5 cents on 
Georgia-made wines. 

Mr. DoNOHO. Mr. Taylor, would you care to make your statement 
more specific? Just how do these tax discriminations affect you in 
your business? 

Mr. Taylor. Why, naturally these tax discriminations make the 
price of our wines anywhere from 25 to 50 percent more per bottle'in. 
that particular State as compared to local wines of the same kind and 

Mr. DoNOHO. Mr. Taylor, you mentioned license requirements as 
constituting barriers to your product. Would you explain that, please. 

Mr. Taylor. The State of Colorado has a license of $1,000 a year 
which an out-of-State winery must take out in order to ship wine into 
iJie State of Colorado. Other States, such as Michigan, have a $250 
license; Massachusetts, a $300 license to solicit business in the State; 
and Missouri, a $100-a-year license. 

Mr. DoNOHO. Just how do these license requirements specifically 
affect your business, Mr. Taylor? 

Mr. Taylor. It makes our cost of doing business in that State very 
much more, and if all of the States where we do business had a tax. 
such as there is in Colorado, it would cost us $33,000 a year just in 
State licfenses. If this were the case, we naturally couldn't afford to 
do business on a Nation-wide scale, as we now are. 


Mr. DoNOHO. These license requirements to which you have referred 
mean that they must be paid before you can go into the State at all, 
before you can do any business? 

Mr. Tayix)r. Yes, sir. 

Mr. DoNOHO. That is in addition to any tax\which might be placed 
on your product after you get in the State ? 

Mr. Taylor. Yes, sir. 

Acting Chairman Williams. Does that mean you can't do business 
at all, that you can't sell your products in those States, without the 
license ? 

Mr. Taylor. In Colorado we cannot sell or solicit any business in 
that State without first taking out a $l,O0O-a-year license. 

Acting Chairman Williams. What kind of license do they charge 
the local operators? 

Mr. Taylor. I don't have those figures. 

Acting Chairman Williams. What, I mean is this, whether or not 
they charge a different license for the outsiders from what they 
charge a person on the inside, the local producer and operator. I 
don't care to go into the entire field of it, but the idea is whether 
or not that is a discriminatory license. 

Mr. Taylor. That usually is the case where they have these licenses. 
The out-of-State firm is charged more than the producers in the 

Mr. DoNOHO. If Mr. Taylor will refer to his data there, I think he 
can give you that information. 

Mr. Taylor. The license fee to solicit for orders, sell and/or ship 
out-of-State wine into Colorado is $1,000 per year. To solicit orders 
and to sell Colorado-produced wine, $250 per year. 

Mr. DoNOHO. Is that discrimination general? 

Mr. Taylor. In my opinion, yes; that is discrimination. 

Mr. DoNOHO. And that is general throughout the country; that is, 
the differences in license requirements of out-of-State wine shippers 
and sellers of wine produced in the State? 

Mr. Taylor. Yes; there are a number of States that have that 
same— of course it is not the same amount, but the same type of 
license discrimination. 

Mr. Pike. I noticed, Mr. Taylor, that several of these States have 
these discriminatory license fees and taxes. Some of thcin I never 
heard of as wine-producing States at all. 

Mr. Taylor. Well, there are over 30 wine-producing States. Some 
of them are not large. The largest ones, of course, are California, 
New York, New Jersey, and Ohio, but there is wine produced, such 
as in Florida and various other States, out of either berries or citrus 
fruits, and also including grapes. 

Mr. Pike. My State of Maine, I notice, has a discriminatory tax, 
and I can't get any grapes to grow at my home. They won't matiire. 
I never heard of any wine being made there, still it has a dis- 
criminatory feature in favor of home-grown products. I wondered 
if they perhaps referred to cider, of which we are a fairly large 

Mr. Taylor. They may have had in mind some sort of fruit wine. 

Mr. DoNOHO. In that connection, wine can be made from apples, 
can it not? 


Mr, Tatix)R. Yes; if it is properly qualified as apple wine; or it 
can be made from blackberries if it is properly qualified as black- 
berry wine. 

Acting Chairman Williams. Are your wineries widely distributed, 
or are they confined to one locality ? 

Mr. Taylor. Our wines 

Acting Chairman Williams (interposing). Your factories, where 
you are producing the wine. 

Mr. Taylor. Oh, yes; they are widely distributed, mostly in grape 

Mr. Pike. I think the chairman meant your own. 

Mr. Taylor. We have just one winery, located at Hammondsport, 
N. Y., in the Finger Lakes district of central New York State. 

Acting Chairman Williams. And from that point you distribute 
throughout the entire country ? 

Mr. Taylor. That is right, in 33 States. 

Acting Chairman Williams. Is there a special tax on the winery 
too? • 

Mr. Taylor. Of course, we operate our winery under a New York 
State license, but there is no Federal tax, internal-revenue tax, on a 
winery. We are under a bond to the Federal Government which all 
winery premises are. 

Acting Chairman Williams. For what purpose? 

Mr. Taylor. That is to insure the Government that they will re- 
ceive the Government excise tax on wine when it is removed from 
the winery. 

Acting Chairman Williams. And that tax, of course, is applicaWe 
to all wineries? 

Mr. Tayix)r. That is right. 

Acting Chairman Williams. The same throughout the entire 
country. That is an excise tax that is levied against all of them, 
regardless of the location. 

Mr. Taylor. That is right. 

Acting Chairman Williams. That is all. 

Mr. DoNOHO. Are there other types of license requirements which 
you consider discriminatory? 

Mr. Taylor. Yes; this also reaches into the retail field. In Ar- 
kansas, for example, a retailer in Arkansas can sell Arkansas-made 
, wines at a license fee of $15 a- year, while a retailer who sells out- 
of-State wines is required to take out a $400-a-year license. 

Mr. DoNOHO. You have discussed discrimination with respect to 
taxes and with respect to licenses. You mentioned discrimination 
with respect to distribution. Will you. please explain that to he 
committee ? 

Mr. Taylor. There are two good examples of discrimination on 
distribution. In the State of Washington, for instance, local wines 
can be sold there and distributed through privately owned retail 
outlets. Out-of-State wines, such as our New York State wines, must 
be sold to the liquor-control board. Tliey, in turn, take our prices 
and mark them up 78 percent before they are turned over to the re- 
tailer. This means that our wines have an added price of about 50 
cents a bottle. This puts us at the start in a very unfair competitive 


Mr. Pike. It would be the same for California wines, all out-of- 
State wines? 

Mr. Taylor. Oh, yes. 

Mr. DoNOHO. Would you explain the situation in this connection? 

Mr. Taylor, In Michigan, their State law defines wines of over 16 
percent of alcohol by volume as distilled spirits. Wines under 16 
percent, according to the Michigan law, are allowed to be sold through 
privately owned stores. Well, now, for instance, our standard sweet 
wines, such as port and sherry, which we make in accordance with the 
Federal Rules and Regulations, cannot be shipped in interstate com- 
merce unless they contain more than 17 percent of alcohol. That 
means that we must sell our wines to the State liquor control com- 
mission for distribution through the stores. Well, we have been un- 
successful in getting our wines listed, which means we are prohibited 
entirely from selling our wines in the State of Michigan. 

Mr. DoNOHO. What reasons are given, Mr. Taylor, for not listing 
your wines? 

Mr. Taylor. It is done by administrative authority. Sometimes 
I hardly blame them, because the sale of wines through the State 
liquor stores is very limited, because the bulk of the wines are sold 
through the privately owned stores. Therefore, they take the posi- 
tion that there isn't sufficient volume for our standard wines to be 
sold through the stores, and I presume that is the reason they don't 
list them. 

Mr. Pike. They have a < uplicate system in Michigan — State stores 
and privately owned? 

Mr. Taylor. Yes, sir. 

Acting Chairman Williams. Have we any monopolv stores as ap- 
plied to wine? . 

Mr. Taylor. Yes ; in Pennsylvania. 

Mr. Pike. In Maine, too. 

Mr. Taylor. Several States — West Virginia. 

Acting Chairman Williams. Wliere you have that system do you 
have any trouble ? 

Mr Taylor. We enjoy a very good sale of our wines in the States of 
Maine, Pennsylvania, West Virginia, and these other monopoly sys- 

Acting Chairman Williams. It is just a matter of advertising and 
persuading the board to buy your product? 

Mr. Taylor. After you get your wines into the State then you have 
to sell them through advertising -yes. 

Acting Chairman Williams. But the point in my mind ig whether 
you come in in that respect on an equality with the home products. 

Mr. Taylor. I don't think so. You take in the State of Michigan, 
the bulk of the wines that are sold are under 16 percent because they 
are sold through privately owned stores and, therefore, are more 
widely distributed. A number of State liquor stores don't even handle 

Mr. Pike. Sixteen percent is the cut-off above which private stores 
can't handle wine ? 

Mr. Taylor. That is right, because wines there are classed as dis- 
tilled spirits. 

Mr. DoNOHO. Mr. Taylor, do you have these types of discriminatory 
laws in New York ? 


Mr. Taylor. We do not. 

Mr. DoNOHO. Are you in favor of such laws in New York? 

Mr. Taylor. No, sir. 

Mr. DoNOHO, Why ? 

Mr. Taylor. Wliy, even though New York State is considered the 
most concentrated and the largest wine market in the world, we feel 
that should we in the grape" and wine industry put up trade barriers 
and create a monopoly for our products, we w^ould in time be retaliated 
against by other States, and we would soon lose our Nation-wide 
business in these other States. 

Acting Chairman Williams. You seem to be discriminated against 
the way it is, according to your testimony here. 

Mr. Taylor. Yes ; we are, in certain States. 

Acting Chairman Williams. How do you account for that? 

Mr. Taylor. I think it is due, perhaps, to the interest of the local 
grape grower and the winery ; they feel that if they can enact some 
law which would protect their own industry they would sell more 
of their products. But usually that isn't the case. It doesn't work 
out that way, because it makes the cost of wine higher to the con- 
sumer and it more or less restricts the sale of wine, we have found. 

Mr. DoNOHO. Have there been any discriminatory laws proposed 
in New York State? 

Mr. Taylor. Yes; only about 2 weeks ago there was a bill in the 
assembly which would place a tax of 20 cents a gallon on out-of-State 
wines as compared to 10 cents a gallon on New York State wines. 
This bill was opposed^ by our association and other people in the 
State and was killed in committee. 

Acting Chairman Williams. Who was back of that kind of meas- 
ure in New York if the wine industry was against it ? 

Mr. Taylor. Well, it was put in by a man named Congdon, down 
in the Hudson Valley district. I haven't been able to find out who 
he was putting that bill in for. 

Acting Chairman Williams. I was just wondering what interests 
would be back of that kind of measure when the local wine producers 
didn't want it themselves. 

Mr. Taylor. Our association is in the Finger Lakes district, up- 
State, which is the largest wine-growing section in the State, and 
there are some grapes grown along the Hudson Valley outside of 
New York. I don't know why or for whom that bill was put in. 

Acting Chairman Williams. Unless it could possibly be that it 
was put in as a revenue-producing measure, 

Mr. Taylor. It may have been. There have been in the past bills 
of this nature, but we have always been successful in defeating them. 

Acting Chairman Williams. That would be the ostensible pur- 
pose, wouldn't it, simply as a revenue measure? 

Mr. Taylor. Yes ; and also for the possible protection of the grape 
industry in the State; yes. 

Acting Chairman Williams. That would probably be in the back- 

Mr. Taylor. It might. 

Mr. Pike. Of course, I think it is fair to say, subject to correction, 
that your district is known as a district of very high-quality wines 
rather than a great quantity-producing district. 

Mr. Taylor. That is right. 

124491— 41— pt.29 20 


Mr. Pike. So that your national market is much more important 
possibly to the Finger Lakes district than it might be to some other 
districts which produced great quantities of grapes, but where the 
wines didn't have any particular reputation and would almost surely 
be consumed locally. 

Mr. Taylor. Our district doesn't produce a large volume of wines 
in gallons ; we do produce, in that section, from 60 to 70' percent of all 
the fermented-in-the-bottle champagne produced in the United States. 

Mr. DoNOHO. Mr. Taylor, what are your recommendations regard- 
ing trade barriers? 

Mr. TAYiiOR. Why, we are very much encouraged with the progress 
which has been made by the Council of State Governments, and felt 
that we would like to bring this matter to the attention of this com- 
mittee and perhaps we might, in the future, be able to reduce or do 
away with some of these trade barriers and could stop other States 
from going into this type of discrimination. 

Mr, Pike. Again you are trying to leave it up to legislative good 
sense rather than questioning their powers to do what they have done. 

Mr. Taylor. Well, of course we in the industry have done a lot 
toward working to do away with these trade barriers. 

Acting Chairman Williams. You recognize, I think, as we all do, 
that that is necessarily a question for State governments. 

Mr. Taylor. Yes; it is. 

Acting Chairman Williams. Especially as applied to intoxicating 
liquor under the twenty-first amendment, the Congress would have, as 
I conceive it, absolutely no jurisdiction over that. 

Mr. Taylor. Yes, sir. 

Mr. DoNOHO. Have you anything further to say, Mr. Taylor? 

Mr. Taylor. On behalf , of the Finger Lakes Wine Growers' Associ- 
ation and Wine Institute of California I would like to file a summary 
of the existing trade barriers. 

Mr. DoNOHo. This is a summary of State laws which in your. opinion 
constitute trade barriers to your products? 

Mr. Taylor. Yes, sir. 

Mr. DoNOHO. Mr. Chairman, I offer this tabulation for the record. 

Acting Chairman Williams. It may be received. 

(The brief referred to was marked "Exhibit Ko. 2408" and is on file 
with the committee.) 

Acting Chairman Williams. Have you anything further ? 

Mr. Taylor. No, sir. 

Acting Chairman Williams. Are there any further questions? 

Mr. DoNOHO. Mr. Chairman, I have here three briefs which I would 
like to offer for the files of the committee. These briefs represent 
statements by interested groups in the liquor industry. One brief is 
on behalf of the United States Brewers' Association, another is on 
behalf of the Distilled Spirits Institute of Washington, the other is 
on behalf of the National Association of Alcoholic Beverage Importers. 
I might state here that Mr. John E. O'Neill, technical assistant to the 
Administrator of the Federal Alcohol Administration, has read these 
briefs and considers them accurate. 

Acting Chairman Williams. And pertinent to this issue? 

Mr. DoNoHo. Yes, sir. 

Acting Chairman Williams. They may be received for the files. 


(The briefs referred to were marked "Exhibit No. 2409" and are on 
file with the committee.) 

Mr, DoNOHO. I have no further questions, Mr. Cliairman. 

Acting Chairman Williams. We thank you, Mr. Taylor. 

(The witness, Mr. Taylor, was excused.) 

Acting Chairman Williams. The committee will be in recess until 
2 : 30. 

(Whereupon, at 12:35 p. m. the hearing recessed until 2:30 p. m. 
of the same day.) 


The hearing was resumed at 2 : 40 p. m. upon the expiration of the 
recess, Mr. Pike presiding. 

Acting Chairman Pike. The committee will please come to order. 

Mr. DoNOHo, Will you come forward, please, Mr. Lawrence? 

Acting Chairman Pike. Do you solemnly swear the testimony you 
shall give in these proceedings shall be the truth, the whole truth, and 
nothing but the truth, so held you God ? 

Mr. Lawrence. I do. 



Mr. DoNOHo. Will you state your name and address, please? 

Mr. Lawrence. My name is John V. Lawrence, wnth business address 
at 1013 Sixteenth Street, Washington, D. C. 

Mr. DoNOHO. What is your position, Mr. Lawrence ? 

Mr. Lawrence. I am general manager of American Trucking As- 
sociations, Inc., which has headquarters in this city. 

Mr. DoNOHO. Mr. Lawrence, will you briefly describe your organiza- 
tion and its purpose ? 

Mr. Lawrence. As to our organization, it is a federation of different 
associations, some 51 in number, in the various States, the District 
of Columbia, and the Territory of Hawaii. It is composed of all 
types of motor carriers, large and small, both private and for hire, 
and a rather fulsome questionnaire has been turned in to the Trade 
Association Section of the Department of Commerce under direction 
of this committee. 

Mr. DoNOHo. Mr. Lawrence, I would like to ask you in a little more 
detail some of the facts regarding your organization. How man^ per- 
sons are employed in the trucking industry in this country ? 

Mr. Lawrence. We have, according to the latest estimate available, 
which we entered in testimony on H. R. 2531 a year ago, and which 
was concurred in by the Bureau of Motor Carriers of the Interstate 
Commerce Commission by letter, 3,545,000 men and women employed 
in all branches of the trucking industry, with the exception, of course, 
of those who have employment in the million-odd trucks operated by 
farmers, who are not included in that estimate. 

Mr. DoNOHo. Is the trucking industry composed mainly of small or 
large operators? 

Mr. Lawrence. It is largely composed of small operators. In fact, 
we were the administrative agency of the N. R. A. Code for the Truck- 


ing Industry, and by a fulsome survey at that time of the for-hire 
branch, we found the average ownership was 1.6 vehicles. That has 
increased somewhat, but not much over 2. 

Mr. DoNOHO. Mr. Lawrence, how does the tonnage hauled by trucks 
compare with the total tonnage moved by other forms of transpor- 
tation ? 

Mr. Lawrence. There have been various estimates made on that. 
Col. Leonard P. Ayers, of the Cleveland Trust Co., about a year and a 
half ago issued a rather fulsome study which showed just about 5 
percent of the total intercity tonnage moved by motortrucK. That was 
both private and for-hire trucks. The highest estimate runs about 8 
percent. The fifty-third annual report of the Interstate Commerce 
Commission contains such a figure. 

Acting Chairman Pike. Does that mean ton-miles? 

Mr. Lawrence. In ton-miles ; yes, sir. 

Mr. DoNOHO. Mr. Lawrence, is the business done by trucks busi- 
ness which has been largely diverted from other forms of trans- 
portation or, in your opinion, does it represent new business to which 
other forms of transportation are not adapted? 

Mr. Lawrence. We would say that a great portion of that is what 
we might call created tonnage; in other words, new tonnage moved 
by this form of transportation that could not move before. 

Mr. DoNOHO. Would you give the committee an example of this 
new tonnage to which you refer ? 

Mr. Lawrence. To speak oflfhand, first of all a survey made about 
4 to 5 years ago by the Automobile Manufacturers Association 
showed that of the 122,000 communities in this country, slightly over 
'48,000 are not served by rail lines. A lot of this tonnage moves at 
points of that type. We have an increase in tonnage resulting from 
the decentralization of industry. About a year ago in the January 
14 issue of Traffic World in 1939, Mr. S. R. Truesdell, who is as- 
sistant to the president of -the Chicago & North Western Railroad, 
published a paper showing that bj^ his estimates^ this shrinking in 
long-haul tonnage by decentralization of industries, the moving of 
plants from the North to the South, or from the East to the West, 
had resulted in the shrinking of about $1,000,000,000 of revenue a 

From those branch plants, with the increased activity there, the 
distribution is by short haul and tKat naturally is where the truck 
is at its best. 

Mr. Pike. You would hardly describe that as created tonnage, but 
more or less salvaged tonnage, the tonnage that is lost by the rail- 

Mr. Lawrence. Disappeared in the long haul, possibly, and cre- 
ated in the short haul. 

Mr. Pike. The tons are still there but the ton-miles have decreased. 

Mr. Lawrence. That is probably correct, sir. 

We have other examples. Take, for instance, the Southeast. Since 
1865 and up to the last generation capital has been q^uite scarce in 
the Carolinas and other States. Drug specialties, for instance, were 
never carried in drug stores in that territory because the investment 
involved was too heavy. Second morning delivery service in small 
lot shipments was furnished in those stores and those articles which 
were not known in the stores suddenly appeared on their shelves; 


they didn't have to tie up capital. We find fresh fruits and vegetables 
moving by truck. It has been testified in the Commission proceedings 
and oiher proceedings that it takes a town of possibly 20,000 to absorb 
a refrigerator carload of perishables of that kind. In the smaller 
towns and villages throughout the country this small unit form of 
refrigerator transportation has brought those products there. We 
have cases, for instance, of oysters that were never found in Mid- 
Western towns except in the larger places, and now trucks taking 
them out of the Chesapeake here ; they have a short route after they 
have run several hundred miles into the interior, and in a couple 
of hours they are able to unload 5, 8, 10 tons of them, 1,000 pounds 
here, 800 there, and so forth, in very rapid order, so that oysters 
and seafood have appeared in those towns that never had them 

Livestock: We find a great increase in the transportation of live- 
stock. In the Hours of Service case before the Interstate Commerce 
Commission it was shown that shrinkage on carloads of livestock 
would run from $25 to $40 per carload while they were in transit. 
Under this mode — a couple of hundred miles — they are delivered 
over night with practically no shrinkage. Secondly, there was no 
necessity to order cars and wait 24 hours for them. The truck was 
right at the door and started them, saving that extra 24 hours in change 
in markets. 

We find another important branch of the industry is film hauling. 
It brings films almost instantaneously to every small town in the 
country. They operate in a different way than others. The drivers 
have the keys and after the theaters are closed down around mid- 
night, maybe along toward 2 o'clock in the morning, the driver will 
appear with the keys, open the theater, change the films, and he is 
on to the next town. Those carriers pay a penalty for every show 
they miss, so they naturally are right on their toes every moment 
to deliver the films. 

Furniture moving: We find that for distances of 250 miles fur- 
niture can be carried for less than the cost of even crating it for any 
other form of transportation, and it is done economically up to 1,500 
miles or more. We find silk rolling into New York out of the South- 
east, for instance, and if you were on some of the sidewalk streets 
there along toward 6:30, in the garment center, you would find men 
and boys who are hired to sit on the curb and keep their feet in the 
road ; they are holding a parking space for a truck coming right in on 
schedule. It has come over 500 miles, and within 90 minutes after 
it begins to unload that silk is on the table being cut into women's 
dresses and other artilces. 

Gasoline: We drive out of here on a Saturday afternoon to An- 
napolis, maybe, for a football game, and no one imagines the job it 
is to have that gasoline in the tanks along the road; it is by close 
coordination between the transportation end and the sales organiza- 
tion of the oil distributor that it is placed there. 

Really, in summing up, to bring out that thought, probably one 
has only to compare the old-time country store with its few staples, 
largely in barrels, and so forth, with the present store of today which 
has almost every trade-marked article on its shelves. 

Mr. DoNOHO. Mr. Lawrence, you have given the committee a pic- 
ture of your industry and its place in our economy. W 'uld you 


develop the relationship between the trade barrier problem and your 
industry ? 

Mr. Lawrence. Mr. Donobo, there has been called to my mind in 
connection with this trade-barrier problem a statement made by the 
late Secretary of the Navy, then Senator Claude Swanson, of Virginia, 
when the Federal-aid bill was being discussed in the Congress back in 
1921. At that time the then Senator Swanson said that this country 
was paying an annual mud tax of $700,000,000. Now we have in 
those 19 years that have intervened, hard-surfaced roads crisscrossing 
the county from end to end, but there is still a great deal of that mud 
tax left and it results from this mire of conflicting laws that govern 
the operation of trucks in the country. 

Just as one example, I would like to tell of a contractor, a man 
from Wisconsin, who was leasing certain equipment to another con- 
tractor working on the Dixie Highway between Louisville and Fort 
Knox, Ky. There were two trucks that left Wisconsin, extra trucks 
needed ; they carried nothing. The drivers, in the gentleman's own 
words, were fine, upstanding young men. They had some expense 
money with them to pay such transit taxes as they might have to pay 
on the way through. 

But about 3 days later word came from Scottsburg, Ind., that the 
two of them were in jail. They had to pay various fees, and just 
as a list of those, they had to take out Indiana licenses for a 6 
months' period, and they cost $67; they had fines, and the cost of 
wiring money to the sheriff of Spott County to get these men out of 
jail cost $39.61. 

Acting Chairman Pike. That is for starting to drive through 
Indiana without a license? 

Mr. Lawrence. Without an Indiana license, but registered prop- 
erly in their own State. 

Acting Chairman Pike. They had to buy it and then pay a fine, 

Mr. Lawrence. That is correct, sir. 

In addition they had some telephone bills and other things of $16 ; 
there were $122 in costs to take those two trucks through. In addition 
to the loss of the mens' time they had to be paid while they were in jail 
and in trouble. 

The complainant in this case said the sheriff and his brother offi- 
cers were most polite, but they said no reciprocity existed, the law 
said they had to charge them, and that is all there was to it. There 
was no reciprocity between their home State and the State of 

Mr. DoNOHo. What are some of the more important of these trade 
barriers as they affect trucking, Mr. Lawrence? 

Mr. Lawrence. Probably first and foremost is the matter of weight 
and size of vehicles that are restricted unduly in certain States, the 
lack of reciprocity between States, conflicting lighting and other safety 
appliance requirements; ports-qf -entry give us some trouble. Then, 
too, there are burdensome steps that have to be taken by a carrier in 
order to enter a State. 

Mr. DoNOHO. You refer to weight limitations with respect to trucks. 
Would you develop that, please. Mr. Lawrence? 

Mr. Lawrence. Well. I have here a study on a chart which covers 
tlie State gross-weight limits for motor trucks on a gross-weight basis, 


and the source ^ is a publication of the United States Depart- 
ment of AgricuUure. These bars have been brought up to date to 
reflect one or two changes that have occurred in the laws since that 
was published. 
Mr. DoNOHO. Is this the chart to which you refer? 
Mr. Lawrence. That is, sir. 

Mr. DoNOHO. Mr. Chairman, I offer this chart for the record. 
Acting Chairman Pike. Jt may be received. 

(The chart referred to was marked "Exhibit No. 2410" and is in- 
cluded in the appendix on p. 16162.) 

Mr. Lawrence. It is interesting to note from this chart that we find 
a wide variation in these weight restrictions on a gross weight basis. 
I might explain what gross weight is, so as to get the record clear on 
that. Gross weight covers the total laden weight of the truck per- 
missible, including the driver, the fuel, all equipment aboard, as well 
as the maximum load. 

Thirty-nine States have their laws on that basis, and it will be seen 
that they range from Kentucky, at 18,000 pounds, to Rhode Island, at 
120,000 pounds. 

Mr. DoNOHO. ;Mr. Lawrence, these States of Kentucky and Rhode 
Island are rather far apart. Do you know of adjacent States which 
have wide differences in weight limitations? 

Mr. Lawrence. Well, we can take Connecticut, with 40,000 pounds, 
and Rhode Island with 120,000 pounds. We have Wyoming, with 
48,000 pounds, and Montana, with 84,000 pounds, and then two adjacent 
States — Kentucky, with 18,000 pounds, and Illinois, 72,000 pounds. 

Mr. DoNOHO. Mr. Lawrence, all of the States are not on the chart, 
are they ? 

Mr. LiAWTtENCE. No ; some of the States, most of the balance of them, 
have their weight limitation on the basis of wheel load or axle load 
limitations, whereas there is a pay load limitation in several of those. 
Mr. DoNOHo. Please explain pay-load limitation, Mr. Lawrence. 
Mr. Lawrence. Well, the pay-load limitation can be illustrated best 
b}' the Texas situation, where no limitation is placed on the maximum 
weight of the vehicle but rather on the load it carries. In that par- 
ticular State the maximum load allowed any carrier is 7,000 pounds 
with the exception that when a carrier is bound to or from a rail 
station the limit is doubled to 14,000 pounds. 

Acting Chairman Pike. I think it was explained that the cotton 
particularly lost weight once it was placed on a truck. I believe Judge 
Sumners brought that out. 
Mr. DoNOHo. I believe Judge Sumners made that remark. 
Acting Chairman Pike. Do you remember when that law was put 
through ? 
Mr. Law^rence. Approximately in 1932. 

Acting Chairman Pike. Who was behind it? Do you have any 
memory ? 

Mr. Lawrence. Well, we had ideas. I don't know. I would hesitate 
to accuse anybody of being behind it without sufficient proof. 

Mr. Donoho. Mr. Lawrence, how do these weight limitations work 
to create barriers with respect to interstate trucking? 

' "Barriers to Internal Trade In Farm Products," piiblipation of Bureau of Agrieultur.-il 


Mr. Lawrence. Well, they just develop by reason that the truck 
that goes through several States — as I think I will show later, a lot 
of these low States are right across general trade lanes in this coun- 
try — must conform to the lowest limits of any State it crosses, or 
else they have to change vehicles at the State line, so that the lowest 
State limit is the governing limit on the whole trade lane. 

Mr. DoNOHO. The truck must comply with the limitations of each 
of the States? 

Mr. Lawrence. That is correct. 

Mr. DoNOHO. What effect do State weight limitations have upon 
operating costs? 

Mr. Lawrence. I would like to present here another- chart, which 
I think illustrates that, but before doing so I would like to quote 
for the record from a case decided some time ago by the Interstate 
Commerce Commission, and this is found as a reference in 18 MCC 
265. It covers a case in Investigation and Suspension Docket M 404, 
covering the transportation of leather from Middlesboro, Ky., to 
Chicago, 111. The rate proposed by a motor carrier was 47 cents per 
hundred pounds, with a minimimi weight of 20,000 pounds. This 
decision was handed down by the Motor Carrier Division of the Inter- 
state Commerce Commission, Division 5, and in their finding they 
found the rate unlawful, but in quoting from page 266 of that deci- 

Mr. DoNOHO (interposing). Unlawful as being too low? 

Mr. Lawrence. Too low. [reading:] 

' The minimum weight of 20,000 pounds is proposed because of a restriction in 
the Kentucky law limiting trucks operated on the highways of the State to a 
gross weight of 18,000 pounds. Since respondent Silver Fleet's trucks weigh 
from 7,000 to 8,000 pounds, it cannot transport a load in excess of 10,000 iwunds 
in Kentucky. In order to meet the proposed minimum respondent will operate 
two trucks to Louisville and there load the leather into a larger unit for move- 
ment beyond. The proposed rate produces truck-mile earnings of 12.7 cents, 
based on 438 truck miles, Middlesboro to Louisville (two trucks at 219 miles), 
and 301 truck miles, LouisviUe to Chicago. If respondents established a mini- 
mum of 30,000 pounds, the same as the rail minimum applicable in connection 
with the 47-cent rate, it would necessitate the use of three trucks to Louisville 
and two trucks beyond. The use of five trucks for the total distance of approxi- 
mately 520 miles, Middlesboro to Chicago, would reduce the revenue per truck 
mile to 11.1 cents. 

Respondent Silver Fleet's cost per truck mile for nine months of operation 
prior to October 1, 1938, was 19.9 cents. 

If I might refer to this chart,^ you will see that I have set forth, 
down to herCj the figures as set forth in the quotation from the Com- 
mission's decision: The double mileage from Middlesboro to Louis- 
ville, the single mileage from Louisville to Chicago, or 739 truck 
miles total. 

The gross revenue on that shiphient would be naturally $94. The 
revenue per truck mile would be 12.7 cents, and the respondent's 
average cost per truck mile 19.9 cents. 

We come to some simple arithmetic as to what the rate would have 
to be to yield the full average cost using two trucks, and we find the 
full average rate would have to be 73.8 cents per hundred pounds. 
That is 73.6 cents as compared with the 47 as proposed. 

If one truck were used, for a mileage of 520 miles, a simple calcula- 
tion gives you 18.1 cents per truck-mile revenue, and summing up we 

' See "Exhibit No. 2411," appendix, p. 16163. 


find the increase over the proposed rate that would be required to 
meet the full average cost per truck mile on the two-truck basis 
would be 26.6 cents per hundred pounds, or 56.6 percent increase 
over the proposed rate, whereas on a one-truck operation all the way 
through It would be only 4.7 cents per hundred pound increase, or 
exactly 10 percent increase over the proposed rate. 

Actmg Chairman Pike. Was this a rate actually in effect? 

Mr. Lawrence. It was a rate proposed and which under protest was 

Acting Chairman Pike. Somebody wanted to lose some money ? 

Mr. Lawrence. They were looking for the business, I. guess, and 
that was the only basis on which they could get it. 

Mr. DoNOHO. Mr. Chairman, the source of this chart is data from 
the Interstate Commerce Commission report? 

Mr. Lawrence. Right down to the center these are all simple cal- 
culations made from the basic data in the Interstate Commerce Com- 
mission decision. 

Mr. DoNOHO. And this is the chart to which you refer? 

Mr. Lawrence. That is, sir. 

Mr. DoNOHO. Mr. Chairman, I offer this chart. 

Acting Chairman Pike. It may be received. 

(The chart referred to was marked "Exhibit No. 2411," and is in- 
cluded in the appendix on p. 16163.) 

Mr. DoNOHO. AVhat are the general conclusions you draw? 

Mr. Lawrence. Briefly, the general conclusion I would draw from 
that is that there has been a penalty placed on Kentucky business of 
46.6 percent of the cost, or in other words, 21.9 cents per 100 lbs. in 
actual money on this particular commodity. 

Mr. DoNOHO. Mr. Lawrence, your illustration related to Kentucky. 
Have you any information with respect to this same situation in other 
parts of the country? 

Mr. Lawben!ce. If I might at this time, I should like to produce 
another chart here. I would like to show on it the weight situations 
in the different parts of the United States. 

Mr. DoNOHO. The source of those figures, I suppose, is the State 

Mr. Lawrence. The State l^-ws gathered by our own people from 
these other charts, and also estimates in cases where a wheel load or 
axle load is an allowable limit based on a typical vehicle. 

Mr. DoNOHO. Is this the map to which you refer ? 

Mr. Lawrence. It is. 

Mr. DoNOHo. Mr. Chairman, I offer this map. 

Acting Chairman Pike. It may be received. 

(The map referred to was marked "Exhibit No. 2412" and is in- 
cluded in the appendix on p. 16163.) 

Mr. Lawrence. To explain this chart, all these numbers are in tons 
so as to eliminate the zeroes, and so forth. As you see, we have placed 
on this chart in tons the figures from the previous chart,^ as well as 
the pay-load limitations that are specific in the law and estimates in 
five or six other States on wheel load or axle load base. 

Mr. DoNOHO. Are the barriers occasioned by weight limitation 
particularly acute in any area? 

» See "Exhibit No. 2410," appendix, p. 16162. 


Mr. Lawrence. I have already mentioned them. They are acute 
in a number of areas. We have mentioned this situation through 
Kentucky, and I will explain as we go along certain other situations. 
But if you will notice, the whole flow of traffic is north and south in 
that territory, not east and west, and there are those low limits placed 
right across the general flow of traffic. 

Acting Chairman Pike. You had better identify those as you go 

Mr. Lawrence. I speak here of the 9-ton gross weight limit in 
Kentucky, and I am referring to the southeastern section of the 
United States where the flow is all north and south. 

Mr. DoNOHO. To be more specific, Mr. Lawrence, what course is 
open to a trucker who is hauling a load of, say, 34,000 pounds, from 
Chicago or Indianapolis to Atlanta? 

Mr. Lawrence. By merely consulting the map, you can see that it 
would be impossible to go from Indianapolis oi Chicago straight 
south across Kentucky or Tennessee with 34,000 pounds of gross 
weight, which would account for approximately a load of 10 tons, 
considering the weight and type of vehicle that would carry that 
load, because the limit is 9 tons in Kentucky, and 12 in Tennessee, 

On the other hand, if he attempted to cross the Mississippi Kiver 
and recross it, he could get down to Arkansas but he would run 
into Mississippi and Alabama headed east for Georgia, for Atlanta. 
So the only course open, unless he was going to reload at the Ohio 
River line or break into two units and reload again at the Georgia 
line, would be to go east through Ohio and West Virginia and down 
the Atlantic seaboard, a rather circuitous route in getting back to 

Mr. DoNOHO. He would either have to detour around Kentucky 
or split up his load? 

Mr. Lawrence. As I said before, he would have to break the 
load, and many of the operations have to do that at the Ohio River 

Acting Chairman Pike. Do you agree with the statement made this 
morning about the pitiful condition of the Kentucky roads? 

Mr. Lawrence. I would not be an expert judge on that, Mr. 
Chairman, but while the speaker was speaking and I was listening 
in the back with a great deal of interest, one thing struck me 
particularly, and that was the fact that no mention of bus limita- 
tions was made, and while I am not saying this in any degree of 
envy of our sister industry, I understand that there are no limita- 
tions on the maximum weight or on the length of the busses, but 
merely on the width, and there will be bus witnesses no doubt 
and that could be verified. 

But another thing that struck me in that connection was that 
checking up the Federal money alone that has been expended in 
this case — and this was verified by the Public Roads Administra- 
tion—we find from 1917 to 1941, inclusive, $65,936,858 in Federal 
money in Federal aid alone was turned over for the roads of Ken- 
tucky, and of that amount $26,818,789 covers the period from 
March 1, 1933 to 1939. It is sort of surprising that the roads are 
in such pitiful condition with expenditures of that amount of money. 

We notice, too, that from the best knowledge we have, that not 


all of them — some States, of course, have poor roads, they have 
better roads and very fine roads, but we do not see the justincation 
if one stretch of poor road is found, for limiting every bit of 
tonnag^e in the State to the lowest grade road in the State. 

In that connection, in studies that our own staff made in prep- 
aration for certain, cases we were interested in, we found thiat 
as a general rule, about 85 percent of the tonnage moved over 15 
percent of the surfaced roads in the area. 

Acting Chairman Pike. Generally, the heavy tonnage keeps to the 
arterial highways. 

Mr. Lawrence. That is true. 

Acting Chairman Pike. And particularly interstate tonnage, is 
that correct? 

Mr. Lawrence. That is correct. 

Mr. DoNOHO. Mr. Lawrence, you said there was no weight limita- 
tion on busses. Have you any information as to the weight of busses 
that actually travel through Kentucky? 

Mr. Lawrence. Wlien we w^ere working on a case which we were 
mentioned as being in this morning, several of our people were there 
and found units as high as 30,000 pounds were running into the State. 

Mr. DoNOHO. How many wheels has this type of bus ? 

Mr. Lawrence. Generally duals on the rear and two wheels for- 
ward — not the six-wheeler type. 

Acting Chairman Pike. Three axles? 

Mr. Lawtjence. Two axles, with duals on the rear. 

Mr. DoNOHo. Ordinarily a truck hauling that weight would have 
how ma;^' axles? 

Mr. Lawrence. Ordinarily our tractor semitrailer which is the gen- 
eral vehicle u' use for that type of commodity would have a rear axle 
on the trailer, and then two axles on the tractor itself, with duals on 
both the rear wheels of the tractor, as well as duals on the trailer. 

Acting Chairman Pike. You would have five sets of wheels? 

Mr. Lawrence. Really 10 wheels ; yes, sir. 

Now, counsel brought up the question as to detouring around the 
east coast. Prior to a couple of years ago, 1937, in fact, it was impos- 
sible for him to have detoured that way because wa had a 20,000-pound 
weight limitation in the State of South Carolina. 

Acting Chairman Pike. That was gross? 

Mr. Lawrence. Gross weight, with a law covering 90 inches maxi- 
mum widtli, despite the fact that practically every other State in the 
country had 96 inches — some a few inches more. 

Mr. DoNOHO. Mr. Lawrence, what is the usual width of trucks en- 
gaged in hauling from North to South? Does it exceed in many cases 
the 90 inches ? 

Mr. Lawrence. Practically all of them are 96 inches. There are 
limitations in every State in the Union. 

Mr. DoxoHO. "What caused the change in the South Carolina situa- 
tion, in your opinion? 

Mr. Lawrence. That particular law was enacted in 1933 and tliey 
began to enforce it more rigidly, and carriers there, supported by 
large groups of shipping interests, various industries,' and so forth, 
first secured a temporary injunction and finally in a three-judge court 
in the Eastern District of South Carolina secured a permanent injunc- 


tion against the enforcement of that particular law. That was in late 

Mr. DoNOHO. Will you summarize the findings of the lower court 
in this connection, Mr. Lawrence? 

Mr. Lawrence. A good deal of the findings had to do with the 
effect of the weight limitations on the various industries in South 

While they cover 27 in number and several pages of fine typewriting, 
I can probably summarize them in that respect. The findings found 
that this particular weight law was particularly burdensome to and 
discriminatory against various South Carolina ilidustries, including 
textiles, for instance, which had developed and which were making a 
great deal of use of truck transportation ; truck farming of vegetables, 
fruit growing. Particularly it also impeded the traffic from further 
South and across the State because refrigerator trucks particularly 
are much heavier than the average dry cargo truck and all of their 
limit was used up in the weight of the vehicle itself. The lumber 
industry was found to be discriminated against. It developed quite 
a trade in neighboring States. New furniture manufacturers, by the 
same token, had been able to take their products out of South Carolina 
into other States. The Charleston port traffic was found to have been 
discriminated against, three of the intercoastal lines showing a large 
percentage, from a quarter to a half of their tonnage haying inoved 
ox-truck or to truck inbound and outbound. The same impediment 
occurred in connection with the handling of flour, which was a heavy 
part of the trade of the port of South Carolina. The fertilizer indus- 
try, a large industry in that State, had been discriminated against and 
was burdened by this law. 

Witnesses from these various industries did appear at the proceed- 
ing in that case and did make that showing. 

Mr. DoNOHO. Did the court make any finding with respect to 
the durability of South Carolina roads ? 

Mr. Lawrence. The court did in that case, and it found first of all — 
I can quote pretty closely if I may be permitted — that rigid highways 
of the State of South Carolina were typical of the design of highways 
of that type in a great majority of the States in the United States 
today, and that they would permit axle loads of 16,000 to 18,000 pounds 
to be hauled on them without damage to the highways. 

The court also found that the gross weight of vehicles was not a 
factor to be considered in the preservation of concrete highways, but 
rather the wheel or axle weights, and that vehicles engaged in inter- 
state commerce were so designed and the pressure of their weights 
so distributed by the wheels and axles that heavy gross loads could be 
carried over concrete roads without damage to the surface, and that 
a gross weight limitation of 20,000 pounds was unreasonable as a means 
of preserving the highway. 

Acting Chairman Pike. This was the Federal Court ? 

Mr. Lawrence. That was a three-judge case; yes, sir. The case wa 
Barmoell Bros, et al.^ v. State of South Carolvna. 

Mr. DoNOHO. Do most interstate trucks travel on Federal aid high- 

Mr. Lawrence. As I mentioned before, studies that we have made 
showed that practically 85 percent of the traffic went over probably 
15 percent of the hard-surfaced roads. 


Mr. DoNOHO. Are standards of construction important on Federal- 
aid highways? 

Mr, Lawrence. These standards have been set up by the Public 
Roads Administration and are substantially in accordance with the 
findings made in the Sonth Carolina case. I understand that in- 
sectors or engineers are assigned by the Bureau of Public Roads to 
check road construction to see that it meets those standards. 

Mr. DoNOHO. Mr. Lawrence, in your opinion can a truck traveling 
on a Federal-aid highway in one State without harm to the road, 
travel on a Federal-aid highway in another State without harm to 
the road ? 

Mr. Lawrence. I see no reason why it could not. If they meet 
standard specifications, I would. see no more reason why the stress 
should be greater at one point than another. 

Acting Chairman Pike. Isn't it often true, Mr. Lawrence, that the 
construction of such highways is a piece-by-piece job, and some high- 
ways have not been brought up to the standard requirement of the 
Federal aid because they haven't finished the whole mileage, or isn't 
that so? I don't know. 

Mr, Lawrence. Possibly a lot of that may be in surfacing. 

Acting Chairman Pike. They just haven't finished the construction. 
1 hey don't take a 300-mile stretch and do it all at once; they do it a 
few miles at a time. 

Mr. Lawrence. That is undoubtedly so. 

Acting Chairman Pike. In the 8 or 10 years they have been having 
Federal aid, or however long the period is, there may be, say, a 200- 
mile stretch with probably 100 miles finished and the other 100 still 
under construction, 

Mr. Lawrence. But it has been 19 years they have been building, 
and I think on many of the main highways at least the major part has 
been completed 

Acting Chairman Pike. There are probably still parts that are not 
finished, however. 

Mr, Lawrence. In fact so much so that the Federal-aid system is 
being expanded from time to time to take in more roads, 

Mr, DoNOHo. Mr. Lawrence, the district court ruling was of course 
overruled by the Supreme Court. What was the actual basis for the 
reversal by the Supreme Court? 

Mr. Lawrence. The lower oourt was reversed^ The case citation is 
U. S. 303, 177. The Supreme Court upheld the right of the State 
to legislate in the absence of any legislation l)y the Congress here, and 
I might read just a short reference from that decision, two short 
references. In one case the court held as follows : 
^ Mr. DoNOHO. Are you reading from the Barnwell case? 

Mr. Lawrence. This is from the decision of the United States 
Supreme Co.urt in U. S. 303, 177. 

Mr. DoNOHO. The Barnwell case? 

Mr. Lawrence. That was reversed in the Supreme Court. 

Congress in the exercise of its plenary power to regulate interstate commerce 
may determine whether burdens imposed upon it by state regulation otherwise 
permissible are too great and may, by legislation designed to secure uniformity 
or in other respects to protect the national interest in the commerce, curtail to 
some extent the States' regulatory power. 


Acting Chairman Pike. That is a majority decision. 

Mr. Lawrence. That is correct. In another decision, however, it is 
interesting to note a minority decision, and I refer to the recent 
Dixie Greyhound case decided on February 12 last, that the Court in 
that particular case — that is the dissenting opinion entered into by 
Justices Frankfurter, Black, and Douglas — made the following state- 
ment. In their dissent these three Justices stated that : 

Our disagreement with the opinions just announced does not arise from a belief 
that Federal action is unnecessary to bring about appropriate uniformity In regu- 
lations of interstate commerce. Indeed, State legislation recently before this 
Court indicates quite the contrary. For instance, we sustained the right of South 
Carolina — in the absence of congressional prohibition — to regulate the width 
and weight of interstate trucks using her highways, even